**
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-Q/A   X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THESECURITIES EXCHANGE ACT OF 1934 FOR THEQUARTERLY PERIOD ENDED MARCH 30, 2002             OR         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 filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months and [2] has been subject to such filing requirementsfor the past 90 days.YesXNoAs of April 27,2002, the Registrant had 315,109,471 common shares, $.75 par value, outstanding.
  
**SEARS, ROEBUCK AND CO.****INDEX TO QUARTERLY REPORT ON FORM 10-Q**13 Weeks Ended March 30, 2002 
Explanatory Note
The purpose of this Quarterly Report on Form 10-Q/A isto restate the form for a change in accounting policy that was adoptedin the second fiscal quarter of 2002 and to present the pro forma effectof the adoption of Statement of Financial Accounting Standards No. 142,"Goodwill and Other Intangible Assets" ("SFAS No. 142") on recent fiscalperiods.
This Quarterly Report on Form 10-Q/A does not reflectevents occurring after the filing of the registrant's Quarterly Reporton Form 10-Q for the fiscal quarter ended March 30, 2002, or modify orupdate those disclosures in any way, except as required to reflect thecumulative effect of the change in accounting adopted in the second quarterof fiscal 2002 and to include additional pro forma disclosures relatedto the adoption of SFAS No. 142. Accordingly, only Part I, Items 1 and2 contained updated disclosures.
See Note 7 to the Condensed Consolidated Financial Statementsfor a description of the change in accounting policy.PART I - FINANCIALINFORMATIONPageItem 1.Financial Statements  CondensedConsolidated Statements of Income (Unaudited)13 Weeks Ended March 30,2002 and March 31, 2001 1    CondensedConsolidated Balance SheetsMarch 30, 2002 (Unaudited), March31, 2001 (Unaudited)and December 29, 20012    CondensedConsolidated Statements of Cash Flows (Unaudited)13 Weeks Ended March 30, 2002 andMarch 31, 2001 3    Notes to CondensedConsolidated Financial Statements (Unaudited)4    IndependentAccountants' Report14      Item 2.Management'sDiscussion and Analysis of Operations, Financial Condition and Liquidity15  Item 3.Quantitative and QualitativeDisclosures about Market Risk23    
PART II - OTHER INFORMATIONItem 1.Legal Proceedings24   Item 6.Exhibits and Reports on Form8-K26  
  
**SEARS, ROEBUCK AND CO.****Condensed Consolidated Statements of Income**(Unaudited)
index
PART I. FINANCIAL INFORMATION 
*Item 1. Financial Statements**millions, exceptper common share data*13 Weeks Ended
March 30,2002
March 31,2001
**REVENUES**Merchandise salesand services$7,647$7,754 Credit and financialproducts revenues1,390 1,103 Total revenues 9,037 8,857 **COSTS AND EXPENSES**Cost of sales,buying and occupancy5,626 5,836 Selling and administrative2,061 2,031 Provision for uncollectibleaccounts381 191 Depreciation andamortization210 215 Interest292 312 Special charges and impairments111 -- Total costs and expenses 8,681 8,585 Operating income356 272 Other income, net78 1 Income before incometaxes and minority interest434 273 Income taxes(148)(98)Minorityinterest32 1 Income before cumulativeeffect of accounting changes318 176 Cumulative effectof a change in accounting for the allowance foruncollectible accounts(191)-- Cumulative effect of a changein accounting for goodwill(208)-- **NET INCOME(LOSS)**$(81)$176 **EARNINGS (LOSS)PER COMMON SHARE**BASIC  Earningsper share before cumulative  effect of a changes in accounting principle$0.99 $0.53   Cumulativeeffect of changes in accounting(1.25)-- Earnings(loss) per share $(0.26)$0.53 DILUTED  Earningsper share before cumulative  effect of a changes in accounting principle$0.98 $0.53   Cumulativeeffect of changes in accounting(1.23)-- Earnings(loss) per share $(0.25)$0.53 Cash dividendsdeclared per common share$0.23 $0.23 Average commonand common equivalent shares outstanding324.0 333.5  Seeaccompanying notes.  
  
index
**SEARS, ROEBUCK AND CO.****Condensed Consolidated Balance Sheets**(Unaudited)
   *millions*March 30,March 31,December 29, 2002
 2001
 2001
ASSETSCurrent assets         Cash and cash equivalents$949  $510  $1,064   Retainedinterest in transferred credit card receivables --   3,863   --   Credit cardreceivables 28,509   15,333   29,321Less allowancefor uncollectible accounts  1,462
  603
  1,166
Net credit card receivables  27,047   14,730   28,155   Other receivables 619   459   658   Merchandiseinventories 5,249   6,019   4,912   Prepaidexpenses and deferred charges629 623 458   Deferred income taxes 1,103
  981
  858
  Total currentassets 35,596   27,185   36,105          Property and equipment,net 6,629   6,499   6,824 Deferred incometaxes 433   255   415 Goodwill 110   291   294 Other assets 644
  676
  679
**TOTAL ASSETS **$43,412
 $34,906
 $44,317
         LIABILITIES        Current liabilities          Short-termborrowings$3,485  $3,412  $3,557   Currentportion of long-term debt and capitalized lease    obligations 4,414  2,313   3,157   Accountspayable and other liabilities 6,492   6,311   7,176   Unearnedrevenues 1,165   1,079   1,136   Other taxes 427
  446
  558
  Total currentliabilities 15,983   13,561   15,584          Long-term debt and capitalizedlease obligations 18,084   11,623   18,921 Post-retirementbenefits 1,690   1,913   1,732 Minority interest and otherliabilities 2,036
  1,362
  1,961
  Total Liabilities 37,793
  28,459
  38,198
         COMMITMENTS ANDCONTINGENT LIABILITIES                 SHAREHOLDERS' EQUITYCommon shares 323   323   323 Capital in excessof par value 3,505   3,528   3,500 Retained earnings 7,258   7,079   7,413 Treasury stock- at cost (4,587)   (3,862)   (4,223) Deferred ESOP expense (54)   (85)   (63) Accumulated other comprehensiveloss (826)
  (536)
  (831)
  Total Shareholders'Equity 5,619
  6,447
  6,119
         **  TOTAL LIABILITIESAND SHAREHOLDERS' EQUITY**$43,412
 $34,906
 $44,317           Total commonshares outstanding 314.8   329.8   320.4                   Seeaccompanying notes.           

index
**SEARS, ROEBUCK AND CO.****Condensed Consolidated Statements of Cash Flows**(Unaudited)13 Weeks Ended
*millions*March 30,March 31,2002
2001
CASH FLOWS FROM OPERATING ACTIVITIES      Net income (loss)$(81)  $176  Adjustments to reconcile netincome (loss) to net cash        provided by (used in)operating activities        Depreciation, amortizationand other non-cash items 229   224    Cumulative effect ofchanges in accounting principle 399   --    Provision for uncollectibleaccounts 381   191    Special charges andimpairments 111   --    Gain on sales of propertyand investments (76)   (1)    Income taxbenefit on nonqualified stock options9 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) providedby operating activities  (43)
  593
               CASH FLOWS FROM INVESTING ACTIVITIES        Proceeds from salesof property and investments 123   12    Purchases of propertyand equipment (193)   (249)    Purchases of long-terminvestments (2)
  (42)
 Net cash used in investingactivities  (72)
  (279)
               CASH FLOWS FROM FINANCING ACTIVITIES        Proceeds from long-termdebt 1,396   1,030    Repayments of long-termdebt (886)   (599)    Decreasein short term borrowings, primarily    90 days or less(72) (853)   Repayments of ESOP notereceivable 2   8    Common shares repurchased (427)   (168)    Common shares issuedfor employee stock plans 59   17    Dividends paid to shareholders (74)
  (77)
 Net cash used in financingactivities  (2)
  (642)
          Effect of exchange rateon cash and invested cash 2 
  (4)
          NET DECREASE IN CASHAND CASH EQUIVALENTS (115)
  (332)
          **BALANCE AT BEGINNINGOF YEAR** 1,064 
  842 
          **BALANCE AT END OFPERIOD**$949 
 $510 
               See accompanyingnotes.       

index
**SEARS,ROEBUCK AND CO.****Notes To Condensed consolidated Financial Statements**(Unaudited)

**NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
The Condensed Consolidated Balance Sheets as of March30, 2002 and March 31, 2001, the related Condensed Consolidated Statementsof Income for the 13 weeks ended March 30, 2002 and March 31, 2001, andthe Condensed Consolidated Statements of Cash Flows for the 13 weeks endedMarch 30, 2002 and March 31, 2001, are unaudited. The interim financialstatements reflect all adjustments (consisting only of normal recurringaccruals) which are, in the opinion of management, necessary for a fairstatement of the results for the interim periods presented. The condensedconsolidated financial statements should be read in conjunction with theconsolidated 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 consideredindicative of results to be expected for the full year.
Certain reclassifications have been made to the 2001 financialstatements to conform with the current year presentation.  
**NOTE 2 - SHAREHOLDERS' EQUITY**
**Dividend Payments**
Under terms of indentures entered into in 1981 and thereafter,the Company cannot take specified actions, including the declaration ofcash dividends, that would cause its unencumbered assets, as defined, tofall below 150% of its liabilities, as defined. At March 30, 2002, approximately$7.1 billion could be paid in dividends to shareholders under the mostrestrictive indentures.  
**Share Repurchase Program**
The Company repurchased common shares during the firstquarter of 2002 and 2001 under common share repurchase programs approvedby the Board of Directors. During the first quarter of 2002, the Companyrepurchased 3.4 million common shares at a cost of $177 million under a$1.0 billion share repurchase program approved by the Board of Directorson August 9, 2000. All shares authorized to be repurchased under this programhave been acquired.
On December 12, 2001, the Board of Directors approvedanother common share repurchase program to acquire up to $1.5 billion ofthe Company's common shares by December 31, 2004. During the first quarterof 2002, the Company repurchased 4.8 million common shares under this programat a cost of $250 million. As of March 30, 2002, the Company had remainingauthorization to repurchase $1.3 billion of shares under this program.
   
index
**SEARS, ROEBUCK AND CO.****Notes To Condensed Consolidated Financial Statements**(Unaudited)
**Comprehensive Income (Loss) and Accumulated Other ComprehensiveLoss**
The following table shows the computation of comprehensiveincome (loss):  13 Weeks Ended
*millions*March 30,March 31,2002
2001
Net income (loss)$(81) $176 Other comprehensiveincome (loss):After tax cumulativeeffect of a change in  accounting for derivatives--  (262) Amounts amortizedinto interest expense from OCI4  4 Change in fairvalue of cash flow hedges-- (4) Unrealized gainon investments-- 2 Foreign currency translationadjustments1 
(27)
Total other comprehensive income(loss)5 
(287)
Total comprehensive income(loss)$(76)
$(111)
  
The following table displays the components of accumulatedother comprehensive loss:  *millions*March 30, March 31, December 29, 2002
 2001
 2001
Accumulated derivativeloss$(207) $(262) $(211) Unrealized gainon securities held, net of tax-- 3 -- Currency translationadjustments(154) (145) (155)  Minimum pension liability,net of tax (1) (465)
  (132)
  (465)
Accumulated other comprehensiveloss$(826)
$(536)
$(831)
(1)Minimum pension liability is calculated annually in the fourth quarter.Changes thereto are recorded at that time.  
**NOTE 3 - EARNINGS PER SHARE**
The following table sets forth the computations of basicand diluted earnings (loss) per share:  13 Weeks Ended
*millions,except per share data*March 30,March 31,2002
2001
Net income (loss)available to Common shareholders (1)$(81) $176  Average common shares outstanding 319.0 
  331.8 
    Earnings (loss) per share -basic$(0.26)  $0.53     Dilutive effect of stock options 5.0   1.7    Average common and common equivalentshares outstanding324.0
333.5 
 Earnings (loss) per share -diluted$(0.25)
 $0.53 
             (1)Incomeavailable to common shareholders is the same for purposes of calculatingbasic and diluted EPS.

index
**SEARS, ROEBUCK AND CO.****Notes To Condensed Consolidated Financial Statements**(Unaudited)
The following table sets forth the computations of basicand diluted earnings per share before cumulative effect of a change inaccounting principle:  13 Weeks Ended
*millions,except per share data*March 30,March 31,2002
2001
Income before cumulativeeffect of accounting changes (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 equivalentshares outstanding324.0
333.5
 Earnings per share - diluted$0.98
 $0.53
             (1)Incomebefore cumulative effect of accounting changes is the same for purposesof calculating basic and diluted EPS.
In each period, certain options were excluded from thecomputation of diluted earnings per share because they would have beenanti-dilutive. At March 30, 2002 and March 31, 2001, options to purchase3.8 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 2001calculations, respectively.  
**NOTE 4 - SEGMENT DISCLOSURES**
The following tables set forth revenue, expenses, operatingincome (loss) and total assets by segment:
For the 13 weeks ended March 30, 2002  Reconciling Items
*millions*Retail and Related Services
Credit and Financial Products
Corporate andOther
Sears Canada
Total
Non-comparable Items
Consoli-dated GAAP
Merchandise sales and services$6,768  $-- --  $58  $821  $7,647  $--  $7,647 Credit and financial productsrevenues -- 
  1,318 
  -- 
  72 
  1,390 
  --
  1,390 
Total revenues6,768 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 foruncollectible accounts --   371   --   10   381   --   381    Depreciation andamortization 168   5   12   25   210   --   210    Interest (4)   271   --   25   292   --   292    Special chargesand impairments -- 
  -- 
  -- 
  -- 
  -- 
  111 
  111 
     Total costs and expenses6,681 
875 
127 
887 
8,570 
111 
8,681 
Operating income (loss)$87 
$443 
$(69)
 $6 
$467 
$(111)
$356 
Total assets$10,659 
$27,126 
$2,363 
$3,264 
$43,412 

There was no securitization impact for the first quarterof 2002.

**SEARS, ROEBUCK AND CO.****Notes To Condensed Consolidated Financial Statements**(Unaudited)
For the 13 weeks ended March 31, 2001  Reconciling Items
*millions*Retail and Related Services
Credit and Financial Products
Corporate andOther
Sears Canada
Total
Securi-tization Impact
Consoli-dated GAAP
Merchandise sales and services$6,806  $--  $84  $864  $7,754  $--  $7,754 Credit and financial productsrevenues -- 
  1,300 
  --
  78 
  1,378 
  (275)
  1,103 
Total revenues6,806 1,300 84 942 9,132 (275) 8,857 Costs and expenses                      Costs of sales, buying and   occupancy 5,153   --   37   646   5,836   --   5,836    Selling and administrative 1,530   194   100   246   2,070   (39 )  2,031    Provision foruncollectible accounts --   334   --   10   344   (153 )  191    Depreciation andamortization 176   5   14   20   215   --   215    Interest 3 
  402 
  -- 
  30 
  435 
  (123)
  312 
     Total costs and expenses6,862 
935 
151 
952 
8,900 
(315)
8,585 
Operating income (loss)(56)
365 
(67)
(10)
232 
40 
272 
Goodwill amortization expense4 
-- 
1 
(6)
(1)
-- 
(1)
Operating income (loss) excluding  amortization expense$(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 securitizationimpact) affecting the first quarter of 2001.    
**NOTE 5 - SPECIAL CHARGES AND IMPAIRMENTS**
Following is a summary of the 2002 activity in the reservesestablished in connection with the Company's restructuring initiatives:  *millions*Ending Reserve Balance 12/29/01
2002Charges
AssetWrite-Downs
Cash Payments
Ending Reserve Balance 03/30/02
**Sears Canada**
Employee termination costs$-- $3 $-- $-- $3 Contractual obligationsand other costs-- 16 -- -- 16 Asset impairments--
92
(92)
-- 
--
-- 111 (92) -- 19 **ProductivityInitiatives**
Employee termination costs92 -- -- (29) 63 Contractual obligations andother costs5
--
-- 
(1)
4
97 -- -- (30)  67 **Product CategoryExits**Employee termination costs 7 -- -- (2) 5 Contractual obligations andother costs 65
--
-- 
(9)
56
72 -- -- (11) 61 **2000 Store Closures**Lease and holding costs41
- 

--- 
(6)
35
41
--
-- 
(6)
35
Total$210
$111
$(92)
$(47)
$182
  
  
**SEARS, ROEBUCK AND CO.****Notes To Condensed Consolidated Financial Statements**(Unaudited)
**Sears Canada**
During the first quarter of 2002, Sears Canada announceda 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, assetimpairments and other exit costs. Of the $111 million charge, $92 millionis to record asset impairments on fixtures and equipment in such facilities.The remaining $19 million is comprised of $16 million for contractual obligationsand holding costs and $3 million for employee termination costs.  
**Productivity Initiatives**
During the fourth quarter of 2001, the Company announceda series of strategic initiatives designed to revitalize its Full-lineStores and reduce operating expenses. In connection therewith, the Companyrecorded a pretax charge of $123 million related to employee termination,facility closing and other exit costs. Of the $123 million charge, $102million was for employee termination costs associated with the plannedelimination of 5,950 associate positions as part of this initiative. Thepositions to be eliminated include store support positions within the Company'sheadquarters as well as positions within store and field operations. Theremaining $21 million of productivity related charges was comprised of$13 million for contractual obligations and holding costs associated withcertain support facilities to be vacated as a result of the plan, and $8millionto record asset impairments on fixtures and equipment in such facilities.As of March 30, 2002, approximately 4,300 positions have been eliminatedas a result of this plan.  
**Product Category Exits**
During 2001, the Company announced its decision to exitcertain product categories within its Full-line Stores, including its skincare and color cosmetics, installed floor covering and custom window treatmentsbusinesses. In connection with these exits, the Company recorded pretaxcharges totaling $151 million during 2001. Of the $151 million charge,$106 million was recorded for the cost of settling contractual obligationsto certain vendors and contractors and for other exit costs associatedwith the Company's plan to discontinue these businesses, including incrementalcustomer warranty claims liability to be incurred by the Company in theabsence of ongoing relationships with certain product manufacturers. Alsoincluded within the $151 million charge were asset impairment charges of$38 million, primarily reflecting the write-down of store fixtures withinthe exited businesses to their estimated fair value. The remaining $7 millionof product category exit charges was for employee termination costs associatedwith management's decision to eliminate 1,980 associate positions connectedto the exited businesses, primarily store sales positions. As of March30, 2002 approximately 900 positions have been eliminated as a result ofthese exits.  
**2000 Store Closures**
In December 2000, the Company announced the planned closureof 87 under-performing stores consisting of 53 National Tire and Battery("NTB"), 30 Hardware and four Full-line Stores (including two Sears AutoCenters) and the termination of approximately 2,000 positions as a directresult of the store closures. In connection with
the store closings, the Company recognized a pretax chargeof $150 million in the fourth quarter of 2000 of which $59 million relatedto asset impairments, $17 million related to goodwill impairment, $57 millionrelated to lease and holding costs, $14 million related to inventory liquidationlosses and $3 million related to employee termination costs.
  
**SEARS, ROEBUCK AND CO.****Notes To Condensed Consolidated Financial Statements**(Unaudited)
The asset impairment charge related to the write-downof property and equipment to fair value (less costs to sell and net ofestimated salvage value). The assets consisted primarily of land, abandonedleasehold improvements and equipment used at the closed stores. As partof the asset impairment review for the closed stores, the Company wrote-offthe goodwill allocated to the stores (on a pro rata basis using the relativefair values of the long-lived assets at the acquisition date). The chargealso provided a reserve for incremental costs and contractual obligationsfor items such as estimated future lease obligations net of sublease income,lease termination payments and other facility exit costs incurred as adirect result of the store closures. As a result of the store closings,certain inventory was written down to its net realizable value. This resultedin 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. Thereserve balance of $35 million as of March 30, 2002 primarily representsestimated future lease obligations and estimated losses on properties whichare 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 ofproperty and investments$76 $1  Equity income in unconsolidatedcompanies  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 itsAAP 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-taxcash proceeds of $110 million.    
**NOTE 7 - CHANGE IN ACCOUNTING POLICY AND IMPLEMENTATIONOF NEW ACCOUNTING STANDARDS**
***Change in Accounting Policy***
In the second quarter of 2002, the Company adopted a changein accounting policy related to its method used to determine the allowancefor uncollectible accounts. In accordance with Accounting Principles BoardOpinion No. 20, "Accounting Changes", the cumulative effect of this changein accounting policy has been recorded as of the beginning of fiscal 2002.  
  
**SEARS, ROEBUCK AND CO.****Notes To Condensed Consolidated Financial Statements**(Unaudited)
The Company periodically reviews its accounting practicesto ensure that its adopted policies appropriately reflect changes in itsbusinesses, the industries it operates in, and the regulatory and politicalenvironments. During the second quarter, the Company compared its methodologyfor computing the allowance for uncollectible accounts to the methodologiesof participants in the bank card industry. The Company felt that a comparisonto bank card issuers was appropriate given the growth of the Sears GoldMasterCard product (over $8 billion in balances at the end of the secondquarter of 2002) and the recent changes to the Sears Card product thatare meant to provide a wider range of services to the Sears Card holder(e.g., balance transfers, convenience checks, broader acceptance, etc.)The Company determined that practice in the industry was diverse and evolving,particularly in the areas of providing allowances for current accounts,finance charges and credit card fees. The Company's previous policy fordetermining the allowance for uncollectible accounts provided an allowancefor principal and finance charges on past due accounts but not for currentaccounts or credit card fees. Based on its comparison, the Company haschanged its methodology to provide an allowance for principal and financecharge balances on current and past due accounts as well as for creditcard fee balances. The Company believes that this new methodology for determiningits allowance is preferable, as it is consistent with more conservativeindustry practices in this area.
The cumulative effect of the accounting change as of December30, 2001 was to decrease net income for the quarter ended March 30, 2002by $191 million, net of tax, or $0.59 per share. There was no impact onincome before cumulative effect of accounting changes as a result of adoptingthe new methodology.
The pro forma effect of this accounting change on recentfiscal periods is presented below.  
***Adoption of SFAS No. 142***
Effective at the beginning of 2002, the Company adoptedStatement of Financial Accounting Standards ("SFAS") No. 141, "BusinessCombinations," and SFAS No. 142, "Goodwill and Other Intangible Assets".The guidance in SFAS No. 141 supercedes APB Opinion No. 16, "Business Combinations".Upon adoption of SFAS No. 142, goodwill amortization ceased. Goodwill isnow subject to fair-value based impairment tests performed, at a minimum,on an annual basis. In addition, a transitional goodwill impairment testis required as of the adoption date. These impairment tests are conductedon each business of the Company where goodwill is recorded, and may requiretwo steps. The initial step is designed to identify potential goodwillimpairment by comparing an estimate of fair value for each applicable businessto its respective carrying value. For those businesses where the carryingvalue exceeds fair value, a second step is performed to measure the amountof goodwill impairment in existence, if any.
The Company had approximately $371 million in positivegoodwill and $77 million in negative goodwill recorded in its consolidatedbalance sheet at the beginning of 2002. The $77 million in negative goodwillwas required to be de-recognized upon adoption of the Statement. The Companycompleted the required transitional goodwill impairment test in the firstquarter of 2002, and determined that $261 million of goodwill recordedwithin the Company's Retail and Related Services segment, primarily relatedto NTB and Orchard Supply Hardware, was impaired under the fair value impairmenttest approach required by SFAS No. 142.
The fair value of these reporting units was estimatedusing the expected present value of associated future cash flows and marketvalues of comparable businesses where available. Upon adoption of the Statement,a $208 million charge, net of tax and minority interest, was recognizedin the first quarter of 2002 to record this impairment as well as the removalof negative goodwill and was classified as a cumulative effect of a changein accounting principle.  
  
**SEARS, ROEBUCK AND CO.****Notes To Condensed Consolidated Financial Statements**(Unaudited)

The following table presents the pro forma effect of thechange in accounting policy for the allowance for uncollectible accountsand the adoption of SFAS No. 142 on recent fiscal periods as if the changeswere 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) --    Positivegoodwill amortization5 5 5 5 20 24 24    Impact of changein accounting   for the allowance for    uncollectible accounts (3)
 (2)
 (3)
 (2)
 (10)
 3 
 7 
Pro forma net income (loss)$493 
$261 
$(198)
$175
$731 
$1,355
$1,484
**Earnings percommon share**   **Basicearnings (loss) per share:**    Reported net income (loss)$1.53 $0.81 $(0.60) $0.53 $2.25 $3.89 $3.83      Goodwill amortization0.01 -- 0.01 -- 0.02 0.03 0.06      Impact of change in      accounting  for the       allowance for      uncollectible accounts(0.01)
(0.01)
(0.01)
(0.01)
(0.03)
0.01
0.02 
    Pro formanet income (loss)$1.53 
$0.80 
$(0.60)
$0.52 
$2.24 
$3.93 
$3.91 
   **Dilutedearnings (loss) per share:**   Reported net income (loss)$1.52 $0.80 $(0.60) $0.53 $2.24 $3.88 $3.81      Goodwill amortization0.01 -- 0.01 --  -- 0.02 0.03 0.06      Impact of change in       accounting for the      allowance for      uncollectble accounts(0.01)
(0.01)
(0.01)
(0.01)
(0.03)
0.01 
0.02 
    Pro formanet income (loss)$1.52
$0.79 
$(0.60)
$0.52 
$2.23 
$3.92
$3.89
Average commonshares outstanding322.6 324.5 326.6 331.8 326.4 345.1 379.2 Average commonand common   equivalent shares outstanding325.5 326.9 326.6 333.5 328.5 346.3 381.0     
The changes in the carrying amount of goodwill for the13 weeks ended March 30, 2002, are as follows:  *millions*Retail and Related Services
Credit and Financial Products
Corporate andOther
Sears Canada
Total
Balance as of December29, 2001$291 $2 $61 $(60) $294     Cumulative effectof adopting SFAS No. 142:      Impairment loss recognized (261)   --   --   --   (261)     Elimination ofnegative goodwill -- 
  -- 
  -- 
  77 
  77 
 Balance as of March 30, 2002$30 
$2 
$61 
$17 
$110 
  
  
**SEARS, ROEBUCK AND CO.****Notes To Condensed Consolidated Financial Statements**(Unaudited)
***Adoption of SFAS No. 144***
In August 2001, the FASB issued SFAS No. 144, "Accountingfor the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supercedesSFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to be Disposed Of" and the accounting and reporting requirementsof APB Opinion No. 30, "Reporting the Results of Operations - Reportingthe Effects of Disposal of a Segment of a Business, and Extraordinary andUnusual and Infrequently Occurring Events and Transactions" for the disposalof a segment of business. SFAS No. 144 resolves certain implementationissues related to SFAS No. 121 and establishes a single accounting modelfor long-lived assets to be disposed of by sale (whether individual assetsor a component of a business). SFAS No. 144 was adopted by the Companyat the beginning of 2002.  
**NOTE 8 - EFFECT OF NEW ACCOUNTING STANDARDS NOT YETADOPTED**
In June 2001, the FASB issued SFAS No. 143, "Accountingfor Asset Retirement Obligations". SFAS No. 143 addresses financial accountingand reporting for obligations associated with the retirement of tangiblelong-lived assets and the associated asset retirement costs. SFAS No. 143is effective for fiscal years beginning after June 15, 2002 with earlieradoption encouraged. The Company does not expect the provisions of SFASNo. 143 to have a material impact on the Company's consolidated financialposition, results of operations, or cash flows and intends to adopt SFASNo. 143 for the 2003 fiscal year.
In April 2002, the FASB issued SFAS No. 145, " Rescissionof FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,and Technical Corrections". Statement 145 rescinds Statement 4, "ReportingGains and Losses from Extinguishment of Debt-an amendment of APB OpinionNo. 30", which required all gains and losses from extinguishment of debtto be aggregated and, if material, classified as an extraordinary item,net of related income tax effect. As a result, the criteria set forth byAPB Opinion 30 will now be used to classify those gains and losses. Statement64 amended Statement 4, and is no longer necessary because Statement 4has been rescinded. Statement 44 was issued to establish accounting requirementsfor the effects of transition to the provisions of the Motor Carrier Actof 1980. Statement 145 also amends Statement 13 to require that certainlease modifications that have economic effects similar to sale-leasebacktransactions be accounted for in the same manner as sale-leaseback transactions.This Statement also makes non-substantive technical corrections to existingpronouncements. SFAS No. 145 is effective for fiscal years beginning afterMay 15, 2002 with earlier adoption encouraged. The Company does not expectthe provisions of SFAS No. 145 to have a material impact on the Company'sconsolidated financial position, results of operations, or cash flows andintends to adopt SFAS No. 145 for the 2003 fiscal year.  
**NOTE 9 - DERIVATIVE FINANCIAL INSTRUMENTS AND FINANCIALGUARANTEES**
The Company utilizes derivative financial instrumentsas part of an overall risk management program designed to address certainfinancial exposures faced by the Company. The only significant derivativeinstruments the Company currently holds are interest rate swaps. As ofMarch 30, 2002, the Company had interest rate swaps with an aggregate fairvalue of $(148) million that have been used to synthetically convert certainof the Company's domestic fixed rate debt to variable rate. The objectiveof this conversion is to achieve increased levels of variable rate fundinggiven the growth of variable rate receivable levels within the Company'scredit card receivables portfolio and the Company's intention to convertthe finance charge on the Sears Card from fixed rate to variable rate inmid-2002.
The Company's interest rate swaps have been recorded onthe balance sheet at fair value, classified as $45 million within otherreceivables, $15 million within other assets, and $208 million within otherlong-term liabilities. For accounting purposes, the swaps are designatedand qualify as fair value hedges of certain of the Company's fixed ratedebt instruments. As the critical terms of the swaps are designed to matchthose of the underlying hedged debt, the change in fair value of the swapsis largely offset by changes in fair value recorded on the hedged debt.Consequently, the amount of hedge ineffectiveness recorded during 2002and 2001 in connection with these hedges was not material and is reflectedas a component of interest expense.  
  
**SEARS, ROEBUCK AND CO.****Notes To Condensed Consolidated Financial Statements**(Unaudited)

**NOTE 10 - SECURITIZATIONS**
In September 2000, the FASB issued SFAS No. 140, "Accountingfor Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities". The guidance in SFAS No. 140 superceded SFAS No. 125. UnderSFAS No. 125, the Company's securitization transactions were accountedfor as sales of receivables. SFAS No. 140 established new conditions fora securitization to be accounted for as a sale of receivables. Specifically,SFAS No. 140 changed the requirements for an entity to be a qualifyingspecial purpose entity and modified under what conditions a transferorhas retained effective control over transferred assets. The new standardwas effective for transfers occurring after March 31, 2001.
The addition of previously uncommitted assets to the securitizationtrust in April 2001 required the Company to consolidate the securitizationstructure for financial reporting purposes on a prospective basis. Accordingly,the Company recognized approximately $8.1 billion of previously unconsolidatedsecuritized credit card receivables and related securitization borrowingsin the second quarter of 2001. In addition, approximately $3.9 billionof assets were reclassified to credit card receivables from retained interestin transferred credit card receivables. The Company now accounts for securitizationsas secured borrowings.
In connection with the consolidation of the securitizationstructure, the Company recognized a non-cash, pretax charge of $522 millionto establish an allowance for uncollectible accounts related to the receivableswhich were previously considered as sold or accounted for as retained interestsin transferred credit card receivables.
At March 30, 2002 and March 31, 2001, $14.5 and $12.2billion, respectively, of domestic credit card receivables were segregatedin securitization trusts. In addition, $1.0 and $1.2 billion, respectively,of Sears Canada credit card receivables were segregated in securitizationtrusts.  

 index
**INDEPENDENTACCOUNTANTS' REPORT** 
To the Board of Directors and Shareholders ofSears, Roebuck and Co.
We have reviewed the accompanying Condensed ConsolidatedBalance Sheets of Sears, Roebuck and Co. as of March 30, 2002 and March31, 2001, and the related Condensed Consolidated Statements of Income andof Cash Flows for the 13 week periods then ended. These condensed consolidatedfinancial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standardsestablished by the American Institute of Certified Public Accountants.A review of interim financial information consists principally of applyinganalytical procedures to financial data and of making inquiries of personsresponsible for financial and accounting matters. It is substantially lessin scope than an audit conducted in accordance with auditing standardsgenerally accepted in the United States of America, the objective of whichis the expression of an opinion regarding the financial statements takenas a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any materialmodifications that should be made to such condensed consolidated financialstatements for them to be in conformity with accounting principles generallyaccepted in the United States of America.
We have previously audited, in accordance with auditingstandards generally accepted in the United States of America, the ConsolidatedBalance Sheet of Sears, Roebuck and Co. as of December 29, 2001, and therelated Consolidated Statements of Income, Shareholders' Equity, and CashFlows for the year then ended (not presented herein); and in our reportdated February 8, 2002, we expressed an unqualified opinion on those consolidatedfinancial statements. In our opinion, the information set forth in theaccompanying Condensed Consolidated Balance Sheet as of December 29, 2001,is fairly stated, in all material respects, in relation to the ConsolidatedBalance Sheet from which it has been derived.
As discussed in Note 7 to the Condensed Consolidated FinancialStatements, in 2002 the Company changed its method used to determine theallowance for uncollectible accounts and, as required by new accountingstandards, its accounting for goodwill and other intangibles.    /s/ DELOITTE & TOUCHELLPDeloitte & Touche LLPChicago, IllinoisMay 1, 2002 (July 18, 2002 as to Note 7)   
  
**SEARS, ROEBUCK AND CO.****13 Weeks Ended March 30, 2002 and March 31, 2001**
** **index
*Item 2. Management's Discussion and Analysis of Operations,Financial Condition and Liquidity*
**ANALYSIS OF OPERATIONS**
Operating results for the Company are reported for threedomestic segments and one international segment. The domestic segmentsinclude the Company's operations in the United States and Puerto Rico.The Company's segments are defined as follows:·**Retailand Related Services**consisting of:**-  Full-line Stores (includes operations of Sears Auto Centersand online revenues of Sears.com)  
-  Specialty Stores (Dealer Stores, Hardware Stores, NationalTire and Battery, The Great Indoors, Commercial Sales and Outlet stores)  
-  Sears Repair Services (a broad range of services includingservice contracts, product installation and repair services primarily forproducts sold by the Company)  
-  Direct to Customer (direct marketing of goods and services,clubs and services memberships, merchandise through specialty catalogsand impulse and continuity merchandise)  
·**Corporate andOther include:**-  Activities that are of an overall holding company nature,primarily consisting of administrative activities, the costs of which arenot allocated to the Company's businesses  
-  Sears Home Improvement Services (including Sears Termiteand Pest Control for the 13 weeks ended March 31, 2001)  
·**Sears Canadaconducts similar retail, credit, and corporate operations in Canada throughSears Canada Inc. ("Sears Canada"), a consolidated, 54.4% owned subsidiaryof Sears**·**Credit and FinancialProducts includes domestic credit card operations and relatedfinancial product offerings (credit protection and insurance products).**
**Description of Noncomparable Items**
Earnings (loss) per share for the quarter ended March30, 2002 was ($0.25) compared with $0.53 for the comparable 2001 period.Net income (loss) was ($81) million for the first quarter of 2002 comparedto $176 million in 2001. Results of operations for the quarter ended March30, 2002 were affected by noncomparable items. The effect of noncomparableitems on net income and earnings per share are summarized in the tablebelow.  *millions, except per share* Net Income (Loss)
 Earnings (Loss) per Share
  March 30, March 31, March 30, March 31,  2002
 2001
 2002
 2001
Excluding noncomparableitems$300 $150 $0.93 $0.45 Advance Auto Partsgain58 -- 0.18 -- Sears Canada -Eaton's conversion costs(40) -- (0.13) -- Cumulative effectof a change in accounting for goodwill(208) -- (0.64) -- Cumulative effectof a change in accounting for the allowance for doubtful accounts(191) -- (0.59) Securitization income-- 
26
-- 
0.08
As reported$(81)
$176
$(0.25)
$0.53

The Company defines noncomparable items as transactionsthat are one-time in nature, related to the implementation of special initiativesof the Company, or related to changes in accounting. Following is a descriptionof the noncomparable items affecting the first quarter ended March 30,2002 and March 31, 2001.
On March 6, 2002, as part of an Advance Auto Parts ("AAP")public stock offering, the Company sold approximately 3.1 million of itsAAP 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-taxcash proceeds of $110 million.  
  
**SEARS, ROEBUCK AND CO.****13 Weeks Ended March 30, 2002 and March 31, 2001**

In February 2002, Sears Canada announced its intentionto 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 andadvertising efforts, and take more powerful advantage of the Sears brand'sequity. 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 thefirst quarter of 2002 related to the conversions. Of the $111 million charge,$92 million was recorded for the cost of asset impairments, primarily reflectingthe write-down of store fixtures. Also included within the $111 millioncharge are $3 million for employee termination costs and $16 million forthe cost of settling contractual obligations and other exit costs associatedwith the Company's plan to convert these stores.
In the first quarter of 2002, the Company recorded a non-cashcharge of $208 million, net of tax and minority interest, or $0.64 pershare, due to the adoption of a new accounting standard, SFAS No. 142,"Goodwill and Other Intangible Assets. " This charge was reported as acumulative effect of an accounting change.
As discussed in Note 7, in the second quarter of 2002,the Company changed its methodology for determining the allowance for uncollectibleaccounts. The Company's previous policy for determining the allowance foruncollectible accounts provided an allowance for principal and financecharge balances on past due accounts. The Company has changed to a morepreferable methodology of providing an allowance for principal and financecharge balances on current and past due accounts, as well as for creditcard fee balances. In accordance with Accounting Principles Board OpinionNo. 20, "Accounting Changes", the cumulative effect of this change in accountingpolicy has been recorded as of the beginning of fiscal 2002.
Effective in the second quarter of 2001, the Company adoptedSFAS No. 140, "Accounting for Transfers and Servicing of Financial Assetsand Extinguishments of Liabilities", and changed its accounting for securitizations.After tax securitization income of $26 million, or $0.08 per share, wasrecorded in first quarter 2001 net income.  
**Basis of Presentation**
The Company has presented the following discussion ofresults of operations by business segment. The Company reports its businesssegments' results excluding the impacts of noncomparable items and securitizationincome. The Company believes this presentation facilitates the understandingof the results and trends affecting each segment's core operations. Thispresentation is consistent with how the Company reports results internallyto senior management and the Board of Directors.
All references to earnings per share relate to dilutedearnings per common share.  
**Analysis of Consolidated Results**
For the 13 weeks ended March 30, 2002, net income was$300 million or $0.93 per share, as compared to $150 million or $0.45 pershare for the comparable 2001 period. The increase in earnings per shareprimarily reflects higher operating income in the Retail and Related Servicesand Credit and Financial Products segment as well as a reduction in sharesoutstanding due to the Company's share repurchase program.
The Company's consolidated effective tax rate for the13 weeks ended March 30, 2002 was 34.1% compared to 35.9% in the comparableprior year period. These consolidated rates reflect the effect of tax ratesapplicable to the Company's various consolidated entities and activitiesand the decrease in the consolidated effective tax rate is due to changesin composition of earnings among these consolidated entities and activities.  

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

Due to holiday buying patterns, merchandise sales aretraditionally higher in the fourth quarter than other quarterly periodsand a disproportionate share of operating income is typically earned inthe fourth quarter. This business seasonality results in performance forthe 13 weeks ended March 30, 2002 which is not necessarily indicative ofperformance for the balance of the year. The Company makes available byphone a recorded message on the sales performance of its domestic stores.The message is updated weekly and can be heard by calling (847) 286-6111.  
**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 comparable2001 period. Retail and Related Services results and related informationare as follows:  *millions,except number of stores*13 Weeks Ended
March 30,March 31,2002
2001
Change
Full-line Storesrevenues (includes sears.com)$5,102 $5,257 -2.9%Specialty Storesrevenues1,118 1,031 8.4%Related Services revenues548 
518 
5.8%     TotalRetail and Related Services revenues6,768 
6,806 
-0.6%Cost of sales,buying and occupancy5,005 5,153 Selling and administrative1,512 1,530 Depreciation andamortization168 176 Interest expense (income)(4)
3 
     Totalcosts and expenses6,681 
6,862 
Operating income (loss)$87 $(56) Number of Full-lineStores870 860 Number of Specialty Stores1,299 
1,301 
Total Retail stores2,169 
2,161 
Comparable storesales percentage (decrease)-2.9% -1.5%  
For the 13 week period, Full-line Stores revenues decreased2.9% from the first quarter of 2001, as comparable store sales decreased3.8% and ten net new stores were added.-  Hardlines comparable store sales decreased 2.4% in the firstquarter of 2002. Strong sales increases in home appliances were more thanoffset by declines in home office, home improvement and home electronicsrevenues. The strong increase in home appliances revenue reflects increasedsales in virtually all home appliance divisions. The Company experiencedparticularly strong sales of energy efficient laundry products. Home officerevenue declines can be attributed to declines in computer and computeraccessories sales, as lower margin product offerings were significantlyedited during 2001. Home improvement revenues decreased primarily due tolower lawn and garden sales, which was attributable to the unseasonablycooler weather throughout most of the nation. Decreases in tools and paintsales were offset by a strong increase in home fitness product sales. Theincrease in home fitness product revenues reflects increased sales of treadmills,elliptical machines, and game room products, partially offset by a decreasein bicycle sales, a category that was exited in 2001. The decreased revenuesin home electronics reflects lower sales of non-digital products such ascamcorders and stereo equipment.
-  Softlines comparable store sales decreased 8.3% in the firstquarter of 2002. In Softlines, the Company experienced low single digitsales decreases in children's apparel and footwear, despite the benefitof an early Easter holiday. These decreases were compounded by declinesin virtually all other categories. The Company's exit of the skin careand color cosmetics, installed floor covering and custom window treatmentsbusinesses contributed to the revenue declines in Softlines.
  
 **SEARS, ROEBUCK AND CO.****13 Weeks Ended March 30, 2002 and March 31, 2001**-  Sears Auto Centers revenues increased due to solid comparable storesales increases, which were achieved through successful promotions in thefirst quarter of 2002 as well as the addition of new service offeringssuch as oil change service and the DieHard Express service.
For the 13 week period ended March 30, 2002, Specialty Storesrevenues increased 8.4% from the comparable 2001 period, with comparablestore sales increasing 2.2%. This increase is primarily due to revenueincreases at The Great Indoors, Commercial Sales and Dealer Stores, partiallyoffset by declines in Hardware Store and National Tire and Battery. DealerStores revenue increases resulted from a solid comparable store sales increaseof 4.1%. National Tire and Battery revenues decreased due to 1 net storeclosing along with a comparable store sales decline. The Great Indoorsbenefited from the addition of 13 stores since the first quarter of lastyear.
Revenue increases in Sears Repair Services, primarilydriven by a vendor product recall, were partially offset by a decline inDirect to Customer revenue.
Retail and Related Services gross margin as a percentageof Retail and Related Services revenues for the first quarter of 2002 improvedto 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 improvementswithin hardlines, softlines and Hardware Stores are primarily due to benefitsfrom improved sourcing costs, editing assortments to reduce lower marginproducts, and a decrease in promotional markdown activity. The margin ratefor Sears Repair Services is benefiting from a recall of a vendor product.
Retail and Related Services selling and administrativeexpense as a percentage of Retail and Related Services revenues for thefirst quarter of 2002 decreased 20 basis points from the first quarterof 2001. The decrease was primarily due to expense improvements generatedfrom productivity initiatives offset by lower revenues and increased investmentsin The Great Indoors.
Retail and Related Services operating income improvedby $143 million as lower revenues and investments in The Great Indoorswere more than offset by margin improvements and cost savings from theCompany's productivity initiatives.  
**Credit and Financial Products**
Credit and Financial Products results and related informationare as follows:  *millions*13 Weeks Ended
March 30,March 31,2002
2001
Credit and financial productsrevenues$1,318
$1,300
Selling and administrative228 194 Provision for uncollectibleaccounts371 334 Depreciation andamortization5 5 Interest271
402
   Total costs andexpenses875
935
Operating income$443
$365
  
  
**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 comparableprior year period. The increase in revenues in the first quarter was primarilyattributable to higher average receivable balances as well as an increasein interchange fees generated from the Sears Gold MasterCard. The SearsGold MasterCard portfolio has continued to grow with balances now over$6 billion at March 30, 2002. A summary of Credit information (for themanaged portfolio) is as follows:  13 Weeks Ended
*millions,except for average account balance*March 30,March 31,2002
2001
Sears credit cardsales as a % of sales43.7% 47.1% Average accountbalance (as of March 30, 2002 and March 31, 2001) (*dollars)*$1,236 $1,161         Sears Card average managedcredit card receivables$21,639  $25,036  Sears Gold MasterCard averagemanaged credit card receivables 5,647
  1,304
   Total averagemanaged credit card receivables$27,286
$26,340
        Sears Card ending managed creditcard receivables$20,728  $24,320  Sears Gold MasterCard endingmanaged credit card receivables 6,279
  1,379
   Total ending managedcredit card receivables$27,007
$25,699

Credit and Financial Products selling and administrativeexpense as a percentage of Credit and Financial Products revenues increasedto 17.3%, an increase of 240 basis points in the first quarter of 2002from the comparable 2001 period. The increase was primarily due to highercustomer notification costs and increased consumer collection costs.
The activity in the domestic allowance for uncollectibleowned accounts and related information is as follows:    13 Weeks Ended
  March 30, March 31,*millions* 2002
 2001
Balance, beginningof period$1,115 $649 Provision for uncollectibleaccounts371 334    Less: securitizationadjustment-- 
(153)
 Net domestic provision foruncollectible accounts  371   181 Cumulative effectof change in accounting policy300 -- Net charge-offs(371) (180) Transfer to SecuritizationMaster Trust  -- 
  (83)
 Balance, end of period $1,415
 $567 
Allowance as percentof ending owned credit card receivables5.24% 4.14%  Net credit charge-offs to averagemanaged credit card receivables  5.43%   5.07%  Delinquency rate at period-end(1)  7.31%   7.50%    (1)The aging methodologyis based on the number of completed billing cycles during which a customerhas failed to make a required payment. Accounts are considered delinquentwhen a customer has failed to make a payment in each of the last threeor more billing cycles.
The domestic provision for uncollectible accounts increasedby $216 million to $371 million for the 13 weeks ended March 30, 2002 fromthe comparable prior year period. The increase in the provision is primarilydue to the additional credit card receivable balances recorded when theCompany consolidated its securitization structure for financial reportingpurposes in the second quarter of 2001. As a result, charge-offs that hadpreviously been recognized by the master trust are now included in theprovision for uncollectible accounts. Excluding the impact of securitizations,charge-offs increased by $38 million reflecting an increase in the netcharge-off rate in 2002 to 5.43% from 5.07% in 2001, primarily due to increasedcustomer bankruptcy filings. Despite the slight increase in bankruptcyfilings in 2002, the delinquency rate for 2002 decreased 19 basis pointscompared with 2001. At March 30, 2002, the period-end allowance as a percentof on-book receivables was 5.24%, or $1.4 billion, versus 4.14% or $567million at period-end 2001.  
  
**SEARS, ROEBUCK AND CO.****13 Weeks Ended March 30, 2002 and March 31, 2001**

Domestic interest expense is discussed within the Creditand Financial Products segment since the majority of the Company's interestexpense is allocated to this segment. Domestic interest expense is combinedwith the funding costs on receivables sold through securitizations to representtotal funding costs as follows:   13 Weeks Ended
      March 30, March 31,      2002
 2001
     Domestic interestexpense$267 $282 Funding cost on securitizedreceivables(1)--
123
Total domestic funding costs$267
$405
(1) Beginningin the second quarter of 2001, funding costs on securitized receivablesare included in the domestic segment interest expense.
Total domestic funding costs decreased by $138 millionprimarily due to the Company's increased use of variable rate financing.The shift to more variable rate funding is in response to the growth ofvariable rate receivables within the credit card portfolio (primarily theSears Gold MasterCard product) and the Company's intention to convert SearsCard finance charges from fixed rate to variable rate in 2002. The increasein variable rate funding was achieved primarily by using interest rateswaps to convert fixed rate debt to variable rate and by issuance of variablerate debt.
Operating income from Credit and Financial Products increasedby $78 million as favorable funding costs and higher revenues were partiallyoffset by higher provision and selling and administration expenses.    
**Corporate and Other**
Revenues from the home improvement services businessesincluded in the Corporate and Other segment decreased by approximately30% to $58 million due to the sale of certain assets of the Company's whollyowned subsidiary, Sears Termite and Pest Control, Inc., on October 1, 2001.Corporate headquarters spending was higher than the prior year's firstquarter 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 decreased5.2% from the same period a year ago. This reflects a 4.2 percent declinein the value of the Canadian dollar relative to the U.S. dollar as wellas a 1.6% decrease in comparable store sales.
Sears Canada gross margin as a percentage of Sears Canadamerchandise sales and services revenues increased 170 basis points in thefirst quarter of 2002 from the comparable prior year quarter. This favorabilityis primarily due to improved inventory levels which resulted in less clearanceactivity.
Sears Canada selling and administrative expense as a percentageof total Sears Canada revenues decreased 70 basis points in the first quarterof 2002 from the first quarter of 2001. SG&A as a percent of revenuesdecreased primarily due to operating expense reductions in several areas,such as advertising and payroll and benefits.
Operating income improved by $16 million due to marginrate improvements and expense reductions partially offset by decreasedrevenues.  
  
**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 flexibilitydue to the quality and liquidity of its assets, principally its creditcard receivables. As such, the Company accesses a variety of capital marketsto preserve flexibility and diversify its funding sources. The broad accessto capital markets also allows the Company to effectively manage liquidityand interest rate risk. Liquidity risk is the measure of the Company'sability to fund maturities and provide for the operating needs of its businesses.Interest rate risk is the effect on net income from changes in interestrates. The Company's cost of funds is affected by a variety of generaleconomic conditions, including the level and volatility of interest rates.The Company's policy is to manage interest rate risk through the strategicuse of fixed and variable rate debt and interest rate derivatives.  
**LIQUIDITY**
The Company's principal sources of liquidity are operatingcash flows and various sources of capital market borrowings. Capital marketborrowings 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 businessesare impacted by the competitive conditions in the retail industry, theeffects of the current economic climate and consumer confidence. Operatingcash flows from the Company's Credit business are directly impacted bychanges in interest rates, delinquency and charge-off trends in the creditcard receivables portfolio and customer acceptance of the Company's creditproduct offerings. Based on the nature of the Company's businesses, managementconsiders the above factors to be normal business risks.
The Company has not identified any reasonably possiblecircumstances that would likely impair the Company's ability to maintainits planned level of operations, capital expenditures, dividends and sharerepurchases in the foreseeable future or that would trigger any early paymentor acceleration provisions in the debt portfolio.  
**SIGNIFICANT ASSETS**
A summary of the Company's credit card receivables forthe 13 weeks ended March 30, 2002 and March 31, 2001, respectively, areas 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 transferredcredit card receivables(1)  --   (3,851)   -- Other customer receivables  31
  85 
  40
Domestic owned credit cardreceivables  27,038   13,790   27,639 Sears Canada credit card receivables  1,471
  1,543 
  1,682
Consolidated owned credit cardreceivables$28,509
$15,333 
$29,321
(1) The retained interest amount as of March31, 2001 is shown before a reserve of $142 million and an interest onlystrip balance of $154 million. 
Domestic managed credit card receivables increased $1.3billion from the first quarter of 2001 as growth from the Sears Gold MasterCardproduct was partially offset by lower Sears Card receivables. The SearsGold MasterCard product, which was launched in the second quarter of 2000,had approximately $6.3 billion in outstanding balances at March 30, 2002compared with $1.4 billion at March 31, 2001. Compared to 2001 year-end,domestic managed credit card receivables decreased $592 million. This decreasein managed credit card receivables is largely due to seasonal factors.  
  
**SEARS, ROEBUCK AND CO.****13 Weeks Ended March 30, 2002 and March 31, 2001**

As of March 30, 2002, consolidated merchandise inventorieson 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 reflectslower domestic hardlines and softlines inventories. Sears Canada inventorydecreased due to continued focus on managing inventory levels as well asthe improved seasonal content of the inventory.  
**CAPITAL RESOURCES**
Total borrowings outstanding at the end of the 13 weeksended March 30, 2002 and March 31, 2001 were $26.0 billion and $25.5 billion,respectively. Total borrowings, including debt reflected on the balancesheet and investor certificates related to credit card receivables issuedthrough 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 dueto the change in securitization accounting; the securitization trust wasnot consolidated for the 13 weeks ended March 31, 2001 (see Note 10 ofthe Notes to the Condensed Consolidated Financial Statements).
The Company's short-term borrowings consist primarilyof unsecured commercial paper. The Company continues to provide supportfor 100% of its outstanding commercial paper through its investment portfolioand committed credit facilities with various banks. At March 2002, theCompany had $5.5 billion in committed credit facilities of which $875 millionexpired in April 2002, $4.2 billion expires in April 2003 and $439 millionexpires in May 2003.
Additionally, in the first quarter of 2002, the Companycontractually 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 Form10-Q are "forward-looking statements" that involve risks and uncertaintiesthat could cause actual results to differ materially. Such statements arebased on assumptions about many important factors, including competitiveconditions in the retail industry; changes in consumer confidence and spendingin the United States and Canada; interest rates, bankruptcy filings, delinquencyand charge-off trends in the credit card receivables portfolio; continuedconsumer acceptance of the Sears Gold MasterCard program; the successfulexecution of and customer reaction to the Company's strategic initiatives;anticipated cash flow; general United States and Canada economic conditionsand normal business uncertainty. In addition, the Company typically earnsa disproportionate share of its operating income in the fourth quarterdue to seasonal buying patterns, which are difficult to forecast with certainty.While the Company believes that its assumptions are reasonable, it cautionsthat it is impossible to predict the impact of such factors which couldcause actual results to differ materially from predicted results. The Companyintends these forward-looking statements to speak only at the time of thisreport and does not undertake to update or revise these projections asmore information becomes available.  
  
**SEARS, ROEBUCK AND CO.**
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*Item 3. Quantitative and QualitativeDisclosures About Market Risk*
The nature of market risks faced by the Company at March30, 2002 are disclosed in the Company's Form 10-K for the year ended December29, 2001. As of March 30, 2002, 87% of the Company's funding portfoliowas variable rate (including current maturities of fixed-rate long-termdebt that will reprice in the next 12 months and fixed-rate debt convertedto variable rate through the use of derivative financial instruments).Based on the size of the Company's variable rate funding portfolio as ofMarch 30, 2002, which totaled $22.7 billion, a 100 basis point change ininterest rates would affect pretax funding cost by approximately $227 millionper annum. This estimate assumes that the funding portfolio remains constantfor an annual period and the interest rate change occurs at the beginningof the period. This estimate also does not take into account the effecton net interest margin of changes in revenue resulting from either changesin terms of the assets or in the index applicable to the variable ratereceivables.
The Company's level of variable rate funding is in responseto the growth of variable rate receivables within the Company's creditcard portfolio (primarily the Sears Gold MasterCard product) and the Company'sintention to convert the finance charge on the Sears Card from fixed rateto variable rate in mid-2002. The objective of variable rate funding isto reduce net interest margin risk by better aligning the Company's fundingwith its credit card assets. However, the Company is exposed to basis riskon any differences in the variable rate on the Company's debt, primarilyLIBOR-based, and the prime-based variable rate finance charge on the Company'scredit card portfolio. Additionally, the Company's ability to increasethe finance charge yield of its variable rate credit card assets may belimited at some point by competitive conditions. Prior to the conversionof the Sears Card to variable rate in mid-2002, the increased level ofvariable-rate funding increases the potential effect on earnings of fluctuationsin short term interest rates, primarily LIBOR.  

**SEARS, ROEBUCK AND CO.**
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PART II. OTHER INFORMATION  
*Item 1. Legal Proceedings*
There have been no material developments in any materiallegal proceedings since the Company's disclosure in its Annual Report onForm 10-K for the fiscal year ended December 29, 2001.  
*Item 6. Exhibits and Reports onForm 8-K.*
(a) Exhibits.
An Exhibit Index has been filed as part of this Reporton Page 25.  
(b) Reports on Form 8-K.
The Registrant filed a Current Report on Form 8-K datedJanuary 10, 2002 to report, under Item 5, that the Registrant issued apress release (attached as Exhibit 99 thereto).
The Registrant filed a Current Report on Form 8-K datedJanuary 17, 2002 to report, under Item 5, that the Registrant issued apress release (attached as Exhibit 99 thereto).  
  
**SEARS, ROEBUCK AND CO.**

SIGNATURE  
Pursuant to the requirements of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed onits behalf by the undersigned thereunto duly authorized. SEARS, ROEBUCK ANDCO.(Registrant)  July 30, 2002By/s/ Thomas E. BergmannThomas E. BergmannVice President and Controller(Principal Accounting Officer and duly authorized officerof Registrant)  
  
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**SEARS, ROEBUCK AND CO.****E-1****EXHIBIT INDEX**Exhibit No. 3(a).Restated Certificate of Incorporationas 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 February14, 2001 (incorporated by reference to Exhibit 3.(ii) to Registrant's AnnualReport on Form 10-K for the fiscal year ended December 30, 2000).4.Registrant hereby agrees to furnishthe Commission, upon request, with the instruments defining the rightsof holders of each issue of long-term debt of the Registrant and its consolidatedsubsidiaries.**10.Term sheet between the Registrant and ExecutiveVice President - Softlines, Kathryn Bufano dated November 26, 2001.**12.Computation of ratio of income to fixed chargesfor Sears and consolidated subsidiaries for each of the five years endedDecember 29, 2001 and for three- and twelve-month periods ended March 30,2002.*15.Acknowledgement of awarenessfrom Deloitte & Touche LLP, dated July 18, 2002, concerning unauditedinterim financial information.*18.Letter regarding changein accounting principle.*99(a)Certification of Chief ExecutiveOfficer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.1350)*99(b)Certification of Chief FinancialOfficer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.1350)  
* Filed herewith.
** Previously filed.  

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