<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q/A
                                AMENDMENT NO. 1




 X  QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2003
                               --------------

                                       OR

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from         to
                               -------    --------

Commission File No. 000-50278
                    ---------

                            KMART HOLDING CORPORATION
                            -------------------------
             (Exact name of registrant as specified in its charter)
<TABLE>
<S>                                                                     <C>

                           Delaware                                              32-0073116
  -------------------------------------------------------------------------------------------------------------
               (State or other jurisdiction of                                (I.R.S. Employer
               incorporation or organization)                               Identification No.)

      3100 West Big Beaver Road -- Troy, Michigan                                   48084
  --------------------------------------------------------------------------------------------------------------
             (Address of principal executive offices)                             (Zip Code)

      Registrant's telephone number, including area code                       (248) 463-1000
                                                                               --------------
</TABLE>



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed, by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                         Yes      X       No
                              ---------       -------

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

                         Yes      X       No
                              ---------       -------

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

                         Yes      X       No
                              ---------       -------

As of May 30, 2003, 89,677,509 shares of Common Stock of Kmart Holding
Corporation were outstanding.



<PAGE>

<TABLE>
<S>               <C>                                                                                        <C>
PART I               FINANCIAL INFORMATION                                                                       PAGE

Item 1.              Financial Statements

                     Condensed Consolidated Statements of Operations (Unaudited) --                                4
                     Predecessor Company -- for the 13-weeks ended April 30, 2003 and (Restated) May
                     1, 2002

                     Condensed Consolidated Balance Sheets (Unaudited) --                                          5
                     Successor Company -- as of April 30, 2003
                     Predecessor Company -- as of May 1, 2002 and January 29, 2003

                     Condensed Consolidated Statements of Cash Flows (Unaudited) --                                6
                     Predecessor Company -- for the 13-weeks ended April 30, 2003 and May 1, 2002

                     Notes to Unaudited Condensed Consolidated Financial Statements                               7-23

Item 2.              Management's Discussion and Analysis of Results of Operations and Financial                 24-31
                     Condition

Item 3.              Quantitative and Qualitative Disclosures about Market Risk                                   32

Item 4.              Controls and Procedures                                                                      32

PART II              OTHER INFORMATION

Item 1.              Legal Proceedings                                                                            33

Item 2.              Changes in Securities and Use of Proceeds                                                    33

Item 3.              Defaults Upon Senior Securities                                                              33

Item 5.              Other Information                                                                            34

Item 6.              Exhibits and Reports on Form 8-K                                                            34-36

                     Signatures                                                                                   37

                     Certifications                                                                              38-40
</TABLE>


                                        2


<PAGE>




                                EXPLANATORY NOTE

                 The purpose of this Amendment No. 1 to Quarterly Report on Form
         10-Q/A is to update the unaudited financial statements of Kmart Holding
         Corporation and its subsidiaries ("Kmart", "we", "us", or "our") filed
         with the Securities and Exchange Commission (SEC) on Form 10-Q on June
         16, 2003 to properly classify certain losses previously classified as
         losses from discontinued operations. In particular, the loss from
         discontinued operations of $250 million previously reported for the
         13-week period ended May 1, 2002, was reduced by approximately $83
         million to $167 million, and cost of sales from continuing operations
         of $6.4 billion was increased by approximately $83 million, resulting
         in no impact to net income as previously reported.

                  The Items of our Quarterly Report on Form 10-Q for the 13-week
         period ended April 30, 2003 which are amended and restated herein are:

         1.       Part I, Item 1 - Financial Statements, has been restated to
                  reclassify certain losses from discontinued operations to
                  continuing operations, as described above, for the 13-week
                  period ended May 1, 2002.

         2.       Part I, Item 2 - Management's Discussion and Analysis of
                  Financial Condition and Results of Operations, has been
                  revised to reflect the items described in Part I, Item 1
                  above.

         3.       The certifications required by Section 302 of the Sarbanes-
                  Oxley Act of 2002 have been re-executed.

         4.       The certifications required by Section 906 of the Sarbanes-
                  Oxley Act of 2002 have been re-executed.

                  Except as otherwise expressly noted herein, this Amendment No.
         1 to Quarterly Report on Form 10-Q/A does not reflect events occurring
         after the June 16, 2003 filing of our Quarterly Report on Form 10-Q for
         the 13-week period ended April 30, 2003 or modify or update the
         disclosures set forth in that Quarterly Report on Form 10-Q in any way,
         except as required to reflect the effects of the items described in
         Part I, Item 1 above.

                  The remaining Items contained within this Amendment No. 1 to
         our Quarterly Report on Form 10-Q/A consist of all other Items
         originally contained in our Quarterly Report on Form 10-Q for the
         13-week period ended April 30, 2003 in the form filed with the SEC on
         June 16, 2003. These remaining Items are not amended hereby, but are
         included for the convenience of the reader. In order to preserve the
         nature and character of the disclosures set forth in such Items as
         originally filed, except as expressly noted herein, this report
         continues to speak as of the date of the original filing, and we have
         not updated the disclosures in this report to speak as of a later date.
         While this report primarily relates to the historical periods covered,
         events may have taken place since the original filing that might have
         been reflected in this report if they had taken place prior to the
         original filing.

                  A copy of our audited financial statements for the 13-week
         period ended April 30, 2003 and fiscal years ended January 29, 2003,
         January 30, 2002 and January 31, 2001 is being filed separately as an
         exhibit to a Current Report on Form 8-K dated August 8, 2003.


                                        3


<PAGE>





PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                                                                 PREDECESSOR COMPANY
                                                                                          -------------------------------
                                                                                                   13 WEEKS ENDED
                                                                                             APRIL 30,         MAY 1,
                                                                                               2003             2002
                                                                                          ---------------   -------------
                                                                                                             (RESTATED)

<S>                                                                                      <C>              <C>
    Sales                                                                                      $   6,181        $  7,181
    Cost of sales, buying and occupancy                                                            4,762           6,519
                                                                                          ---------------   -------------

    Gross margin                                                                                   1,419             662
    Selling, general and administrative expenses                                                   1,421           1,670
    Restructuring, impairment and other charges                                                       37               -
    Equity income in unconsolidated subsidiaries                                                       7               5
                                                                                          ---------------   -------------

    Loss before interest, reorganization items, income taxes and
        discontinued operations                                                                      (32)         (1,003)
    Interest expense, net (contractual interest for 13 week periods ended
        April 30, 2003 and May 1, 2002 was $124 and $102, respectively)                               57              33
    Reorganization items, net                                                                        769             251
    Benefit from income taxes                                                                         (6)            (12)
                                                                                          ---------------   -------------

    Loss before discontinued operations                                                             (852)         (1,275)

    Discontinued operations                                                                          (10)           (167)
                                                                                          ---------------   -------------

    Net loss                                                                                   $    (862)       $ (1,442)
                                                                                          ===============   =============

    Basic/diluted loss before discontinued operations                                          $   (1.63)       $  (2.54)
    Discontinued operations                                                                        (0.02)          (0.33)
                                                                                          ---------------   -------------
    Basic/diluted net loss per common share                                                    $   (1.65)       $  (2.87)
                                                                                          ===============   =============

    Basic/diluted weighted average shares (millions)                                               522.7           502.9
</TABLE>





See accompanying Notes to unaudited Condensed Consolidated Financial Statements.





                                        4


<PAGE>


                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
                                   (UNAUDITED)


<TABLE>
<CAPTION>

                                                                                    SUCCESSOR                  PREDECESSOR
                                                                                     COMPANY                     COMPANY
                                                                                 ----------------     -----------------------------
                                                                                    APRIL 30,             MAY 1,       JANUARY 29,
                                                                                      2003                 2002           2003
                                                                                 ----------------     -------------- --------------
<S>                                                                             <C>                 <C>             <C>
ASSETS
CURRENT ASSETS
 Cash and cash equivalents                                                           $    1,232          $   1,829       $     613
 Merchandise inventories                                                                  4,431              5,255           4,825
 Receivable from Plan Investors                                                             187                  -               -
 Accounts receivable, net of reserves of $153, $124 and $168                                382                316             473
 Other current assets                                                                       322                281             191
                                                                                 ----------------     -------------- --------------
TOTAL CURRENT ASSETS                                                                      6,554              7,681           6,102

Property and equipment, net                                                                  10              5,972           4,892
Other assets and deferred charges                                                            96                219             244
                                                                                 ----------------     -------------- --------------
TOTAL ASSETS                                                                         $    6,660          $  13,872       $  11,238
                                                                                 ================     ============== ==============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
 Long-term debt due within one year                                                  $        8          $       -       $       -
 Accounts payable                                                                         1,160              1,658           1,248
 Accrued payroll and other liabilities                                                    1,321                659             710
 Taxes other than income taxes                                                              274                237             162
                                                                                 ----------------     -------------- --------------
TOTAL CURRENT LIABILITIES                                                                 2,763              2,554           2,120

Long-term debt and notes payable                                                            108                  -               -
Capital lease obligations                                                                   415                694             623
Pension obligation                                                                          854                  -               -
Other long-term liabilities                                                                 807                140             181
                                                                                 ----------------     -------------- --------------
TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE                                               4,947              3,388           2,924

LIABILITIES SUBJECT TO COMPROMISE                                                             -              7,805           7,969

Company obligated mandatorily redeemable convertible preferred securities of a
 subsidiary trust holding solely 7 3/4% convertible junior subordinated
 debentures of Predecessor Company
 (redemption value $898 and $648, respectively)                                               -                889             646
Successor preferred stock 20,000,000 shares authorized;
 0 outstanding                                                                                -                  -               -
Predecessor common stock $1 par value, 1,500,000,000 shares authorized;
 502,689,273 and 519,123,988 shares outstanding, respectively                                 -                503             519
Successor common stock $0.01 par value, 500,000,000 shares
 authorized, 89,677,509 shares outstanding                                                    1                  -               -
Capital in excess of par value                                                            1,712              1,697           1,922
Accumulated deficit                                                                           -               (410)         (2,742)
                                                                                 ----------------     -------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                                 $    6,660          $  13,872       $  11,238
                                                                                 ================     ============== ==============
</TABLE>





See accompanying Notes to unaudited Condensed Consolidated Financial Statements.





                                        5


<PAGE>




                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (DOLLARS IN MILLIONS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>


                                                                                  PREDECESSOR COMPANY
                                                                              ----------------------------
                                                                                      13 WEEKS ENDED
                                                                                APRIL 30,         MAY 1,
                                                                                  2003             2002
                                                                              -----------      -----------
                                                                                                (RESTATED)

<S>                                                                          <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                                      $  (862)        $ (1,442)
   Adjustments to reconcile net loss
    to net cash provided by operating activities:
        Discontinued operations non-cash charges                                      40              247
        Restructuring, impairments and other charges                                   2              558
        Reorganization items, net                                                    769              251
        Depreciation and amortization                                                177              181
        Equity income in unconsolidated subsidiaries                                  (7)              (5)
   Dividends received from Meldisco                                                   36               45
   Cash used for store closings and other charges                                    (64)             (39)
   Change in:
         Inventories                                                                 480             (109)
         Accounts payable                                                           (117)           1,104
         Deferred income taxes and taxes payable                                     (16)              (9)
         Other assets                                                                125              198
         Other liabilities                                                            32               40
                                                                              -----------      -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                            595            1,020
                                                                              -----------      -----------

NET CASH (USED FOR) PROVIDED BY REORGANIZATION ITEMS                                 (19)              12
                                                                              -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from sale of property and equipment                                       64                -
   Capital expenditures                                                               (4)             (52)
                                                                              -----------      -----------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES                                  60              (52)
                                                                              -----------      -----------
CASH FLOWS FROM FINANCING ACTIVITIES
   Net borrowings on DIP Credit Facility                                               -             (300)
   Payments on debt                                                                   (1)             (47)
   Debt issuance costs                                                                 -              (30)
   Payments on capital lease obligations                                             (16)             (19)
                                                                              -----------      -----------
NET CASH USED FOR FINANCING ACTIVITIES                                               (17)            (396)
                                                                              -----------      -----------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                              619              584
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                         613            1,245
                                                                              -----------      -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                         $ 1,232         $  1,829
                                                                              -----------      -----------
</TABLE>




See accompanying Notes to unaudited Condensed Consolidated Financial Statements.


                                        6

<PAGE>

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)


1.       PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

                  CHAPTER 11 REORGANIZATION

                  On January 22, 2002 ("Petition Date"), Kmart Corporation
         ("Predecessor Company") and 37 of its U.S. subsidiaries (collectively,
         the "Debtors") filed voluntary petitions for reorganization under
         Chapter 11 of the federal bankruptcy laws ("Bankruptcy Code" or
         "Chapter 11") in the United States Bankruptcy Court for the Northern
         District of Illinois ("Court") under case numbers 02 B 02462 through 02
         B 02499. On January 24, 2003, the Debtors filed a Plan of
         Reorganization and related Disclosure Statement and on February 25,
         2003, filed an Amended Joint Plan of Reorganization (the "Plan of
         Reorganization") and related amended Disclosure Statement with the
         Court. The Plan of Reorganization received the formal endorsement of
         the statutory creditors committees and, as modified, was confirmed by
         the Court by order docketed on April 23, 2003 ("Confirmation Date").
         During the reorganization proceedings, the Debtors continued to operate
         their business as debtors-in-possession under the jurisdiction of the
         Court and in accordance with the applicable provisions of the
         Bankruptcy Code and orders of the Court.

                  On May 6, 2003, ("Effective Date") the Predecessor Company
         emerged from reorganization proceedings under Chapter 11 pursuant to
         the terms of the Debtors' Plan of Reorganization and became a
         wholly-owned subsidiary of Kmart Management Corporation, which is a
         newly-formed, wholly-owned subsidiary of a newly-created holding
         company, Kmart Holding Corporation ("Kmart," "we," "us," "our," the
         "Company" or "Successor Company"). Kmart is the nation's third largest
         discount retailer and the sixth largest general merchandise retailer.

                  In connection with our emergence from bankruptcy, we reflected
         the terms of the Plan of Reorganization in our consolidated financial
         statements applying the terms of the American Institute of Certified
         Public Accountants Statement of Position 90-7, "Financial Reporting by
         Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7") with
         respect to financial reporting upon emergence from Chapter 11
         ("Fresh-Start accounting"). Upon applying Fresh-Start accounting, a new
         reporting entity (the Successor Company) is deemed to be created and
         the recorded amounts of assets and liabilities are adjusted to reflect
         their estimated fair values (see Note 3 -- Fresh-Start Accounting). The
         reported historical financial statements of the Predecessor Company for
         periods prior to April 30, 2003 generally are not comparable to those
         of the Successor Company. In this Quarterly Report on Form 10-Q,
         references to our 2003 and 2002 results of operations refer to the
         Predecessor Company.

                  PLAN INVESTORS

                  At the time of emergence, ESL Investments, Inc. ("ESL") and
         Third Avenue Trust, on behalf of certain of its investment series
         ("Third Avenue," and together with ESL, the "Plan Investors"), made a
         substantial investment in the Successor Company in furtherance of our
         financial and operational restructuring plan. The Plan Investors and
         their affiliates received approximately 32 million shares of Kmart
         Holding Corporation's new common stock in satisfaction of pre-petition
         claims they held and we issued 14 million shares of new common stock to
         affiliates of ESL and Third Avenue, in exchange for $127, net of $13 of
         commitment fees and Plan Investor expenses. In addition, we issued a
         9%, $60 principal amount convertible note to affiliates of ESL. The
         principal and accrued interest in respect to the 9% convertible note is
         convertible at any time, at the option of the holder, into new common
         shares at a conversion price equal to $10 per share. ESL was also
         granted the option, exercisable at its own discretion prior to May 6,
         2005, to purchase from the Successor Company approximately 6.6 million
         new common shares at a price of $13 per share. A portion of the option
         was assigned to Third Avenue. The investment was made pursuant to the
         Investment Agreement dated January 24, 2003 (as amended, the
         "Investment Agreement").

                  ESL and its affiliates beneficially own over 50% of the common
         stock of the Successor Company, including shares received in exchange
         for pre-petition obligations, as well as shares obtainable upon
         exercise of options and conversion of the $60 convertible note issued
         to affiliates of ESL. Each of the Plan Investors is represented on our
         Board of Directors.

                  DISCHARGE OF LIABILITIES
                  (all amounts in actual dollars unless otherwise noted)

                  On the Effective Date, all then-outstanding equity securities
         of the Predecessor Company, as well as substantially all of its
         pre-petition liabilities, were cancelled. New common stock of the
         Successor Company was issued in satisfaction of certain of those
         claims. The new securities of the Successor Company issued on the
         Effective Date pursuant to the Plan


                                        7

<PAGE>

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
         (CONTINUED)
         (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)


         of Reorganization and related transactions, consisted of 89,677,509
         shares of new common stock and options to purchase 8,324,883 shares of
         new common stock. All of the shares of common stock issued on May 6,
         2003 were or will be distributed pursuant to the Plan of Reorganization
         in satisfaction of pre-petition claims, except for 14 million shares
         issued to affiliates of ESL and Third Avenue in exchange for $127
         million, net of $13 million of commitment fees and Plan Investor
         expenses. All such shares were issued without registration under the
         Securities Act of 1933 in reliance on the provisions of Section 1145 of
         the Bankruptcy Code and Section 4(2) of the Securities Act of 1933. In
         addition, as part of the Plan of Reorganization, Kmart has established
         an independent creditor litigation trust ("Creditor Trust") for the
         benefit of the Predecessor Company's pre-petition creditors and equity
         holders, to pursue claims which arose from the Predecessor Company's
         prior accounting and stewardship investigations. The following table
         outlines the discharge of the Predecessor Company's Liabilities subject
         to compromise pursuant to the Plan of Reorganization:


<TABLE>
<CAPTION>



                          TYPE OF CLAIM/SECURITY                       TREATMENT UNDER THE PLAN OF REORGANIZATION
                          ----------------------                       ------------------------------------------

        <S>                                                         <C>
              Class 1 - Secured Claims                               100% cash recovery.

              Class 3 - Pre-petition Lender Claims                   Issued 18,723,775 shares of new common stock of the
                                                                     Successor Company and cash recovery of $243 million.

              Class 4 - Pre-petition Note Claims                     Issued 25,008,573 shares of new common stock of the
                                                                     Successor Company.

              Class 5 - Trade Vendor and Lease Rejection             Issued 31,945,161 shares of new common stock of the
              Claims over $30,000                                    Successor Company.

              Class 6 - Other Unsecured Claims over $30,000          Claim holders will receive their pro-rata share of the
                                                                     "Other Unsecured Claims Cash Payment" on the third
                                                                     anniversary of the effective date of the Plan of
                                                                     Reorganization.

              Class 7 - General Unsecured Convenience Claims         Recovery to be paid in cash equal to 6.25% of allowed
              less than or equal to $30,000                          claims or $1,825 if the amount of such allowed claims
                                                                     is greater than $30,000 and the holder of such claim has
                                                                     made the convenience claim election. In addition, the holder
                                                                     of any General Unsecured Convenience Claim may elect to be
                                                                     treated, in lieu of payment, as a Trade Vendor/Lease
                                                                     Rejection claim holder.

              Class 8 - Trust Preferred Obligations                  These obligations were cancelled upon emergence.
                                                                     Holders may receive, as described below, recoveries
                                                                     under the Creditor Trust.

              Class 10 - Subordinated Security Claims                Current holders, together with those who held common
                                                                     stock of the Predecessor Company, may receive up to
                                                                     2.5% of the recoveries under the Creditor Trust.

              Class 11 - Existing Common Stock                       The Predecessor Company's stock was cancelled upon
                                                                     emergence.  Holders, together with those who hold
                                                                     Subordinated Security Claims, may receive up to 2.5% of
                                                                     the recoveries under the Creditor Trust.

              Class 12 - Other Interests                             Cancelled -- no recovery.
        </TABLE>



                  Holders of Pre-petition Note Claims, Trade Vendor and Lease
         Rejection Claims over $30,000, Other Unsecured Claims over $30,000 and
         Trust Preferred Obligations will receive their pro-rata share of
         recoveries in the Creditor Trust (excluding up to 2.5% of such
         recoveries, which may be payable to holders of Subordinated Securities
         Claims and Predecessor Company's Common Stock).



                                        8

<PAGE>

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
         (CONTINUED)
         (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)


                  In addition to the classes described above, the Plan of
         Reorganization allows for two additional classes of claims, Class 2 --
         Other Priority Claims and Class 9 -- Intercompany Claims. The Class 2
         claims are primarily claims held by current and former employees for
         unpaid wages, salaries, bonuses, severance pay, vacation pay and other
         unpaid employee benefits. We believe we have paid all such amounts and
         therefore should be no significant amount of such claims if any, that
         remain unpaid. The Class 9 claims are claims by one or more of Kmart
         and its affiliates against other Kmart affiliates on account of various
         matters. Kmart, at its option, may either reinstate or eliminate
         intercompany claims.

                  There are also other unclassified claims, including
         administrative claims, priority tax claims, Pension Benefit Guarantee
         Corporation claims, workers' compensation programs and consignment
         claims. Administrative claims will receive a 100% cash recovery;
         priority tax claims will receive a 100% cash recovery, paid over a
         six-year period beginning on their assessment date; and the Pension
         Benefit Guarantee Corporation claims, workers' compensation programs
         and consignment claims were assumed by the Successor Company.

                  CLAIMS RESOLUTION

                  We continue to make progress in the reconciliation and
         settlement of the various classes of claims. On June 11, 2003, we filed
         a motion with the Bankruptcy Court requesting approval to make an
         interim distribution to approximately 12,472 claims with an allowed
         claim amount of approximately $730.2 on the first distribution date
         specified in the Plan of Reorganization as June 30, 2003. In addition,
         the court has previously entered orders allowing claims aggregating
         approximately $389 that, subject to the approval of the motions by the
         court, will receive an interim distribution on June 30, 2003. These two
         claims will also receive an interim distribution on June 30, 2003. If
         the above and related motions are approved by the Bankruptcy Court, we
         would anticipate distributing approximately 4.2 million shares to the
         holders of Class 5 claims from the shares previously issued to us as
         disbursing agent with respect to such claims and approximately $1.7 in
         cash to holders of Class 7 claims. Due to the significant volume of
         claims filed to-date and the anticipated receipt of additional claims
         by June 20, 2003 (the bar date for certain cure claims and
         administrative claims), it is premature to estimate the ultimate
         allowed amount of such claims for each class of claims under the Plan
         of Reorganization.

2.       BASIS OF PRESENTATION

                  These interim unaudited Condensed Consolidated Financial
         Statements have been prepared in accordance with the rules and
         regulations of the Securities Exchange Commission. Accordingly, they do
         not include all of the information and footnotes required by accounting
         principles generally accepted in the United States of America for
         complete financial statements. In the opinion of management, all
         adjustments (which include normal recurring adjustments) considered
         necessary for a fair presentation have been included. All significant
         intercompany accounts and transactions have been eliminated. Operating
         results for the interim period are not necessarily indicative of the
         results that may be expected for the full year. Readers of these
         statements should refer to the Predecessor Company's audited
         consolidated financial statements and notes thereto which are included
         in its Annual Report on Form 10-K for the year ended January 29, 2003.
         Certain reclassifications of prior period financial statements have
         been made to conform to the current interim period presentation.

                  SOP 90-7 requires that the financial statements for the period
         following the Chapter 11 filing through the Confirmation Date
         distinguish transactions and events that are directly associated with
         the reorganization from the ongoing operations of the business.
         Accordingly, revenues, expenses, realized gains and losses and
         provisions for losses directly associated with the reorganization and
         restructuring of the business are reported separately as Reorganization
         items, net in the unaudited Condensed Consolidated Statement of
         Operations. The unaudited Condensed Consolidated Balance Sheet
         distinguishes pre-petition liabilities subject to compromise from both
         those pre-petition liabilities that are not subject to compromise and
         from post-petition liabilities. Liabilities subject to compromise are
         reported at the amounts expected to be allowed, even if they may be
         settled for lesser amounts. In addition, cash used for reorganization
         items is disclosed separately in the unaudited Condensed Consolidated
         Statements of Cash Flows.

                  In accordance with SOP 90-7, we adopted Fresh-Start accounting
         as of the Confirmation Date. However, in light of the proximity of such
         date to our quarter end, for accounting purposes, the effects of
         Fresh-Start accounting and the Plan of Reorganization, including the
         cancellation of the existing common stock and the issuance of the new
         common stock, have been reported "as if" they occurred on April 30,
         2003. References to the Successor Company in the unaudited Condensed
         Consolidated Financial Statements and the Notes thereto refer to the
         Company on and after April 30, 2003, after giving effect to the
         provisions of the Plan of Reorganization and the application of
         Fresh-Start accounting. The




                                        9




<PAGE>

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
         (CONTINUED)
         (Dollars in millions, except share data)



         April 30, 2003 Successor Company financial statements are unaudited. In
         connection with subsequent filings with the Securities and Exchange
         Commission, we have engaged PricewaterhouseCoopers LLP as the
         independent accountants to audit these financial statements.

                  We have restated the condensed consolidated statement of
         operations for the 13-week period ended May 1, 2002 for the impact of
         an error in accumulating the results of discontinued operations. The
         restatement had no impact on net loss; however, it resulted in loss
         before discontinued operations being increased by $83 and the loss from
         discontinued operations being reduced by a similar amount. The impact
         of the restatement on the affected items in the statement of operations
         follows:
<TABLE>
<CAPTION>

                                                              As Originally                        As
                                                                Reported       Adjustment       Restated
                                                              -------------   ------------    ------------
<S>                                                           <C>           <C>             <C>
                 Cost of sales, buying and occupancy          $     6,436     $       83      $     6,519

                 Gross margin                                 $       745     $      (83)     $       662

                 Loss before interest, reorganization items,
                  income taxes and discontinued operations    $      (920)    $      (83)     $    (1,003)

                 Loss before discontinued operations          $    (1,192)    $      (83)     $    (1,275)

                 Discontinued operations                      $      (250)    $       83      $      (167)
</TABLE>





3.       FRESH-START ACCOUNTING

                  FRESH-START ADJUSTMENTS

                  In accordance with Fresh-Start accounting, all assets and
         liabilities are recorded at their respective fair market values. Such
         fair values represent our best estimates based on independent
         appraisals and valuations.

                  To facilitate the calculation of the enterprise value of the
         Successor Company, we developed a set of financial projections. Based
         on these financial projections, the enterprise value was determined by
         the Company, with the assistance of a financial advisor, using various
         valuation methods, including (i) a comparison of the Company and its
         projected performance to the market values of comparable companies,
         (ii) a review and analysis of several recent transactions of companies
         in similar industries to the Company, and (iii) a calculation of the
         present value of the future cash flows under the projections. The
         estimated enterprise value is highly dependent upon achieving the
         future financial results set forth in the projections as well as the
         realization of certain other assumptions which are not guaranteed. The
         estimated enterprise value of Kmart was calculated to be approximately
         $2.3 billion to $3.0 billion. We selected the midpoint of the range,
         $2.6 billion, as the estimated enterprise value. In applying
         Fresh-Start accounting, adjustments to reflect the fair value of assets
         and liabilities, on a net basis, and the write-off of the Predecessor
         Company's equity accounts resulted in a charge of $5.6 billion. The
         restructuring of Kmart's capital structure and resulting discharge of
         pre-petition debt resulted in gain of $5.6 billion. The charge for the
         revaluation of the assets and liabilities and the gain on the discharge
         of pre-petition debt are recorded in Reorganization items, net in the
         unaudited Condensed Consolidated Statement of Operations. In addition,
         the excess of fair value of net assets over reorganization value
         ("negative goodwill") was allocated on a pro-rata basis and reduced our
         non-current assets, with the exception of financial instruments, to $10
         in accordance with SFAS No. 141.

                  As part of the provisions of SOP 90-7, we are required to
         adopt, for the current reporting period, all accounting guidance that
         is effective within a twelve-month period. See Note 20 - Recently
         Adopted Accounting Pronouncements for a discussion of the impact on our
         financial statements of the accounting guidance we were required to
         adopt.

                  Changes to Significant Accounting Policies

                  Fresh-Start accounting requires the selection of appropriate
         accounting policies for the Successor Company. The significant
         accounting policies disclosed in the Predecessor Company's Annual
         Report on Form 10-K for the year ended January 29, 2003 will continue
         to be used by the Successor Company except for the policy related to
         merchandise inventories. We have elected to change the method of
         accounting for our merchandise inventories from the last-in, first-

                                       10



<PAGE>

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
         (CONTINUED)
         (Dollars in millions, except share data)


         out ("LIFO") method to the first-in, first out ("FIFO") method. We
         believe that this change is preferable to provide a better matching of
         expenses and revenues given falling product costs that have resulted in
         the value of inventories under the LIFO method to be approximately
         equal to their replacement cost on a FIFO basis. As part of the
         provisions of Fresh-Start accounting, we did not restate our financial
         statements for prior periods.







































                                       11


<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)



The following table reflects the reorganization adjustments to Kmart's unaudited
Condensed Consolidated Balance Sheet as of April 30, 2003:
<TABLE>
<CAPTION>


                                               PREDECESSOR
                                                 COMPANY                                                      SUCCESSOR COMPANY
                                             APRIL 30, 2003          ADJUSTMENTS       RECAPITALIZATION        APRIL 30, 2003
                                          --------------------    ----------------   --------------------   --------------------
ASSETS

CURRENT ASSETS
<S>                                 <C>               <C>                         <C>                   <C>
  Cash and cash equivalents                    $      1,232          $         -           $          -           $       1,232
  Merchandise inventories                             4,446                  (15)(1)                  -                   4,431
  Other current assets                                  528                  168 (1)                195 (2)                 891
                                          --------------------    ----------------   --------------------   --------------------
   TOTAL CURRENT ASSETS                        $      6,206          $       153           $        195           $       6,554

  Property and equipment, net                         4,623               (4,613)(1)                  -                      10
  Other assets and deferred charges                     212                 (154)(1)                 38 (2)                  96
                                          --------------------    ----------------   --------------------   --------------------

TOTAL ASSETS                                   $     11,041          $    (4,614)          $        233           $       6,660
                                          --------------------    ----------------   --------------------   --------------------


LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
 Long-term debt due within one year            $          -          $         -           $          8 (2)       $           8
 Accounts payable                                     1,151                    -                      9 (2)               1,160
 Other current liabilities                              915                  117 (1)                563 (2)               1,595
                                          --------------------    ----------------   --------------------   --------------------
  TOTAL CURRENT LIABILITIES                    $      2,066          $       117           $        580           $       2,763

 Long-term debt                                           -                    -                    108 (2)                 108
 Capital lease obligations                              415                    -                      -                     415
 Other long-term liabilities                            174                  279 (1)              1,208 (2)               1,661
                                          --------------------    ----------------   --------------------   --------------------
  TOTAL LIABILITIES NOT                               2,655                  396                  1,896                   4,947
   SUBJECT TO COMPROMISE

 LIABILITIES SUBJECT TO COMPROMISE                    8,896                  114 (1)             (9,010)(2)                   -

 Trust convertible securities                           387                 (387)(1)                  -                       -
 Other comprehensive income                            (907)                 907 (1)                  -                       -
 Common stock                                           537                 (537)(1)                  1 (3)                   1
 Other equity                                          (527)              (5,107)(1)              7,346 (4)               1,712
                                          --------------------    ----------------   --------------------   --------------------
TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY (DEFICIT)                $     11,041          $    (4,614)          $        233           $       6,660
                                          ====================    ================   ====================   ====================
</TABLE>

1.    To adjust assets and liabilities to fair market value ("FMV"), and
      reflect the writeoff of Predecessor Company's equity and the application
      of negative goodwill to long-lived assets.
2.    To record assumption or discharge of Liabilities subject to compromise
      and cash to be received from the Plan Investors.
3.    To record par value of new common stock for the Successor Company.
4.    To record gain on discharge of liabilities subject to compromise and
      additional paid-in-capital of new common stock for the Successor
      Company.





                                       12

<PAGE>

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
         (CONTINUED)
         (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)


4.       DISCONTINUED OPERATIONS

                  During the first quarter of fiscal 2003 and the second quarter
         of fiscal 2002, we closed 316 and 283 stores, respectively. SFAS No.
         144 ("SFAS No. 144"), "Accounting for the Impairment or Disposal of
         Long-Lived Assets," requires closed stores to be classified as
         discontinued operations when the operations and cash flows of the
         stores have been (or will be) eliminated from ongoing operations and
         the Company no longer has any significant continuing involvement in the
         operations associated with the stores after closure. The Company
         determined that it has met the second criteria, as upon closure of the
         stores, operations cease and the Company has no continuing involvement.
         To determine if cash flows have been or will be eliminated from ongoing
         operations, the Company evaluated a number of qualitative and
         quantitative factors, including: proximity to a remaining open store,
         physical location within a metropolitan or non-metropolitan statistical
         area and transferability of sales between open and closed trade areas.
         Based on these criteria, we identified a small number of stores closed
         in fiscal 2002 that met the criteria for discontinued operations;
         however, in management's opinion they were not considered material to
         our consolidated results of operations and were not separately
         presented. Upon closure of the 316 stores in 2003, which included a
         substantial exit of the state of Texas, we reevaluated the 283 stores
         that were closed in 2002 and the 316 stores closed in 2003 to identify
         stores that should be accounted for as discontinued operations. This
         analysis resulted in a total of 121 stores receiving discontinued
         operations treatment for all periods presented in our unaudited
         Condensed Consolidated Statements of Operations. The table below sets
         forth the components of the net loss associated with the discontinued
         operations for the 13-weeks ended April 30, 2003 and (Restated) May 1,
         2002.

<TABLE>
<CAPTION>



                                                                           13 Weeks Ended
                                                                       April 30,       May 1,
                                                                         2003           2002
                                                                      ----------     ---------
                                                                                     (Restated)
         <S>                                                        <C>            <C>
         Sales                                                       $      232     $     458
         Cost of sales, buying and occupancy                                150           502
                                                                      ----------     ---------

         Gross margin                                                        82           (44)
         Selling, general and administrative expenses                        43           100
         Restructurings, impairments and other charges                        5             -
         Reorganization items, net                                           44            23
                                                                      ----------     ---------

         Net loss from discontinued operations                       $      (10)    $    (167)
                                                                      ==========     =========
         </TABLE>



5.       DEBT RESTRUCTURING

         Exit Financing Facility

                  On May 6, 2003, our $2 billion exit credit agreement (the
         "Exit Financing Facility"), which was an integral part of the Plan of
         Reorganization, syndicated by General Electric Capital Corporation,
         Fleet Retail Finance Inc. and Bank of America, N.A became effective.
         Debt issuance costs associated with the Exit Financing Facility totaled
         $58 and will be amortized through May 2006. The Exit Financing Facility
         is a revolving credit facility under which Kmart Corporation is the
         borrower and contains an $800 letter of credit subfacility.
         Availability under the Exit Financing Facility is also subject to an
         inventory borrowing base formula. The Exit Financing Facility is
         guaranteed by the Successor Company, Kmart Management Corporation,
         Kmart Services Corporation (a subsidiary of Kmart Management
         Corporation) and Kmart Corporation's direct and indirect domestic
         subsidiaries. The Exit Financing Facility is secured by first liens on
         inventory, the proceeds thereof and certain related assets of Kmart
         Corporation and the guarantors. Borrowings under the Exit Financing
         Facility currently bear interest at either the Prime rate plus 2.5% per
         annum or the LIBOR rate plus 3.5% per annum, at our discretion, which
         interest rate margin may be reduced after the first anniversary of the
         effective date of the Exit Financing Facility if Kmart meets certain
         earnings before interest, taxes, depreciation, amortization and other
         charges ("EBITDA") targets. In addition, we are required to pay a fee
         based on the unutilized commitment under the Exit Credit Facility equal
         to 0.75% per annum.
         The Exit Financing Facility financial covenants include a requirement
         that Kmart maintain minimum availability of $100 under the facility and
         a restriction on capital spending. In the event that Kmart fails to
         maintain certain specified excess availability minimums under the Exit
         Financing Facility, Kmart will also be required to maintain minimum
         levels of



                                       13
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

         EBITDA. The Exit Financing Facility also contains other customary
         covenants, including certain reporting requirements and covenants that
         restrict our ability to incur or create liens, indebtedness and
         guarantees, make investments, pay dividends or make other equity
         distributions, sell or dispose of stock or assets, change the nature of
         our business and enter into affiliate transactions, mergers and
         consolidations. Failure to satisfy these covenants would (in some
         cases, after the receipt of notice and/or the expiration of a grace
         period) result in an event of default that could result in our
         inability to access the funds necessary to maintain our operations.

         Predecessor Company Debt

                  Borrowings of the Predecessor Company were available through
         the Court-approved $2 billion debtor-in-possession financing facility
         ("DIP Credit Facility") for the payment of permitted pre-petition
         claims, working capital needs, letters of credit and other general
         corporate purposes. Debt issuance costs of $71 were amortized through
         April 30, 2003. The DIP Credit Facility was a revolving credit facility
         under which the Predecessor Company was the borrower and the rest of
         the Debtors were guarantors, and was collateralized by first liens on
         substantially all of the Debtors assets (subject to valid and
         unavoidable pre-petition liens and certain other permitted liens).
         Borrowings under the DIP Credit Facility were denominated in U.S.
         dollars bearing interest at the Prime Rate plus 2.5% per annum, or at
         the Predecessor Company's option, in Eurodollars bearing interest at
         the LIBOR rate plus 3.5% per annum. On May 6, 2003, in connection with
         the Debtors' emergence from Chapter 11, the DIP Credit Facility was
         terminated.

                  Due to its filing for Chapter 11, the Predecessor Company was
         in default on all of its debt agreements entered into prior to January
         22, 2002. While operating under Chapter 11, the Predecessor Company was
         prohibited from paying interest on unsecured pre-petition debts.

                  Included in Interest expense, net in the unaudited Condensed
         Consolidated Statements of Operations is interest income of $1, for the
         13-week periods ended April 30, 2003 and May 1, 2002. On the Petition
         Date, we stopped accruing interest on all unsecured pre-petition debt
         in accordance with SOP 90-7. Contractual interest expense not accrued
         or recorded on certain pre-petition debt totaled $67 and $69 for the
         13-week periods ended April 30, 2003 and May 1, 2002, respectively.

6.       SPECIAL CHARGES

                  Special charges are transactions which, in management's
         judgment, may make meaningful comparisons of operating results between
         reporting periods difficult. In determining what amounts constitute a
         special charge, management considers the nature, magnitude and
         frequency of their occurrence. During fiscal 2002, we instituted
         certain restructuring actions to improve our operations and executed
         significant inventory liquidations as a result of the stores closed
         under Kmart's Chapter 11 proceedings. Their effect on the 13-weeks
         ended April 30, 2003 and May 1, 2002 are summarized below.

         Accelerated Depreciation

                  During the fourth quarter of fiscal 2002, we analyzed our
         stores based on profitability, lease terms and geographic areas. As a
         result of the analysis we decided to close 316 stores, and in light of
         the shortened recoverability period in the stores to be closed,
         recorded $52 during the 13 week-period ended April 30, 2003 for
         accelerated depreciation on unimpaired assets to be disposed of
         following the store closings. Of the charge, $47 is included in
         Restructurings, impairments and other charges and $5 is included in
         Discontinued operations in the unaudited Condensed Consolidated
         Statements of Operations.

         Corporate Cost Reduction Initiatives

                  During the fourth quarter of 2002, we announced our intention
         to eliminate positions at our corporate headquarters and positions
         nationally that provide corporate support in the first quarter of 2003.
         As a result of the expected job eliminations, we recorded a charge of
         $36 during the fourth quarter of fiscal 2002. For the 13 week-period
         ended April 30, 2003 we recorded a credit of $10 as a result of a
         change in our estimated expense. This credit is included in
         Restructurings, impairments and other charges in the accompanying
         unaudited Condensed Consolidated Statements of Operations.



                                       14

<PAGE>


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)


         Markdowns for Inventory Liquidation

                  During the first quarter of fiscal 2002, we recorded a charge
         of $758 to write-down inventory to be liquidated at our 283 closing
         stores to net realizable value. Of the charge, $625 is included in Cost
         of sales, buying and occupancy and $133 is included in Discontinued
         operations in the accompanying unaudited Condensed Consolidated
         Statements of Operations.

                  Of the charge, $384 relates to the write-down of inventory to
         estimated selling value in connection with liquidation sales in the 283
         stores for which we received Court approval to close on March 20, 2002.
         The liquidation sales and store closings were completed on June 2,
         2002. In addition, a charge of $266 was recorded related to the
         acceleration of markdowns on approximately 107,000 stock keeping units
         (SKUs) of inventory items that were transferred from our remaining open
         stores to the 283 closing stores and included in the liquidation sales.
         The SKUs were no longer carried as part of our product assortment in
         our remaining open stores and were reduced to estimated selling value.
         The remaining $108 of the charge related to liquidation fees and
         expenses associated with the disposition of inventory through the
         liquidation sales at the 283 closing stores.

7.       REORGANIZATION ITEMS, NET

                  Reorganization items represent amounts the Predecessor Company
         incurred as a result of Chapter 11, and are presented separately in the
         unaudited Condensed Consolidated Statements of Operations. For the
         13-week periods ended April 30, 2003, and May 1, 2002, the following
         have been recorded:


<TABLE>
<CAPTION>
                                                             April 30,     May 1,
                                                               2003        2002
                                                             -------     -------
<S>                                                          <C>         <C>
         Gain on extinguishment of debt                      $(5,642)    $    --
         Revaluation of assets and liabilities                 5,642          --
         Fleming settlement                                      385          --
         2003 store closings                                     158          --
         Estimated claims for rejected executory contracts       200          --
         2002 store closings                                      --         203
         Other                                                    26          48
                                                             -------     -------
         Reorganization items, net                           $   769     $   251
                                                             =======     =======
</TABLE>


                  The following paragraphs provide additional information
         relating to costs that were recorded in the line Reorganization items,
         net in our unaudited Condensed Consolidated Statement of Operations for
         the 13-week periods ended April 30, 2003 and May 1, 2002:

         Gain on extinguishment of debt/Revaluation of assets and liabilities

                  See Note 3 -- Fresh-Start Accounting for a discussion on the
         extinguishment of debt and the revaluation of assets and liabilities.

         Fleming settlement

                  On February 3, 2003, we announced that we had terminated our
         supply relationship with Fleming by means of a rejection of the 2001
         contract through the Debtor's Chapter 11 reorganization. As part of the
         bankruptcy proceedings, Fleming filed a claim of $1.5 billion on March
         11, 2003. Kmart and Fleming came to an agreement on a settlement of
         Fleming's claims, and on March 27, 2003, the Court approved our
         settlement of all claims asserted by Fleming. Under the settlement,
         Kmart paid Fleming $15 of Fleming's net post-petition administrative
         claim, which exceeded $30. Additionally, Fleming's general unsecured
         claim was reduced from approximately $1.5 billion to $385, which was
         recorded in the first quarter of 2003.

         2003 store closings

                  On January 28, 2003, the Court approved the closure of 326
         stores located in 40 states, which number was later reduced to 316.
         Stores were selected by evaluating the market and financial performance
         of every store and the terms of every lease. Several factors were
         considered in the store closing analysis, including historical and
         projected operating




                                       15

<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

         results; the anticipated impact of current and future competition;
         future lease liability and real estate value; store age, size, and
         capital spending requirements; the expected impact of store closings on
         Kmart's competitive position; the estimated potential savings from
         exiting markets and regions; the potential impact of store closings on
         purchasing power and allowances; and the potential impact of store
         closings on market coverage. Shortly after receiving Court approval, we
         commenced store closing sales which were completed by April 13, 2003.
         In accordance with SFAS No. 144, 66 of the 316 closed stores were
         considered discontinued operations (see Note 4 -- Discontinued
         Operations). As a result of our decision to close the 316 stores, we
         charged to our closed store reserve $214 for lease terminations and
         other costs, of which $56 was recorded to discontinued operations and
         the remaining $158 was recorded to Reorganization items, net in the
         unaudited Condensed Consolidated Statements of Operations. In addition,
         we reclassified $181 of capital lease obligations to the closed store
         reserve. The reserve for estimated costs was recorded in accordance
         with SFAS No. 146, "Accounting for Costs Associated with Exit or
         Disposal Activities." On April 30, 2003, upon adoption of Fresh-Start
         accounting, this reserve was discharged in accordance with the Plan of
         Reorganization, see Note 1 -- Proceedings under Chapter 11 of the
         Bankruptcy Code.

         2002 store closings

                  On March 20, 2002, the Court approved the closure of 283
         stores. Stores were selected by evaluating the market and financial
         performance of every store and the terms of every lease. Candidates for
         closure were stores that did not meet our financial requirements for
         ongoing operations. In accordance with SFAS No. 144, 55 of the 283
         closed stores are considered discontinued operations (see Note 4 --
         Discontinued Operations). As a result of our decision to close the 283
         stores, we charged to our closed store reserve $228 for lease
         terminations and other costs, of which $25 was recorded to Discontinued
         operations and the remaining $203 was recorded to Reorganization items,
         net in the unaudited Condensed Consolidated Statements of Operations.
         In addition, we reclassified $144 of capital lease obligations to the
         closed store reserve. The closed store reserve is included in the line
         Liabilities subject to compromise in our unaudited Condensed
         Consolidated Balance Sheet as of May 1, 2002. The reserve for estimated
         costs was recorded in accordance with EITF 94-3, "Liability Recognition
         for Certain Employee Termination Benefits and Other Costs to Exit an
         Activity (including Certain Costs Incurred in a Restructuring)". On
         April 30, 2003, upon adoption of Fresh-Start accounting, this reserve
         was discharged in accordance with the Plan of Reorganization, see Note
         1 -- Proceedings under Chapter 11 of the Bankruptcy Code.

                  As a result of both store closing actions, Kmart's existing
         store base has been reduced from 2,114 stores prior to the announcement
         of the 2002 store closings to 1,513 upon completion of the 2003 store
         closings.

         Estimated claims for rejected executory contracts

                  For the 13-weeks ended April 30, 2003, we recorded expense of
         $200 for estimated allowable claims for rejected executory contracts,
         primarily equipment leases and service contracts. The estimate was
         based on a review of each class of contract. Our estimate of claims may
         be different from amounts filed by our creditors. Differences between
         amounts filed and our estimate will be investigated and resolved in
         connection with our claims resolution process. In this regard, it
         should be noted that the claims reconciliation process may result in
         material adjustments to current estimates of allowable claims. On April
         30, 2003, upon adoption of Fresh-Start accounting, these liabilities
         were discharged in accordance with the Plan of Reorganization, see Note
         1 -- Proceedings under Chapter 11 of the Bankruptcy Code.

         Other reorganization items

                  For the 13-weeks ended April 30, 2003, we recorded
         professional fees of $43, employee costs of $66 relating to the Key
         Executive Retention Plan ("KERP"), a gain of $17 for the sale of
         pharmacy lists, income of $65 for lease auction proceeds related to the
         2003 and 2002 closed stores, a gain of $15 for the settlement of
         pre-petition liabilities and net expenses of $14 for other
         miscellaneous reorganization items. For the 13-weeks ended May 1, 2002,
         we recorded professional fees of $38, employee costs of $26, a gain of
         $14 for the sale of pharmacy lists, a gain of $5 for the settlement of
         pre-petition liabilities and net expense of $3 for other miscellaneous
         reorganization items.

8.       RESTRUCTURING RESERVE ACTIVITY

                  The following table provides information regarding reserve
         activity during the 13 week periods ended April 30, 2003 and May 1,
         2002. As part of Fresh-Start accounting, reserves established in
         connection with certain restructurings were discharged in accordance
         with the Plan of Reorganization. See Note 3 - Fresh-Start Accounting
         for a detailed discussion of the discharge of Liabilities subject to
         compromise under the Plan of Reorganization.


                                       16
<PAGE>

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                        13 Weeks Ended
                                    ----------------------------------------------------------------------------------------
                                              April 30, 2003                                    May 1, 2002
                                       2002         2002          2000          2002         2001         2001       2000
                                     Employee      Store       Strategic       Store       BlueLight     Supply    Strategic
                                     Severance    Closings      Actions      Closings        .com        Chain      Actions
                                    -----------  ----------   ----------    ----------    ----------   ---------   ---------
<S>                                  <C>         <C>         <C>             <C>          <C>          <C>         <C>
Balance, beginning of year           $    69     $    294     $    95       $      --      $    18     $    11     $    98

Additions charged to operations            7           --          --             228           --          --          --
Reclassifications                         --           --          --             144           --          --          --
                                    -----------  ----------   ----------    ----------    ----------   ---------   ---------
Total additions                            7           --          --             372           --          --          --

Reductions:
  Cash payments:
    Lease obligations                     --           --          --              --           --          --           3
    Employee costs                        40           --          --              --           --           4          --
    Contractual obligations               --           --          --              --            1          --          --
Non-cash reductions:
    Discharge of liabilities              --          294          95              --           --          --          --
                                    -----------  ----------   ----------    ----------    ----------   ---------   ---------

Balance, end of period               $    36     $     --    $     --        $    372     $     17     $     7     $    95
                                    ===========  ==========   ==========    ==========    ==========   =========   =========
</TABLE>



9.       TRADE VENDORS' LIEN PROGRAM

                  On May 6, 2003, the post-emergence Trade Vendors' Lien Program
         became effective. Under this program, certain vendors who provide
         retail merchandise to us on credit after May 6, 2003, or who had
         provided merchandise to us on credit after the Petition Date and before
         May 6, 2003 which was not paid for as of May 6, 2003, were granted
         mortgages on certain unencumbered owned and operated real properties
         (the "Trade Vendor Lien"). The Trade Vendor Lien expires by its terms
         on May 6, 2005, and may be terminated at the sole discretion of Kmart
         on or after May 6, 2004.

                  In addition, under the Plan of Reorganization, any person or
         entity acquiring property under the Plan of Reorganization, and any
         creditor and/or equity security holder of the Debtors or the
         reorganized Kmart entities is deemed to have contractually subordinated
         any existing or future claim, right or interest they may have in and to
         any proceeds received from the disposition, release or liquidation of
         any of Kmart's and Kmart's subsidiaries' leasehold interests in any
         open and operating stores as of May 6, 2003 to the claims of the trade
         vendors participating in the Trade Vendors' Lien Program. The lenders
         under the Exit Financing Facility and certain other parties are not
         subordinated in this regard. So long as the Trade Vendors' Lien is
         still effective (i) we may not encumber, sell, lease, transfer or
         otherwise dispose of or take other action to impair the subordination
         granted under the program with respect to more than 20% of the fair
         market value of the leases subject to the program, and (ii) any loan or
         investment under a certain amount by ESL or Third Avenue is subject to
         the subordination set forth in the provision. This claims subordination
         terminates upon termination or expiration of the Trade Vendors' Lien.

10.      PROPERTY HELD FOR SALE

                  Included in Other current assets in our unaudited Condensed
         Consolidated Balance Sheet for the period ended April 30, 2003, is $160
         of property held for sale, accounted for in accordance with SFAS No.
         144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
         The $160 consists primarily of 11 closed store locations and
         undeveloped property. We are actively marketing the properties and
         expect to sell them within one year. For the 13-week period ended April
         30, 2003, we recorded a $7 loss on the impairment of certain property
         held for sale. The loss is recorded in Selling, general and
         administrative expenses in our unaudited Condensed Consolidated
         Statements of Operations.



                                       17

<PAGE>


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)




11.      WORKERS' COMPENSATION

                  In March 2002, the Court issued an order providing for the
         continuation of our existing surety bond coverage, which permits us to
         self-insure our workers' compensation programs in various states. We
         have recently begun discussions with certain of the issuers of the
         surety bonds regarding the further continuation of the bonds, either on
         the terms as set forth in the Court's surety order or on other terms
         acceptable to us. If our discussions prove unsuccessful and the
         existing surety bonds were to be cancelled, we could lose our
         self-insured status in the states covered by the surety bonds and be
         required to pursue alternative workers' compensation insurance
         programs. These alternative programs include (i) retaining
         self-insurance privileges in certain states using alternative forms of
         security, (ii) purchasing insurance policies to cover our workers'
         compensation liabilities in certain states, and (iii) as a last resort,
         participating in state-assigned risk and/or state fund insurance
         programs. Although it is too soon to predict the likelihood that we
         would have to implement an alternative workers' compensation program,
         or to estimate the cost of any resulting program, we expect any such
         costs would exceed levels incurred historically. However, we do not
         expect any such additional costs to have a material adverse effect on
         our financial position or results of operation.

12.      INCOME TAXES

                  We recorded a full valuation allowance against our net
         deferred tax assets in accordance with SFAS No. 109, "Accounting for
         Income Taxes," as realization of such assets in future years is
         uncertain. Accordingly, we have not recognized any tax benefit from our
         losses in the first quarters of 2003 and 2002. The $6 tax benefit
         recorded in the first quarter of fiscal 2003 relates to a special
         provision of the Internal Revenue Code that allows a 10-year carryback
         of certain losses. The $12 tax benefit recorded in the first quarter of
         fiscal 2002 related primarily to amounts refunded to Kmart as a result
         of the Job Creation and Worker Assistance Act of 2002, which was
         enacted in the first quarter of fiscal 2002.

13.       LOSS PER SHARE

                  We calculate loss per share in accordance with SFAS No. 128,
         "Earnings Per Share." Basic and dilutive earnings per share information
         is presented in the unaudited Condensed Consolidated Statements of
         Operations. For the 13-week periods ended April 30, 2003 and May 1,
         2002, a net loss was incurred, therefore dilutive common stock
         equivalents were not used in the calculation of earnings per share as
         they would have an anti-dilutive effect. For the 13-week period ended
         April 30, 2003, dilutive common stock equivalents include options to
         purchase 43.3 million shares of common stock at prices ranging from
         $4.86 to $24.03 and potential conversion of certain trust preferred
         securities of 25.5 million common shares. All outstanding stock options
         and trust convertible securities of the Predecessor Company were
         cancelled in accordance with the Plan of Reorganization. For the
         13-week period ended May 1, 2002, dilutive common stock equivalents
         include options to purchase 54.6 million shares of common stock at
         prices ranging from $4.86 to $26.03 and potential conversion of certain
         trust convertible preferred securities of 59.9 million common shares.
         At the time of emergence, we issued stock options to ESL and our Chief
         Executive Officer.

14.      STOCK BASED COMPENSATION

                  In December 2002, the FASB issued SFAS No. 148, "Accounting
         for Stock-Based Compensation -- Transition and Disclosure, an Amendment
         of FASB Statement No. 123" ("SFAS No. 148"), which provides three
         alternative methods of transition to the fair value method of
         accounting for stock options. SFAS No. 148 also amends the disclosure
         requirements of SFAS No. 123, "Accounting for Stock-Based
         Compensation."

                  The Predecessor Company accounted for stock options using the
         intrinsic value method in accordance with Accounting Principles Board
         Opinion No. 25, "Accounting for Stock Issued to Employees (APB No. 25)"
         and related interpretations. The intrinsic value method does not
         require the recognition of expense for the fair value of stock-based
         compensation. As previously discussed all outstanding stock options of
         the Predecessor Company were cancelled in accordance with the Plan of
         Reorganization.



                                       18


<PAGE>



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)




                  In accordance with the disclosure requirements of SFAS No.
         148, the pro forma effects of recognizing compensation expense on net
         loss and loss per share, had we applied the fair value method, is as
         follows:


<TABLE>
<CAPTION>
                                                                      13 Weeks Ended
                                                           --------------------------------
                                                              April 30,           May 1,
                                                                2003               2002
                                                           -------------      -------------
<S>                                                               <C>              <C>
Net loss, as reported                                             ($862)           ($1,442)
Deduct:  Total stock-based employee compensation
  income (expense) determined under the fair value-
  based method for all awards, net of related tax effects            38                (11)
                                                           -------------      -------------
Pro forma net loss                                                ($824)           ($1,453)
                                                           =============      =============
Basic/diluted loss per share:
               As reported                                       ($1.65)            ($2.87)
                                                           =============      =============
               Pro forma                                         ($1.58)            ($2.89)
                                                           =============      =============
</TABLE>



                  No stock options of the Predecessor Company were granted
         following the Predecessor Company's Chapter 11 filing. Upon emergence
         from Chapter 11, all outstanding awards of the Predecessor Company's
         stock-based compensation programs were cancelled. Pro-forma stock-based
         employee compensation income of $38 for 2003 is due to the reversal of
         expense for options that were not vested upon cancellation of the
         outstanding stock awards of the Predecessor Company.

15.      COMPREHENSIVE LOSS

                  Comprehensive loss represents net loss, adjusted for the
         effect of other items that are recorded directly to shareholders'
         equity. For the 13-week period ended April 30, 2003, comprehensive loss
         included a minimum pension liability adjustment of $94 which was
         subsequently eliminated through the application of Fresh-Start
         accounting. Comprehensive loss and net loss are equivalent for the
         13-week period ended May 1, 2002.

16.      RELATED PARTY TRANSACTIONS

                  Commencing March 2002, Kmart engaged various services of AP
         Services (formerly known as JA&A Services), a consulting firm, whose
         Chairman and another Principal held executive officer positions within
         Kmart. Specifically, their Chairman, Albert A. Koch, previously served
         as our Chief Financial Officer, and another Principal, Edward J.
         Stenger, previously served as our Treasurer. We recorded expenses of $7
         and paid fees of $5 for the 13-weeks ended April 30, 2003, and recorded
         expenses of $3 and paid fees of $1 for the 13-weeks ended May 1, 2002,
         respectively, to the firm for services rendered under the consulting
         agreement, including the services of Messrs. Koch and Stenger.

17.      INVENTORIES AND COST OF MERCHANDISE SOLD

                  For the periods ended January 29, 2003 and May 1, 2002, our
         inventory is accounted for using the LIFO method. Inventories valued on
         LIFO at January 29, 2003 and May 1, 2002 were $190 and $269 lower,
         respectively, than the amounts that would have been reported under the
         FIFO method. As required by SOP 90-7, inventories at April 30, 2003
         were stated at fair value. As previously discussed, we elected to
         change our method of accounting for merchandise inventories from LIFO
         to FIFO, see Note 3 -- Fresh Start Accounting.

18.      INVESTMENTS IN AFFILIATED RETAIL COMPANIES

         Meldisco

                  Kmart footwear departments are operated under a license
         agreement with the Meldisco subsidiaries of Footstar, Inc. ("FTS"),
         substantially all of which are 49% owned by Kmart and 51% owned by FTS.
         We are aware that FTS will be restating its financial statements for
         prior periods. As a result, we have not received final financial
         statements for fiscal 2002 or the first quarter of fiscal 2003 for
         Meldisco at the time of our filing of this Quarterly Report on Form
         10-Q. For the 13-weeks ended April 30, 2003, we have received
         preliminary financial statements and believe they provide a reliable
         basis for making a reasonable estimate of $7 of equity income. For the
         13-week period ended April 30, 2003, Meldisco




                                       19

<PAGE>

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

         had net sales of $246. For the 13-week period ended May 1, 2002,
         Meldisco had net sales of $307, gross profit of $139 and net income of
         $17. We do not expect the restatement to have a material effect on our
         equity income from Meldisco.

19.      OTHER COMMITMENTS AND CONTINGENCIES

         Contingent Liabilities

                  The Predecessor Company had (i) guaranteed obligations for
         real property leases of certain Debtors and former subsidiaries of
         Kmart including, but not limited to, The Sports Authority, Inc.,
         OfficeMax, Inc. and Borders Group, Inc., some of which leases were
         assigned pre-petition; (ii) contingent liabilities under real property
         leases assigned by Kmart pre-petition; and (iii) guaranteed
         indebtedness of other parties related to certain of our leased
         properties financed by industrial revenue bonds. To the extent not
         expressly assumed or reinstated under the Plan of Reorganization these
         guarantees were discharged subject to pre-petition claims
         administration.

         Legal Proceedings

               Fair Labor Standards Litigation

                  Kmart is a defendant in six putative class actions and one
         multi-plaintiff case pending in California, all relating to Kmart's
         classification of assistant managers and various other employees as
         "exempt" employees under the federal Fair Labor Standards Act ("FLSA")
         and the California Labor Code, and Kmart's alleged failure to pay
         overtime wages as required by these laws. These seven wage-and-hour
         cases were all filed during 2001 and are currently pending in the
         United States District Court for the Eastern District of California
         (Henderson v. Kmart), the United States District Court for the Central
         District of California (Gulley v. Kmart, the multi-plaintiff case,
         which was originally brought in state court) and the Superior Courts of
         the State of California for the Counties of Alameda, Los Angeles and
         Riverside (Panossian v. Kmart, Wallace v. Kmart, Pierce v. Kmart,
         Hancock v. Kmart, Pryor v. Kmart). If all of these cases were
         determined adversely to Kmart, the resulting damages could have a
         material adverse impact on our results of operations and financial
         condition. However, there have been no class certifications, all of the
         cases are stayed and enjoined as a result of Kmart's Chapter 11
         proceedings and confirmation of the Plan and, based on our initial
         investigations, we believe that we have meritorious defenses to each of
         these claims. We presently do not expect to have any material financial
         exposure as a result of these cases.

                  Kmart is a defendant in a putative class action pending in
         Oklahoma relating to the proper payment of overtime to hourly
         associates under the FLSA. The plaintiff claims he represents a class
         of all current and former Kmart employees who have been improperly
         denied overtime pay. This case was filed on March 4, 2003 and is
         currently pending in the U.S. District Court for the Northern District
         of Oklahoma. At this time, the likelihood of a material unfavorable
         outcome is not considered probable.

                  There is an increasing trend of high profile class action
         litigation, particularly in the retail industry, against employers of
         large numbers of people which allege violations of the FLSA. Other
         companies against which these cases have been filed have paid
         significant settlements and/or had significant judgments entered
         against them. Kmart has a large employee base; however no FLSA class
         actions against Kmart have yet been certified. The actions described
         above are the only FLSA related matters that are currently pending
         against Kmart.

                  To the extent that any awards are granted to the respective
         plaintiffs, the Successor Company will be responsible only for any
         portion of any such award relating to a post-petition period. Any
         portion of any such award that is a monetary claim relating to a
         pre-petition period will be addressed in accordance with the Plan of
         Reorganization.

         Securities Action Litigation

                  Since February 21, 2002, five separate purported class actions
         have been filed on behalf of purchasers of Kmart common stock. The
         initial complaints were filed on behalf of purchasers of common stock
         between May 17, 2001 and January 22, 2002, inclusive, and named Charles
         C. Conaway, former CEO and Chairman of the Board of Kmart as the sole
         defendant. The complaints filed in the United States District Court for
         the Eastern District of Michigan, allege, among other things, that Mr.
         Conaway made material misstatements or omissions during the alleged
         class period that inflated the trading prices of the Predecessor
         Company's common stock and seek, among other things, damages under
         Section 10b-5 of the Securities and Exchange Act of 1934. On October
         15, 2002, an amended consolidated complaint


                                       20
<PAGE>


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)





         was filed that enlarged the class of persons on whose behalf the action
         was brought to include purchasers of the Predecessor Company's
         securities between March 13, 2001 and May 15, 2002, and added former
         officers and PricewaterhouseCoopers LLP as defendants. Kmart is not a
         defendant in this litigation.

                  On July 31, 2002, attorneys for plaintiffs in the then pending
         class action lawsuits filed a class proof of claim in the Court (the
         "Class Proof of Claim") on behalf of the plaintiffs and all purchasers
         of the Predecessor Company's common stock between May 17, 2001 and
         January 22, 2002, inclusive. The Class Proof of Claim, which is
         asserted against the Debtors, reserved the right to identify additional
         claimants or members of the class group in the future. In support of
         the Class Proof of Claim, the claimants rely on the above-referenced
         class actions filed against the parties identified above. The claimants
         state that the grounds for liability are alleged damages for violations
         of federal securities laws, including the Securities Exchange Act of
         1934, in connection with the purchase or acquisition of the Predecessor
         Company's common stock by the claimants during the class period. The
         Class Proof of Claim alleges that the Debtors are liable to the
         claimants for damages in a sum not presently determinable but believed
         to be not less than $700 in the aggregate, plus interest, costs and
         allowed attorneys' fees.

                  On March 18, 2002, a purported class action was filed in the
         United States District Court for the Eastern District of Michigan on
         behalf of participants or beneficiaries of the Kmart Corporation
         Retirement Savings Plan against various current and former employees
         and directors of Kmart alleging breach of fiduciary duty under the
         Employee Retirement Income Security Act for excessive investment in the
         Predecessor Company's stock; failure to provide complete and accurate
         information about the Predecessor Company's common stock; and failure
         to provide accurate information regarding our financial condition.
         Subsequently, amended complaints were filed that added additional
         current and former employees and directors of Kmart as defendants.
         Kmart is not a defendant in this litigation. On July 29, 2002, the
         plaintiffs filed proofs of claim with the Court in an aggregate amount
         equal to $180.

                  On April 26, 2002, a lawsuit was filed in the United States
         District Court for the Eastern District of Michigan on behalf of three
         limited partnerships (the "Softbank Funds") that purchased stock of
         Bluelight.com, a subsidiary of Kmart, naming Charles C. Conaway, as
         former CEO and Chairman of the Board of Kmart, as the sole defendant.
         The Complaint alleges that Mr. Conaway breached his fiduciary duty,
         took certain actions and made certain misrepresentations that induced
         plaintiffs to exchange their Bluelight.com stock for the Predecessor
         Company's stock and prevented plaintiffs from realizing the market
         value of their stock. The complaint also alleges violations of Section
         10b-5 of the Securities and Exchange Act of 1934 and Section 410 of the
         Michigan Uniform Securities Act. Kmart was not a defendant in this
         litigation. On January 16, 2003, the District Court dismissed the
         complaint. On February 14, 2003, a lawsuit was filed by the Softbank
         Funds against Mr. Conaway in the Circuit Court of Cook County,
         Illinois. This lawsuit seeks $33 from the defendant for alleged breach
         of fiduciary duty in connection with the failure of the Predecessor
         Company to cause the registration of the plaintiffs' shares of the
         Predecessor Company's common stock to become effective. This claim is
         essentially the same as count I of the lawsuit that was dismissed on
         January 16, 2003. On May 2, 2002, the plaintiffs filed proofs of claim
         with the Court in an aggregate amount equal to $56.

                  The foregoing actions, which were brought by or on behalf of
         holders of common stock of the Predecessor Company and are referred to
         as "Securities Actions" under the Plan of Reorganization, were brought
         against persons other than the Company and, therefore, were not
         extinguished when we emerged from Chapter 11. Accordingly, to the
         extent that any awards are granted to the respective plaintiffs under
         these actions and a claim is allowed against the Predecessor Company
         under the proofs of claim previously filed with the Court, the allowed
         claim, to the extent not covered by insurance, will be addressed in
         accordance with the Plan of Reorganization. Except as noted above, the
         foregoing actions relate to periods occurring prior to the Petition
         Date. Any obligations which we may have with respect to a claim for
         indemnification by any of the defendants will be governed by the terms
         of the Plan of Reorganization.

         Other and Routine Actions

                  Kmart is a defendant in a putative class action pending in
         Colorado relating to proper access to facilities for the disabled under
         the Americans with Disabilities Act ("ADA"). The plaintiff claims he
         represents a class of disabled customers who have been improperly
         denied access to facilities required under the ADA. This case was filed
         on October 1, 1999 and is currently pending in the United States
         District Court in Denver, Colorado. This action has been stayed
         pursuant to the automatic bankruptcy stay and the plan injunction. No
         class has been certified. At this time, the likelihood of a material
         unfavorable outcome is not considered probable.

                  We are a party to a substantial number of other claims,
         lawsuits and pending actions which are routine and incidental to our
         business. To the extent that any claim relates to a contract which was
         assumed by us when we emerged or




                                       21

<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)


         relates to a time period occurring after the Petition Date, the
         Successor Company shall be responsible for any damages which may
         result. In addition, certain contracts allow for damage provisions or
         other repayments as a result of our termination of the contracts.

                  We assess the likelihood of potential losses on an ongoing
         basis and when they are considered probable and reasonably estimable,
         record an estimate of the ultimate outcome. If there is no single point
         estimate of loss that is considered more likely than others, an amount
         representing the low end of the range of possible outcomes is recorded.
         Our balance sheet as of April 30, 2003 only reflects potential losses
         for which the Successor Company may have ultimate responsibility.

         Investigative Matters

                  Kmart has been provided with copies of anonymous letters that
         were sent to the SEC, our auditors, directors, legal counsel and
         others, expressing concern with respect to various matters. The letters
         purported to be sent by certain of our employees. The letters were
         referred to the Predecessor Company's Audit Committee of the Board of
         Directors, which engaged outside counsel to review and investigate the
         matters set forth in the letters. We are cooperating with the SEC and
         the U. S. Attorney's office for the Eastern District of Michigan with
         respect to the investigations of these matters. The staff of the SEC
         has expressed concerns with respect to the manner in which we recorded
         vendor allowances prior to the change in accounting principles at the
         end of fiscal 2001, as well as the Staff's intention to continue to
         pursue its investigation of these matters. The United States Attorney
         for the Eastern District of Michigan also is undertaking an inquiry
         into these matters. A detailed discussion of the investigation and
         stewardship review, as well as the results of such investigation and
         review, is contained in the Disclosure Statement, which we filed as
         Exhibit 2.2 to our Current Report on Form 8-K dated March 7, 2003.

                  After consultation with the statutory committees in our
         Chapter 11 proceedings, we have determined that the Creditor Trust is
         the preferred available mechanism for resolving any legal claims that
         arose out of these investigations. As part of the Plan of
         Reorganization, the trustee of the trust is charged with responsibility
         for determining which claims to pursue and, thereafter, litigating such
         claims. Pursuant to the Plan of Reorganization and various
         confidentiality orders issued by the Court, we will share with the
         trustee evidence gathered and certain work product developed during the
         investigations.

20.      RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

                  In June 2001, the Financial Accounting Standards Board
         ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement
         Obligations" ("SFAS No. 143"). SFAS No. 143 requires a liability for
         the cost of an asset retirement obligation be recognized and measured
         initially at fair value in the period in which the liability is
         incurred. The asset retirement costs are capitalized as part of the
         long-lived asset and depreciated over the asset's life. The provisions
         of SFAS No. 143 were effective for this fiscal year beginning January
         30, 2003. The adoption of SFAS No. 143 did not have a material effect
         on our financial statements.

                  In June 2002, the FASB issued SFAS No. 146, which supercedes
         EITF Issue No. 94-3, "Liability Recognition for Certain Employee
         Termination Benefits and Other Costs to Exit an Activity (Including
         Certain Costs Incurred in Restructuring)." The new standard requires a
         liability for a cost associated with an exit or disposal activity to be
         recognized and measured initially at fair value in the period in which
         the liability is incurred, rather than at the time of commitment to an
         exit plan. SFAS No. 146 was effective for exit or disposal activities
         that were initiated after December 31, 2002. As a result of adopting
         the provisions of this standard, certain lease termination and other
         restructuring costs were recognized in the first quarter of 2003 that
         otherwise would have been recognized in the fourth quarter of 2002.

                  In November 2002, the EITF reached a final consensus on EITF
         Issue No. 02-16, "Accounting by a Customer (Including a Reseller) for
         Certain Consideration Received from a Vendor." This issue addressed the
         income statement classification of cash consideration received from a
         vendor and the recognition criteria for performance-driven vendor
         rebates or refunds. This consensus, effective for the Predecessor
         Company's fiscal year ended January 29, 2003, resulted in certain co-op
         advertising recoveries which would previously have been recorded as a
         reduction of SG&A, being recorded as a reduction of Cost of sales,
         buying and occupancy.

                  In January 2003, the FASB issued Interpretation No. 46,
         "Consolidation of Variable Interest Entities" ("FIN No. 46"). FIN No.
         46 provides guidance on the identification and consolidation of
         variable interest entities ("VIEs"). VIEs



                                       22
<PAGE>

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)




         are defined in FIN No. 46 as entities that have insufficient equity at
         risk or have equity investors who lack characteristics of a financial
         controlling interest. This Interpretation requires the primary
         beneficiary of an unconsolidated variable interest entity to
         consolidate the VIE if the entity does not effectively disperse risks
         among the parties involved. We have performed an analysis, and we have
         determined that there were no entities that require consolidation upon
         adoption of this standard.

                  In April 2003, the FASB issued SFAS No. 149, "Amendment of
         Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS
         No. 149"). This statement amends and clarifies the accounting for
         derivative instruments and hedging activities under SFAS No. 133,
         "Accounting for Derivative Instruments and Hedging Activities." As
         required by SOP 90-7, the Company must adopt, as of the current
         reporting period, all accounting guidance that would otherwise become
         effective within the next twelve months. We have adopted SFAS No. 149
         effective April 30, 2003. There was no impact to the Company upon the
         adoption of SFAS No. 149 as we currently do not hold any derivative
         instruments or participate in hedging activities.

                  In May 2003, the FASB issued SFAS No. 150, "Accounting for
         Certain Financial Instruments with Characteristics of both Liabilities
         and Equity" ("SFAS No. 150"). SFAS No. 150 requires certain financial
         instruments with characteristics of both liabilities and equity to be
         classified as liabilities. As required by SOP 90-7, we are required to
         adopt, as of the current reporting period, all accounting guidance that
         is effective within the next twelve month period. We have adopted SFAS
         No. 150 effective April 30, 2003. We did not have any financial
         instruments that were classified as equity prior to the adoption of
         SFAS No. 150 that were required to be reclassified to liabilities.

21.      SUBSEQUENT EVENTS

                  On June 4, 2003, Martha Stewart was indicted in the United
         States District Court of the Southern District of New York. The Martha
         Stewart brand is considered a distinctive brand for Kmart and we
         currently sell Martha Stewart home, garden, colors, baby, kitchen,
         keeping and decorating product lines, along with candles and
         accessories. Martha Stewart has resigned her position as Chairman and
         Chief Executive Officer of Martha Stewart Omnimedia, Inc; however, she
         will serve as the Chief Creative Officer and remain on the Board of
         Directors. To-date, we have not experienced any significant adverse
         impact from this matter on the sales of Martha Stewart brand product
         lines.

                  On June 10, 2003 our common stock began trading on the NASDAQ
         National Market System under the symbol KMRT. The common stock had
         previously traded on the OTC Bulletin Board.


                                       23


<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

         This Form 10Q/A, as well as other statements or reports made by or on
behalf of Kmart, may contain or may incorporate by reference material which
includes forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 that reflect, when made, Kmart's current views
with respect to current events and financial performance. Statements, other than
those based on historical facts, which address activities, events or
developments that we expect or anticipate may occur in the future are
forward-looking statements, which are based upon a number of assumptions
concerning future conditions that may ultimately prove to be inaccurate. Such
forward-looking statements are and will be, as the case may be, subject to many
risks, uncertainties and factors relating to Kmart's operations and business
environment which may cause the actual results of Kmart to be materially
different from any future results, express or implied, by such forward-looking
statements. Factors that could cause actual results to differ materially from
these forward-looking statements include, but are not limited to, the following:

-    general economic conditions,
-    weather conditions, including those which affect buying patterns of our
     customers,
-    marketplace demand for the products of our key brand partners, as well as
     the engagement of appropriate new brand partners,
-    changes in consumer spending and our ability to anticipate buying patterns
     and implement appropriate inventory strategies,
-    competitive pressures and other third party actions, including pressures
     from pricing and other promotional activities of competitors, as well as
     new competitive store openings,
-    the impact of external forces, such as the severe acute respiratory
     syndrome, on our business,
-    the resolution of allowed claims for which we are obligated to pay cash
     under the Plan of Reorganization,
-    our ability to timely acquire desired goods in appropriate quantities
     and/or fulfill labor needs at planned costs,
-    our ability to properly monitor our inventory needs and remain in-stock,
-    our ability to successfully implement business strategies and otherwise
     execute planned changes in various aspects of the business,
-    our ability to operate pursuant to our Exit Financing Facility,
-    regulatory and legal developments,
-    our ability to attract, motivate and/or retain key executives and
     associates,
-    our ability to attract and retain customers,
-    our ability to offset the negative effects that filing for reorganization
     under Chapter 11 has had on our business, including the loss in customer
     traffic and the impairment of vendor relations,
-    our ability to obtain and maintain normal terms with vendors and service
     providers,
-    our ability to maintain contracts, including leases, that are critical to
     our operations,
-    our ability to implement our long-term strategy and/or develop a market
     niche,
-    our ability to fund and execute our business plan, and
-    other factors affecting business beyond our control.

         Consequently, all of the forward-looking statements are qualified by
these cautionary statements and there can be no assurance that the results or
developments anticipated will be realized or that they will have the expected
effects on our business or operations. The forward-looking statements contained
herein or otherwise that we make or are made on our behalf speak only as of the
date of this report, or if not contained herein, as of the date when made, and
we do not undertake to update these risk factors or such forward-looking
statements.




                                       24
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)




OVERVIEW

         On the Petition Date, Kmart Corporation (the Predecessor Company), and
37 of its U.S. subsidiaries filed voluntary petitions for reorganization under
Chapter 11. On January 24, 2003, the Debtors filed a Plan of Reorganization and
related Disclosure Statement and on February 25, 2003, filed the Plan of
Reorganization and a related amended Disclosure Statement with the Court. The
Plan of Reorganization received the formal endorsement of the statutory
creditors committees and, as modified, was confirmed by the Court by order
docketed on April 23, 2003.

         On the Effective Date, the Predecessor Company emerged from
reorganization proceedings under Chapter 11 pursuant to the terms of the
Debtors' Plan of Reorganization and became a wholly-owned subsidiary of Kmart
Management Corporation, which is a newly-formed, wholly-owned subsidiary of a
newly-created holding company, Kmart Holding Corporation (the Successor
Company). Kmart is the nation's third largest discount retailer and the sixth
largest general merchandise retailer.

         In accordance with SOP 90-7, we adopted Fresh-Start accounting as of
the Confirmation Date. However, in light of the proximity of such date to our
fiscal quarter end, we have applied, for accounting purposes, the effects of
Fresh-Start accounting and the Plan of Reorganization, including the
cancellation of the existing common stock and the issuance of the new common
stock, "as if" they occurred on April 30, 2003. Upon applying Fresh-Start
accounting, a new reporting entity (the Successor Company) is deemed to be
created and the recorded amounts of assets and liabilities are adjusted to
reflect their estimated fair values (see Note 3 -- Fresh-Start Accounting). The
reported historical financial statements of the Predecessor Company for periods
prior to April 30, 2003 generally are not comparable to those of the Successor
Company. In this Quarterly Report on Form 10-Q, references to our 2003 and 2002
results of operations refer to the Predecessor Company.

         At the time of emergence, the Plan Investors made a substantial
investment in the Successor Company in furtherance of our financial and
operational restructuring plan. The Plan Investors and their affiliates received
approximately 32 million shares of Kmart Holding Corporation's new common stock
in satisfaction of pre-petition claims they held and we issued 14 million shares
of new common stock to affiliates of ESL and Third Avenue, in exchange for $127,
net of $13 of commitment fees and Plan Investor expenses. In addition, we issued
a 9%, $60 principal amount convertible note to the affiliates of ESL. The
principal and unpaid interest in respect to the 9% convertible note is
convertible at any time, at the option of the holder, into new common shares at
a conversion price equal to $10 per share. ESL also was granted the option,
exercisable in its own discretion prior to May 6, 2005, to purchase from the
Successor Company approximately 6.6 million new Common Shares at a price of $13
per share. A portion of the option was assigned to Third Avenue. The investment
was made pursuant to the Investment Agreement.

         ESL and its affiliates beneficially own over 50% of the common stock of
the Successor Company, including shares received in exchange for pre-petition
obligations, as well as shares obtainable upon exercise of options and
conversion of the $60 convertible note issued to affiliates of ESL. Each of the
Plan Investors is represented on our Board of Directors.

         The Plan of Reorganization became effective on May 6, 2003, at which
time all then-outstanding equity securities of the Predecessor Company, as well
as substantially all of its pre-petition liabilities, were cancelled. Holders of
the Predecessor Company's stock may receive up to 2.5% of the recoveries under
the Creditor Trust, see Note 1 -- Proceedings under Chapter 11 of the Bankruptcy
Code. New common stock of the Successor Company was issued in satisfaction of
certain of those pre-petition liability claims, see Note 1 -- Proceedings under
Chapter 11 of the Bankruptcy Code. The new securities of the Successor Company
issued on the Effective Date pursuant to the Plan of Reorganization and related
transactions, consisted of 89,677,509 shares of new common stock and options to
purchase 8,324,883 shares of new common stock. All of the shares of common stock
issued on May 6, 2003 were or will be distributed pursuant to the Plan of
Reorganization in satisfaction of pre-petition claims, except for 14 million
shares of common stock of the Successor Company issued to affiliates of ESL and
Third Avenue for $127, net of $13 of commitment fees and Plan Investor expenses.
All such shares were issued without registration under the Securities Act of
1933 in reliance on the provisions of Section 1145 of the Bankruptcy Code and
Section 4(2) of the Securities Act of 1933. In addition, as part of the Plan of
Reorganization, Kmart has established a Creditor Trust for the benefit of the
Predecessor Company's pre-petition creditors and equity holders, to pursue
claims which arose from the Predecessor Company's prior accounting and
stewardship investigations.


                                       25


<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)



         The ability of Kmart to continue as a going concern is predicated upon
numerous issues, including our ability to achieve the following:

      -  implementing our business plan and returning Kmart to profitability;
      -  taking appropriate action to offset the negative effects that the
         Chapter 11 filing has had on our business, including the loss in
         customer traffic and the impairment of vendor relations;
      -  operating within the framework of our $2 billion Exit Financing
         Facility, including its limitations on capital expenditures, its
         financial covenants, our ability to generate cash flows from operations
         or seek other sources of financing and the availability of projected
         vendor terms; and
      -  attracting, motivating and/or retaining key executives and associates.

         These challenges are in addition to those operational and competitive
challenges faced by Kmart in connection with our business as a discount
retailer. See "Cautionary Statement Regarding Forward-Looking Information"
above.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         The preparation of financial statements requires that we make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and revenues and expenses during the
period. We base our estimates on historical experience and other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. We continually
evaluate the information used to make these estimates as our business and the
economic environment change. We have disclosed our critical accounting policies
and estimates in the Predecessor Company's Annual Report on Form 10-K for the
year ended January 29, 2003, filed with the Securities Exchange Commission on
March 24, 2003. See Note 3 -- Fresh Start Accounting for a discussion of our
change from the Last-in First-Out method of inventory valuation to the First-in
First-Out method for our accounting for merchandise inventories.

RESULTS OF OPERATIONS

         The following Management's Discussion and Analysis ("MD&A") discussion
provides a comparative analysis of operating results as reported for the
13-weeks ended April 30, 2003 and May 1, 2002.

         Same-store sales and total sales decreased 3.2% and 13.9%,
respectively, for the 13-weeks ended April 30, 2003 as compared to the same
period from the previous year. The decrease in same store sales is primarily due
to sluggish retail sales as a result of consumer concerns over the war with
Iraq, general economic factors and unseasonable weather conditions. Same-store
sales include sales of all open stores that have been open for greater than 13
full months. The decrease in total sales is attributable to the decrease in
same-store sales and the closure of 283 stores during the second quarter of
2002.

         Gross margin increased $757 to $1,419, for the 13-weeks ended April 30,
2003, from $662 for the 13-weeks ended May 1, 2002. Gross margin, as a
percentage of sales, increased to 23.0% for the 13-weeks ended April 30, 2003,
from 9.2% for the 13-week period ended May 1, 2002. The increase in gross margin
is primarily related to the charge of $625 recorded in the first quarter of 2002
in conjunction with the store closing liquidation sales. In addition, our gross
margin rate was positively affected by a favorable gross margin rate realized
from closing store liquidation sales, a decrease in sales of food and
consumables, which carry lower margins and a decrease in promotional markdowns,
partially offset by the impact of clearance markdowns.




                                       26







<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)




         Selling, general and administrative expenses ("SG&A"), which includes
advertising costs (net of co-op recoveries of $69 in fiscal 2002) decreased $249
for the 13-weeks ended April 30, 2003 to $1,421, or 23.0% of sales, from $1,670,
or 23.3% of sales, for the 13-weeks ended May 1, 2002. The decrease in SG&A is
primarily the result of the closure of 283 stores in the second quarter of 2002
and lower payroll and other related expenses in the first quarter of 2003
stemming from corporate headquarters cost reduction initiatives. In addition,
SG&A was favorably impacted by a decrease in utility expenses and electronic
media advertising, and lower depreciation expense as a result of the impairment
charge recorded in the fourth quarter of fiscal 2002. These decreases were
partially offset by co-op recoveries recorded to SG&A in 2002, that are recorded
to cost of sales, buying and occupancy in 2003, resulting from the application
of EITF 02-16, "Accounting by a customer (Including a Reseller) for Certain
Consideration Received from a Vendor," an increase in pension expense, and
higher premiums for our workers' compensation insurance.

         Operating loss for the 13-weeks ended April 30, 2003 was $32, or (0.5%)
of sales, as compared to operating loss of $1,003, or (14.0%) of sales, for the
same period of the prior year. The decrease in operating loss was primarily due
to the 2002 charge for accelerated inventory markdowns of $625 in conjunction
with store closing liquidations in the first quarter of fiscal 2002 and the
decrease in SG&A as discussed above.

         Net interest expense for the 13-weeks ended April 30, 2003 and May 1,
2002 was $57 and $33, respectively. The increase in interest expense is due to
accelerated amortization on debt issuance costs related to our DIP Credit
Facility in connection with our emergence from Chapter 11. Included in net
interest expense is interest income of $1 for the 13-weeks ended April 30, 2003
and May 1, 2002. Interest at the stated contractual amount on unsecured debt
that was not charged to earnings for the 13-weeks ended April 30, 2003 and May
1, 2002 was $67 and $69, respectively.

         Effective income tax rate was (0.7%) and (0.9%) for the 13-weeks ended
April 30, 2003 and May 1, 2002, respectively, see Note 12 -- Income Taxes.

         Significant changes were made to our unaudited Condensed Consolidated
Balance Sheet to reflect the application of Fresh-Start accounting. See Note 3
-- Fresh Start Accounting for further details of the adjustments.

LIQUIDITY AND FINANCIAL CONDITION

         On May 6, 2003, our $2 billion Exit Financing Facility financed by
General Electric Capital Corporation, Fleet Retail Finance, Inc. and Bank of
America, N.A. became effective. Debt issuance costs associated with the Exit
Financing Facility totaled $58 and will be amortized through May 2006. The Exit
Financing Facility is a revolving credit facility under which Kmart Corporation
is the debtor and its parent entities and most direct and indirect subsidiaries
are guarantors. The Exit Financing Facility is collateralized by first liens on
inventory, the proceeds thereof, and certain intellectual property necessary to
realize the value of the inventory. Borrowings under the Exit Financing Facility
currently bear interest at either the Prime rate plus 2.5% per annum or the
LIBOR rate plus 3.5% per annum, at our discretion, which interest rate margin
may be reduced after the first anniversary of the effective date of the Exit
Financing Facility if Kmart meets certain EBITDA targets. In addition, we are
required to pay a fee based on the unutilized commitment under the Exit
Financing Facility equal to 0.75% per annum. The Exit Financing Facility
financial covenants include a requirement that Kmart maintain minimum
availability of $100 under the facility and a restriction on capital spending.
In the event that Kmart fails to maintain certain specified excess availability
minimums under the Exit Financing Facility, Kmart will also be required to
maintain minimum levels of EBITDA. The Exit Financing Facility also contains
other customary covenants, including certain reporting requirements and
covenants that restrict our ability to incur or create liens, indebtedness and
guarantees, make investments, pay dividends or make other equity distributions,
sell or dispose of stock or assets, change the nature of our business and enter
into affiliate transactions, mergers and consolidations. Failure to satisfy
these covenants would (in some cases, after the receipt of notice and/or the
expiration of a grace period) result in an event of default that could result in
our inability to access the funds necessary to maintain our operations.

         Following the Petition Date and prior to emergence, the Predecessor
Company utilized cash flows from operations and the Debtor-in-Possession Credit
Facility ("DIP Credit Facility") as its primary sources of working capital. The
DIP Credit Facility was a revolving credit facility under which the Predecessor
Company was the borrower and the rest of the Debtors were guarantors.

                                       27

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)



         Net cash provided by operating activities for the 13-weeks ended April
30, 2003 was $595 compared to net cash provided by operating activities of
$1,020 for the same period in 2002. The decrease in cash provided by operating
activities was primarily due to increased payments on accounts payable in the
first quarter of 2003 as compared to the first quarter of 2002 due to the stay
on pre-petition liabilities following our filing for protection under Chapter
11.

         Net cash used for reorganization items was $19 for the 13-weeks ended
April 30, 2003 compared to net cash provided by reorganization items of $12 for
the same period in 2002. The change in cash used for reorganization items
relates primarily to 2003 payments under the Key Employee Retention Program
("KERP") and payments to retain bankruptcy advisors.

         Net cash provided by investing activities was $60 for the 13-weeks
ended April 30, 2003 compared to net cash used for investing activities of $52
for the same period in 2002. The change in net cash provided by investing
activities is due to proceeds of $45 from the sale of four owned Kmart store
locations, $18 from the sale of furniture and fixtures from our closed store
locations, and a reduction in capital expenditures from $52 in 2002 to $4 in
2003.

         Net cash used for financing activities was $17 for the 13-weeks ended
April 30, 2003 compared to net cash used for financing activities of $396 for
the comparable period in 2002. The decrease in cash used for financing
activities is primarily the result of the repayment of $330, including debt
issuance costs, on our DIP Credit Facility in 2002.

         Due to the seasonal nature of the retail industry, where merchandise
sales and cash flows from operations are historically higher in the fourth
quarter than any other period, a disproportionate amount of operating income and
cash flows from operations are earned in the fourth quarter. Our results of
operations and cash flows are primarily dependent upon the large sales volume
generated during the fourth quarter of our fiscal year. Fourth quarter sales
represented over 29% of total net sales in fiscal 2002. As a result, operating
performance for the interim periods is not necessarily indicative of operating
performance for the entire year. To support the higher seasonal sales volume we
experience a seasonal inventory build in October and November and, as a result,
our usage of credit lines is higher for this period of the year. We believe that
our Exit Financing Facility will be adequate to support our forecasted seasonal
borrowing needs.

         Our cash needs are satisfied through working capital generated by our
business and funds available under our Exit Financing Facility. The level of
cash generated by our business is dependent, in significant part, on our level
of sales and the credit extended by our vendors. Since our filing for
reorganization under Chapter 11, most of our vendors have resumed normal trade
terms. Should, however, we experience a significant disruption of terms with our
vendors, sales fail to improve, the Exit Financing Facility for any reason
becomes unavailable and/or actual results differ materially from those
projected, our compliance with financial covenants and our cash resources could
be adversely affected.

Inflation

         Inflation has not had a significant impact on our business over the
past three years and we do not expect it to have a significant impact on
operations in the foreseeable future, unless global or geo-political factors
substantially affect the world economy.

Future Liquidity Items

         We expect to make payments of approximately $640 in conjunction with
our emergence from Chapter 11. The actual amounts will depend upon the
reconciliation of claims entitled to cash payments. We will fund these cash
payments with existing cash balances and cash contributions received from the
Plan Investors, including $60 aggregate principal amount of convertible notes
and $127, net of $13 of commitment fees and Plan Investor expenses, for the
purchase of new common shares of the Successor Company.

         We do not expect to borrow from the Exit Financing Facility except in
the normal course of business to fund the seasonal inventory build-up for the
fourth quarter, as discussed above.









                                       28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)

Pension Plan

         Prior to 1996, Kmart maintained defined benefit pension plans covering
eligible associates. Effective January 31, 1996, the pension plans were frozen,
and associates no longer earn additional benefits under the plans (except for
purposes of the subsidized early retirement program provided by the plan). The
plans' assets consist primarily of equity and fixed income securities. For the
past nine years, the Predecessor Company has not been required to make
contributions to the plans.

         In light of returns in the equity markets in 2003 and prior years, and
the effect of such returns on the value of the plans' assets, we presently
expect that we will be required to commence making significant contributions to
the plans in 2005 or 2006, although it is possible that contributions could be
required earlier. Given that the plans are frozen, the timing for the
commencement of our future funding requirements will depend, in large part, on
the future investment performance of the plans' assets. Once funding obligations
commence, we presently anticipate that such obligations could continue for a
period of five or six years at an average rate of between $100 and $200 a year,
or between $700 and $1 billion in the aggregate. The actual level of
contributions will depend upon a number of factors, including actual demographic
experience, pension fund returns and other changes affecting valuations.

         In addition to the funding described above, as a result of the returns
over the most recent years, decreases in our annual discount rate and expected
rate of return on assets, we recorded pension expense in the first quarter, as
opposed to income as has been recorded in the most recent years.

FRESH-START ADJUSTMENTS

         In accordance with Fresh-Start accounting, all assets and liabilities
are recorded at their respective fair market values. Fair values used represent
our best estimates based on independent appraisals and valuations.

         To facilitate the calculation of the enterprise value of the Successor
Company, we developed a set of financial projections. Based on these financial
projections, the enterprise value was determined by the Company, with the
assistance of a financial advisor, using various valuation methods, including
(i) a comparison of the Company and its projected performance to the market
values of comparable companies, (ii) a review and analysis of several recent
transactions of companies in similar industries to the Company, and (iii) a
calculation of the present value of the future cash flows under the projections.
The estimated enterprise value is highly dependent upon achieving the future
financial results set forth in the projections as well as the realization of
certain other assumptions which are not guaranteed. The estimated enterprise
value of Kmart was calculated to be approximately $2.3 billion to $3.0 billion.
We selected the midpoint of the range, $2.6 billion, as the estimated enterprise
value. In applying Fresh-Start accounting, adjustments to reflect the fair value
of assets and liabilities, on a net basis, and the write-off of the Predecessor
Company's equity accounts resulted in a charge of $5.6 billion. The
restructuring of Kmart's capital structure and resulting discharge of
pre-petition debt resulted in gain of $5.6 billion. The charge for the
revaluation of the assets and liabilities and the gain on the discharge of
pre-petition debt are recorded in Reorganization items, net in the unaudited
Condensed Consolidated Statement of Operations. In addition, the excess of fair
value of net assets over reorganization value ("negative goodwill") was
allocated on a pro-rata basis and reduced our non-current assets, with the
exception of financial instruments, to $10 in accordance with SFAS No. 141.

DISCONTINUED OPERATIONS

         During the first quarter of fiscal 2003 and the second quarter of
fiscal 2002, we closed 316 and 283 stores, respectively. We identified 121
stores that met the criteria for discontinued operations (see Note 4 -
Discontinued Operations). The results of operations for these 121 closed stores
have been classified as discontinued operations for all periods presented in our
unaudited Condensed Consolidated Statements of Operations. The table below sets
forth the components of the net loss associated with the discontinued operations
for the 13-weeks ended April 30, 2003 and (restated) May 1, 2002.


                                       29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                            13 Weeks Ended
                                                       April 30,        May 1,
                                                         2003            2002
                                                       ---------      ---------
                                                                      (Restated)
<S>                                                    <C>            <C>
Sales                                                  $     232      $     458
Cost of sales, buying and occupancy                          150            502
                                                       ---------      ---------

Gross margin                                                  82            (44)
Selling, general and administrative expenses                  43            100
Restructurings, impairments and other charges                  5           --
Reorganization items, net                                     44             23
                                                       ---------      ---------

Net loss from discontinued operations                  $     (10)     $    (167)
                                                       =========      =========
</TABLE>


         Of the 599 stores that were closed in 2003 and 2002, 478 are included
in continuing operations, as they did not meet the criteria for discontinued
operations. For the 13-week period ended April 30, 2003, total sales, gross
margin and SG&A for the 250 stores that were closed in fiscal 2003 and reported
in continuing operations are $854, $301 and $146, respectively. For the 13-week
period ended May 1, 2002, total sales, gross margin and SG&A for the 478 stores
that were closed in fiscal 2003 and 2002 and reported in continuing operations
were $1,674, ($237) and $369, respectively.

SPECIAL CHARGES

         Special charges are transactions which, in management's judgment, may
make meaningful comparisons of operating results between reporting periods
difficult. In determining what amounts constitute a special charge, management
considers the nature, magnitude and frequency of their occurrence. During fiscal
2002, we instituted certain restructuring actions to improve our operations and
executed significant inventory liquidations as a result of the stores closed
under Kmart's Chapter 11 proceedings. For the 13-weeks ended April 30, 2003 and
May 1, 2002 we recorded special charges of $42 and $758, respectively. For a
comprehensive discussion see Note 6 -- Special Charges.

REORGANIZATION ITEMS, NET

         Reorganization items represent amounts the Predecessor Company incurred
as a result of Chapter 11, and are presented separately in the unaudited
Condensed Consolidated Statements of Operations. We recorded $769 and $251 for
the 13-week periods ended April 30, 2003 and May 1, 2002, respectively, for
reorganization items. The increase in Reorganization items, net is primarily due
to the Fleming settlement of $385 and expense of $200 for estimated claims for
rejected executory contracts. For a comprehensive discussion see Note 7 --
Reorganization items, net.

OTHER MATTERS

         Contingent Liabilities

         The Predecessor Company had (i) guaranteed obligations for real
property leases of certain Debtors and former subsidiaries of Kmart including,
but not limited to, The Sports Authority, Inc., OfficeMax, Inc. and Borders
Group, Inc., some of which leases were assigned pre-petition; (ii) contingent
liabilities under real property leases assigned by Kmart pre-petition; and (iii)
guaranteed indebtedness of other parties related to certain of our leased
properties financed by industrial revenue bonds. To the extent not expressly
assumed or reinstated under the Plan of Reorganization these guarantees were
discharged subject to pre-petition claims administration.




                                       30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)


         Other

         On June 4, 2003, Martha Stewart was indicted in the United States
District Court of the Southern District of New York. The Martha Stewart brand is
considered a distinctive brand for Kmart and we currently sell Martha Stewart
home, garden, colors, baby, kitchen, keeping and decorating product lines, along
with candles and accessories. Martha Stewart has resigned her position as
Chairman and Chief Executive Officer of Martha Stewart Omnimedia, Inc; however,
she will serve as the Chief Creative Officer and remain on the Board of
Directors. To-date, we have not experienced any significant adverse impact from
this matter on the sales of Martha Stewart brand products. Although product
sales have not been significantly affected by past events, the Company is not
able to determine the potential effects these events may have on the future
sales of its Martha Steward brand products.

         On June 10, 2003 our common stock began trading on the NASDAQ National
Market System under the symbol KMRT. The common stock had previously traded on
the OTC Bulletin Board.






                                       31
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         At April 30, 2003, we did not have any derivative instruments that
increased our exposure to market risks for interest rates, foreign currency
rates, commodity prices or other market price risks. We do not use derivatives
for speculative purposes. Currently, our exposure to market risks results
primarily from changes in interest rates, principally with respect to the Exit
Financing Facility, which is a variable rate financing agreement. We do not use
swaps or other interest rate protection agreements to hedge this risk.

ITEM 4.  CONTROLS AND PROCEDURES

         Within the 90-day period prior to the date of filing this report, we
carried out an evaluation, under the supervision of our management Disclosure
Committee (which includes the Chief Executive Officer and Co-Principal Financial
Officers), of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rules 13a-14 and 15d-14. Based
upon this evaluation, the Chief Executive Officer and Co-Principal Financial
Officers concluded that our disclosure controls and procedures are effective to
ensure that information required to be disclosed in our periodic SEC reports is
recorded, processed, summarized, and reported as and when required.

         There have not been any significant changes to our internal controls or
any other factors that could significantly affect these controls subsequent to
the date of management's evaluation.



                                       32
<PAGE>

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         See Note 19 of the Notes to unaudited Condensed Consolidated Financial
Statements for information concerning legal proceedings.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         The Plan of Reorganization became effective on May 6, 2003, at which
time all then-outstanding equity securities of the Predecessor Company, as well
as substantially all pre-petition liabilities, were cancelled. New common stock
of the Successor Company was issued in satisfaction of certain of those claims.
Information concerning the new securities is summarized in Part I, Item 1,
above, in Note 1 of the Notes to unaudited Condensed Consolidated Financial
Statements and in our Registration Statement on Form 8-A filed May 6, 2003.

         The new securities of the Successor Company issued on May 6, 2003
pursuant to the Plan of Reorganization and related transactions, consisted of
89,677,509 shares of common stock of the Successor Company, options to purchase
8,324,883 shares of common stock of the Successor Company and $60 million
aggregate principal amount of convertible notes. The principal and accrued
interest in respect to the 9% convertible note is convertible at any time, at
the option of the holder, into new common shares at a conversion price equal to
$10 per share. All of the shares of common stock issued on May 6, 2003 were or
will be distributed pursuant to the Plan of Reorganization in satisfaction of
pre-petition claims, except for 14 million shares of common stock of the
Successor Company, which were issued in exchange for $127 million, net of $13
million of commitment fees and Plan Investors expenses. All such shares were
issued without registration under the Securities Act of 1933 in reliance on the
provisions of Section 1145 of the Bankruptcy Code and Section 4(2) of the
Securities Act of 1933.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         As a result of its Chapter 11 filing, the Predecessor Company did not
make principal or interest payments on unsecured indebtedness incurred prior to
January 22, 2002. In addition, the Predecessor Company was not permitted to pay
dividends on its trust convertible preferred securities. As of May 6, 2003, all
unsecured indebtedness incurred by the Predecessor Company and the trust
convertible preferred securities were cancelled.



                                       33
<PAGE>

ITEM 5.  OTHER INFORMATION

         Upon emergence from Chapter 11, the Board of Directors of Kmart Holding
Corporation was fixed at nine. The members of the Board are: E. David Coolidge
III, William C. Crowley, Julian C. Day, William Foss, Edward S. Lampert, Steven
T. Mnuchin, Ann Reese, Brandon Stranzl and Thomas J. Tisch. Biographical
information about our directors can be found on our web site www.kmart.com.
Edward S. Lampert was appointed Chairman of the Board of Directors.

         The Board of Directors established the following committees: the Audit
Committee, the Compensation Committee, the Nominating and Governance Committee
and the Finance Committee. The members of the committees are set forth below:

         Audit Committee:

                  Ann Reese, Chair
                  E. David Coolidge III
                  Brandon Stranzl

         Compensation and Incentives Committee:

                  Edward S. Lampert, Chair
                  Ann Reese
                  Thomas J. Tisch

         Corporate Governance Committee:

                  Steven T. Mnuchin, Chair
                  William Foss
                  Thomas J. Tisch

         Finance Committee:

                  Edward S. Lampert, Chair
                  William C. Crowley
                  Julian C. Day
                  Steven T. Mnuchin

         Mr. Harold W. Lueken was appointed to the position of Senior Vice
President, General Counsel and Secretary, effective May 12, 2003, and in
connection with his appointment, entered into an employment agreement dated May
6, 2003.

         The employment of Mr. Ronald B. Hutchison as Chief Restructuring
Officer with Kmart terminated May 31, 2003. The employment of Michael T. Macik
as Executive Vice President of Human Resources terminated effective May 1, 2003,
pursuant to the terms of a separation agreement dated June 3, 2003.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      The following exhibits are filed as a part of this report:

         Exhibit 1.1  --  Amended and Restated Certificate of Incorporation of
                          Kmart Holding Corporation

         Exhibit 1.2  --  By-Laws of Kmart Holding Corporation

         Exhibit 4.1  --  9% Convertible Subordinated Note issued by Kmart
                          Holding Corporation to CRK Partners, L.P.

         Exhibit 4.2  --  9% Convertible Subordinated Note issued by Kmart
                          Holding Corporation to CRK Partners II, L.P.

         Exhibit 4.3  --  9% Convertible Subordinated Note issued by Kmart
                          Holding Corporation to ESL Institutional Partners,
                          L.P.


                                       34
<PAGE>

         Exhibit 4.4 --  9% Convertible Subordinated Note issued by Kmart
                         Holding Corporation to ESL Investors, L.L.C.

         Exhibit 4.5 --  Registration Rights Agreement, dated May 6, 2003,
                         by and among Kmart Holding Corporation, ESL
                         Investments, Inc. and Third Avenue Trust, on behalf of
                         certain of its investment series.

         Exhibit 4.6 --  Guarantee Agreement, dated May 6, 2003, by and among
                         Kmart Corporation, CRK Partners, L.P., CRK Partners II,
                         L.P., ESL Institutional Partners, L.P. and ESL
                         Investors L.L.C.

         Exhibit 4.7 --  Kmart Creditor Trust Agreement, dated as of April 30,
                         2003, by and among Kmart Corporation, the other
                         Affiliated Debtors party thereto and Douglas J. Smith,
                         as Trustee.

         Exhibit 4.8 --  First Amendment to Kmart Creditor Trust Agreement,
                         dated as of May 6, 2003, by and among Kmart
                         Corporation, the other Affiliated Debtors party thereto
                         and Douglas J. Smith, as Trustee.

         Exhibit 10.1 -- Credit Agreement, dated as of May 6, 2003, among
                         Kmart Corporation, as Borrower, the other Credit
                         Parties signatory thereto, as Credit Parties, the
                         Lenders signatory thereto, from time to time, as
                         Lenders, and General Electric Capital Corporation, as
                         Administrative Agent, Co-Collateral Agent and Lender,
                         GECC Capital Markets Group, Inc., as Co-Lead Arranger
                         and Co-Book Runner, Fleet Retail Finance Inc., as
                         Co-Syndication Agent, Co-Collateral Agent and Lender
                         Fleet Securities, Inc., as Co-Lead Arranger and Co-Book
                         Runner, Bank of America, N.A., as Co-Syndication Agent
                         and Lender, Banc of America Securities LLC, as Co-Lead
                         Arranger and Co-Book Runner, GMAC Commercial Finance
                         LLC, as Co-Documentation Agent and Foothill Capital
                         Corporation, as Co-Documentation Agent.

         Exhibit 10.2 -- Assignment and Assumption Agreement, dated as of
                         May 6, 2003, between Kmart Holding Corporation and
                         Kmart Corporation assigning Julian C. Day's Employment
                         Agreement to Kmart Holding Corporation.

         Exhibit 10.3 -- Kmart Holding Corporation Nonqualified Stock Option
                         Agreement between Kmart Holding Corporation and Julian
                         C. Day.

         Exhibit 10.4 -- Employment Agreement, dated as of May 6, 2003, between
                         Kmart Management Corporation and Harold W. Lueken.

         Exhibit 10.5 -- Michael T. Macik Separation Agreement.

         Exhibit 99.1 -- Certification pursuant to Section 906 of the
                         Sarbanes-Oxley Act of 2002.

(b)      Reports on Form 8-K: We filed the following Current Reports on Form 8-K
         with the SEC:

         1.       On March 7, 2003, the Predecessor Company filed a Current
                  Report on Form 8-K to report the filing of the Joint Plan of
                  Reorganization and Disclosure Statement with the Bankruptcy
                  Court.

         2.       On March 24, 2003, the Predecessor Company filed a Current
                  Report on Form 8-K to report fourth quarter 2002 operating
                  results.

         3.       On March 24, 2003, the Predecessor Company filed Current
                  Reports on Form 8-K to report the filing of Monthly Operating
                  Reports for the months of January and February with the
                  Bankruptcy Court.

         4.       On April 17, 2003, the Predecessor Company filed a Current
                  Report on Form 8-K to report certain financial information
                  that was disclosed in the Bankruptcy Court as well as the
                  First Amended Plan of Reorganization.



                                       35
<PAGE>

         5.       On April 30, 2003, the Predecessor Company filed a Current
                  Report on Form 8-K to report the filing of the Findings of
                  Fact, Conclusions of Law, and Order Under 11 U.S.C. Sections
                  1129(a) and (b) and Fed. R. Rule Bankr. P. 3020 Confirming the
                  First Amended Joint Plan of Reorganization of Kmart
                  Corporation and Its Affiliated Debtors and
                  Debtors-in-Possession, as modified, dated April 22, 2003, and
                  docketed by the Court on April 23, 2003.






                                       36
<PAGE>

                                   SIGNATURES

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.

The signatory hereby acknowledges and adopts the typed form of his/her name in
the electronic filing of this document with the Securities and Exchange
Commission.







                             Date:               August 8, 2003
                                           Kmart Holding Corporation
                                  ----------------------------------------------
                                                  (Registrant)

                             By:                /s/ Julian C. Day
                                  ----------------------------------------------
                                                   Julian C. Day
                                                PRESIDENT AND CHIEF
                                                 EXECUTIVE OFFICER
                                           (Principal Executive Officer)

                                              /s/ Richard J. Noechel
                                  ----------------------------------------------
                                                Richard J. Noechel
                                                VICE PRESIDENT AND
                                                    CONTROLLER
                                  (Principal Accounting Officer and Co-Principal
                                                Financial Officer)



                                       37
<PAGE>

                                 CERTIFICATIONS

I, Julian C. Day, certify that:

1.   I have reviewed this quarterly report on Form 10-Q/A of Kmart Holding
     Corporation;

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;

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;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this quarterly report
         is being prepared;

     b)  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         quarterly report (the "Evaluation Date"); and

     c)  presented in this quarterly report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

     b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in the
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: August 8, 2003

/s/ Julian C. Day
-------------------
Julian C. Day
Chief Executive Officer



                                       38
<PAGE>

                                 CERTIFICATIONS


I, Richard J. Noechel, certify that:

1.   I have reviewed this quarterly report on Form 10-Q/A of Kmart Holding
     Corporation;

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;

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;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this quarterly report
         is being prepared;

     b)  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         quarterly report (the "Evaluation Date"); and

     c)  presented in this quarterly report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

     b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in the
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: August 8, 2003



/s/ Richard J. Noechel
----------------------
Richard J. Noechel
Vice President and Controller (as Co-Principal Financial Officer)




                                       39
<PAGE>

                                 CERTIFICATIONS


I, James F. Gooch, certify that:

1.   I have reviewed this quarterly report on Form 10-Q/A of Kmart Holding
     Corporation;

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;

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;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this quarterly report
         is being prepared;

     b)  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         quarterly report (the "Evaluation Date"); and

     c)  presented in this quarterly report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

     b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in the
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: August 8, 2003



/s/ James F. Gooch
------------------
James F. Gooch
Vice President and Treasurer (as Co-Principal Financial Officer)



                                       40
<PAGE>

                                 EXHIBIT INDEX


             No.                      Description

         Exhibit 1.1  --  Amended and Restated Certificate of Incorporation of
                          Kmart Holding Corporation

         Exhibit 1.2  --  By-Laws of Kmart Holding Corporation

         Exhibit 4.1  --  9% Convertible Subordinated Note issued by Kmart
                          Holding Corporation to CRK Partners, L.P.

         Exhibit 4.2  --  9% Convertible Subordinated Note issued by Kmart
                          Holding Corporation to CRK Partners II, L.P.

         Exhibit 4.3  --  9% Convertible Subordinated Note issued by Kmart
                          Holding Corporation to ESL Institutional Partners,
                          L.P.


                                       41
<PAGE>

         Exhibit 4.4 --  9% Convertible Subordinated Note issued by Kmart
                         Holding Corporation to ESL Investors, L.L.C.

         Exhibit 4.5 --  Registration Rights Agreement, dated May 6, 2003,
                         by and among Kmart Holding Corporation, ESL
                         Investments, Inc. and Third Avenue Trust, on behalf of
                         certain of its investment series.

         Exhibit 4.6 --  Guarantee Agreement, dated May 6, 2003, by and among
                         Kmart Corporation, CRK Partners, L.P., CRK Partners II,
                         L.P., ESL Institutional Partners, L.P. and ESL
                         Investors L.L.C.

         Exhibit 4.7 --  Kmart Creditor Trust Agreement, dated as of April 30,
                         2003, by and among Kmart Corporation, the other
                         Affiliated Debtors party thereto and Douglas J. Smith,
                         as Trustee.

         Exhibit 4.8 --  First Amendment to Kmart Creditor Trust Agreement,
                         dated as of May 6, 2003, by and among Kmart
                         Corporation, the other Affiliated Debtors party thereto
                         and Douglas J. Smith, as Trustee.

         Exhibit 10.1 -- Credit Agreement, dated as of May 6, 2003, among
                         Kmart Corporation, as Borrower, the other Credit
                         Parties signatory thereto, as Credit Parties, the
                         Lenders signatory thereto, from time to time, as
                         Lenders, and General Electric Capital Corporation, as
                         Administrative Agent, Co-Collateral Agent and Lender,
                         GECC Capital Markets Group, Inc., as Co-Lead Arranger
                         and Co-Book Runner, Fleet Retail Finance Inc., as
                         Co-Syndication Agent, Co-Collateral Agent and Lender
                         Fleet Securities, Inc., as Co-Lead Arranger and Co-Book
                         Runner, Bank of America, N.A., as Co-Syndication Agent
                         and Lender, Banc of America Securities LLC, as Co-Lead
                         Arranger and Co-Book Runner, GMAC Commercial Finance
                         LLC, as Co-Documentation Agent and Foothill Capital
                         Corporation, as Co-Documentation Agent.

         Exhibit 10.2 -- Assignment and Assumption Agreement, dated as of
                         May 6, 2003, between Kmart Holding Corporation and
                         Kmart Corporation assigning Julian C. Day's Employment
                         Agreement to Kmart Holding Corporation.

         Exhibit 10.3 -- Kmart Holding Corporation Nonqualified Stock Option
                         Agreement between Kmart Holding Corporation and Julian
                         C. Day.

         Exhibit 10.4 -- Employment Agreement, dated as of May 6, 2003, between
                         Kmart Management Corporation and Harold W. Lueken.

         Exhibit 10.5 -- Michael T. Macik Separation Agreement.

         Exhibit 99.1 -- Certification pursuant to Section 906 of the
                         Sarbanes-Oxley Act of 2002.




                                       42