##### Table of Contents



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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




FORM 10-Q/A

(Amendment No. 2)


|  |  |                                                                                                                                      
|- |  | -------------------------------------------------------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED MARCH 30, 2002
| 
| 
| 
| 
|  |  |                                                                                                                                      
| 
| 
| 
| 
|  |  | OR                                                                                                                                   
| 
| 
| 
| 
|  |  |                                                                                                                                      
| 
| 
| 
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934                                             

Commission file number 1-416



SEARS, ROEBUCK AND CO.

(Exact name of registrant as specified in its charter)





|                                                                                      |  |                                                
|------------------------------------------------------------------------------------- |  | -----------------------------------------------
|New York
(State of Incorporation)                                                     |  | 36-1750680
(I.R.S. Employer Identification No.)
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      |  |                                                
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|3333 Beverly Road, Hoffman Estates, Illinois
(Address of principal executive offices) |  | 60179
(Zip Code)                               

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



Registrant [1] has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and [2] has been subject to such filing requirements for the past 90 days.

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

As of April 27, 2002, the Registrant had 315,109,471 common shares, $.75 par value, outstanding.



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TABLE OF CONTENTS



|                                         |                                                                                               |                                                      |  |  |  |  |  | 
|---------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION           
|                                         | Item 1. Financial Statements                                                                 
|                                         |                                                                                               | Condensed Consolidated Statements of Income         
|                                         |                                                                                               | Condensed Consolidated Balance Sheets               
|                                         |                                                                                               | Condensed Consolidated Statements of Cash Flows     
|                                         |                                                                                               | Notes To Condensed Consolidated Financial Statements
|                                         |                                                                                               | INDEPENDENT ACCOUNTANTS REPORT                     
|                                         | Item 2. Managements Discussion and Analysis of Operations, Financial Condition and Liquidity
|                                         | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|PART II. OTHER INFORMATION              
|                                         | Item 1. Legal Proceedings                                                                    
|                                         | Item 6. Exhibits and Reports on Form 8-K.                                                    
|SIGNATURE                               
|EXHIBIT INDEX                           
|Acknowledgement of Awareness            
|Certification of Chief Executive Officer
|Certification of Chief Financial Officer



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##### Table of Contents



SEARS, ROEBUCK AND CO.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
13 Weeks Ended March 30, 2002

Explanatory Note

The purpose of this Amendment No. 2 to the Companys Quarterly Report on Form
10-Q is to incorporate changes and provide additional information in response
to comments received from the staff of the Securities and Exchange Commission
regarding the accounting estimate change discussed below.

As previously reported, during the second quarter of 2002, the Company refined
its method of determining its allowance for uncollectible accounts, resulting
in a pre-tax charge of $300 million ($191 million, net of tax). The Company
initially recorded the charge as a cumulative effect of a change in accounting
principle as of the beginning of fiscal 2002. On August 1, 2002, the Company
filed Amendment No. 1 to its Quarterly Report on Form 10-Q for the quarter
ended March 30, 2002 to include the charge as a cumulative effect of a change
in accounting principle as of the beginning of 2002. In consideration of
further interpretive guidance from the staff of the Securities and Exchange
Commission, the Company has restated its March 30, 2002 financial statements to
report the effect of the refinement in allowance methodology as a change in
accounting estimate in the second quarter of 2002. See Note 7 to the Condensed
Consolidated Financial Statements.

This Quarterly Report on Form 10-Q/A does not reflect events occurring after
the filing of the registrants Quarterly Report on Form 10-Q for the fiscal
quarter ended March 30, 2002, or materially modify or update those disclosures,
except as discussed above.

|                               |  |                                                                                                                    |  |     
|------------------------------ |  | ------------------------------------------------------------------------------------------------------------------ |  | ----
|                               |  |                                                                                                                    |  | Page
|                               |  |                                                                                                                    |  |     
|PART I  FINANCIAL INFORMATION |  |                                                                                                                   
|                              
|                              
|                              
|                              
|Item 1.                        |  | Financial Statements                                                                                               |  |     
|                              
|                              
|                              
|                              
|                               |  | Condensed Consolidated Statements of Income (Unaudited)
13 Weeks Ended March 30, 2002 and March 31, 2001           |  | 1   
|                              
|                              
|                              
|                              
|                               |  | Condensed Consolidated Balance Sheets
March 30, 2002 (Unaudited), March 31, 2001 (Unaudited)
and December 29, 2001 |  | 2   
|                              
|                              
|                              
|                              
|                               |  | Condensed Consolidated Statements of Cash Flows (Unaudited)
13 Weeks Ended March 30, 2002 and March 31, 2001       |  | 3   
|                              
|                              
|                              
|                              
|                               |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                   |  | 4   
|                              
|                              
|                              
|                              
|                               |  | Independent Accountants Report                                                                                    |  | 14  
|                              
|                              
|                              
|                              
|Item 2.                        |  | Managements Discussion and Analysis of Operations, Financial Condition
and Liquidity                              |  | 15  
|                              
|                              
|                              
|                              
|Item 3.                        |  | Quantitative and Qualitative Disclosures about Market Risk                                                         |  | 23  
|                              
|                              
|                              
|                              
|PART II  OTHER INFORMATION    |  |                                                                                                                   
|                              
|                              
|                              
|                              
|Item 1.                        |  | Legal Proceedings                                                                                                  |  | 24  
|                              
|                              
|                              
|                              
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                                                   |  | 24  





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##### Table of Contents












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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

|                                                         |                          |                                                                                 |                    |           |       |      |       |       |      |      | 
|-------------------------------------------------------- | ------------------------ | ------------------------------------------------------------------------------- | ------------------ | --------- | ----- | ---- | ----- | ----- | ---- | ---- | 
|millions, except per common share data                   |                          | 13 Weeks Ended                                                                 
|                                                         |                          |                                                                                
|                                                         |                          | March 30,                                                                       |                    | March 31,
|                                                         |                          | 2002                                                                            |                    | 2001     
|                                                         |                          |                                                                                 |                    |          
|                                                         |                          | (As restated-                                                                   |                    |           |       |     
|REVENUES                                                 |                          | see note 7)                                                                     |                    |           |       |     
|Merchandise sales and services                           |                          | $                                                                               | 7,647              |           |       | $    | 7,754 |      
|                                                        
|                                                        
|                                                        
|                                                        
|Credit and financial products revenues                   |                          |                                                                                 | 1,390              |           |       |      | 1,103 |      
|                                                         |                          |                                                                                 |                    |           |       |      |       |      
|                                                         | Total revenues           |                                                                                 |                    | 9,037     |       |      |       | 8,857 |     
|                                                         |                          |                                                                                 |                    |           |       |      |       |      
|COSTS AND EXPENSES                                       |                          |                                                                                 |                    |           |       |      |       |      
|                                                        
|                                                        
|                                                        
|                                                        
|Cost of sales, buying and occupancy                      |                          |                                                                                 | 5,626              |           |       |      | 5,836 |      
|                                                        
|                                                        
|                                                        
|                                                        
|Selling and administrative                               |                          |                                                                                 | 2,061              |           |       |      | 2,031 |      
|                                                        
|                                                        
|                                                        
|                                                        
|Provision for uncollectible accounts                     |                          |                                                                                 | 381                |           |       |      | 191   |      
|                                                        
|                                                        
|                                                        
|                                                        
|Depreciation and amortization                            |                          |                                                                                 | 210                |           |       |      | 215   |      
|                                                        
|                                                        
|                                                        
|                                                        
|Interest                                                 |                          |                                                                                 | 292                |           |       |      | 312   |      
|                                                        
|                                                        
|                                                        
|                                                        
|Special charges and impairments                          |                          |                                                                                 | 111                |           |       |      |      |      
|                                                         |                          |                                                                                 |                    |           |       |      |       |      
|                                                         | Total costs and expenses |                                                                                 |                    | 8,681     |       |      |       | 8,585 |     
|                                                         |                          |                                                                                 |                    |           |       |      |       |      
|Operating income                                         |                          |                                                                                 | 356                |           |       |      | 272   |      
|                                                        
|                                                        
|                                                        
|                                                        
|Other income, net                                        |                          |                                                                                 | 78                 |           |       |      | 1     |      
|                                                         |                          |                                                                                 |                    |           |       |      |       |      
|Income before income taxes and minority interest         |                          |                                                                                 | 434                |           |       |      | 273   |      
|                                                        
|                                                        
|                                                        
|                                                        
|Income taxes                                             |                          |                                                                                 | (148               | )         |       |      | (98   | )    
|                                                        
|                                                        
|                                                        
|                                                        
|Minority interest                                        |                          |                                                                                 | 32                 |           |       |      | 1     |      
|                                                         |                          |                                                                                 |                    |           |       |      |       |      
|Income before cumulative effect of accounting change     |                          |                                                                                 | 318                |           |       |      | 176   |      
|                                                        
|                                                        
|                                                        
|                                                        
|Cumulative effect of a change in accounting for goodwill |                          |                                                                                 | (208               | )         |       |      |      |      
|                                                         |                          |                                                                                 |                    |           |       |      |       |      
|NET INCOME                                               |                          | $                                                                               | 110                |           |       | $    | 176   |      
|                                                         |                          |                                                                                 |                    |           |       |      |       |      
|EARNINGS PER COMMON SHARE                                |                          |                                                                                 |                    |           |       |      |       |      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | BASIC                    |                                                                                 |                    |           |       |      |       |       |     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                          | Earnings per share before cumulative
effect of a change in accounting principle |                    | $         | 0.99  |      |       | $     | 0.53 |     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                          | Cumulative effect of change in
accounting for goodwill                          |                    |           | (0.65 | )    |       |       |     |     
|                                                         |                          |                                                                                 |                    |           |       |      |       |      
|                                                         |                          |                                                                                 | Earnings per share |           | $     | 0.34 |       |       | $    | 0.53 | 
|                                                         |                          |                                                                                 |                    |           |       |      |       |      
|                                                         | DILUTED                  |                                                                                 |                    |           |       |      |       |       |     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                          | Earnings per share before cumulative
effect of a change in accounting principle |                    | $         | 0.98  |      |       | $     | 0.53 |     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                          | Cumulative effect of change in
accounting for goodwill                          |                    |           | (0.64 | )    |       |       |     |     
|                                                         |                          |                                                                                 |                    |           |       |      |       |      
|                                                         |                          |                                                                                 | Earnings per share |           | $     | 0.34 |       |       | $    | 0.53 | 
|                                                         |                          |                                                                                 |                    |           |       |      |       |      
|Cash dividends declared per common share                 |                          | $                                                                               | 0.23               |           |       | $    | 0.23  |      
|                                                         |                          |                                                                                 |                    |           |       |      |       |      
|Average common and common equivalent shares outstanding  |                          |                                                                                 | 324.0              |           |       |      | 333.5 |      

See accompanying notes.

1



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##### Table of Contents






SEARS, ROEBUCK AND CO.
Condensed Consolidated Balance Sheets

|                                                 |                                                                     |                                           |        |           |        |              |        |        |        |  |        |        |        | 
|------------------------------------------------ | ------------------------------------------------------------------- | ----------------------------------------- | ------ | --------- | ------ | ------------ | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|                                                 |                                                                     | (Unaudited)                               |        |           |        |             
|                                                 |                                                                     |                                           |        |           |        |             
|millions                                         |                                                                     | March 30,                                 |        | March 31, |        | December 29,
|                                                 |                                                                     | 2002                                      |        | 2001      |        | 2001        
|                                                 |                                                                     |                                           |        |           |        |             
|                                                 |                                                                     | (As restated-                             |        |           |        |              |        |        |        | 
|ASSETS                                           |                                                                     | see note 7)                               |        |           |        |              |        |        |        | 
|Current assets                                   |                                                                     |                                           |        |           |        |              |        |        |        |  |        |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Cash and cash equivalents                                           |                                           | $      | 949       |        |              | $      | 510    |        |  | $      | 1,064  |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Retained interest in transferred credit card receivables            |                                           |        |          |        |              |        | 3,863  |        |  |        |       |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Credit card receivables                                             |                                           |        | 28,509    |        |              |        | 15,333 |        |  |        | 29,321 |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                     | Less allowance for uncollectible accounts |        |           | 1,162  |              |        |        | 603    |  |        |        | 1,166  | 
|                                                 |                                                                     |                                           |        |           |        |              |        |        |        |  |        |       
|                                                 |                                                                     | Net credit card receivables               |        |           | 27,347 |              |        |        | 14,730 |  |        |        | 28,155 | 
|                                                
|                                                
|                                                
|                                                
|                                                 | Other receivables                                                   |                                           |        | 619       |        |              |        | 459    |        |  |        | 658    |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Merchandise inventories                                             |                                           |        | 5,249     |        |              |        | 6,019  |        |  |        | 4,912  |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Prepaid expenses and deferred charges                               |                                           |        | 629       |        |              |        | 623    |        |  |        | 458    |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Deferred income taxes                                               |                                           |        | 994       |        |              |        | 981    |        |  |        | 858    |       
|                                                 |                                                                     |                                           |        |           |        |              |        |        |        |  |        |       
|                                                 | Total current assets                                                |                                           |        | 35,787    |        |              |        | 27,185 |        |  |        | 36,105 |       
|                                                
|                                                
|                                                
|                                                
|Property and equipment, net                      |                                                                     |                                           | 6,629  |           |        |              | 6,499  |        |        |  | 6,824  |       
|                                                
|                                                
|                                                
|                                                
|Deferred income taxes                            |                                                                     |                                           | 433    |           |        |              | 255    |        |        |  | 415    |       
|                                                
|                                                
|                                                
|                                                
|Goodwill                                         |                                                                     |                                           | 110    |           |        |              | 291    |        |        |  | 294    |       
|                                                
|                                                
|                                                
|                                                
|Other assets                                     |                                                                     |                                           | 644    |           |        |              | 676    |        |        |  | 679    |       
|                                                 |                                                                     |                                           |        |           |        |              |        |        |        |  |        |        |       
|                                                 | TOTAL ASSETS                                                        |                                           | $      | 43,603    |        |              | $      | 34,906 |        |  | $      | 44,317 |       
|                                                 |                                                                     |                                           |        |           |        |              |        |        |        |  |        |       
|LIABILITIES                                      |                                                                     |                                           |        |           |        |              |        |        |        |  |        |       
|                                                
|                                                
|                                                
|                                                
|Current liabilities                              |                                                                     |                                           |        |           |        |              |        |        |        |  |        |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Short-term borrowings                                               |                                           | $      | 3,485     |        |              | $      | 3,412  |        |  | $      | 3,557  |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Current portion of long-term debt and capitalized lease
obligations |                                           |        | 4,414     |        |              |        | 2,313  |        |  |        | 3,157  |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Accounts payable and other liabilities                              |                                           |        | 6,492     |        |              |        | 6,311  |        |  |        | 7,176  |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Unearned revenues                                                   |                                           |        | 1,165     |        |              |        | 1,079  |        |  |        | 1,136  |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Other taxes                                                         |                                           |        | 427       |        |              |        | 446    |        |  |        | 558    |       
|                                                 |                                                                     |                                           |        |           |        |              |        |        |        |  |        |       
|                                                 | Total current liabilities                                           |                                           |        | 15,983    |        |              |        | 13,561 |        |  |        | 15,584 |       
|                                                
|                                                
|                                                
|                                                
|Long-term debt and capitalized lease obligations |                                                                     |                                           | 18,084 |           |        |              | 11,623 |        |        |  | 18,921 |       
|                                                
|                                                
|                                                
|                                                
|Post-retirement benefits                         |                                                                     |                                           | 1,690  |           |        |              | 1,913  |        |        |  | 1,732  |       
|                                                
|                                                
|                                                
|                                                
|Minority interest and other liabilities          |                                                                     |                                           | 2,036  |           |        |              | 1,362  |        |        |  | 1,961  |       
|                                                 |                                                                     |                                           |        |           |        |              |        |        |        |  |        |       
|                                                 | Total Liabilities                                                   |                                           |        | 37,793    |        |              |        | 28,459 |        |  |        | 38,198 |       
|                                                 |                                                                     |                                           |        |           |        |              |        |        |        |  |        |       
|COMMITMENTS
AND CONTINGENT LIABILITIES           |                                                                     |                                           |        |           |        |              |        |        |        |  |        |       
|                                                
|                                                
|                                                
|                                                
|SHAREHOLDERS EQUITY                             |                                                                     |                                           |        |           |        |              |        |        |        |  |        |       
|                                                
|                                                
|                                                
|                                                
|Common shares                                    |                                                                     |                                           | 323    |           |        |              | 323    |        |        |  | 323    |       
|                                                
|                                                
|                                                
|                                                
|Capital in excess of par value                   |                                                                     |                                           | 3,505  |           |        |              | 3,528  |        |        |  | 3,500  |       
|                                                
|                                                
|                                                
|                                                
|Retained earnings                                |                                                                     |                                           | 7,449  |           |        |              | 7,079  |        |        |  | 7,413  |       
|                                                
|                                                
|                                                
|                                                
|Treasury stock  at cost                         |                                                                     |                                           | (4,587 | )         |        |              | (3,862 | )      |        |  | (4,223 | )     
|                                                
|                                                
|                                                
|                                                
|Deferred ESOP expense                            |                                                                     |                                           | (54    | )         |        |              | (85    | )      |        |  | (63    | )     
|                                                
|                                                
|                                                
|                                                
|Accumulated other comprehensive loss             |                                                                     |                                           | (826   | )         |        |              | (536   | )      |        |  | (831   | )     
|                                                 |                                                                     |                                           |        |           |        |              |        |        |        |  |        |        |       
|                                                 | Total Shareholders Equity                                          |                                           |        | 5,810     |        |              |        | 6,447  |        |  |        | 6,119  |       
|                                                 |                                                                     |                                           |        |           |        |              |        |        |        |  |        |       
|                                                 | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                          |                                           | $      | 43,603    |        |              | $      | 34,906 |        |  | $      | 44,317 |       
|                                                 |                                                                     |                                           |        |           |        |              |        |        |        |  |        |       
|                                                 | Total common shares outstanding                                     |                                           |        | 314.8     |        |              |        | 329.8  |        |  |        | 320.4  |       

See accompanying notes.

2



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##### Table of Contents






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

|                                                             |                                  |                                                     |                                                          |                                                     |     |                |       |   |     |        |      |  
|------------------------------------------------------------ | -------------------------------- | --------------------------------------------------- | -------------------------------------------------------- | --------------------------------------------------- | --- | -------------- | ----- | - | --- | ------ | ---- | -
|                                                             |                                  |                                                     |                                                          |                                                     |     | 13 Weeks Ended
|                                                             |                                  |                                                     |                                                          |                                                     |     |               
|millions                                                     |                                  | March 30,                                           |                                                          | March 31,                                          
|                                                             |                                  | 2002                                                |                                                          | 2001                                               
|                                                             |                                  |                                                     |                                                          |                                                    
|                                                             |                                  | (As restated-                                       |                                                          |                                                     |     |               
|CASH FLOWS FROM OPERATING ACTIVITIES                         |                                  | see note 7)                                         |                                                          |                                                     |     |               
|Net income                                                   |                                  | $                                                   | 110                                                      |                                                     |     | $              | 176   |  
|                                                            
|                                                            
|                                                            
|                                                            
|Adjustments to reconcile net income to net cash              |                                  |                                                     |                                                          |                                                     |     |                |       |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Provided by operating activities |                                                     |                                                          |                                                     |     |                |       |   |    
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                  | Depreciation, amortization and other non-cash items |                                                          |                                                     | 229 |                |       |   | 224 |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                  | Cumulative effect of change in accounting principle |                                                          |                                                     | 208 |                |       |   |    |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                  | Provision for uncollectible accounts                |                                                          |                                                     | 381 |                |       |   | 191 |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                  | Special charges and impairments                     |                                                          |                                                     | 111 |                |       |   |    |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                  | Gain on sales of property and investments           |                                                          |                                                     | (76 | )              |       |   | (1  | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                  | Income tax benefit on nonqualified stock options    |                                                          |                                                     | 9   |                |       |   | 4   |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                  | Change in:                                          |                                                          |                                                     |     |                |       |   |     |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                  |                                                     | Deferred income taxes                                    |                                                     |     | (154           | )     |   |     | 34     |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                  |                                                     | Retained interest in transferred credit card receivables |                                                     |     |               |       |   |     | (759   | )   
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                  |                                                     | Credit card receivables                                  |                                                     |     | 430            |       |   |     | 2,314  |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                  |                                                     | Merchandise inventories                                  |                                                     |     | (335           | )     |   |     | (434   | )   
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                  |                                                     | Other operating assets                                   |                                                     |     | (149           | )     |   |     | (107   | )   
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                  |                                                     | Other operating liabilities                              |                                                     |     | (807           | )     |   |     | (1,049 | )   
|                                                             |                                  |                                                     |                                                          |                                                     |     |                |       |  
|                                                             |                                  |                                                     |                                                          | Net cash (used in) provided by operating activities |     |                | (43   | ) |     |        | 593  |  
|                                                             |                                  |                                                     |                                                          |                                                     |     |                |       |  
|CASH FLOWS FROM INVESTING ACTIVITIES                         |                                  |                                                     |                                                          |                                                     |     |                |       |  
|                                                            
|                                                            
|                                                            
|                                                            
|Proceeds from sales of property and investments              |                                  |                                                     | 123                                                      |                                                     |     |                | 12    |  
|                                                            
|                                                            
|                                                            
|                                                            
|Purchases of property and equipment                          |                                  |                                                     | (193                                                     | )                                                   |     |                | (249  | )
|                                                            
|                                                            
|                                                            
|                                                            
|Purchases of long-term investments                           |                                  |                                                     | (2                                                       | )                                                   |     |                | (42   | )
|                                                             |                                  |                                                     |                                                          |                                                     |     |                |       |  
|                                                             |                                  |                                                     |                                                          | Net cash used in investing activities               |     |                | (72   | ) |     |        | (279 | )
|                                                             |                                  |                                                     |                                                          |                                                     |     |                |       |  
|CASH FLOWS FROM FINANCING ACTIVITIES                         |                                  |                                                     |                                                          |                                                     |     |                |       |  
|                                                            
|                                                            
|                                                            
|                                                            
|Proceeds from long-term debt                                 |                                  |                                                     | 1,396                                                    |                                                     |     |                | 1,030 |  
|                                                            
|                                                            
|                                                            
|                                                            
|Repayments of long-term debt                                 |                                  |                                                     | (886                                                     | )                                                   |     |                | (599  | )
|                                                            
|                                                            
|                                                            
|                                                            
|Decrease in short term borrowings, primarily
90 days or less |                                  |                                                     | (72                                                      | )                                                   |     |                | (853  | )
|                                                            
|                                                            
|                                                            
|                                                            
|Repayments of ESOP note receivable                           |                                  |                                                     | 2                                                        |                                                     |     |                | 8     |  
|                                                            
|                                                            
|                                                            
|                                                            
|Common shares repurchased                                    |                                  |                                                     | (427                                                     | )                                                   |     |                | (168  | )
|                                                            
|                                                            
|                                                            
|                                                            
|Common shares issued for employee stock plans                |                                  |                                                     | 59                                                       |                                                     |     |                | 17    |  
|                                                            
|                                                            
|                                                            
|                                                            
|Dividends paid to shareholders                               |                                  |                                                     | (74                                                      | )                                                   |     |                | (77   | )
|                                                             |                                  |                                                     |                                                          |                                                     |     |                |       |  
|                                                             |                                  |                                                     |                                                          | Net cash used in financing activities               |     |                | (2    | ) |     |        | (642 | )
|                                                             |                                  |                                                     |                                                          |                                                     |     |                |       |  
|Effect of exchange rate on cash and invested cash            |                                  |                                                     | 2                                                        |                                                     |     |                | (4    | )
|                                                             |                                  |                                                     |                                                          |                                                     |     |                |       |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                    |                                  |                                                     | (115                                                     | )                                                   |     |                | (332  | )
|                                                             |                                  |                                                     |                                                          |                                                     |     |                |       |  
|BALANCE AT BEGINNING OF YEAR                                 |                                  |                                                     | 1,064                                                    |                                                     |     |                | 842   |  
|                                                             |                                  |                                                     |                                                          |                                                     |     |                |       |  
|BALANCE AT END OF PERIOD                                     |                                  | $                                                   | 949                                                      |                                                     |     | $              | 510   |  
|                                                             |                                  |                                                     |                                                          |                                                     |     |                |       |  

See accompanying notes.

3



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##### Table of Contents






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

NOTE 1  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Condensed Consolidated Balance Sheets as of March 30, 2002 and March 31,
2001, the related Condensed Consolidated Statements of Income for the 13 weeks
ended March 30, 2002 and March 31, 2001, and the Condensed Consolidated
Statements of Cash Flows for the 13 weeks ended March 30, 2002 and March 31,
2001, are unaudited. The interim financial statements reflect all adjustments
(consisting only of normal recurring accruals) which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented. The condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Sears, Roebuck and Co. (the Company or Sears) 2001
Annual Report on Form 10-K. The results of operations for the interim periods
should not be considered indicative of results to be expected for the full
year.

Certain reclassifications have been made to the 2001 financial statements to
conform with the current year presentation.

NOTE 2  SHAREHOLDERS EQUITY

Dividend Payments(As restated- see note 7)

Under terms of indentures entered into in 1981 and thereafter, the Company
cannot take specified actions, including the declaration of cash dividends,
that would cause its unencumbered assets, as defined, to fall below 150% of its
liabilities, as defined. At March 30, 2002, approximately $7.3 billion could
be paid in dividends to shareholders under the most restrictive indentures.

Share Repurchase Program

The Company repurchased common shares during the first quarter of 2002 and 2001
under common share repurchase programs approved by the Board of Directors.
During the first quarter of 2002, the Company repurchased 3.4 million common
shares at a cost of $177 million under a $1.0 billion share repurchase program
approved by the Board of Directors on August 9, 2000. All shares authorized to
be repurchased under this program have been acquired.

On December 12, 2001, the Board of Directors approved another common share
repurchase program to acquire up to $1.5 billion of the Companys common shares
by December 31, 2004. During the first quarter of 2002, the Company
repurchased 4.8 million common shares under this program at a cost of $250
million. As of March 30, 2002, the Company had remaining authorization to
repurchase $1.3 billion of shares under this program.

4



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##### Table of Contents



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

Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss

The following table shows the computation of comprehensive income (loss):

|                                                                      |  |                |     |           |  |   |      |  
|--------------------------------------------------------------------- |  | -------------- | --- | --------- |  | - | ---- | -
|                                                                      |  | 13 Weeks Ended
|                                                                      |  |               
|millions                                                              |  | March 30,      |     | March 31,
|                                                                      |  | 2002           |     | 2001     
|                                                                      |  |                |     |          
|                                                                      |  | (As restated-  |     |           |  |  
|                                                                      |  | see note 7)    |     |           |  |  
|Net income                                                            |  | $              | 110 |           |  | $ | 176  |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Other comprehensive income (loss):                                    |  |                |     |           |  |   |      |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|After tax cumulative effect of a change in
accounting for derivatives |  |                |    |           |  |   | (262 | )
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Amounts amortized into interest expense from OCI                      |  |                | 4   |           |  |   | 4    |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Change in fair value of cash flow hedges                              |  |                |    |           |  |   | (4   | )
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Unrealized gain on investments                                        |  |                |    |           |  |   | 2    |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Foreign currency translation adjustments                              |  |                | 1   |           |  |   | (27  | )
|                                                                      |  |                |     |           |  |   |      |  
|Total other comprehensive income (loss)                               |  |                | 5   |           |  |   | (287 | )
|                                                                      |  |                |     |           |  |   |      |  
|Total comprehensive income (loss)                                     |  | $              | 115 |           |  | $ | (111 | )
|                                                                      |  |                |     |           |  |   |      |  

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

|                                               |  |           |      |           |  |              |      |   |  |   |      |  
|---------------------------------------------- |  | --------- | ---- | --------- |  | ------------ | ---- | - |  | - | ---- | -
|millions                                       |  | March 30, |      | March 31, |  | December 29,
|                                               |  | 2002      |      | 2001      |  | 2001        
|                                               |  |           |      |           |  |             
|Accumulated derivative loss                    |  | $         | (207 | )         |  | $            | (262 | ) |  | $ | (211 | )
|                                              
|                                              
|                                              
|                                              
|Unrealized gain on securities held, net of tax |  |           |     |           |  |              | 3    |   |  |   |     |  
|                                              
|                                              
|                                              
|                                              
|Currency translation adjustments               |  |           | (154 | )         |  |              | (145 | ) |  |   | (155 | )
|                                              
|                                              
|                                              
|                                              
|Minimum pension liability, net of tax (1)      |  |           | (465 | )         |  |              | (132 | ) |  |   | (465 | )
|                                               |  |           |      |           |  |              |      |   |  |   |      |  
|Accumulated other comprehensive loss           |  | $         | (826 | )         |  | $            | (536 | ) |  | $ | (831 | )
|                                               |  |           |      |           |  |              |      |   |  |   |      |  



---

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

NOTE 3  EARNINGS PER SHARE

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

|                                                        |  |                |       |           |  |   |       | 
|------------------------------------------------------- |  | -------------- | ----- | --------- |  | - | ----- | 
|                                                        |  | 13 Weeks Ended
|                                                        |  |               
|millions, except per share data                         |  | March 30,      |       | March 31,
|                                                        |  | 2002           |       | 2001     
|                                                        |  |                |       |          
|                                                        |  | (As restated-  |       |           |  |  
|                                                        |  | see note 7)    |       |           |  |  
|Net income available to Common shareholders (1)         |  | $              | 110   |           |  | $ | 176   | 
|                                                       
|                                                       
|                                                       
|                                                       
|Average common shares outstanding                       |  |                | 319.0 |           |  |   | 331.8 | 
|                                                        |  |                |       |           |  |   |       | 
|Earnings per share  basic                              |  | $              | 0.34  |           |  | $ | 0.53  | 
|                                                       
|                                                       
|                                                       
|                                                       
|Dilutive effect of stock options                        |  |                | 5.0   |           |  |   | 1.7   | 
|                                                       
|                                                       
|                                                       
|                                                       
|Average common and common equivalent shares outstanding |  |                | 324.0 |           |  |   | 333.5 | 
|                                                        |  |                |       |           |  |   |       | 
|Earnings per share  diluted                            |  | $              | 0.34  |           |  | $ | 0.53  | 
|                                                        |  |                |       |           |  |   |       | 



---

|(1) |  | Income available to common shareholders is the same for purposes of calculating basic and diluted EPS.
|--- |  | ------------------------------------------------------------------------------------------------------

5



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##### Table of Contents



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

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

|                                                         |  |                |       |           |  |   |       | 
|-------------------------------------------------------- |  | -------------- | ----- | --------- |  | - | ----- | 
|                                                         |  | 13 Weeks Ended
|                                                         |  |               
|millions, except per share data                          |  | March 30,      |       | March 31,
|                                                         |  | 2002           |       | 2001     
|                                                         |  |                |       |          
|Income before cumulative effect of accounting change (1) |  | $              | 318   |           |  | $ | 176   | 
|                                                        
|                                                        
|                                                        
|                                                        
|Average common shares outstanding                        |  |                | 319.0 |           |  |   | 331.8 | 
|                                                         |  |                |       |           |  |   |       | 
|Earnings per share  basic                               |  | $              | 0.99  |           |  | $ | 0.53  | 
|                                                        
|                                                        
|                                                        
|                                                        
|Dilutive effect of stock options                         |  |                | 5.0   |           |  |   | 1.7   | 
|                                                        
|                                                        
|                                                        
|                                                        
|Average common and common equivalent shares outstanding  |  |                | 324.0 |           |  |   | 333.5 | 
|                                                         |  |                |       |           |  |   |       | 
|Earnings per share  diluted                             |  | $              | 0.98  |           |  | $ | 0.53  | 
|                                                         |  |                |       |           |  |   |       | 



---

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

In each period, certain options were excluded from the computation of diluted
earnings per share because they would have been anti-dilutive. At March 30,
2002 and March 31, 2001, options to purchase 3.8 million and 16.8 million
common shares at prices ranging from $52 to $64 and $37 to $64 per share were
excluded from the 13 week 2002 and 2001 calculations, respectively.

NOTE 4  SEGMENT DISCLOSURES

The following tables set forth revenue, expenses, operating income (loss) and
total assets by segment:

For the 13 weeks ended March 30, 2002

|                                       |                                      |                          |        |            |       |            |        |           |     |       |       |       |     |      |       |            |     |       |        |          |       |   |      |             |     |   |       |       |       | 
|-------------------------------------- | ------------------------------------ | ------------------------ | ------ | ---------- | ----- | ---------- | ------ | --------- | --- | ----- | ----- | ----- | --- | ---- | ----- | ---------- | --- | ----- | ------ | -------- | ----- | - | ---- | ----------- | --- | - | ----- | ----- | ----- | 
|                                       |                                      |                          |        |            |       |            |        |           |     |       |       |       |     |      |       |            |     |       |        |          |       |   |      | Reconciling |     |   |       |      
|                                       |                                      |                          |        |            |       |            |        |           |     |       |       |       |     |      |       |            |     |       |        |          |       |   |      | Items       |     |   |       |      
|                                       |                                      |                          |        |            |       |            |        |           |     |       |       |       |     |     
|                                       |                                      |                          |        | Retail and |       | Credit and |        | Corporate |     |       |       |       |     |      |       |            |     | Non-  |        | Consoli-
|                                       |                                      |                          |        | Related    |       | Financial  |        | and       |     | Sears |       |       |     |      |       | comparable |     | dated
|millions                               |                                      | Services                 |        | Products   |       | Other      |        | Canada    |     | Total |       | Items |     | GAAP
|                                       |                                      |                          |        |            |       |            |        |           |     |       |       |       |     |     
|Merchandise sales and services         |                                      | $                        | 6,768  |            |       | $          |       |           |     | $     | 58    |       |     | $    | 821   |            |     | $     | 7,647  |          |       | $ |     |             |     | $ | 7,647 |      
|                                      
|                                      
|                                      
|                                      
|Credit and financial products revenues |                                      |                          |       |            |       |            | 1,318  |           |     |       |      |       |     |      | 72    |            |     |       | 1,390  |          |       |   |     |             |     |   | 1,390 |      
|                                       |                                      |                          |        |            |       |            |        |           |     |       |       |       |     |     
|Total revenues                         |                                      |                          | 6,768  |            |       |            | 1,318  |           |     |       | 58    |       |     |      | 893   |            |     |       | 9,037  |          |       |   |     |             |     |   | 9,037 |      
|                                      
|                                      
|                                      
|                                      
|Costs and expenses                     |                                      |                          |        |            |       |            |        |           |     |       |       |       |     |      |       |            |     |       |        |          |       |   |      |             |     |   |       |      
|                                      
|                                      
|                                      
|                                      
|                                       | Cost of sales, buying and occupancy  |                          |        | 5,005      |       |            |        |          |     |       |       | 21    |     |      |       | 600        |     |       |        | 5,626    |       |   |      |            |     |   |       | 5,626 |      
|                                      
|                                      
|                                      
|                                      
|                                       | Selling and administrative           |                          |        | 1,512      |       |            |        | 228       |     |       |       | 94    |     |      |       | 227        |     |       |        | 2,061    |       |   |      |            |     |   |       | 2,061 |      
|                                      
|                                      
|                                      
|                                      
|                                       | Provision for uncollectible accounts |                          |        |           |       |            |        | 371       |     |       |       |      |     |      |       | 10         |     |       |        | 381      |       |   |      |            |     |   |       | 381   |      
|                                      
|                                      
|                                      
|                                      
|                                       | Depreciation and amortization        |                          |        | 168        |       |            |        | 5         |     |       |       | 12    |     |      |       | 25         |     |       |        | 210      |       |   |      |            |     |   |       | 210   |      
|                                      
|                                      
|                                      
|                                      
|                                       | Interest                             |                          |        | (4         | )     |            |        | 271       |     |       |       |      |     |      |       | 25         |     |       |        | 292      |       |   |      |            |     |   |       | 292   |      
|                                      
|                                      
|                                      
|                                      
|                                       | Special charges and impairments      |                          |        |           |       |            |        |          |     |       |       |      |     |      |       |           |     |       |        |         |       |   |      | 111         |     |   |       | 111   |      
|                                       |                                      |                          |        |            |       |            |        |           |     |       |       |       |     |      |       |            |     |       |        |          |       |   |      |             |     |   |       |      
|                                       |                                      | Total costs and expenses |        |            | 6,681 |            |        |           | 875 |       |       |       | 127 |      |       |            | 887 |       |        |          | 8,570 |   |      |             | 111 |   |       |       | 8,681 | 
|                                       |                                      |                          |        |            |       |            |        |           |     |       |       |       |     |      |       |            |     |       |        |          |       |   |      |             |     |   |       |      
|Operating income (loss)                |                                      | $                        | 87     |            |       | $          | 443    |           |     | $     | (69   | )     |     | $    | 6     |            |     | $     | 467    |          |       | $ | (111 | )           |     | $ | 356   |      
|                                       |                                      |                          |        |            |       |            |        |           |     |       |       |       |     |      |       |            |     |       |        |          |       |   |      |             |     |   |       |      
|Total assets (Restated)                |                                      | $                        | 10,659 |            |       | $          | 27,317 |           |     | $     | 2,363 |       |     | $    | 3,264 |            |     | $     | 43,603 |          |       |   |      |             |     |   |       |      
|                                       |                                      |                          |        |            |       |            |        |           |     |       |       |       |     |      |       |            |     |       |        |          |       |   |      |             |     |   |       |      

There was no securitization impact for the first quarter of 2002.

6



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##### Table of Contents



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

For the 13 weeks ended March 31, 2001

|                                                       |                                      |                          |        |            |       |            |        |           |     |       |       |        |     |          |       |       |     |         |        |          |       |   |      |             |      |   |       |       |       | 
|------------------------------------------------------ | ------------------------------------ | ------------------------ | ------ | ---------- | ----- | ---------- | ------ | --------- | --- | ----- | ----- | ------ | --- | -------- | ----- | ----- | --- | ------- | ------ | -------- | ----- | - | ---- | ----------- | ---- | - | ----- | ----- | ----- | 
|                                                       |                                      |                          |        |            |       |            |        |           |     |       |       |        |     |          |       |       |     |         |        |          |       |   |      | Reconciling |      |   |       |      
|                                                       |                                      |                          |        |            |       |            |        |           |     |       |       |        |     |          |       |       |     |         |        |          |       |   |      | Items       |      |   |       |      
|                                                       |                                      |                          |        |            |       |            |        |           |     |       |       |        |     |         
|                                                       |                                      |                          |        | Retail and |       | Credit and |        | Corporate |     |       |       |        |     |          |       |       |     | Securi- |        | Consoli-
|                                                       |                                      | Related                  |        | Financial  |       | and        |        | Sears     |     |       |       |        |     | tization |       | dated
|millions                                               |                                      | Services                 |        | Products   |       | Other      |        | Canada    |     | Total |       | Impact |     | GAAP    
|                                                       |                                      |                          |        |            |       |            |        |           |     |       |       |        |     |         
|Merchandise sales and services                         |                                      | $                        | 6,806  |            |       | $          |       |           |     | $     | 84    |        |     | $        | 864   |       |     | $       | 7,754  |          |       | $ |     |             |      | $ | 7,754 |      
|                                                      
|                                                      
|                                                      
|                                                      
|Credit and financial products revenues                 |                                      |                          |       |            |       |            | 1,300  |           |     |       |      |        |     |          | 78    |       |     |         | 1,378  |          |       |   | (275 | )           |      |   | 1,103 |      
|                                                       |                                      |                          |        |            |       |            |        |           |     |       |       |        |     |          |       |       |     |         |        |          |       |   |      |             |      |   |       |      
|                                                      
|                                                      
|                                                      
|                                                      
|Total revenues                                         |                                      |                          | 6,806  |            |       |            | 1,300  |           |     |       | 84    |        |     |          | 942   |       |     |         | 9,132  |          |       |   | (275 | )           |      |   | 8,857 |      
|                                                      
|                                                      
|                                                      
|                                                      
|Costs and expenses                                     |                                      |                          |        |            |       |            |        |           |     |       |       |        |     |          |       |       |     |         |        |          |       |   |      |             |      |   |       |      
|                                                       | Costs of sales, buying and occupancy |                          |        | 5,153      |       |            |        |          |     |       |       | 37     |     |          |       | 646   |     |         |        | 5,836    |       |   |      |            |      |   |       | 5,836 |      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Selling and administrative           |                          |        | 1,530      |       |            |        | 194       |     |       |       | 100    |     |          |       | 246   |     |         |        | 2,070    |       |   |      | (39         | )    |   |       | 2,031 |      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Provision for uncollectible accounts |                          |        |           |       |            |        | 334       |     |       |       |       |     |          |       | 10    |     |         |        | 344      |       |   |      | (153        | )    |   |       | 191   |      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Depreciation and amortization        |                          |        | 176        |       |            |        | 5         |     |       |       | 14     |     |          |       | 20    |     |         |        | 215      |       |   |      |            |      |   |       | 215   |      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Interest                             |                          |        | 3          |       |            |        | 402       |     |       |       |       |     |          |       | 30    |     |         |        | 435      |       |   |      | (123        | )    |   |       | 312   |      
|                                                       |                                      |                          |        |            |       |            |        |           |     |       |       |        |     |          |       |       |     |         |        |          |       |   |      |             |      |   |       |      
|                                                       |                                      | Total costs and expenses |        |            | 6,862 |            |        |           | 935 |       |       |        | 151 |          |       |       | 952 |         |        |          | 8,900 |   |      |             | (315 | ) |       |       | 8,585 | 
|                                                       |                                      |                          |        |            |       |            |        |           |     |       |       |        |     |          |       |       |     |         |        |          |       |   |      |             |      |   |       |      
|Operating income (loss)                                |                                      |                          | (56    | )          |       |            | 365    |           |     |       | (67   | )      |     |          | (10   | )     |     |         | 232    |          |       |   | 40   |             |      |   | 272   |      
|                                                       |                                      |                          |        |            |       |            |        |           |     |       |       |        |     |          |       |       |     |         |        |          |       |   |      |             |      |   |       |      
|Goodwill amortization expense                          |                                      |                          | 4      |            |       |            |       |           |     |       | 1     |        |     |          | (6    | )     |     |         | (1     | )        |       |   |     |             |      |   | (1    | )    
|                                                       |                                      |                          |        |            |       |            |        |           |     |       |       |        |     |          |       |       |     |         |        |          |       |   |      |             |      |   |       |      
|Operating income (loss) excluding
amortization expense |                                      | $                        | (52    | )          |       | $          | 365    |           |     | $     | (66   | )      |     | $        | (16   | )     |     | $       | 231    |          |       | $ | 40   |             |      | $ | 271   |      
|                                                       |                                      |                          |        |            |       |            |        |           |     |       |       |        |     |          |       |       |     |         |        |          |       |   |      |             |      |   |       |      
|Total assets                                           |                                      | $                        | 11,465 |            |       | $          | 17,893 |           |     | $     | 2,176 |        |     | $        | 3,372 |       |     | $       | 34,906 |          |       |   |      |             |      |   |       |      
|                                                       |                                      |                          |        |            |       |            |        |           |     |       |       |        |     |          |       |       |     |         |        |          |       |   |      |             |      |   |       |      

There were no non-comparable items (other than securitization impact) affecting
the first quarter of 2001.

NOTE 5  SPECIAL CHARGES AND IMPAIRMENTS

Following is a summary of the 2002 activity in the reserves established in
connection with the Companys restructuring initiatives:

|                                        |  |          |     |         |  |             |     |          |  |          |     |   |  |   |     |         |  |   |     | 
|--------------------------------------- |  | -------- | --- | ------- |  | ----------- | --- | -------- |  | -------- | --- | - |  | - | --- | ------- |  | - | --- | 
|                                        |  | Ending   |     |         |  |             |     |          |  |          |     |   |  |   |     | Ending 
|                                        |  | Reserve  |     |         |  |             |     |          |  |          |     |   |  |   |     | Reserve
|                                        |  | Balance  |     | 2002    |  | Asset       |     | Cash     |  | Balance 
|millions                                |  | 12/29/01 |     | Charges |  | Write-Downs |     | Payments |  | 03/30/02
|                                        |  |          |     |         |  |             |     |          |  |         
|Sears Canada                            |  |          |     |         |  |             |     |          |  |          |     |   |  |   |     |         |  |   |     | 
|                                       
|                                       
|                                       
|                                       
|Employee termination costs              |  | $        |    |         |  | $           | 3   |          |  | $        |    |   |  | $ |    |         |  | $ | 3   | 
|                                       
|                                       
|                                       
|                                       
|Contractual obligations and
other costs |  |          |    |         |  |             | 16  |          |  |          |    |   |  |   |    |         |  |   | 16  | 
|                                       
|                                       
|                                       
|                                       
|Asset impairments                       |  |          |    |         |  |             | 92  |          |  |          | (92 | ) |  |   |    |         |  |   |    | 
|                                        |  |          |     |         |  |             |     |          |  |          |     |   |  |   |     |         |  |   |     | 
|                                        |  |          |    |         |  |             | 111 |          |  |          | (92 | ) |  |   |    |         |  |   | 19  | 
|                                       
|                                       
|                                       
|                                       
|Productivity Initiatives                |  |          |     |         |  |             |     |          |  |          |     |   |  |   |     |         |  |   |     | 
|                                       
|                                       
|                                       
|                                       
|Employee termination costs              |  |          | 92  |         |  |             |    |          |  |          |    |   |  |   | (29 | )       |  |   | 63  | 
|                                       
|                                       
|                                       
|                                       
|Contractual obligations and
other costs |  |          | 5   |         |  |             |    |          |  |          |    |   |  |   | (1  | )       |  |   | 4   | 
|                                        |  |          |     |         |  |             |     |          |  |          |     |   |  |   |     |         |  |   |     | 
|                                        |  |          | 97  |         |  |             |    |          |  |          |    |   |  |   | (30 | )       |  |   | 67  | 
|                                       
|                                       
|                                       
|                                       
|Product Category Exits                  |  |          |     |         |  |             |     |          |  |          |     |   |  |   |     |         |  |   |     | 
|                                       
|                                       
|                                       
|                                       
|Employee termination costs              |  |          | 7   |         |  |             |    |          |  |          |    |   |  |   | (2  | )       |  |   | 5   | 
|                                       
|                                       
|                                       
|                                       
|Contractual obligations and
other costs |  |          | 65  |         |  |             |    |          |  |          |    |   |  |   | (9  | )       |  |   | 56  | 
|                                        |  |          |     |         |  |             |     |          |  |          |     |   |  |   |     |         |  |   |     | 
|                                        |  |          | 72  |         |  |             |    |          |  |          |    |   |  |   | (11 | )       |  |   | 61  | 
|                                       
|                                       
|                                       
|                                       
|2000 Store Closures                     |  |          |     |         |  |             |     |          |  |          |     |   |  |   |     |         |  |   |     | 
|                                       
|                                       
|                                       
|                                       
|Lease and holding costs                 |  |          | 41  |         |  |             |    |          |  |          |    |   |  |   | (6  | )       |  |   | 35  | 
|                                        |  |          |     |         |  |             |     |          |  |          |     |   |  |   |     |         |  |   |     | 
|                                        |  |          | 41  |         |  |             |    |          |  |          |    |   |  |   | (6  | )       |  |   | 35  | 
|                                        |  |          |     |         |  |             |     |          |  |          |     |   |  |   |     |         |  |   |     | 
|Total                                   |  | $        | 210 |         |  | $           | 111 |          |  | $        | (92 | ) |  | $ | (47 | )       |  | $ | 182 | 
|                                        |  |          |     |         |  |             |     |          |  |          |     |   |  |   |     |         |  |   |     | 

7



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##### Table of Contents



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

Sears Canada

During the first quarter of 2002, Sears Canada announced a plan to convert the
existing Eatons stores to the Sears Canada banner. In connection therewith,
the Company recorded a charge of $111 million, before tax and minority
interest, related to employee terminations, asset impairments and other exit
costs. Of the $111 million charge, $92 million is to record asset impairments
on fixtures and equipment in such facilities. The remaining $19 million is
comprised of $16 million for contractual obligations and holding costs and $3
million for employee termination costs.

Productivity Initiatives

During the fourth quarter of 2001, the Company announced a series of strategic
initiatives designed to revitalize its Full-line Stores and reduce operating
expenses. In connection therewith, the Company recorded a pretax charge of
$123 million related to employee termination, facility closing and other exit
costs. Of the $123 million charge, $102 million was for employee termination
costs associated with the planned elimination of 5,950 associate positions as
part of this initiative. The positions to be eliminated include store support
positions within the Companys headquarters as well as positions within store
and field operations. The remaining $21 million of productivity related
charges was comprised of $13 million for contractual obligations and holding
costs associated with certain support facilities to be vacated as a result of
the plan, and $8 million to record asset impairments on fixtures and equipment
in such facilities. As of March 30, 2002, approximately 4,300 positions have
been eliminated as a result of this plan.

Product Category Exits

During 2001, the Company announced its decision to exit certain product
categories within its Full-line Stores, including its skin care and color
cosmetics, installed floor covering and custom window treatments businesses.
In connection with these exits, the Company recorded pretax charges totaling
$151 million during 2001. Of the $151 million charge, $106 million was
recorded for the cost of settling contractual obligations to certain vendors
and contractors and for other exit costs associated with the Companys plan to
discontinue these businesses, including incremental customer warranty claims
liability to be incurred by the Company in the absence of ongoing relationships
with certain product manufacturers. Also included within the $151 million
charge were asset impairment charges of $38 million, primarily reflecting the
write-down of store fixtures within the exited businesses to their estimated
fair value. The remaining $7 million of product category exit charges was for
employee termination costs associated with managements decision to eliminate
1,980 associate positions connected to the exited businesses, primarily store
sales positions. As of March 30, 2002 approximately 900 positions have been
eliminated as a result of these exits.

2000 Store Closures

In December 2000, the Company announced the planned closure of 87
under-performing stores consisting of 53 National Tire and Battery (NTB), 30
Hardware and four Full-line Stores (including two Sears Auto Centers) and the
termination of approximately 2,000 positions as a direct result of the store
closures. In connection with
the store closings, the Company recognized a pretax charge of $150 million in
the fourth quarter of 2000 of which $59 million related to asset impairments,
$17 million related to goodwill impairment, $57 million related to lease and
holding costs, $14 million related to inventory liquidation losses and $3
million related to employee termination costs.

8



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

The asset impairment charge related to the write-down of property and equipment
to fair value (less costs to sell and net of estimated salvage value). The
assets consisted primarily of land, abandoned leasehold improvements and
equipment used at the closed stores. As part of the asset impairment review
for the closed stores, the
Company wrote-off the goodwill allocated to the stores (on a pro rata basis
using the relative fair values of the
long-lived assets at the acquisition date). The charge also provided a reserve
for incremental costs and contractual obligations for items such as estimated
future lease obligations net of sublease income, lease termination payments and
other facility exit costs incurred as a direct result of the store closures.
As a result of the store closings, certain inventory was written down to its
net realizable value. This resulted in a charge to cost of goods sold of $14
million. As of March 30, 2002, all 87 stores have been closed and 1,008
employees were terminated. The reserve balance of $35 million as of March 30,
2002 primarily represents estimated future lease obligations and estimated
losses on properties which are being held for disposal.

NOTE 6  OTHER INCOME

Consolidated other income consists of:

|                                          |  |                |    |           |  |   |   | 
|----------------------------------------- |  | -------------- | -- | --------- |  | - | - | 
|                                          |  | 13 Weeks Ended
|                                          |  |               
|millions                                  |  | March 30,      |    | March 31,
|                                          |  | 2002           |    | 2001     
|                                          |  |                |    |          
|Gain on sales of property and investments |  | $              | 76 |           |  | $ | 1 | 
|                                         
|                                         
|                                         
|                                         
|Equity income in unconsolidated companies |  |                | 2  |           |  |   |  | 
|                                          |  |                |    |           |  |   |   | 
|Total                                     |  | $              | 78 |           |  | $ | 1 | 
|                                          |  |                |    |           |  |   |   | 

On March 6, 2002, as part of an Advance Auto Parts (AAP) public stock
offering, the Company sold approximately 3.1 million of its AAP shares, which
reduced the companys ownership percentage to 24.1%. The Company realized a
pre-tax gain of $71 million ($58 million after-tax), or $0.18 per share, from
the sale. This transaction generated after-tax cash proceeds of $110 million.

9



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

NOTE 7  RESTATEMENT FOR CHANGE IN ACCOUNTING ESTIMATE

In the second quarter of 2002, the Company refined its method for determining
its allowance for uncollectible accounts, resulting in a pre-tax charge of $300
million ($191 million, net of tax). The Company initially recorded the charge
as a cumulative effect of a change in accounting principle as of the beginning
of fiscal 2002. On August 1, 2002 the Company filed Amendment No. 1 to its
Quarterly Report on Form 10-Q for the period ended March 30, 2002, to include
the charge as a cumulative effect of a change in accounting principle as of the
beginning of 2002. In consideration of further interpretive guidance from the
staff of the Securities and Exchange Commission, the Company has restated its
March 30, 2002 financial statements to report the effect of the refinement in
allowance methodology as a change in accounting estimate in the second quarter
of 2002. Therefore, the condensed consolidated financial statements as of and
for the thirteen weeks ended March 30, 2002 have been restated, as follows:

|                                      |                                                                                          |          |               |             |   |  |   |       | 
|------------------------------------- | ---------------------------------------------------------------------------------------- | -------- | ------------- | ----------- | - |  | - | ----- | 
|                                      |                                                                                          |          | As Previously |             |   |  |  
|millions, except per share data       |                                                                                          | Reported |               | As Restated
|                                      |                                                                                          |          |               |            
|                                      |                                                                                          |          | (In Amendment |             |   |  |  
|                                      |                                                                                          |          | No. 1)        |             |   |  |  
|As of March 30, 2002                  |                                                                                          |          |               |             |   |  |   |      
|                                     
|                                     
|                                     
|                                     
|                                      | Allowance for uncollectible accounts                                                     |          | $             | 1,462       |   |  | $ | 1,162 | 
|                                     
|                                     
|                                     
|                                     
|                                      | Retained earnings                                                                        |          |               | 7,258       |   |  |   | 7,449 | 
|                                     
|                                     
|                                     
|                                     
|For the 13 weeks ended March 30, 2002 |                                                                                          |          |               |             |   |  |   |      
|                                     
|                                     
|                                     
|                                     
|                                      | Cumulative effect of a change in
accounting for the allowance for
uncollectible accounts |          | $             | (191        | ) |  | $ |      | 
|                                     
|                                     
|                                     
|                                     
|                                      | Net income (loss)                                                                        |          |               | (81         | ) |  |   | 110   | 
|                                     
|                                     
|                                     
|                                     
|                                      | Basic earnings (loss) per share                                                          |          |               | (0.26       | ) |  |   | 0.34  | 
|                                     
|                                     
|                                     
|                                     
|                                      | Diluted earnings (loss) per share                                                        |          |               | (0.25       | ) |  |   | 0.34  | 

NOTE 8  IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

Adoption of SFAS No. 142

Effective at the beginning of 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) SFAS No. 142, Goodwill and Other Intangible
Assets. Upon adoption of SFAS No. 142, goodwill amortization ceased.
Goodwill is now subject to fair-value based impairment tests performed, at a
minimum, on an annual basis. In addition, a transitional goodwill impairment
test is required as of the adoption date. These impairment tests are conducted
on each business of the Company where goodwill is recorded, and may require two
steps. The initial step is designed to identify potential goodwill impairment
by comparing an estimate of fair value for each applicable business to its
respective carrying value. For those businesses where the carrying value
exceeds fair value, a second step is performed to measure the amount of
goodwill impairment in existence, if any.

The Company had approximately $371 million in positive goodwill and $77 million
in negative goodwill recorded in its consolidated balance sheet at the
beginning of 2002. The $77 million in negative goodwill was required to be
de-recognized upon adoption of the Statement. The Company completed the
required transitional goodwill impairment test in the first quarter of 2002,
and determined that $261 million of goodwill recorded within the Companys
Retail and Related Services segment, primarily related to NTB and Orchard
Supply Hardware, was impaired under the fair value impairment test approach
required by SFAS No. 142.

10



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

The fair value of these reporting units was estimated using the expected
present value of associated future cash flows and market values of comparable
businesses where available. Upon adoption of the Statement, a $208 million
charge, net of tax and minority interest, was recognized in the first quarter
of 2002 to record this impairment as well as the removal of negative goodwill
and was classified as a cumulative effect of a change in accounting principle.

The following table presents the pro forma effect of the adoption of SFAS No.
142 on recent fiscal periods as if the change was applied at the beginning of
the respective fiscal year:

|                                                           |  |                |       |                |  |               |       |               |  |      |       |      |  |      |       |   |  |   |       |   |  |   |       |   |  |   |       | 
|---------------------------------------------------------- |  | -------------- | ----- | -------------- |  | ------------- | ----- | ------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | - |  | - | ----- | - |  | - | ----- | 
|                                                           |  | 13 Weeks Ended |       |                |  |               |       |               |  |      |       |      |  |     
|                                                           |  |                |       |                |  |               |       |               |  |      |       |      |  |     
|millions, except earnings (loss) per common share          |  | Dec. 29, 2001  |       | Sept. 29, 2001 |  | June 30, 2001 |       | Mar. 31, 2001 |  | 2001 |       | 2000 |  | 1999
|                                                           |  |                |       |                |  |               |       |               |  |      |       |      |  |     
|Reported net income (loss)                                 |  | $              | 494   |                |  | $             | 262   |               |  | $    | (197  | )    |  | $    | 176   |   |  | $ | 735   |   |  | $ | 1,343 |   |  | $ | 1,453 | 
|                                                          
|                                                          
|                                                          
|                                                          
|Add back:                                                  |  |                |       |                |  |               |       |               |  |      |       |      |  |      |       |   |  |   |       |   |  |   |       |   |  |   |       | 
|                                                          
|                                                          
|                                                          
|                                                          
|Negative goodwill amortization                             |  |                | (3    | )              |  |               | (4    | )             |  |      | (3    | )    |  |      | (4    | ) |  |   | (14   | ) |  |   | (15   | ) |  |   |      | 
|                                                          
|                                                          
|                                                          
|                                                          
|Positive goodwill amortization                             |  |                | 5     |                |  |               | 5     |               |  |      | 5     |      |  |      | 5     |   |  |   | 20    |   |  |   | 24    |   |  |   | 24    | 
|                                                           |  |                |       |                |  |               |       |               |  |      |       |      |  |      |       |   |  |   |       |   |  |   |       |   |  |   |       | 
|Pro forma net income (loss) (Restated)                     |  | $              | 496   |                |  | $             | 263   |               |  | $    | (195  | )    |  | $    | 177   |   |  | $ | 741   |   |  | $ | 1,352 |   |  | $ | 1,477 | 
|                                                           |  |                |       |                |  |               |       |               |  |      |       |      |  |      |       |   |  |   |       |   |  |   |       |   |  |   |       | 
|Earnings
per common share
Basic earnings (loss) per share: |  |                |       |                |  |               |       |               |  |      |       |      |  |      |       |   |  |   |       |   |  |   |       |   |  |   |       | 
|                                                          
|                                                          
|                                                          
|                                                          
|Reported net income (loss)                                 |  | $              | 1.53  |                |  | $             | 0.81  |               |  | $    | (0.60 | )    |  | $    | 0.53  |   |  | $ | 2.25  |   |  | $ | 3.89  |   |  | $ | 3.83  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Goodwill amortization                                      |  |                | 0.01  |                |  |               |      |               |  |      | 0.01  |      |  |      |      |   |  |   | 0.02  |   |  |   | 0.03  |   |  |   | 0.06  | 
|                                                           |  |                |       |                |  |               |       |               |  |      |       |      |  |      |       |   |  |   |       |   |  |   |       |   |  |   |       | 
|Pro forma net income (loss) (Restated)                     |  | $              | 1.54  |                |  | $             | 0.81  |               |  | $    | (0.59 | )    |  | $    | 0.53  |   |  | $ | 2.27  |   |  | $ | 3.92  |   |  | $ | 3.89  | 
|                                                           |  |                |       |                |  |               |       |               |  |      |       |      |  |      |       |   |  |   |       |   |  |   |       |   |  |   |       | 
|Diluted earnings (loss) per share:                         |  |                |       |                |  |               |       |               |  |      |       |      |  |      |       |   |  |   |       |   |  |   |       |   |  |   |       | 
|                                                          
|                                                          
|                                                          
|                                                          
|Reported net income (loss)                                 |  | $              | 1.52  |                |  | $             | 0.80  |               |  | $    | (0.60 | )    |  | $    | 0.53  |   |  | $ | 2.24  |   |  | $ | 3.88  |   |  | $ | 3.81  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Goodwill amortization                                      |  |                | 0.01  |                |  |               |      |               |  |      | 0.01  |      |  |      |      |   |  |   | 0.02  |   |  |   | 0.03  |   |  |   | 0.06  | 
|                                                           |  |                |       |                |  |               |       |               |  |      |       |      |  |      |       |   |  |   |       |   |  |   |       |   |  |   |       | 
|Pro forma net income (loss) (Restated)                     |  | $              | 1.53  |                |  | $             | 0.80  |               |  | $    | (0.59 | )    |  | $    | 0.53  |   |  | $ | 2.26  |   |  | $ | 3.91  |   |  | $ | 3.87  | 
|                                                           |  |                |       |                |  |               |       |               |  |      |       |      |  |      |       |   |  |   |       |   |  |   |       |   |  |   |       | 
|Average common shares outstanding                          |  |                | 322.6 |                |  |               | 324.5 |               |  |      | 326.6 |      |  |      | 331.8 |   |  |   | 326.4 |   |  |   | 345.1 |   |  |   | 379.2 | 
|                                                          
|                                                          
|                                                          
|                                                          
|Average common and common equivalent
shares outstanding    |  |                | 325.5 |                |  |               | 326.9 |               |  |      | 326.6 |      |  |      | 333.5 |   |  |   | 328.5 |   |  |   | 346.3 |   |  |   | 381.0 | 

The changes in the carrying amount of goodwill for the 13 weeks ended March 30,
2002, are as follows:

|                                |                                             |                            |     |                    |      |            |   |               |   |       |    |   |   |   |     |    |   |   |     |    |      |  
|------------------------------- | ------------------------------------------- | -------------------------- | --- | ------------------ | ---- | ---------- | - | ------------- | - | ----- | -- | - | - | - | --- | -- | - | - | --- | -- | ---- | -
|                                |                                             |                            |     | Retail and Related |      | Credit and |   | Corporate and |   |       |    |   |   |   |     |   
|millions                        |                                             | Services                   |     | Financial Products |      | Other      |   | Sears Canada  |   | Total
|                                |                                             |                            |     |                    |      |            |   |               |   |      
|Balance as of December 29, 2001 |                                             | $                          | 291 |                    |      | $          | 2 |               |   | $     | 61 |   |   | $ | (60 | )  |   | $ | 294 |   
|                               
|                               
|                               
|                               
|                                | Cumulative effect of adopting SFAS No. 142: |                            |     |                    |      |            |   |               |   |       |    |   |   |   |     |    |   |   |     |    |     
|                               
|                               
|                               
|                               
|                                |                                             | Impairment loss recognized |     |                    | (261 | )          |   |               |  |       |    |   |  |   |     |    |  |   |     |    | (261 | )
|                               
|                               
|                               
|                               
|                                | Elimination of negative goodwill            |                            |     |                   |      |            |   |              |   |       |    |  |   |   |     | 77 |   |   |     | 77 |     
|                                |                                             |                            |     |                    |      |            |   |               |   |       |    |   |   |   |     |    |   |   |     |   
|Balance as of March 30, 2002    |                                             | $                          | 30  |                    |      | $          | 2 |               |   | $     | 61 |   |   | $ | 17  |    |   | $ | 110 |   
|                                |                                             |                            |     |                    |      |            |   |               |   |       |    |   |   |   |     |    |   |   |     |   

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

Adoption of SFAS No. 144

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144
supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of and the accounting and reporting
requirements of APB Opinion No. 30, Reporting the Results of Operations 
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary
and Unusual and Infrequently Occurring Events and Transactions for the
disposal of a segment of a business. SFAS No. 144 resolves certain
implementation issues related to SFAS No. 121 and establishes a single
accounting model for long-lived assets to be disposed of by sale (whether
individual assets or a component of a business). SFAS No. 144 was adopted by
the Company at the beginning of 2002.

NOTE 9  EFFECT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002 with earlier adoption encouraged. The Company does not expect the
provisions of SFAS No. 143 to have a material impact on the Companys
consolidated financial position, results of operations, or cash flows and
intends to adopt SFAS No. 143 for the 2003 fiscal year.

In April 2002, the FASB issued SFAS No. 145,  Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. Statement 145 rescinds Statement 4, Reporting Gains and Losses
from Extinguishment of Debt-an amendment of APB Opinion No. 30, which required
all gains and losses from extinguishment of debt to be aggregated and, if
material, classified as an extraordinary item, net of related income tax
effect. As a result, the criteria set forth by APB Opinion 30 will now be used
to classify those gains and losses. Statement 64 amended Statement 4, and is
no longer necessary because Statement 4 has been rescinded. Statement 44 was
issued to establish accounting requirements for the effects of transition to
the provisions of the Motor Carrier Act of 1980. Statement 145 also amends
Statement 13 to require that certain lease modifications that have economic
effects similar to sale-leaseback transactions be accounted for in the same
manner as sale-leaseback transactions. This Statement also makes
non-substantive technical corrections to existing pronouncements. SFAS No. 145
is effective for fiscal years beginning after May 15, 2002 with earlier
adoption encouraged. The Company does not expect the provisions of SFAS No.
145 to have a material impact on the Companys consolidated financial position,
results of operations, or cash flows and intends to adopt SFAS No. 145 for the
2003 fiscal year.

NOTE 10  DERIVATIVE FINANCIAL INSTRUMENTS AND FINANCIAL GUARANTEES

The Company utilizes derivative financial instruments as part of an overall
risk management program designed to address certain financial exposures faced
by the Company. The only significant derivative instruments the Company
currently holds are interest rate swaps. As of March 30, 2002, the Company had
interest rate swaps with an aggregate fair value of $(148) million that have
been used to synthetically convert certain of the Companys domestic fixed rate
debt to variable rate. The objective of this conversion is to achieve
increased levels of variable rate funding given the growth of variable rate
receivable levels within the Companys credit card receivables portfolio and
the Companys intention to convert the finance charge on the Sears Card from
fixed rate to variable rate in mid-2002.

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##### Table of Contents



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

The Companys interest rate swaps have been recorded on the balance sheet at
fair value, classified as $45 million within other receivables, $15 million
within other assets, and $208 million within other long-term liabilities. For
accounting purposes, the swaps are designated and qualify as fair value hedges
of certain of the Companys fixed rate debt instruments. As the critical terms
of the swaps are designed to match those of the underlying hedged debt, the
change in fair value of the swaps is largely offset by changes in fair value
recorded on the hedged debt. Consequently, the amount of hedge ineffectiveness
recorded during 2002 and 2001 in connection with these hedges was not material
and is reflected as a component of interest expense.

NOTE 11  SECURITIZATIONS

In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. The
guidance in SFAS No. 140 superceded SFAS No. 125. Under SFAS No. 125, the
Companys securitization transactions were accounted for as sales of
receivables. SFAS No. 140 established new conditions for a securitization to
be accounted for as a sale of receivables. Specifically, SFAS No. 140 changed
the requirements for an entity to be a qualifying special purpose entity and
modified
under what conditions a transferor has retained effective control over
transferred assets. The new standard was effective for transfers occurring
after March 31, 2001.

The addition of previously uncommitted assets to the securitization trust in
April 2001 required the Company to consolidate the securitization structure for
financial reporting purposes on a prospective basis. Accordingly, the Company
recognized approximately $8.1 billion of previously unconsolidated securitized
credit card receivables and related securitization borrowings in the second
quarter of 2001. In addition, approximately $3.9 billion of assets were
reclassified to credit card receivables from retained interest in transferred
credit card receivables. The Company now accounts for securitizations as
secured borrowings.

In connection with the consolidation of the securitization structure, the
Company recognized a non-cash, pretax charge of $522 million to establish an
allowance for uncollectible accounts related to the receivables which were
previously considered as sold or accounted for as retained interests in
transferred credit card receivables.

At March 30, 2002 and March 31, 2001, $14.5 and $12.2 billion, respectively, of
domestic credit card receivables were segregated in securitization trusts. In
addition, $1.0 and $1.2 billion, respectively, of Sears Canada credit card
receivables were segregated in securitization trusts.

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##### Table of Contents






INDEPENDENT ACCOUNTANTS REPORT

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

We have reviewed the accompanying Condensed Consolidated Balance Sheets of
Sears, Roebuck and Co. as of March 30, 2002 and March 31, 2001, and the related
Condensed Consolidated Statements of Income and Cash Flows for the 13 week
periods then ended. These condensed consolidated financial statements are the
responsibility of the Companys management.

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

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

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the Consolidated Balance Sheet of
Sears, Roebuck and Co. as of December 29, 2001, and the related Consolidated
Statements of Income, Shareholders Equity, and Cash Flows for the year then
ended (not presented herein); and in our report dated February 8, 2002, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying Condensed
Consolidated Balance Sheet as of December 29, 2001, is fairly stated, in all
material respects, in relation to the Consolidated Balance Sheet from which it
has been derived.

As discussed in Note 7, the accompanying Condensed Consolidated Financial
Statements for the 13 week period ended March 30, 2002 have been restated.

/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Chicago, Illinois
May 1, 2002 (October 1, 2002 as to the effect of the
restatement described in Note 7)

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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 30, 2002 and March 31, 2001




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

ANALYSIS OF OPERATIONS

Operating results for the Company are reported for three domestic segments and
one international segment. The domestic segments include the Companys
operations in the United States and Puerto Rico. The Companys segments are
defined as follows:



     Retail and Related Services consisting of:  - Full-line Stores (includes operations
of Sears Auto Centers and online revenues
of Sears.com)- Specialty Stores (Dealer Stores,
Hardware Stores, National Tire and
Battery, The Great Indoors, Commercial
Sales and Outlet stores)- Related Services comprised of:  
        
        Sears Repair Services (a broad range of
services including service contracts,
product installation and repair services
primarily for products sold by the
Company)
        
        Direct to Customer (direct marketing of
goods and services, clubs and services
memberships, merchandise through
specialty catalogs and impulse and
continuity merchandise)


Credit and Financial Products
includes domestic credit card
operations and related financial
product offerings (credit
protection and insurance
products). Corporate and Other include:  - Activities that are of an
overall holding company
nature, primarily consisting
of administrative activities,
the costs of which are not
allocated to the Companys
businesses- Sears Home Improvement
Services (including Sears
Termite and Pest Control for
the 13 weeks ended March 31,
2001) Sears Canada conducts similar
retail, credit, and corporate
operations in Canada through
Sears Canada Inc. (Sears
Canada), a consolidated, 54.4%
owned subsidiary of Sears




Basis of Presentation

As discussed in Note 7 to the Condensed Consolidated Financial Statements, the
financial statements as of and for the 13 weeks ended March 30, 2002 have been
restated. The following discussion is presented on the restated basis.

The Company has presented the following discussion of results of operations by
business segment. The Company reports its business segments results excluding
the impacts of noncomparable items and securitization income. The Company
believes this presentation facilitates the understanding of the results and
trends affecting each segments core operations. This presentation is
consistent with how the Company reports results internally to senior management
and the Board of Directors.

All references to earnings per share relate to diluted earnings per common
share.

Description of Noncomparable Items

Earnings per share for the quarter ended March 30, 2002 was $0.34 compared with
$0.53 for the comparable 2001 period. Net income was $110 million for the
first quarter of 2002 compared to $176 million in 2001. Results of operations
for the quarter ended March 30, 2002 were affected by noncomparable items. The
effect of noncomparable items on net income and earnings per share are
summarized in the table below.

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##### Table of Contents



SEARS, ROEBUCK AND CO.
13 Weeks Ended March 30, 2002 and March 31, 2001

|                                 |                                                          |            |           |                    |           |   |           |    |           |   |      |       |   |   |      |      | 
|-------------------------------- | -------------------------------------------------------- | ---------- | --------- | ------------------ | --------- | - | --------- | -- | --------- | - | ---- | ----- | - | - | ---- | ---- | 
|millions, except per share       |                                                          | Net Income |           | Earnings per Share
|                                 |                                                          |            |           |                   
|                                 |                                                          |            | March 30, |                    | March 31, |   | March 30, |    | March 31,
|                                 |                                                          |            | 2002      |                    | 2001      |   | 2002      |    | 2001     
|                                 |                                                          |            |           |                    |           |   |           |    |          
|Excluding noncomparable items    |                                                          | $          | 300       |                    |           | $ | 150       |    |           | $ | 0.93 |       |   | $ | 0.45 |     
|                                
|                                
|                                
|                                
|Special charges and impairments: |                                                          |            |           |                    |           |   |           |    |           |   |      |       |   |   |      |     
|                                
|                                
|                                
|                                
|                                 | Sears Canada  Eatons conversion costs                  |            |           | (40                | )         |   |           |   |           |   |      | (0.13 | ) |   |      |     | 
|                                
|                                
|                                
|                                
|Effect of accounting changes:    |                                                          |            |           |                    |           |   |           |    |           |   |      |       |   |   |      |     
|                                
|                                
|                                
|                                
|                                 | Cumulative effect of a change in
accounting for goodwill |            |           | (208               | )         |   |           |   |           |   |      | (0.64 | ) |   |      |     | 
|                                
|                                
|                                
|                                
|                                 | Securitization income                                    |            |           |                   |           |   |           | 26 |           |   |      |      |   |   |      | 0.08 | 
|                                
|                                
|                                
|                                
|Unusual/infrequent items:        |                                                          |            |           |                    |           |   |           |    |           |   |      |       |   |   |      |     
|                                
|                                
|                                
|                                
|                                 | Advance Auto Parts gain                                  |            |           | 58                 |           |   |           |   |           |   |      | 0.18  |   |   |      |     | 
|                                 |                                                          |            |           |                    |           |   |           |    |           |   |      |       |   |   |      |     
|As reported                      |                                                          | $          | 110       |                    |           | $ | 176       |    |           | $ | 0.34 |       |   | $ | 0.53 |     
|                                 |                                                          |            |           |                    |           |   |           |    |           |   |      |       |   |   |      |     

The Company defines noncomparable items as transactions that are one-time in
nature, related to the implementation of special initiatives of the Company
(generally special charges and impairments); unusual or infrequent in nature
(e.g. significant one-time transactions, significant gains/losses on
transactions unrelated to
core operations); or related to changes in accounting. Following is a
description of the noncomparable items affecting the first quarter ended March
30, 2002 and March 31, 2001.

In February 2002, Sears Canada announced its intention to convert the remaining
seven Eatons stores to the Sears Canada banner. The conversion of the stores
will be completed by the end of July 2002. This decision will enable the
Company to better leverage its buying and advertising efforts, and take more
powerful advantage of the Sears brands equity. The Company recorded a
one-time, pre-tax charge of $111 million ($40 million after-tax and minority
interest), or $0.13 per share, in the first quarter of 2002 related to the
conversions. Of the $111 million charge, $92 million was recorded for the cost
of asset impairments, primarily reflecting the write-down of store fixtures.
Also included within the $111 million charge are $3 million for employee
termination costs and $16 million for the cost of settling contractual
obligations and other exit costs associated with the Companys plan to convert
these stores.

In the first quarter of 2002, the Company recorded a non-cash charge of $208
million, net of tax and minority interest, or $0.64 per share, due to the
adoption of a new accounting standard, SFAS No. 142, Goodwill and Other
Intangible Assets. This charge was reported as a cumulative effect of an
accounting change.

Effective in the second quarter of 2001, the Company adopted SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, and changed its accounting for securitizations. After tax
securitization income of $26 million, or $0.08 per share, was recorded in first
quarter 2001 net income.

On March 6, 2002, as part of an Advance Auto Parts (AAP) public stock
offering, the Company sold approximately 3.1 million of its AAP shares, which
reduced the companys ownership percentage to 24.1%. The Company realized a
pre-tax gain of $71 million ($58 million after-tax), or $0.18 per share, from
the sale. This transaction generated after-tax cash proceeds of $110 million.

Analysis of Consolidated Results

For the 13 weeks ended March 30, 2002, net income was $110 million or $0.34 per
share, as compared to $176 million or $0.53 per share for the comparable 2001
period. The decrease in earnings per share primarily
reflects higher operating income in the Retail and Related Services and Credit
and Financial Products segments
as well as a reduction in shares outstanding due to the Companys share
repurchase program, offset by the per share impact of the $190 million of
noncomparable items discussed above. Excluding noncomparable items and
securitization income, net income for the 13 weeks ended March 30 2002, was
$300 million or $0.93 per share compared to $150 million or $0.45 per share for
the comparable 2001 period.

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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 30, 2002 and March 31, 2001

The Companys consolidated effective tax rate for the 13 weeks ended March 30,
2002 was 34.1% compared to 35.9% in the comparable prior year period. These
consolidated rates reflect the effect of tax rates applicable to the Companys
various consolidated entities and activities and the decrease in the
consolidated effective tax rate is due to changes in composition of earnings
among these consolidated entities and activities.

Due to holiday buying patterns, merchandise sales are traditionally higher in
the fourth quarter than other quarterly periods and a disproportionate share of
operating income is typically earned in the fourth quarter. This business
seasonality results in performance for the 13 weeks ended March 30, 2002 which
is not necessarily indicative of performance for the balance of the year.

Retail and Related Services

Retail and Related Services revenues decreased 0.6% to $6.8 billion for the 13
weeks ended March 30, 2002, from the comparable 2001 period. Retail and
Related Services results and related information are as follows:

|                                               |  |                |       |           |  |        |       |   |  |  |      |  
|---------------------------------------------- |  | -------------- | ----- | --------- |  | ------ | ----- | - |  |  | ---- | -
|millions, except number of stores              |  | 13 Weeks Ended |       |           |  |       
|                                               |  |                |       |           |  |       
|                                               |  | March 30,      |       | March 31, |  |        |       |  
|                                               |  | 2002           |       | 2001      |  | Change
|                                               |  |                |       |           |  |       
|Full-line Stores revenues (includes sears.com) |  | $              | 5,102 |           |  | $      | 5,257 |   |  |  | -2.9 | %
|                                              
|                                              
|                                              
|                                              
|Specialty Stores revenues                      |  |                | 1,118 |           |  |        | 1,031 |   |  |  | 8.4  | %
|                                              
|                                              
|                                              
|                                              
|Related Services revenues                      |  |                | 548   |           |  |        | 518   |   |  |  | 5.8  | %
|                                               |  |                |       |           |  |        |       |   |  |  |      |  
|Total Retail and Related Services revenues     |  |                | 6,768 |           |  |        | 6,806 |   |  |  | -0.6 | %
|                                               |  |                |       |           |  |        |       |   |  |  |      |  
|Cost of sales, buying and occupancy            |  |                | 5,005 |           |  |        | 5,153 |   |  |  |      |  
|                                              
|                                              
|                                              
|                                              
|Selling and administrative                     |  |                | 1,512 |           |  |        | 1,530 |   |  |  |      |  
|                                              
|                                              
|                                              
|                                              
|Depreciation and amortization                  |  |                | 168   |           |  |        | 176   |   |  |  |      |  
|                                              
|                                              
|                                              
|                                              
|Interest expense (income)                      |  |                | (4    | )         |  |        | 3     |   |  |  |      |  
|                                               |  |                |       |           |  |        |       |   |  |  |      |  
|Total costs and expenses                       |  |                | 6,681 |           |  |        | 6,862 |   |  |  |      |  
|                                               |  |                |       |           |  |        |       |   |  |  |      |  
|Operating income (loss)                        |  | $              | 87    |           |  | $      | (56   | ) |  |  |      |  
|                                               |  |                |       |           |  |        |       |   |  |  |      |  
|Number of Full-line Stores                     |  |                | 870   |           |  |        | 860   |   |  |  |      |  
|                                              
|                                              
|                                              
|                                              
|Number of Specialty Stores                     |  |                | 1,299 |           |  |        | 1,301 |   |  |  |      |  
|                                               |  |                |       |           |  |        |       |   |  |  |      |  
|Total Retail stores                            |  |                | 2,169 |           |  |        | 2,161 |   |  |  |      |  
|                                               |  |                |       |           |  |        |       |   |  |  |      |  
|Comparable store sales percentage (decrease)   |  |                | -2.9  | %         |  |        | -1.5  | % |  |  |      |  

For purposes of determining comparable store sales, a store is considered to be comparable at the beginning of the
thirteenth month after it is opened.

For the 13 week period, Full-line Stores revenues decreased 2.9% from the first
quarter of 2001, as comparable store sales decreased 3.8% and ten net new
stores were added.



| |  |  | Hardlines comparable store sales decreased 2.4% in the first
quarter of 2002. Strong sales increases in home appliances were more
than offset by declines in home office, home improvement and home
electronics revenues. The strong increase in home appliances revenue
reflects increased sales in virtually all home appliance divisions.
The Company experienced particularly strong sales of energy efficient
laundry products. Home office revenue declines can be attributed to
declines in computer and computer accessories sales, as lower margin
product offerings were significantly edited during 2001. Home
improvement revenues decreased primarily due to lower lawn and garden
sales, which was attributable to the unseasonably cooler weather
throughout most of the nation. Decreases in tools and paint sales were
offset by a strong increase in home fitness product sales. The
increase in home fitness product revenues reflects increased sales of
treadmills, elliptical machines, and game room products, partially
offset by a decrease in bicycle sales, a category that was exited in
2001. The decreased revenues in home electronics reflects lower sales of
non-digital products such as camcorders and stereo equipment.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 30, 2002 and March 31, 2001



| |  |  | Softlines comparable store sales decreased 8.3% in the first
quarter of 2002. In Softlines, the Company experienced low single digit
sales decreases in childrens apparel and footwear, despite the benefit
of an early Easter holiday. These decreases were compounded by
declines in virtually all other categories. The Companys exit of the
skin care and color cosmetics, installed floor covering and custom
window treatments businesses contributed to the revenue declines in
Softlines.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Sears Auto Centers revenues increased due to solid comparable store
sales increases, which were achieved through successful promotions in
the first quarter of 2002 as well as the addition of new service
offerings such as oil change service and the DieHard Express service.                                                                                                                                                                                                                   

For the 13 week period ended March 30, 2002, Specialty Stores revenues
increased 8.4% from the comparable 2001 period, with comparable store sales
increasing 2.2%. This increase is primarily due to revenue increases at The
Great Indoors, Commercial Sales and Dealer Stores, partially offset by declines
in Hardware Store and National Tire and Battery. Dealer Stores revenue
increases resulted from a solid comparable store sales increase of 4.1%.
National Tire and Battery revenues decreased due to 1 net store closing along
with a comparable store
sales decline. The Great Indoors benefited from the addition of 13 stores
since the first quarter of last year.

Related Services revenue increased for the 13 week period ended March 30, 2002
primarily due to increases in Sears Repair Services. Sears Repair Services
revenues benefited from a vendor product recall. This revenue increase was
partially offset by a decline in Direct to Customer revenue, which was
primarily driven by a decline in credit revenues.

Retail and Related Services gross margin as a percentage of Retail and Related
Services revenues for the first quarter of 2002 improved to 26.0%, an increase
of 170 basis points from the first quarter of 2001. The improvement is
primarily due to margin improvements within hardlines, softlines, Sears Repair
Services and Hardware Stores. The margin improvements within hardlines,
softlines and Hardware Stores are primarily due to benefits from improved
sourcing costs, editing assortments to reduce lower margin products, and a
decrease in promotional markdown activity. The margin rate for Sears Repair
Services is benefiting from a recall of a vendor product.

Retail and Related Services selling and administrative expense as a percentage
of Retail and Related Services revenues for the first quarter of 2002 decreased
20 basis points from the first quarter of 2001. The decrease was primarily due
to expense improvements generated from productivity initiatives offset by lower
revenues and increased investments in The Great Indoors.

Retail and Related Services operating income improved by $143 million as lower
revenues and investments in The Great Indoors were more than offset by margin
improvements and cost savings from the Companys productivity initiatives.

Credit and Financial Products

Credit and Financial Products results and related information are as follows:

|                                       |                          |                |           |     |           |   |       |     | 
|-------------------------------------- | ------------------------ | -------------- | --------- | --- | --------- | - | ----- | --- | 
|Millions                               |                          | 13 Weeks Ended
|                                       |                          |                |          
|                                       |                          |                | March 30, |     | March 31,
|                                       |                          |                | 2002      |     | 2001     
|                                       |                          |                |           |     |          
|Credit and financial products revenues |                          | $              | 1,318     |     |           | $ | 1,300 |    
|                                       |                          |                |           |     |           |   |       |    
|Selling and administrative             |                          |                | 228       |     |           |   | 194   |    
|                                      
|                                      
|                                      
|                                      
|Provision for uncollectible accounts   |                          |                | 371       |     |           |   | 334   |    
|                                      
|                                      
|                                      
|                                      
|Depreciation and amortization          |                          |                | 5         |     |           |   | 5     |    
|                                      
|                                      
|                                      
|                                      
|Interest                               |                          |                | 271       |     |           |   | 402   |    
|                                       |                          |                |           |     |           |   |       |    
|                                       | Total costs and expenses |                |           | 875 |           |   |       | 935 | 
|                                       |                          |                |           |     |           |   |       |    
|Operating income                       |                          | $              | 443       |     |           | $ | 365   |    
|                                       |                          |                |           |     |           |   |       |    

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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 30, 2002 and March 31, 2001

Credit and Financial Products revenues increased 1.4% to $1.3 billion for the
13 weeks ended March 30, 2002 from the comparable prior year period. The
increase in revenues in the first quarter was primarily attributable to higher
average receivable balances as well as an increase in interchange fees
generated from the Sears Gold MasterCard. The Sears Gold MasterCard portfolio
has continued to grow with balances now over $6 billion at March 30, 2002. A
summary of Credit information (for the managed portfolio) is as follows:

|                                                                  |                                               |           |                |           |      |   |        |        | 
|----------------------------------------------------------------- | --------------------------------------------- | --------- | -------------- | --------- | ---- | - | ------ | ------ | 
|                                                                  |                                               |           | 13 Weeks Ended
|                                                                  |                                               |           |               
|millions, except for average account balance                      |                                               | March 30, |                | March 31,
|                                                                  |                                               |           | 2002           |           | 2001
|                                                                  |                                               |           |                |           |     
|Sears credit card sales as a % of sales                           |                                               |           | 43.7           | %         |      |   | 47.1   | %     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Average account balance (as of March 30, 2002 and March 31, 2001) |                                               | $         | 1,236          |           |      | $ | 1,161  |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Sears Card average managed credit card receivables                |                                               | $         | 21,639         |           |      | $ | 25,036 |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Sears Gold MasterCard average managed credit card receivables     |                                               |           | 5,647          |           |      |   | 1,304  |       
|                                                                  |                                               |           |                |           |      |   |        |       
|                                                                  | Total average managed credit card receivables |           | $              | 27,286    |      |   | $      | 26,340 | 
|                                                                  |                                               |           |                |           |      |   |        |       
|Sears Card ending managed credit card receivables                 |                                               | $         | 20,728         |           |      | $ | 24,320 |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Sears Gold MasterCard ending managed credit card receivables      |                                               |           | 6,279          |           |      |   | 1,379  |       
|                                                                  |                                               |           |                |           |      |   |        |       
|                                                                  | Total ending managed credit card receivables  |           | $              | 27,007    |      |   | $      | 25,699 | 
|                                                                  |                                               |           |                |           |      |   |        |       

Credit and Financial Products selling and administrative expense as a
percentage of Credit and Financial Products revenues increased to 17.3%, an
increase of 240 basis points in the first quarter of 2002 from the comparable
2001 period. The increase was primarily due to higher customer notification
costs and increased consumer collection costs.

The activity in the domestic allowance for uncollectible owned accounts and
related information is as follows:

|                                                                  |                                 |      |                |      |           |   |      |      |  
|----------------------------------------------------------------- | ------------------------------- | ---- | -------------- | ---- | --------- | - | ---- | ---- | -
|                                                                  |                                 |      | 13 Weeks Ended
|                                                                  |                                 |      |               
|                                                                  |                                 |      | March 30,      |      | March 31,
|Millions                                                          |                                 | 2002 |                | 2001
|                                                                  |                                 |      |                |      |          
|Balance, beginning of period                                      |                                 | $    | 1,115          |      |           | $ | 649  |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Provision for uncollectible accounts                              |                                 |      | 371            |      |           |   | 334  |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Less: securitization adjustment |      |                |     |           |   |      | (153 | )
|                                                                  |                                 |      |                |      |           |   |      |     
|Net domestic provision for uncollectible accounts                 |                                 |      | 371            |      |           |   | 181  |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Net charge-offs                                                   |                                 |      | (371           | )    |           |   | (180 | )   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Transfer to Securitization Master Trust                           |                                 |      |               |      |           |   | (83  | )   
|                                                                  |                                 |      |                |      |           |   |      |     
|Balance, end of period                                            |                                 | $    | 1,115          |      |           | $ | 567  |     
|                                                                  |                                 |      |                |      |           |   |      |     
|Allowance as percent of ending owned credit card receivables      |                                 |      | 4.13           | %    |           |   | 4.14 | %   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Net credit charge-offs to average managed credit card receivables |                                 |      | 5.43           | %    |           |   | 5.07 | %   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Delinquency rate at period-end (1)                                |                                 |      | 7.31           | %    |           |   | 7.50 | %   



---

| |  | (1) The aging methodology is based on the number of completed
billing cycles during which a customer has failed to make a
required payment. Accounts are considered delinquent when a
customer has failed to make a payment in each of the last
three or more billing cycles.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The domestic provision for uncollectible accounts increased by $190 million to
$371 million for the 13 weeks ended March 30, 2002 from the comparable prior
year period. The increase in the provision is primarily due to the additional
credit card receivable balances recorded when the Company consolidated its
securitization structure for financial reporting purposes in the second quarter
of 2001. As a result, charge-offs that had previously been recognized by the
master trust are now included in the provision for uncollectible accounts.
Excluding the impact of securitizations, charge-offs increased by $38 million
reflecting an increase in the net charge-off rate in 2002 to 5.43% from 5.07%
in 2001, primarily due to increased customer bankruptcy filings. Despite the
slight increase in bankruptcy filings in 2002, the delinquency rate for 2002
decreased 19 basis points compared with 2001. At March 30, 2002, the
period-end allowance as a percent of on-book receivables was 4.13%, or $1.1
billion, versus 4.14% or $567 million at period-end 2001.

19



---



##### Table of Contents



SEARS, ROEBUCK AND CO.
13 Weeks Ended March 30, 2002 and March 31, 2001

Domestic interest expense is discussed within the Credit and Financial Products
segment since the majority of the Companys interest expense is allocated to
this segment. Domestic interest expense is combined with the funding costs on
receivables sold through securitizations to represent total funding costs as
follows:

|                                           |  |                |     |           |  |   |     | 
|------------------------------------------ |  | -------------- | --- | --------- |  | - | --- | 
|                                           |  | 13 Weeks Ended
|                                           |  |               
|                                           |  | March 30,      |     | March 31,
|                                           |  | 2002           |     | 2001     
|                                           |  |                |     |          
|Domestic interest expense                  |  | $              | 267 |           |  | $ | 282 | 
|                                          
|                                          
|                                          
|                                          
|Funding cost on securitized receivables(1) |  |                |    |           |  |   | 123 | 
|                                           |  |                |     |           |  |   |     | 
|Total domestic funding costs               |  | $              | 267 |           |  | $ | 405 | 
|                                           |  |                |     |           |  |   |     | 



---

| |  | (1) Beginning in the second quarter of 2001, funding costs on
securitized receivables are included in the domestic segment interest
expense.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------

Total domestic funding costs decreased by $138 million primarily due to the
Companys increased use of variable rate financing. The shift to more variable
rate funding is in response to the growth of variable rate receivables within
the credit card portfolio (primarily the Sears Gold MasterCard product) and the
Companys intention to convert Sears Card finance charges from fixed rate to
variable rate in 2002. The increase in variable
rate funding was achieved primarily by using interest rate swaps to convert
fixed rate debt to variable rate and by issuance of variable rate debt.

Credit and Financial Products operating income excluding securitization income
increased by $78 million for the 13 weeks ended March 30, 2002 as compared to
the comparable 2001 period, as favorable funding costs and higher revenues were
partially offset by higher provision and selling and administration expenses.
Securitization income affecting this segment would have reduced Credit and
Financial Products operating income by $40 million for the 13 weeks ended March
31, 2001.

Corporate and Other

Revenues from the home improvement services businesses included in the
Corporate and Other segment decreased by approximately 30% to $58 million due
to the sale of certain assets of the Companys wholly owned subsidiary, Sears
Termite and Pest Control, Inc., on October 1, 2001. Corporate headquarters
spending was higher than the prior years first quarter primarily due to costs
related to the companys strategic initiatives. Operating loss increased $2
million from the prior year quarter.

Sears Canada

Sears Canada revenues for the first quarter of 2002 decreased 5.2% from the
same period a year ago. This reflects a 4.2 percent decline in the value of
the Canadian dollar relative to the U.S. dollar as well as a 1.6% decrease in
comparable store sales.

Sears Canada gross margin as a percentage of Sears Canada merchandise sales and
services revenues increased 170 basis points in the first quarter of 2002 from
the comparable prior year quarter. This favorability is primarily due to
improved inventory levels which resulted in less clearance activity.

Sears Canada selling and administrative expense as a percentage of total Sears
Canada revenues decreased 70 basis points in the first quarter of 2002 from the
first quarter of 2001. SG&A as a percent of revenues decreased primarily due
to operating expense reductions in several areas, such as advertising and
payroll and benefits.

Sears Canada operating income was $6 million for the 13 weeks ended March 30,
2002, compared to an operating loss of $10 million for the comparable 2001
period. The $16 million improvement is due to margin rate improvements and
expense reductions partially offset by decreased revenues. This discussion
excludes the
impact of noncomparable items. The noncomparable items affecting this segment
were recorded in the special
charges and impairment line in the first quarter of 2002 and would have reduced
Sears Canada operating income for the 13 weeks ended March 30, 2002 by $111
million.

20



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##### Table of Contents



SEARS, ROEBUCK AND CO.
13 Weeks Ended March 30, 2002 and March 31, 2001

ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION

The Company has significant financial capacity and flexibility due to the
quality and liquidity of its assets, principally its credit card receivables.
As such, the Company accesses a variety of capital markets to preserve
flexibility and diversify its funding sources. The broad access to capital
markets also allows the Company to effectively manage liquidity and interest
rate risk. Liquidity risk is the measure of the Companys ability to fund
maturities and provide for the operating needs of its businesses. Interest
rate risk is the effect on net income from changes in interest rates. The
Companys cost of funds is affected by a variety of general economic
conditions, including the level and volatility of interest
rates. The Companys policy is to manage interest rate risk through the
strategic use of fixed and variable rate debt and interest rate derivatives.

LIQUIDITY

The Companys principal sources of liquidity are operating cash flows and
various sources of capital market borrowings. Capital market borrowings are
used primarily to support the Companys Credit business. Ongoing access to
the capital markets is critical to the Credit business.

Operating cash flows from the Companys retail businesses are impacted by the
competitive conditions in the retail industry, the effects of the current
economic climate and consumer confidence. Operating cash flows from the
Companys Credit business are directly impacted by changes in interest rates,
delinquency and charge-off trends in the credit card receivables portfolio and
customer acceptance of the Companys credit product offerings. Based on the
nature of the Companys businesses, management considers the above factors to
be normal business risks.

The Company has not identified any reasonably possible circumstances that would
likely impair the Companys ability to maintain its planned level of
operations, capital expenditures, dividends and share repurchases in the
foreseeable future or that would trigger any early payment or acceleration
provisions in the debt portfolio.

SIGNIFICANT ASSETS

A summary of the Companys credit card receivables for the 13 weeks ended March
30, 2002 and March 31, 2001, respectively, are as follows:

|                                                            |  |                |        |           |  |              |        |   |  |   |        | 
|----------------------------------------------------------- |  | -------------- | ------ | --------- |  | ------------ | ------ | - |  | - | ------ | 
|                                                            |  | 13 Weeks Ended |        |           |  |             
|                                                            |  |                |        |           |  |             
|                                                            |  | March 30,      |        | March 31, |  | December 29,
|millions                                                    |  | 2002           |        | 2001      |  | 2001        
|                                                            |  |                |        |           |  |             
|Domestic:                                                   |  |                |        |           |  |              |        |   |  |   |        | 
|                                                           
|                                                           
|                                                           
|                                                           
|Managed credit card receivables                             |  | $              | 27,007 |           |  | $            | 25,699 |   |  | $ | 27,599 | 
|                                                           
|                                                           
|                                                           
|                                                           
|Securitized balances sold                                   |  |                |       |           |  |              | (8,143 | ) |  |   |       | 
|                                                           
|                                                           
|                                                           
|                                                           
|Retained interest in transferred credit card receivables(1) |  |                |       |           |  |              | (3,851 | ) |  |   |       | 
|                                                           
|                                                           
|                                                           
|                                                           
|Other customer receivables                                  |  |                | 31     |           |  |              | 85     |   |  |   | 40     | 
|                                                            |  |                |        |           |  |              |        |   |  |   |        | 
|Domestic owned credit card receivables                      |  |                | 27,038 |           |  |              | 13,790 |   |  |   | 27,639 | 
|                                                           
|                                                           
|                                                           
|                                                           
|Sears Canada credit card receivables                        |  |                | 1,471  |           |  |              | 1,543  |   |  |   | 1,682  | 
|                                                            |  |                |        |           |  |              |        |   |  |   |        | 
|Consolidated owned credit card receivables                  |  | $              | 28,509 |           |  | $            | 15,333 |   |  | $ | 29,321 | 
|                                                            |  |                |        |           |  |              |        |   |  |   |        | 



---

| |  | (1) The retained interest amount as of March 31, 2001 is shown before a reserve of $142 million and an
interest only strip balance of $154 million.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

21



---



##### Table of Contents



SEARS, ROEBUCK AND CO.
13 Weeks Ended March 30, 2002 and March 31, 2001

Domestic managed credit card receivables increased $1.3 billion from the first
quarter of 2001 as growth from the Sears Gold MasterCard product was partially
offset by lower Sears Card receivables. The Sears Gold MasterCard product,
which was launched in the second quarter of 2000, had approximately $6.3
billion in outstanding balances at March 30, 2002 compared with $1.4 billion at
March 31, 2001. Compared to 2001 year-end, domestic managed credit card
receivables decreased $592 million. This decrease in managed credit card
receivables is largely due to seasonal factors.

As of March 30, 2002, consolidated merchandise inventories on the first-in,
first-out (FIFO) basis were $5.9 billion, compared with $6.6 billion at March
31, 2001, and $5.5 billion at December 29, 2001. The decrease as compared with
last years first quarter primarily reflects lower domestic hardlines and
softlines inventories. Sears Canada inventory decreased due to continued focus
on managing inventory levels as well as the improved seasonal content of the
inventory.

CAPITAL RESOURCES

Total borrowings outstanding at the end of the 13 weeks ended March 30, 2002
and March 31, 2001 were $26.0 billion and $25.5 billion, respectively. Total
borrowings, including debt reflected on the balance sheet and investor
certificates related to credit card receivables issued through securitizations,
are as follows:

|                              |  |           |        |       |  |           |       |       |  |              |        |       |  |  |       |   |  |   |        |  |  |  |       |  
|----------------------------- |  | --------- | ------ | ----- |  | --------- | ----- | ----- |  | ------------ | ------ | ----- |  |  | ----- | - |  | - | ------ |  |  |  | ----- | -
|millions                      |  | March 30, |        | % of  |  | March 31, |       | % of  |  | December 29, |        | % of 
|                              |  | 2002      |        | Total |  | 2001      |       | Total |  | 2001         |        | Total
|                              |  |           |        |       |  |           |       |       |  |              |        |      
|Short-term borrowings         |  | $         | 3,485  |       |  |           | 13.4  | %     |  | $            | 3,412  |       |  |  | 13.4  | % |  | $ | 3,557  |  |  |  | 13.9  | %
|                             
|                             
|                             
|                             
|Long-term debt (1)            |  |           | 22,498 |       |  |           | 86.6  | %     |  |              | 13,936 |       |  |  | 54.7  | % |  |   | 22,078 |  |  |  | 86.1  | %
|                             
|                             
|                             
|                             
|Securitized balances sold (2) |  |           |       |       |  |           |      |       |  |              | 8,143  |       |  |  | 31.9  | % |  |   |       |  |  |  |      |  
|                              |  |           |        |       |  |           |       |       |  |              |        |       |  |  |       |   |  |   |        |  |  |  |       |  
|Total borrowings              |  | $         | 25,983 |       |  |           | 100.0 | %     |  | $            | 25,491 |       |  |  | 100.0 | % |  | $ | 25,635 |  |  |  | 100.0 | %
|                              |  |           |        |       |  |           |       |       |  |              |        |       |  |  |       |   |  |   |        |  |  |  |       |  



---

| |  | (1) Includes capitalized lease obligations.                                                                                                                                                                                                              
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|
|
|
| |  | (2) Included in long-term debt in 2002 due to the change in securitization accounting; the securitization trust was not
consolidated for the 13 weeks ended March 31, 2001 (see
Note 11 of the Notes to the Condensed Consolidated Financial
Statements).

The Companys short-term borrowings consist primarily of unsecured commercial
paper. The Company continues to provide support for 100% of its outstanding
commercial paper through its investment portfolio and committed credit
facilities with various banks. At March 2002, the Company had $5.5 billion in
committed credit facilities of which $875 million expired in April 2002, $4.2
billion expires in April 2003 and $439 million expires in May 2003.

Additionally, in the first quarter of 2002, the Company contractually
established access to $1.5 billion via a syndicate of multi-seller,
asset-backed commercial paper conduit programs sponsored by various banks.
These purchase commitments have an original expiration date of March 2003, but
are renewable.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements made in this Quarterly Report on Form 10-Q are
forward-looking statements that involve risks and uncertainties that could
cause actual results to differ materially. Such statements are based on
assumptions about many important factors, including competitive conditions in
the retail industry; changes in consumer confidence and spending in the United
States and Canada; interest rates, bankruptcy filings, delinquency and
charge-off trends in the credit card receivables portfolio; continued consumer
acceptance of the Sears Gold MasterCard program; the successful execution of
and customer reaction to the Companys strategic initiatives; anticipated cash
flow; general United States and Canada economic conditions and normal business
uncertainty. In addition, the Company typically earns a disproportionate share
of its operating income in the fourth quarter due to seasonal buying patterns,
which are difficult to forecast with certainty. While the Company believes
that its assumptions are reasonable, it cautions that it is impossible to
predict the impact of such factors which could cause actual results to differ
materially from predicted results. The Company intends these forward-looking
statements to speak only at the time of this report and does not undertake to
update or revise these projections as more information becomes available.

22



---



##### Table of Contents



SEARS, ROEBUCK AND CO.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

The nature of market risks faced by the Company at March 30, 2002 are disclosed
in the Companys Form 10-K for the year ended December 29, 2001. As of March
30, 2002, 87% of the Companys funding portfolio was variable rate (including
current maturities of fixed-rate long-term debt that will reprice in the next
12 months and fixed-rate debt converted to variable rate through the use of
derivative financial instruments). Based on the size of the Companys variable
rate funding portfolio as of March 30, 2002, which totaled $22.7 billion, a 100
basis point change in interest rates would affect pretax funding cost by
approximately $227 million per annum. This estimate assumes that the funding
portfolio remains constant for an annual period and the interest rate change
occurs at the beginning of the period. This estimate also does not take into
account the effect on net interest margin of changes in revenue resulting from
either changes in terms of the assets or in the index applicable to the
variable rate receivables.

The Companys level of variable rate funding is in response to the growth of
variable rate receivables within the Companys credit card portfolio (primarily
the Sears Gold MasterCard product) and the Companys intention to convert the
finance charge on the Sears Card from fixed rate to variable rate in mid-2002.
The objective of variable rate funding is to reduce net interest margin risk by
better aligning the Companys funding with its credit card assets. However,
the Company is exposed to basis risk on any differences in the variable rate on
the Companys debt, primarily LIBOR-based, and the prime-based variable rate
finance charge on the Companys credit card portfolio. Additionally, the
Companys ability to increase the finance charge yield of its variable rate
credit card assets may be limited at some point by competitive conditions.
Prior to the conversion of the Sears Card to variable rate in mid-2002, the
increased level of variable-rate funding increases the potential effect on
earnings of fluctuations in short term interest rates, primarily LIBOR.

23



---



##### Table of Contents



SEARS, ROEBUCK AND CO.




PART II. OTHER INFORMATION




Item 1. Legal Proceedings

There have been no material developments in any material legal proceedings
since the Companys disclosure in its Annual Report on Form 10-K for the fiscal
year ended December 29, 2001.




Item 6. Exhibits and Reports on Form 8-K.

(a)  Exhibits.

An Exhibit Index has been filed as part of this Report on Page 25.

(b)  Reports on Form 8-K.

The Registrant filed a Current Report on Form 8-K dated January 10, 2002 to
report, under Item 5, that the Registrant issued a press release (attached as
Exhibit 99 thereto).

The Registrant filed a Current Report on Form 8-K dated January 17, 2002 to
report, under Item 5, that the Registrant issued a press release (attached as
Exhibit 99 thereto).

24



---



##### Table of Contents



SEARS, ROEBUCK AND CO.




SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                |  |                                     |  |                                                                                                                          
|--------------- |  | ----------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------
|                |  | SEARS,
ROEBUCK AND CO.
(Registrant)
|               
|               
|               
|               
|October 2, 2002 |  | By                                  |  | /s/ Thomas E. Bergmann                                                                                                   
|                |  |                                     |  |                                                                                                                          
|                |  |                                     |  | Thomas E. Bergmann
Vice President and Controller
(Principal Accounting Officer and duly
authorized officer of Registrant)

CERTIFICATIONS

I, Alan J. Lacy, Chairman of the Board of Directors, President and Chief
Executive Officer of Sears, Roebuck and Co., certify that:



|1. |  | I have reviewed this amended quarterly report on Form 10-Q/A of Sears,
Roebuck and Co.                                                                                                                                                                                                                                            
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.                       

|                |  |     |  |                                                                                       
|--------------- |  | --- |  | --------------------------------------------------------------------------------------
|October 2, 2002 |  | By: |  | /s/ Alan J. Lacy                                                                      
|                |  |     |  |                                                                                       
|                |  |     |  | Alan J. Lacy
Chairman of the Board of Directors,
President and Chief Executive Officer

I, Paul J. Liska, Executive Vice President and Chief Financial Officer of
Sears, Roebuck and Co., certify that:



|1. |  | I have reviewed this amended quarterly report on Form 10-Q/A of Sears,
Roebuck and Co.                                                                                                                                                                                                                                            
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.                       

|                |  |     |  |                                                                   
|--------------- |  | --- |  | ------------------------------------------------------------------
|October 2, 2002 |  | By: |  | /s/ Paul J. Liska                                                 
|                |  |     |  |                                                                   
|                |  |     |  | Paul J. Liska
Executive Vice President
and Chief Financial Officer

25



---



##### Table of Contents






SEARS, ROEBUCK AND CO.
E-1
EXHIBIT INDEX

|            |  |                                                                                                                                                                                                           
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |                                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                           
|3(a).       |  | Restated Certificate of Incorporation as
in effect on May 13, 1996 (incorporated by
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
December 29, 2001).                            
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                           
|           
|           
|           
|           
|4.          |  | Registrant hereby agrees to furnish the
Commission, upon request, with the
instruments defining the rights of holders
of each issue of long-term debt of the
Registrant and its consolidated
subsidiaries.
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                           
|           
|           
|           
|           
|**10.       |  | Term sheet between the Registrant and
Executive Vice President  Softlines,
Kathryn Bufano dated November 26, 2001.                                                                                       
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                           
|           
|           
|           
|           
|**12.       |  | Computation of ratio of income to fixed
charges for Sears and consolidated
subsidiaries for each of the five years
ended December 29, 2001 and for three- and
twelve-month periods ended March 30, 2002.  
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                           
|           
|           
|           
|           
|*15.        |  | Acknowledgement of awareness from Deloitte
& Touche LLP, dated October 1, 2002,
concerning unaudited interim financial
information.                                                                       
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                           
|           
|           
|           
|           
|*99(a).     |  | Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).                                                                                      
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                           
|           
|           
|           
|           
|*99(b).     |  | Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).                                                                                      

*Filed herewith.
**Previously filed.

26