**

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 JUNE30, 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, HoffmanEstates, Illinois(Address of principal executiveoffices)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**X** NoAs of July 28, 2001,the Registrant had 324,720,783 common shares, $.75 par value, outstanding.
  
SEARS, ROEBUCK AND CO.
INDEX TO QUARTERLY REPORTON FORM 1O-Q13 AND 26 WEEKS ENDED JUNE30, 2001
    PARTI - FINANCIAL INFORMATIONPage   Item 1.  FinancialStatements    CondensedConsolidated Statements of Operations (Unaudited)  13 Weeks and 26 WeeksEnded June 30, 2001 and July 1, 20001      CondensedConsolidated Balance Sheets  June 30, 2001 (Unaudited),July 1, 2000 (Unaudited) and December 30, 20002      CondensedConsolidated Statements of Cash Flows (Unaudited)  26 Weeks Ended June30, 2001 and July 1, 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 Risk22   
PART II - OTHER INFORMATIONItem 1.LegalProceedings23Item 4.Submissionof Matters to a Vote of Security-Holders24Item 6.Exhibitsand Reports on Form 8-K25      
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEARS, ROEBUCK AND CO.CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS(Unaudited)
*(millions,except per share data)*13 Weeks Ended26 Weeks Ended    June30,    July1,   June 30,   July 1,   2001   2000   2001   2000Merchandisesales and services$8,877 $8,903 $16,631 $16,641 Creditand financial products revenues1,349 1,142 2,4522,329      Total revenues10,226 10,045 19,083 18,970 Costsand expenses  Cost of sales, buying and occupancy6,482 6,528 12,318 12,311   Selling and administrative2,256 2,156 4,287 4,145   Depreciation and amortization225 213 440 425   Provision for uncollectible accounts361 215 552 460   Provision for previously  securitized        receivables522 -- 522 --   Interest404 310 716 626   Special charges and impairments287-- 287--     Total costs and expenses10,5379,422 19,12217,967Operatingincome (loss)(311)  623 (39)  1,003Otherincome 7 586Income(loss) before income taxes and minority interest    (304)   628  (31) 1,009Incometaxes112 (232)  14        (372) Minorityinterest(5) (8) (4)(14) Netincome (loss)$(197)  $388 $(21) $623Earnings(loss) per share:   Basic$(0.60)  $1.12 $(0.06) $1.77  Diluted $(0.60)  $1.11 $(0.06) $1.76Cashdividends declared per share$0.23$0.23$0.46$0.46Averagecommon and common equivalent shares outstanding326.6 348.4 329.2 354.2  Seeaccompanying notes.
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SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
  *(millions)*(Unaudited)    June 30, July 1, December 30, 2001 2000 2000 Assets  Current assets             Cash and cash equivalents$476  $345  $842      Retained interest in transferred credit card receivables --   2,077   3,105      Credit card receivables, net 26,486   17,125   17,317      Other receivables 628   311   506      Merchandise inventories 5,596   5,628   5,618      Prepaid expenses and deferred charges 585 469 486     Deferred income taxes 1,170  764  920         Total current assets 34,941   26,719   28,794              Property and equipment, net 6,604   6,345   6,653    Deferred income taxes 232   318   174    Other assets 990  1,487  1,278         Total assets$42,767 $34,869 $36,899           Liabilities           Current liabilities            Short-term borrowings$3,326  $2,557  $4,280     Current portion of long-term debt and capitalized lease    obligations 3,243   2,338   2,560     Accounts payable and other liabilities 6,488   6,319   7,336     Unearned revenues 1,131   1,086   1,058     Other taxes 475  462  562         Total current liabilities 14,663   12,762   15,796              Long-term debt and capitalized lease obligations 18,870   12,245   11,020    Post-retirement benefits 1,867   2,070   1,951    Minority interest and other liabilities 1,334  1,343  1,363         Total liabilities 36,734   28,420   30,130            Commitmentsand Contingent Liabilities                   Shareholders'Equity  Common shares 323   323   323    Capital in excess of par value 3,523   3,542   3,538    Retained earnings  6,806   6,414   6,979    Treasury stock - at cost (4,071)   (3,418)   (3,726)   Deferred ESOP expense (77)   (113)   (96)   Accumulated other comprehensive loss (471)  (299)  (249)         Total shareholders' equity 6,033   6,449   6,769                    Total liabilities and shareholders' equity$42,767  $34,869  $36,899                 Total common shares outstanding  324.3   343.0   333.2                      Seeaccompanying notes.          
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SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS(Unaudited)
 26 Weeks Ended *(millions)*June 30 ,2001  July 1, 2000 CASHFLOWS FROM OPERATING ACTIVITIES:             Netincome (loss)$(21)  $623  Adjustmentsto reconcile net income (loss) to net cash       providedby operating activities:      Depreciation, amortizationand other non-cash items 451   466  Provision for uncollectibleaccounts 552   460  Provision for previouslysecuritized receivables 522   --  Special charges and impairments  287   --  Gains on sale of propertyand investments (1)   (1) Income tax benefit on nonqualifiedstock options7 3 Change in (net of acquisitions):          Deferred income taxes (153)   (2)     Retained interest in transferred credit card        receivables  (759)    1,134      Credit card receivables 1,732   437      Merchandise inventories 11    (564)      Other operating assets (299)   95      Other operating liabilities (1,133)  (822) Net cash provided by operatingactivities 1,196   1,829                CASHFLOWS FROM INVESTING ACTIVITIES:             Acquisitionof businesses, net of cash acquired --   (1)  Proceedsfrom sales of property and investments 14   19  Purchasesof property and equipment (579)   (395)  Purchasesof long-term investments (12)  (17)                          Net cash used in investing activities (577)   (394)                CASHFLOWS FROM FINANCING ACTIVITIES:             Proceedsfrom long-term debt 1,821   307  Repaymentsof long-term debt (1,371)   (766)  Decreasein short term borrowings, primarily 90 days or less (950)  (432) Repaymentsof ESOP note receivable 21   100  Commonshares purchased (400)   (901)  Commonshares issued for employee stock plans 32   38  Dividendspaid to shareholders (152)  (164)                           Net cash used in financing activities (999)  (1,818)         Effectof exchange rate on cash and invested cash 14   (1)         Netdecrease in cash and cash equivalents  (366)    (384)         Balanceat beginning of year 842   729         Balanceat end of period$476  $345         Seeaccompanying notes.       
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SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)

1. Condensed ConsolidatedFinancial StatementsThe Condensed ConsolidatedBalance Sheets as of June 30, 2001 and July 1, 2000, the related CondensedConsolidated Statements of Operations for the 13 and 26 weeks ended June30, 2001 and July 1, 2000, and the Condensed Consolidated Statements ofCash Flows for the 26 weeks ended June 30, 2001 and July 1, 2000, are unaudited.The interim financial statements reflect all adjustments (consisting onlyof 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 conjunctionwith the consolidated financial statements and notes thereto included inthe Sears, Roebuck and Co. (the "Company" or "Sears") 2000 Annual Reportto Shareholders and Annual Report on Form 10-K. The results of operationsfor the interim periods should not be considered indicative of resultsto be expected for the full year.
Certain reclassificationshave been made to the 2000 financial statements to conform with the currentyear presentation. 2. Shareholders' Equity andDividend RestrictionsUnder terms of indenturesentered into in 1981 and thereafter, Sears cannot take specified actions,including the declaration of cash dividends, which would cause its unencumberedassets, as defined, to fall below 150% of its liabilities, as defined.At June 30, 2001, approximately $3.9 billion could be paid in dividendsto shareholders under the most restrictive indentures.
On August 9, 2000, the Boardof Directors approved a common share repurchase program to acquire $1.0billion of the Company's common shares by December 31, 2002. During thesecond quarter of 2001, the Company repurchased 6.1 million shares at acost of $232 million under this program. The shares are purchased on theopen market or through privately negotiated transactions. As of June 30,2001, approximately 16.5 million common shares have been acquired underthis repurchase program at a cost of approximately $598 million, and $402million is available for future repurchases.  
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SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)
3.    Earnings(Loss) Per ShareThe following tablesets forth the computations of basic and diluted earnings per share:*(millions,except per share data)*13 Weeks Ended26 Weeks EndedJune 30,July 1,June 30,July 1,2001200020012000Basic:Netincome (loss)$(197) $388 (21) $623 Averageshares outstanding326.6346.6329.2352.9*Earnings(loss) per share - basic**$**(0.60)**$**1.12**(0.06)**$**1.77*Diluted:Netincome (loss)$(197) $388 (21) $623 Averageshares outstanding326.6  346.6 329.2 352.9 Dilutiveeffect of stock options-- 1.8--1.3Averageshares and equivalent shares outstanding326.6348.4329.2354.2*Earnings(loss) per share - diluted**$**(0.60)**$**1.11**(0.06)**$**1.76*In each period, certainoutstanding options were excluded from the computation of diluted earningsper share because they would have been antidilutive. As of June 30, 2001,out-of-the-money options to purchase 16.5 million shares of stock wereexcluded from the 13 and 26 week calculations. Because the Company reporteda net loss during the periods, the calculations also exclude 1.6 millionshares representing the net dilutive effect of in-the-money options. Asof July 1, 2000, options to purchase 11.1 million shares of stock at pricesranging from $37 to $64 and $33 to $64 per share were excluded from the13 and 26 week 2000 calculations, respectively.
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         SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)

4. Comprehensive Income(Loss) and Accumulated Other Comprehensive LossThe following table showsthe computation of comprehensive income (loss):13 Weeks Ended26 Weeks Ended*(millions)*June 30 , July 1  , June 30,    July 1,  2001 2000 2001 2000Netincome (loss)$(197) $ 388$    (21)$623 Othercomprehensive income (loss):Aftertax cumulative effect of a change in accounting for derivatives -- -- (262) -- Derivativelosses reclassified into interest expense from OCI4 -- 8 -- Changein fair value of derivatives38 -- 34 -- Unrealizedgain (loss) on investments3 (5) 5 (9) Foreigncurrency translation adjustments20(10)(7)(3)Totalother comprehensive income (loss)65 (15)(222)(12)Totalcomprehensive income (loss) $(132)$373$(243)$611The following table displaysthe components of accumulated other comprehensive loss:  June 30,         July 1, ,December 30, 2001       2000    2000 Accumulatedderivative loss$(220) $            --  $                 -- Foreigncurrency translation adjustments(125) (114) (118) Minimumpension liability (1)(132) (195) (132) Unrealizedgain on investments6101 Accumulatedother comprehensive loss$(471)$       (299) $           (249) 
 (1) Minimumpension liability is calculated annually in the fourth quarter. Changesthereto are recorded at that    time.
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SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)

5. Segment Disclosures The following tables setforth revenue, expenses, operating income (loss) and total assets by segment:
For the 13 weeks ended June30, 2001:**Excluding Non-ComparableItems and Securitization Income****Reconciling Items***(millions)***Retail and RelatedServices****Credit and FinancialProducts****Corporate and ****Other****Sears Canada****Total****Securitization Impact****Non-comparable items****Consolidated GAAP**Totalrevenues$7,803$1,276$112$1,035$10,226$--$--$10,226 Costsand expenses                          Costof sales, buying and occupancy  5,717  --  46  719  6,482  --  --  6,482  Sellingand administrative  1,677  212  122  245  2,256  --  --  2,256  Depreciationand amortization  185  4  15  21  225  --  --  225  Provisionfor uncollectible accounts  --  350  --  11  361  --  --  361  Provisionfor previously securitizedreceivables  --  --  --  --  --  --  522  522  Interest  11  365  --  28  404  --  --  404  Specialcharges and impairments  --  --  --  --  --  --  287  287 Totalcosts and expenses7,5909311831,0249,728--80910,537Operatingincome (loss)$213$345$(71) $11$498$--$(809)$(311) Totalassets$11,245$25,857$2,273$3,392$42,767----$42,767 
For the 13 weeks ended July 1, 2000: **Excluding Non-ComparableItems and Securitization Income****Reconciling Items***(millions)***Retail and RelatedServices****Credit and FinancialProducts****Corporate and ****Other****Sears Canada****Total****Securitization Impact****Non-comparable items****Consolidated GAAP**Totalrevenues$7,892$1,282$93$990$10,257$(212) $--$10,045 Costsand expenses                          Costof sales, buying and occupancy  5,831  --  37  660  6,528  --  --  6,528   Sellingand administrative  1,649  193  102  244  2,188  (32)  --  2,156  Depreciationand amortization  179  4  12  18  213  --  --  213  Provisionfor uncollectible accounts  --  321  --  9  330  (115)  --  215  Provisionfor previously securitizedreceivables  --  --  --  --  --  --  --   --  Interest  8  375  --  29  412  (102) --  310  Specialcharges and impairments  --  --  --  --  --  --  --  -- Totalcosts and expenses7,6678931519609,671(249)--9,422Operatingincome (loss)$225$389$(58) $30$586$37 $--$623Totalassets$11,134$18,521$2,008$3,206$34,869----$34,869
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SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)

For the 26 weeks ended June30, 2001:  **Excluding Non-ComparableItems and Securitization Income****Reconciling Items***(millions)***Retail and RelatedServices****Credit and FinancialProducts****Corporate and Other****Sears Canada****Total****Securitization Impact****Non-comparable ****items****Consolidated GAAP**Totalrevenues$14,609$2,576$196$1,977$19,358$(275) $--$19,083 Costsand expenses                        Costof sales, buying and occupancy  10,870  --  83  1,365  12,318  --  --  12,318 Sellingand administrative  3,207  406  222  491  4,326  (39)  --  4,287 Depreciationand amortization  361  9  29  41  440  --  --  440 Provisionfor uncollectible accounts  --  684  --  21  705  (153)  --  552 Provisionfor previously securitized receivables  --  --  --  --  --  --  522   522 Interest  14  767  --  58  839  (123)  --  716 Specialcharges and impairments  --  --  --  --  --  --  287  287Totalcosts and expenses14,452  1,866  334  1,976  18,628  (315)  809  19,122Operatingincome (loss)$157$710$(138) $1$730$40 $(809) $(39) Totalassets$11,245$25,857$2,273$3,392$42,767----$42,767 
For the 26 weeks ended July1, 2000: **Excluding Non-ComparableItems and Securitization Income****Reconciling Items***(millions)***Retail and RelatedServices****Credit and FinancialProducts****Corporate and ****Other****Sears Canada****Total****Securitization Impact****Non-comparable items****Consolidated GAAP**Totalrevenues$14,718$2,643$165$1,908$19,434$(464) $--$18,970Costsand expenses                         Costof sales, buying and occupancy  10,952  --  70  1,289  12,311  --  --  12,311 Sellingand administrative  3,151  395  202  461  4,209  (64)  --  4,145 Depreciationand amortization  358  8  24  35  425  --  --  425 Provisionfor uncollectible accounts  --  692  --  19  711  (251)  --  460 Provisionfor previously securitizedreceivables  --   --   --   --   --   --   --  -- Interest  11  764  --   56  831  (205)  --  626 Specialcharges and impairments  --   --  --  --   --   --   --  -- Totalcosts and expenses14,4721,8592961,86018,487(520) --17,967Operatingincome (loss)$246 $784 $(131) $48 $947 $ 56  $-- $1,003 Totalassets $11,134 $18,521 $2,008 $3,206 $34,869  --   -- $34,869Effective in thefirst quarter of 2001, the Company modified its externally reported segmentsto reflect the Company's integrated Retail and Related Services strategyand to align externally reported business segments with changes in theCompany's internal structure. Segmented financial data for the 13 and 26weeks ended July 1, 2000 has been restated to reflect the new segment reportingstructure.In the second quarterof 2001, the Company adjusted its segment income statements to excludesecuritization income and non-comparable items.
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SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)
-  Special Charges and Impairments
During the second quarterof 2001, the Company recorded a pretax charge of $287 million ($182 millionafter-tax) primarily related to a formerly owned business, HomeLife Corporation,as well as costs related to the Company's exit of its skin care and colorcosmetics business as part of the Company's full-line store repositioningeffort.
HomeLife Closure and Other
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 on July 16, 2001. The Company recorded a specialpretax charge of approximately $185 million ($116 million after-tax) inthe second quarter to reflect the Company's estimated potential obligationsand asset impairments relative to HomeLife. The pretax charge includesan accrual for net future lease obligations ($150 million) reduced by estimatedsublease income, early terminations and lease mitigation costs ($50 million),indebtedness guarantees, contingent obligations, and other costs ($69 million),and asset write-offs ($16 million). While the timing of any cash outlaysrelated to these charges is uncertain, management does not expect thatsuch payments will have a material impact on the liquidity or financialcondition of the Company. The Company also recorded a pretax impairmentof $20 million to write-off an investment unrelated to HomeLife.
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 charge includes asset write-downsassociated with the Company's Circle of Beauty brand and store cosmeticsfixtures, as well as vendor contract cancellation fees.       7.  Accounting for SecuritizationsIn September 2000, theFinancial Accounting Standards Board ("FASB") issued Statement of FinancialAccounting Standards ("SFAS") No. 140, "Accounting for Transfers and Servicingof Financial Assets and Extinguishments of Liabilities". The guidance inSFAS No. 140 supercedes SFAS No. 125. Under SFAS No. 125, the Company'ssecuritization transactions were accounted for as sales of receivables.SFAS No. 140 establishes new conditions for a securitization to be accountedfor as a sale of receivables. Specifically, SFAS No. 140 changes the requirementsfor an entity to be a qualifying special purpose entity and modifies underwhat conditions a transferor has retained effective control over transferredassets. The updated rules are effective for transfers occurring after March31, 2001.  
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SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited) 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 includea 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 June 30, 2001 $11.9billion of credit card receivables included in the balance sheet are segregatedin a trust as collateral for $7.6 billion of trust certificates includedin long-term debt.     8.Derivativesand Hedging ActivityThe 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 June 30, 2001, the Company's balance sheet included$1 million representing the fair value of swaps, designated and qualifyingas fair value hedges of certain of the Company's fixed-rate debt instruments.As the terms of these swaps match those of the designated underlying hedgeddebt instruments, the change in fair value of these swaps was offset bya corresponding change in fair value recorded on the hedged debt, and resultedin 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.  
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SEARS, ROEBUCK AND CO.NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)
   
    9.  Effect of Accounting Standards 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 supercedes 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$502 million in positive goodwill and $94 million in negative goodwillrecorded in its consolidated balance sheet as of June 30, 2001. Amortizationof both positive and negative goodwill is generally not subject to taxes.Under the provisions of SFAS No. 142, positive goodwill will cease to beamortized for fiscal years beginning after December 15, 2001 (fiscal 2002for the Company) and any existing negative goodwill will be recognizedas a one-time increase to income as the cumulative effect of a change inaccounting principle upon adoption of the Statement. The Company recordedapproximately $11 million in amortization expense related to positive goodwilland $13 million (before minority interest of $6 million) of income fromnegative goodwill amortization for the six months ended June 30, 2001.The Company intends to adopt SFAS No. 142 for the 2002 fiscal year.     10.  StoreClosuresIn 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, lease and holding costs,inventory liquidation losses and severance costs.
Following is a summary ofthe activity in the reserves established for store closures:Ending Reserve Balance12/30/00    Other Adjustments   Cash       PaymentsEnding Reserve Balance06/30/01Leaseand holding costs$57$3 $(10) $50Inventoryliquidation losses14(14) ----SeveranceCosts3--(3) --TotalCosts$74$(11) $(13) $50 As of June 30, 2001, 87stores have been closed and approximately 1,000 employees have been terminated.Additional immaterial severance will be incurred as the remaining storesare closed.  
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SEARS, ROEBUCK AND CO.NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)

    11. Commitmentsand Contingent LiabilitiesThe Company is subjectto various 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,the Company has outstanding obligations relating to certain store leasesand indebtedness in conjunction with the HomeLife matter. The Company alsohas secured interests in certain HomeLife assets. As discussed in Note6, HomeLife filed for bankruptcy protection on July 16, 2001, and the Companyrecorded a pretax charge of $185 million related to HomeLife in the secondquarter of 2001.  
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       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 June30, 2001 and July 1, 2000, and the Condensed Consolidated Statements ofOperations for the 13-week and 26-week periods ended June 30, 2001 andJuly 1, 2000 and the Condensed Consolidated Statements of Cash Flows forthe 26-week periods ended June 30, 2001 and July 1, 2000. These condensedconsolidated financial statements are the responsibility of the Company'smanagement.
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 LLP
Chicago, IllinoisAugust 2, 2001  
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SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OFOPERATIONS, FINANCIAL CONDITIONAND LIQUIDITY FOR THE13 and 26 WEEKS ENDED JUNE30, 2001 AND JULY 1, 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: - 
*Retailand Related Services* consisting of:-  Full-line stores (includes onlinerevenues of sears.com) 
-  Specialty stores (Hardware stores,Dealer stores, Commercial Sales, The Great Indoors, Automotive and Outletstores) 
- 
*Corporateand Other*consistingof:-  Administrative activities ofa holding company nature, the costs of which are not allocated to the Company'sbusinesses 
-  Home Improvement Services includingSears Termite and Pest Control 
 
-  Direct to Customer (catalog,proprietary clubs and services and online infrastructure)  
-  Sears Repair Services (Servicecontracts, product installation and repair, heating ventilation and airconditioning services)  
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*SearsCanada*consistingof retail, services, credit, corporate and online operations conductedin Canada through Sears Canada, Inc. ("Sears Canada"), a 54.4% owned consolidatedsubsidiary     - 
*Creditand Financial Products*includesdomestic credit card operations and related financial product offerings(credit protection and insurance products).
**Results of Operations**
For the 13 weeks ended June30, 2001, the Company reported a net loss of $197 million or a loss of$0.60 per share, as compared to net income of $388 million or $1.11 pershare for the comparable 2000 period. For the 26 weeks ended June 30, 2001,the Company reported a net loss of $21 million or a loss of $0.06 per sharecompared to net income of $623 million or $1.76 per share for the comparable2000 period. Results for these periods were affected by non-comparableitems including changes in securitization accounting. The effects of non-comparableitems on net income and earnings per share are summarized in the tablebelow. *Millions,except per share data*13 Weeks Ended26 Weeks Ended  June 30, 2001July 1, 2000June 30, 2001July 1, 2000 Net Income(loss) Earnings (loss) per shareNet IncomeEarnings per share Net Income (loss) Earnings (loss)per shareNet IncomeEarnings per shareExcludingnon-comparable items$316 $0.96 $365 $1.05 $466 $1.41 $588$1.66Provisionfor previously securitized receivables  (331)  (1.01)  --  --  (331)  (1.00)  -- --Securitizationincome  --  -- 23  0.06  26  0.08  35 0.10HomeLifeclosure and other  (129)  (0.39)  --  --  (129)  (0.39)  -- --Exitof cosmetics business  (53)  (0.16)  --  --  (53) (0.16) -- --Asreported $(197) $(0.60) $388 $1.11 $(21)$(0.06)$623$1.76
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SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OFOPERATIONS, FINANCIAL CONDITIONAND LIQUIDITY FOR THE13 and 26 WEEKS ENDED JUNE30, 2001 AND JULY 1, 2000

Description of Non-ComparableItems
Second quarter 2001 resultsinclude a non-cash pretax charge of $522 million ($331 million after-tax)to establish an allowance for uncollectible accounts related to approximately$12 billion of securitized credit card receivables reinstated on the Company'sbalance sheet as a result of the Company's adoption of SFAS No. 140 inApril 2001. In addition, effective in the second quarter of 2001, the Company'ssecuritization transactions are accounted for as secured borrowings andthe Company ceased recording securitization income. Second quarter 2001results include no after-tax securitization income as compared with $23million after-tax income in second 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 June30, 2001, net income excluding non-comparable items was $316 million or$0.96 per share, as compared to $365 million or $1.05 per share for thecomparable 2000 period. For the 26 weeks ended June 30, 2001, net incomeexcluding non-comparable items was $466 million or $1.41 per share comparedto $588 million or $1.66 per share for the comparable 2000 period. Thedecrease in earnings per share for the quarter and year-to-date is dueto decreased operating income across all segments partially offset by areduction in shares outstanding due to the Company's share repurchase program.
The Company's consolidatedeffective tax rate for the 13 and 26 weeks ended June 30, 2001 was 36.8%and 45.2%, respectively, compared to 36.9% and 36.9%, respectively, inthe comparable prior year periods. Excluding non-comparable items and securitizationincome, the effective tax rates for the 13 and 26 weeks ended June 30,2001 would have been 36.4% and 36.3%, respectively. The decreases in theeffective tax rates versus last year are primarily due to lower effectivetax rates on Sears Canada.
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 26 weeks ended June 30, 2001 which is not necessarily indicativeof performance for the balance of the year. The Company makes availableby phone a recorded message on the sales performance of its domestic stores.The message is updated weekly and can be heard by calling (847) 286-6111.
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SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OFOPERATIONS, FINANCIAL CONDITIONAND LIQUIDITY FOR THE13 AND 26 WEEKS ENDED JUNE30, 2001 AND JULY 1, 2000

The following segment discussionsexclude non-comparable items.
**Retail and RelatedServices**
Retail and Related Servicesrevenues decreased 1.1% to $7.8 billion and 0.7% to $14.6 billion for the13 and 26 weeks ended June 30, 2001, respectively, from the comparable2000 periods. Retail and Related Services revenues and related informationare as follows: 13 Weeks Ended26 Weeks EndedJune 30,July 1, June 30,July 1,20012000Change20012000ChangeRevenues:Full-linestores (includes sears.com)$5,478$5,652-3.1%$10,373$10,595-2.1%Specialtystores1,7271,6385.4%3,1203,0083.7%RepairServices and Direct to Customer598602-0.7%1,1161,1150.1%TotalRetail and Related Services revenues$7,803$7,892-1.1%$14,609$14,718-0.7%Numberof Full-line stores861858 Numberof Specialty stores2,1342,174TotalRetail stores2,9953,032Comparablestore salespercentage increase/decrease-0.9%  2.7%    -1.2%  2.7% 
For the 13 week period, Full-linestores revenues decreased 3.1% compared with the second quarter of 2000.-  Hardlines revenues decreased0.5% in the second quarter of 2001. Revenue increases in appliances andlawn and garden were more than offset by declines in electronics, homeoffice, air conditioners and seasonal sporting goods revenues.
Softlines revenues decreased4.9% in the second quarter of 2001, reflecting weaknesses across most softlinescategories.
For the 26 week period, Full-linestore revenues decreased 2.1% over 2000 as hardlines increased 0.2% andsoftlines decreased 4.9%.
For the 13 week period endedJune 30, 2001, Specialty stores revenues increased 5.4% from the comparable2000 period primarily due to revenue increases in Automotive stores, TheGreat Indoors, Dealer stores and Hardware stores, which were partiallyoffset by a revenue decline in Commercial Sales. Automotive store revenueswere favorably affected by operational improvements as well as the recallof certain Firestone tires. The Great Indoors produced comparable storerevenue gains over the 2000 period and added four new stores since secondquarter 2000. Sears Dealer stores revenues benefited from 23 net new storeopenings since second quarter 2000 and comparable store revenue gains overthe prior year period. Hardware stores also experienced comparable storerevenue gains over the 2000 period.
For the 26 week period endedJune 30, 2001, Specialty stores revenues increased 3.7% from the comparable2000 period primarily due to revenue increases in The Great Indoors, Automotivestores, Dealer stores and Hardware stores, which were partially offsetby a decline in Commercial Sales.
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SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OFOPERATIONS, FINANCIAL CONDITIONAND LIQUIDITY FOR THE13 AND 26 WEEKS ENDED JUNE30, 2001 AND JULY 1, 2000
 
For the 13 week period endedJune 30, 2001, revenue increases in Sears Repair Services were offset bya decline in Direct to Customer revenues. For the 26 week period endedJune 30, 2001, revenues for Sears Repair Services and Direct to Customerwere essentially flat as increases in Sears Repair Services were largelyoffset by a decline in Direct to Customer.
Retail and Related Servicesgross margin as a percentage of Retail and Related Services revenues forthe second quarter of 2001 improved to 26.7%, an increase of 60 basis pointsfrom the second quarter of 2000. The increase is primarily due to improvementwithin Automotive stores, Full-line stores and Hardware stores. For the26 week period, Retail and Related Services gross margin was flat.
Retail and Related Servicesselling and administrative expense as a percentage of Retail and RelatedServices revenues for the second quarter of 2001 increased 60 basis pointsfrom the second quarter of 2000. Lower than anticipated revenues constrainedexpense leverage. Investment in The Great Indoors also contributed to higherselling and administrative expenses. For the 26 week period, Retail andRelated Services selling and administrative expense rate increased 60 basispoints.
Retail and Related Servicesdepreciation and amortization expense for the second quarter increased3.4% or $6 million from the comparable 2000 period. For the 26 week period,Retail and Related Services depreciation and amortization expense increased0.8% or $3 million.
For the 13 and 26 week periods,operating income declined by $12 million and $89 million, respectively,from the prior year primarily because of lower than anticipated revenues,pressures on expense leverage, and investment in The Great Indoors.  
**Credit and FinancialProducts**
Credit and Financial Productsrevenues decreased 0.5% to $1.3 billion and 2.5% to $2.6 billion, respectively,for the 13 and 26 weeks ended June 30, 2001 from the comparable prior yearperiods. The decrease in revenues in the second quarter was primarily attributableto lower managed portfolio yields partially offset by a 2.3% increase inaverage credit receivables. The portfolio yield declined in the quarterby 59 basis points primarily reflecting a lower yield on the Sears Card,largely due to lower late fees, as well as promotional introductory ratesand the lower annual percentage rate for the Sears Gold MasterCard productlaunched in the second half of 2000. The Company has notified customersof planned changes to its terms on certain Sears Card and SearsCharge Plusaccounts effective in the third quarter of 2001 and anticipates that thenew terms will enhance portfolio yields. A summary of Credit information(for the managed portfolio) is as follows:   13 Weeks Ended 26 Weeks Ended June 30,July 1,June 30,July 1,  2001 2000 2001 2000 Searscredit cards as a % of sales 47.0%  46.5%  47.0%  46.8% Averageaccount balance(as of June 30, 2001 andJuly 1, 2000)      $1,174 $1,163              Averagemanaged credit card receivables (*millions*)$25,831 $25,244 $26,141 $25,700
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SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OFOPERATIONS, FINANCIAL CONDITIONAND LIQUIDITY FOR THE13 AND 26 WEEKS ENDED JUNE30, 2001 AND JULY 1, 2000
 
Credit and Financial Productsselling and administrative expense as a percentage of Credit and FinancialProducts revenues increased to 16.6%, an increase of 150 basis points inthe second quarter of 2001 from the comparable 2000 period. The increasewas primarily due to the continued rollout of the Sears Gold MasterCardand customer notification costs.
The domestic provision foruncollectible accounts and related information is as follows:   13 Weeks Ended 26 Weeks Ended*(millions)*June 30,July 1,June 30,July 1,  2001 2000 2001 2000             Provisionfor uncollectible accounts (1)$350$321$684$692 Netcredit charge-offs as a percentage ofaverage managed credit cardreceivables (2) 5.42%  5.09%  5.23%  5.39%   20012000June 30,March 31,Dec. 30,Sep. 30,July 1,20012001200020002000Domesticmanaged credit card receivables - delinquencyrate (2)

**