<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 May 1, 2002
                               -----------

                                       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. 1-327
                    -----

                                KMART CORPORATION
             (Exact name of registrant as specified in its charter)


          Michigan                                     38-0729500
--------------------------------------------------------------------------------
(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
                                                        --------------



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
                                               -------         -------

As of May 29, 2002, 502,686,416 shares of Common Stock of Kmart Corporation were
outstanding.




                                       1
<PAGE>


                                      INDEX


<TABLE>
<CAPTION>
PART I                 FINANCIAL INFORMATION                                                   PAGE
------                 ---------------------                                                   ----
<S>                    <C>                                                                 <C>
Item 1.                Financial Statements

                       Condensed Consolidated Statements of Operations--                         4
                       (Unaudited) (Restated) 13 weeks ended May 1, 2002 and
                       May 2, 2001

                       Condensed Consolidated Balance Sheets--                                   5
                       (Unaudited) (Restated) May 1, 2002,  May 2, 2001 and January
                       30, 2002

                       Condensed Consolidated Statements of Cash Flows--                         6
                       (Unaudited) (Restated) 13 weeks ended May 1, 2002 and
                       May 2, 2001

                       Notes to Condensed Consolidated Financial                              7 - 21
                       Statements (Unaudited)

Item 2.                Management's Discussion and Analysis of Results of                     22- 35
                       Operations and Financial Condition

Item 3.                Quantitative and Qualitative Disclosures about Market Risk               36


PART II                OTHER INFORMATION
------                 -----------------


Item 3.                Defaults Upon Senior Securities                                          37

Item 6.                Exhibits and Reports on Form 8-K                                         37

                       Signatures                                                               38

                       Certifications                                                          39-40
</TABLE>




                                       2
<PAGE>

                                EXPLANATORY NOTE

         The purpose of this Amendment No. 1 to Quarterly Report on Form 10-Q/A
is to restate the unaudited financial statements of Kmart Corporation and its
subsidiaries ("Kmart," "we," "us" or "our") for the 13 week period ended May 1,
2002 and prior periods presented to reflect certain adjustments identified as a
result of our ongoing review of our accounting practices and procedures and to
correspondingly modify related disclosures. Certain of these adjustments were
identified as out-of-period adjustments during the preparation of Kmart's
Quarterly Report on Form 10-Q for the third quarter ended October 30, 2002,
while others were previously identified and described in our Quarterly Report on
Form 10-Q for the second quarter ended July 31, 2002, filed with the Securities
and Exchange Commission ("SEC") on September 16, 2002. Upon review of the
aggregate impact of these adjustments, Kmart concluded that restating our
historical financial statements was appropriate, because the aggregate impact
was material to the current estimate of our fiscal year 2002 results. This
Amendment No. 1 to our Quarterly Report on Form 10-Q/A should be read in
conjunction with Amendment No. 1 to our Annual Report on Form 10-K/A for our
fiscal year ended January 30, 2002, to be filed with the SEC on January 14,
2003.

         We have amended and restated in its entirety each Item of our Quarterly
Report on Form 10-Q for the 13 week period ended May 1, 2002 to reflect these
adjustments. 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
14, 2002 filing of our Quarterly Report on Form 10-Q for the 13 week period
ended May 1, 2002 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 restatement of our financial statements for the 13 week periods
presented or deemed necessary in connection with the completion of restated
financial statements.

         The Items of our Quarterly Report on Form 10-Q for the 13 week period
ended May 1, 2002 which are amended and restated herein are:

1.       Part I, Item 1 - Financial Statements, has been restated.

2.       Part I, Item 2 - Management's Discussion and Analysis of Financial
         Condition and Results of Operations, has been revised.

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

4.       The certifications required by Section 906 of the Sarbanes-Oxley Act of
         2002 have been added as Exhibits.

         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 May 1, 2002 in
the form filed with the SEC on June 14, 2002. 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. All information contained in this
Amendment No. 1 to Quarterly Report on Form 10-Q/A is subject to updating and
supplementing as provided in our reports filed with the SEC subsequent to the
date of the original filing of the Quarterly Report on Form 10-Q, including but
not limited to our Quarterly Reports on Form 10-Q for the 13 week periods ended
July 31 and October 30, 2002, respectively.






                                       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>

                                                                                      (AS RESTATED - SEE NOTE 1)
                                                                                            13 WEEKS ENDED
                                                                                      ----------------------------
                                                                                      MAY 1, 2002     MAY 2, 2001
                                                                                      -------------   ------------
<S>                                                                                   <C>             <C>
Sales                                                                                    $ 7,639        $ 8,337
Cost of sales, buying and occupancy                                                        7,021          6,779
                                                                                         -------        -------

Gross margin                                                                                 618          1,558
Selling, general and administrative expenses                                               1,770          1,694
Equity income (loss) in unconsolidated subsidiaries                                            5            (16)
Charge for employee severance and Voluntary Early Retirement Program (VERP)                    -             23
                                                                                         -------        -------

Loss before interest, reorganization items, income taxes, and dividends
   on convertible preferred securities of subsidiary trust                                (1,147)          (175)
Interest expense, net (contractual interest for 13 weeks ended May 1, 2002 was $102)          33             83
Reorganization items, net                                                                    274              -
Income tax benefit                                                                           (12)           (82)
Dividends on convertible preferred securities of subsidiary trust, net of
   income taxes of $0 and $6, respectively (contractual dividend for 13 weeks
   ended May 1, 2002 was $18, net of tax)                                                      -             11
                                                                                         -------        -------

Net loss                                                                                 $(1,442)       $  (187)
                                                                                         =======        =======

Basic/Diluted loss per common share                                                      $ (2.87)       $ (0.38)
                                                                                         =======        =======

Basic/Diluted weighted average shares (millions)                                           502.9          488.5
</TABLE>






     See accompanying Notes to Condensed Consolidated Financial Statements.





                                       4
<PAGE>

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

<TABLE>
<CAPTION>


                                                                                (AS RESTATED - SEE NOTE 1)
                                                                       -----------------------------------------------
                                                                       MAY 1, 2002      MAY 2, 2001   JANUARY 30, 2002
                                                                       -----------      -----------   ----------------
<S>                                                                    <C>              <C>           <C>
ASSETS

CURRENT ASSETS
   Cash and cash equivalents                                             $  1,829         $    415        $  1,245
   Merchandise inventories                                                  5,255            7,315           5,796
   Other current assets                                                       597              708             800
                                                                         --------         --------        --------
TOTAL CURRENT ASSETS                                                        7,681            8,438           7,841

Property and equipment, net                                                 5,972            6,626           6,093
Other assets and deferred charges                                             219              543             249
                                                                         --------         --------        --------
TOTAL ASSETS                                                             $ 13,872         $ 15,607        $ 14,183
                                                                         ========         ========        ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Long-term debt due within one year                                    $      -         $    315        $      -
   Accounts payable                                                         1,658            2,694              89
   Accrued payroll and other liabilities                                      659            1,500             420
   Taxes other than income taxes                                              237              245             143
                                                                         --------         --------        --------
TOTAL CURRENT LIABILITIES                                                   2,554            4,754             652

Long-term debt and notes payable                                                -            2,448             330
Capital lease obligations                                                     694              922             857
Other long-term liabilities                                                   140              877             132
                                                                         --------         --------        --------
TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE                                 3,388            9,001           1,971

LIABILITIES SUBJECT TO COMPROMISE                                           7,805                -           8,093

Company obligated mandatorily redeemable convertible preferred
   securities of a subsidiary trust holding solely 7 3/4%
   convertible junior subordinated debentures of Kmart (redemption
   value $898, $898 and $898, respectively)                                   889              887             889
Common stock, $1 par value, 1,500,000,000 shares authorized;
   502,689,273, 489,930,257 and 503,294,515 shares outstanding,
   respectively                                                               503              490             503
Capital in excess of par value                                              1,697            1,599           1,695
(Accumulated deficit) retained earnings                                      (410)           3,630           1,032
                                                                         --------         --------        --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                               $ 13,872         $ 15,607        $ 14,183
                                                                         ========         ========        ========
</TABLE>






     See accompanying Notes to Condensed Consolidated Financial Statements.






                                       5
<PAGE>



                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (DOLLARS IN MILLIONS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                              (AS RESTATED - SEE NOTE 1)
                                                                             ---------------------------
                                                                                  13 WEEKS ENDED
                                                                             ---------------------------
                                                                             MAY 1, 2002     MAY 2, 2001
                                                                             -----------     -----------
<S>                                                                          <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net loss                                                                 $(1,442)        $  (187)
      Adjustments to reconcile net loss to net cash provided by
           (used for) operating activities:
                Restructuring, impairments and other charges                       776              23
                Reorganization items, net                                          274               -
                Depreciation and amortization                                      187             200
                Equity (income) loss in unconsolidated subsidiaries                 (5)             16
                Dividends received from Meldisco                                    45              51
                Cash used for store closings and other charges                     (38)            (26)
                Changes in Operating Assets and Liabilities:
                  Increase in inventories                                         (109)           (965)
                  Increase in accounts payable                                   1,104             494
                  Deferred income taxes and taxes payable                           (9)            (28)
                  Other assets                                                     198             202
                  Other liabilities                                                 40             (38)
                                                                               -------         -------
      Net cash provided by (used for) continuing operations                      1,021            (258)
      Net cash used for discontinued operations                                     (1)            (20)
                                                                               -------         -------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES                             1,020            (278)
                                                                               -------         -------

NET CASH PROVIDED BY REORGANIZATION ITEMS                                           12               -
                                                                               -------         -------

CASH FLOWS FROM INVESTING ACTIVITIES
      Capital expenditures                                                         (52)           (262)
      Investment in BlueLight.com                                                    -             (15)
                                                                               -------         -------
NET CASH USED FOR INVESTING ACTIVITIES                                             (52)           (277)
                                                                               -------         -------

CASH FLOWS FROM FINANCING ACTIVITIES
      Proceeds from issuance of debt                                                 -             592
      Payments on debt                                                            (347)             (6)
      Debt issuance costs                                                          (30)              -
      Payments on capital lease obligations                                        (19)            (21)
      Payments of dividends on preferred securities of subsidiary trust              -             (18)
      Issuance of common shares                                                      -              22
                                                                               -------         -------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES                              (396)            569
                                                                               -------         -------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                            584              14
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                     1,245             401
                                                                               -------         -------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                       $ 1,829         $   415
                                                                               =======         =======

</TABLE>



     See accompanying Notes to Condensed Consolidated Financial Statements.




                                       6
<PAGE>
    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
    (UNAUDITED)



1.  RESTATEMENT OF CURRENT AND PRIOR PERIODS


         As part of the review and preparation of the Quarterly Report on Form
    10-Q for the third quarter ended October 30, 2002, Kmart Corporation and its
    subsidiaries ("Kmart," "we," "us" or "our") identified certain adjustments
    that were recorded out-of-period, while others were previously identified
    and described in our Quarterly Report on Form 10-Q for the second quarter
    ended July 31, 2002,  filed with the Securities and Exchange Commission
    ("SEC") on September 16, 2002. Upon review of the aggregate impact of the
    new, as well as the previously disclosed and recorded adjustments, we
    concluded that restating our historical financial statements was appropriate
    because the aggregate impact was material to the current estimate of our
    2002 fiscal year results.


         The tables below show the results of the restatements on reported
    results for the 13 week periods presented in this Amendment No. 1 to our
    Quarterly Report on Form 10-Q/A, which relate primarily to:


    a)   Lease accrual adjustments - An understatement of historical accruals
         for certain leases with varying rent payments and a related
         understatement of historical rent expense.


    b)   Accounts payable adjustments - A software programming error in Kmart's
         accounts payable system that resulted in some paid invoices awaiting a
         store report of delivery not being appropriately treated in our
         financial statements. This error, restricted to a single vendor with
         unique billing arrangements, resulted in an understatement of Cost of
         sales, buying and occupancy since 1999.


    c)   Inventory loads - Adjustments, as previously disclosed in the Quarterly
         Report on Form 10-Q for the second quarter ended July 31, 2002, for
         certain costs formerly capitalized into inventory. Inventory included
         amounts added for internal purposes to analyze gross margin on a
         comparable basis across all business units and to optimize purchasing
         decisions. These amounts are commonly referred to in the retail
         industry as "inventory loads," and should have been eliminated for
         external reporting purposes to the extent the related inventory
         remained unsold at the end of the period.

    d)   Vendor allowances - The premature recording, as previously disclosed in
         the Quarterly Report on Form 10-Q for the second quarter ended July 31,
         2002, of vendor allowance transactions in fiscal year 2000 and prior
         fiscal years.


         In addition, given the restatement for the items noted above, we are
    adjusting these previously reported financial results for miscellaneous
    immaterial items that were identified and previously recorded in the
    ordinary course of business. These items are now being recorded in the
    appropriate fiscal periods.





                                       7
<PAGE>



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

         The summary of the effects of the restatement on the 13 weeks ended May
1, 2002 and May 2, 2001 are presented in the tables below.

<TABLE>
<CAPTION>

                                                                 13 Weeks Ended May 1, 2002
                                 ---------------------------------------------------------------------------------------------
                                                                        Adjustments
                                               ---------------------------------------------------------------
                                     As           Lease       Accounts
                                 previously      accrual       payable       Inventory       Vendor                      As
                                  reported*    adjustments   adjustments       loads       allowances      Other      restated
                                 ---------------------------------------------------------------------------------------------
<S>                              <C>           <C>           <C>             <C>           <C>            <C>        <C>
Sales                              $7,639           $-            $-             $-            $-            $-        $7,639
Cost of sales, buying
   and occupancy                   $7,016           $3           $10            ($9)          ($8)           $9        $7,021
                                 ---------------------------------------------------------------------------------------------
Gross margin                         $623          ($3)         ($10)            $9            $8           ($9)       $  618
Selling, general and
   administrative expenses         $1,791           $-            $-             $1            $-          ($22)       $1,770

Operating (loss) income           ($1,163)         ($3)         ($10)            $8            $8           $13       ($1,147)

Reorganization items, net            $265           $-            $-             $-            $-            $9        $  274
                                 ---------------------------------------------------------------------------------------------
Net (loss) income                 ($1,449)         ($3)         ($10)            $8            $8            $4       ($1,442)
                                 =============================================================================================
Basic/Diluted (loss) earnings
   per common share                ($2.88)          $-        ($0.02)         $0.01         $0.01         $0.01       ($ 2.87)
                                 =============================================================================================
</TABLE>

<TABLE>
<CAPTION>


                                                                 13 Weeks Ended May 1, 2002
                                 ---------------------------------------------------------------------------------------------
                                                                        Adjustments
                                               ---------------------------------------------------------------
                                     As           Lease       Accounts
                                 previously      accrual       payable       Inventory       Vendor                      As
                                  reported**   adjustments   adjustments       loads       allowances      Other      restated
                                 ---------------------------------------------------------------------------------------------
<S>                              <C>           <C>           <C>             <C>           <C>            <C>        <C>

Sales                              $8,337          $-            $-              $-            $ -           $ -       $8,337
Cost of sales, buying
   and occupancy                   $6,834          $1            $5            ($15)          ($41)          ($5)      $6,779
                                 ---------------------------------------------------------------------------------------------
Gross margin                       $1,503         ($1)          ($5)            $15            $41            $5       $1,558
Selling, general and
   administrative expenses         $1,712          $-            $-              $1            $ -          ($19)      $1,694


Operating (loss) income             ($248)        ($1)          ($5)            $14            $41           $24        ($175)

(Benefit from) provision for
    income taxes                    ($109)         $-           ($2)             $5            $15            $9         ($82)
                                 ---------------------------------------------------------------------------------------------
Net (loss) income                   ($233)        ($1)          ($3)             $9            $26           $15        ($187)
                                 =============================================================================================
Basic/Diluted (loss) earnings
   per common share                ($0.48)         $-            $-           $0.02          $0.05         $0.03       ($0.38)
                                 =============================================================================================
</TABLE>


* - As previously reported in the Form 10-Q for the quarter ended May 1, 2002
    filed on June 14, 2002.
** - As previously reported in the Form 10-Q/A for the quarter ended May 2, 2001
     filed on June 12, 2002.




                                       8
<PAGE>
    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
    (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
    (UNAUDITED)

         The following is a summary of the effects of the restatement on our
    unaudited Condensed Consolidated Balance Sheets for all amounts that changed
    by 5% or more for the periods ended May 1, 2002, May 2, 2001 and January 30,
    2002, respectively.


<TABLE>
<CAPTION>
                                                       As
                                                   previously            As
                                                    reported          restated
                                                  ------------      ------------
<S>                                               <C>               <C>
May 1, 2002*
  Other long-term liabilities                           $87             $140
  Accumulated deficit                                 ($188)           ($410)

May 2, 2001**
  Other assets and deferred charges                    $473             $543
  Other long-term liabilities                          $828             $877

January 30, 2002***
  Accounts payable                                     $103              $89
  Accrued payroll and other liabilities                $378             $420
  Other long-term liabilities                           $79             $132
  Retained earnings                                  $1,261           $1,032
</TABLE>

* - As previously reported in the Form 10-Q for the quarter ended May 1, 2002
    filed on June 14, 2002.
** - As previously reported in the Form 10-Q/A for the quarter ended May 2, 2001
     filed on June 12, 2002.
*** - As previously reported in the Form 10-K for the fiscal year ended
      January 30, 2002 filed on May 15, 2002.

2.  BASIS OF PRESENTATION

     General

         These interim unaudited Condensed Consolidated Financial Statements
    have been prepared on a going concern basis, which assumes continuity of
    operations and realization of assets and satisfaction of liabilities in the
    ordinary course of business, and in accordance with Statement of Position
    90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization under
    the Bankruptcy Code." Accordingly, all pre-petition liabilities subject to
    compromise have been segregated in the unaudited Condensed Consolidated
    Balance Sheets and classified as Liabilities subject to compromise, at the
    estimated amount of allowable claims. Liabilities not subject to compromise
    are separately classified as current and non-current. Revenues, expenses,
    realized gains and losses, and provisions for losses resulting from the
    reorganization are reported separately as Reorganization items, net in the
    unaudited Condensed Consolidated Statements of Operations. Cash provided by
    reorganization items is disclosed separately in the unaudited Condensed
    Consolidated Statements of Cash Flows.

         These interim unaudited Condensed Consolidated Financial Statements
    have been prepared in accordance with the rules and regulations of the SEC.
    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. Operating results for
    the 13 week period ended May 1, 2002 are not necessarily indicative of the
    results that may be expected for the fiscal year ending January 29, 2003.
    These unaudited Condensed Consolidated Financial Statements should be read
    in conjunction with the audited Consolidated Financial Statements and the
    notes thereto included in Amendment No. 1 to our Annual Report on Form
    10-K/A for our fiscal year ended January 30, 2002, to be filed with the SEC
    on January 14, 2003.





                                       9
<PAGE>
    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
    (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
    (UNAUDITED)


         Reclassifications

         Certain reclassifications of prior period financial statements have
    been made to conform to the current interim period presentation.

3.  COMPREHENSIVE LOSS

         Comprehensive loss represents net loss, adjusted for the effect of
    other items that are recorded directly to shareholders' equity. Net loss and
    comprehensive loss are equivalent for all periods presented.

4.  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In May 2002, the Financial Accounting Standards Board ("FASB") issued
    Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
    FASB Statements No's. 4, 44, and 64, Amendment of FASB Statement No. 13, and
    Technical Corrections." This Statement requires gains and losses from
    extinguishment of debt to be classified as an extraordinary item only if the
    criteria in Opinion 30 has been met. Further, lease modifications with
    economic effects similar to sale-leaseback transactions must be accounted
    for in the same manner as sale-leaseback transactions. While the technical
    corrections to existing pronouncements are not substantive in nature, in
    some instances they may change accounting practice. The provisions of this
    Statement related to the rescission of SFAS No. 4 and the amendment of SFAS
    No. 13 are effective beginning in fiscal 2003 and for transactions occurring
    after May 15, 2002, respectively, and are not expected to have a significant
    impact on our unaudited Condensed Consolidated Financial Statements. All
    other provisions are effective for financial statements issued on or after
    May 15, 2002, and did not have a significant impact on our unaudited
    Condensed Consolidated Financial Statements.

         In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
    Retirement Obligations." SFAS No. 143 will be effective for Kmart beginning
    January 30, 2003, and it requires entities to record the fair value of a
    liability for an asset retirement obligation in the period in which it is a
    cost by increasing the carrying amount of the related long-lived asset. Over
    time, the liability is accreted to its present value each period, and the
    capitalized cost is depreciated over the useful life of the related
    obligation for its recorded amount or the entity incurs a gain or loss upon
    settlement. Because costs associated with exiting leased properties at the
    end of the respective lease terms are minimal, management anticipates that
    the adoption of SFAS No. 143 will not have a significant impact on our
    Consolidated Financial Statements.

         In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
    Intangible Assets," effective for our fiscal year beginning January 31,
    2002. The standard addresses how intangible assets that are acquired
    individually or with a group of other assets should be accounted for in
    financial statements upon their acquisition. It also addresses how goodwill
    and other intangible assets should be accounted for after they have been
    initially recognized in the financial statements. The adoption of SFAS No.
    142 had no impact on our unaudited Condensed Consolidated Financial
    Statements.

5.  PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

         On January 22, 2002 ("Petition Date"), Kmart 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. The reorganization is being jointly administered under
    the caption "In re Kmart Corporation, et al. Case No. 02 B 02474." The
    Debtors are currently operating their business as debtors-in-possession
    pursuant to the Bankruptcy Code.

         We decided to seek judicial reorganization based upon a rapid decline
    in our liquidity resulting from our below-plan sales and earnings
    performance in the fourth quarter of the 2001 fiscal year, the evaporation
    of the surety bond market and erosion of supplier confidence. Other factors
    included intense competition in the discount retailing industry,
    unsuccessful sales and marketing initiatives, the continuing recession, and
    recent capital market volatility. As a debtor-in-possession, Kmart is
    authorized to continue to operate as an ongoing business, but may not engage
    in transactions outside the ordinary course of business without the approval
    of the Court, after notice and an opportunity for a hearing.




                                       10
<PAGE>
    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
    (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
    (UNAUDITED)

         At first day hearings held on January 22 and 25, 2002, the Court
    entered orders granting authority to Kmart to, among other things, pay
    pre-petition and post-petition employee wages, salaries, benefits and other
    employee obligations, to pay selected vendors and other providers for
    pre-petition amounts owed, and to honor customer service programs, including
    warranty returns, layaways and gift certificates. On January 25, 2002, the
    Court also gave interim approval for $1.15 billion of a $2 billion senior
    secured 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. On March 6, 2002, the Court
    approved the entire $2 billion DIP Credit Facility underwritten by JP Morgan
    Chase Bank, Fleet Retail Finance, Inc., General Electric Capital Corporation
    and Credit Suisse First Boston to supplement our cash flow from operations
    during the reorganization process. The DIP Credit Facility requires that we
    maintain certain financial covenants and restricts liens, indebtedness,
    capital expenditures, dividend payments and sales of assets.

         Under the Bankruptcy Code, actions to collect pre-petition
    indebtedness, as well as most other pending litigation, are stayed and other
    contractual obligations against Kmart generally may not be enforced. Absent
    an order of the Court, substantially all pre-petition liabilities are
    subject to settlement under a plan of reorganization to be voted upon by
    creditors and equity holders and approved by the Court. Although the Debtors
    expect to file a reorganization plan or plans that provide for emergence
    from bankruptcy in 2003 or 2004, there can be no assurance that a
    reorganization plan or plans will be proposed by the Debtors or confirmed by
    the Court, or that any such plan(s) will be consummated. As provided by the
    Bankruptcy Code, the Debtors initially have the exclusive right to solicit a
    plan of reorganization for 120 days. On April 23, 2002, the Court extended
    to August 7, 2002, the period in which Kmart has the exclusive right to file
    a plan of reorganization and extended to October 4, 2002, the period in
    which Kmart has the exclusive right to submit acceptances to the plan. A
    hearing to extend further these exclusive periods is scheduled for July 24,
    2002. Further extensions may be granted by the Court. If the Debtors fail to
    file a plan of reorganization during such period (as such period may be
    extended) or if such plan is not accepted by the required number of
    creditors and equity holders, any party in interest may subsequently file
    its own plan of reorganization. A plan of reorganization must be confirmed
    by the Court, upon certain findings being made by the Court which are
    required by the Bankruptcy Code. The Court may confirm a plan
    notwithstanding the non-acceptance of the plan by an impaired class of
    creditors or equity security holders if certain requirements of the
    Bankruptcy Code are met.

         The United States Trustee has appointed an unsecured creditors
    committee and a financial institutions committee. In addition, the United
    States Trustee is in the process of appointing an equity holders committee.
    The official committees and their legal representatives often take positions
    on matters that come before the Court, and are the most likely entities with
    which Kmart will negotiate the terms of a plan of reorganization. There can
    be no assurance that these committees will support Kmart's positions in the
    bankruptcy proceedings or the plan of reorganization once proposed, and
    disagreements between Kmart and these committees could protract the
    bankruptcy proceedings, could negatively impact Kmart's ability to operate
    during bankruptcy and could delay Kmart's emergence from bankruptcy.

         Under the Bankruptcy Code, we may assume or reject executory contracts
    and unexpired leases, including our store leases, subject to the approval of
    the Court and our satisfaction of certain other requirements. In the event
    we choose to reject an executory contract or unexpired lease, parties
    affected by these rejections may file claims with the court-appointed claims
    agent as proscribed by the Bankruptcy Code and/or orders of the Court.
    Unless otherwise agreed, the assumption of an executory contract or
    unexpired lease will require Kmart to cure all prior defaults under such
    executory contract or lease, including all pre-petition liabilities, some of
    which may be significant. In this regard, we expect that liabilities that
    will be subject to compromise through the Chapter 11 process will arise in
    the future as a result of the rejection of additional executory contracts
    and/or unexpired leases, and from the determination of the Court (or
    agreement by parties in interest) of allowed claims for items that we now
    claim as contingent or disputed. Conversely, we would expect that the
    assumption of additional executory contracts may convert liabilities shown
    on our financial statements as subject to compromise to post-petition
    liabilities. Due to the uncertain nature of many of the potential claims, we
    are unable to project the magnitude of such claims with any degree of
    certainty. Kmart has incurred, and will continue to incur, significant costs
    associated with the reorganization.

         On April 15, 2002, we filed with the Court schedules of assets and
    liabilities and statements of financial affairs setting forth, among other
    things, the assets and liabilities of the Debtors as shown by our books and
    records, subject to the assumptions contained in certain notes filed in
    connection therewith. All of the schedules and statements of financial
    affairs are subject to further amendment or modification. We have mailed
    notices to all known creditors that the deadline for filing proofs of claim
    with the Court is July 31, 2002. Differences between amounts scheduled by
    Kmart and claims by creditors will be investigated and resolved in
    connection with our claims resolution process, and may be significant. That
    process will not commence until after the July 31, 2002 bar date and, in
    light of the number of creditors of the Debtors, may take considerable time
    to complete. Accordingly, the ultimate number and amount of allowed claims
    is not presently known. Similarly, the ultimate distribution with respect to
    allowed claims is not presently ascertainable.

                                       11
<PAGE>
    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
    (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
    (UNAUDITED)


         We have filed over 100 motions in the Chapter 11 case whereby we were
    granted authority or approval with respect to various items required by the
    Bankruptcy Code and/or necessary for our reorganization efforts. In addition
    to motions pertaining to store closure and real estate disposition matters,
    we have obtained orders providing for, among other things, (i)
    implementation of a key employee retention and incentive program, (ii)
    authorization of a second lien for vendors in connection with our secured
    inventory trade credit program, (iii) authorization of a settlement
    agreement with our sureties who support our self-insurance program and state
    licensing requirements, (iv) the extension of time to assume or reject
    leases, and (v) assumption of agreements with our key brand partners.

         Under the priority scheme established by the Bankruptcy Code, certain
    post-petition liabilities and pre-petition liabilities need to be satisfied
    before shareholders are entitled to receive any distribution. The ultimate
    recovery to creditors, trust convertible preferred securities holders and/or
    common shareholders, if any, will not be determined until confirmations of a
    plan or plans of reorganization. No assurance can be given as to what
    values, if any, will be ascribed in the bankruptcy proceedings to each of
    these constituencies.

         A plan of reorganization could also result in holders of Kmart common
    stock receiving no distribution on account of their interests and
    cancellation of their interests. Holders of Kmart common stock should assume
    that they could receive little or no value as part of a plan of
    reorganization. In addition, under certain conditions specified in the
    Bankruptcy Code, a plan of reorganization may be confirmed notwithstanding
    its rejection by an impaired class of creditors or equity holders and
    notwithstanding the fact that equity holders do not receive or retain
    property on account of their equity interests under the plan. In light of
    the foregoing, Kmart considers the value of the common stock to be highly
    speculative and cautions equity holders that the stock may ultimately be
    determined to have no value. Accordingly, Kmart urges that appropriate
    caution be exercised with respect to existing and future investments in the
    Kmart common stock or in any claims related to pre-petition liabilities
    and/or other Kmart securities.

         At this time, it is not possible to predict the effect of the Chapter
    11 reorganization on our business, various creditors and security holders or
    when we will be able to exit Chapter 11.

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

      -  developing a long-term strategy and/or market niche to revitalize our
         business and return 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 DIP Credit Facility, including
         its limitations on capital expenditures and its financial covenants,
         our ability to generate cash flows from operations or seek other
         sources of financing and the availability of projected vendor credit
         terms;
      -  attracting, motivating and/or retaining key executives and associates;
         and
      -  developing and, thereafter, having confirmed by the Court, a plan of
         reorganization.

         These challenges are in addition to those operational and competitive
    challenges faced by Kmart in connection with our business as a discount
    retailer.

         A plan of reorganization could materially change the amounts reported
    in the financial statements, which do not give effect to all adjustments of
    the carrying value of assets or liabilities that might be necessary as a
    consequence of a plan of reorganization.




                                       12
<PAGE>
    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
    (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
    (UNAUDITED)

6.  REORGANIZATION ITEMS, NET

         Reorganization items represent amounts we incurred as a result of
    Chapter 11 and are presented separately in the unaudited Condensed
    Consolidated Statements of Operations. For the 13 weeks ended May 1, 2002,
    the following have been recorded:

<TABLE>
<CAPTION>
                                                                   (as restated -
                                                                    see Note 1)
                                                                  ---------------
              <S>                                                <C>
              2002 store closings                                            $228
              Professional fees                                                38
              Employee costs                                                   26
              Sale of pharmacy lists                                         (17)
              Settlement of pre-petition liabilities                          (5)
              Interest income                                                 (4)
              Other                                                             8
                                                                  ---------------
              Total                                                          $274
                                                                  ===============
</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
    period ended May 1, 2002:

    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. 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 and 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)" ("EITF 94-3"). During the period that the stores remain open
    for business, rent and other costs of operations continue to be reflected in
    our operating expenses. In the first quarter of fiscal 2002, there were no
    payments charged to the reserve, see Note 11.

    Professional  fees

         In the first quarter of fiscal 2002, we recorded $38 for professional
    fees. Professional fees include financial, legal, real estate and valuation
    services directly associated with our reorganization process.

    Employee costs

         In March 2002, we received Court approval to implement our Key Employee
    Retention Plan ("KERP") which provides cash incentives and certain benefits
    to key members of our salaried management team. The KERP is expected to
    encourage employees to continue their employment with Kmart through the
    reorganization process. In the first quarter of fiscal 2002, we recorded a
    charge of $26 for the KERP and retention bonuses for associates in our 283
    stores that were closed. There were no payments charged to the reserve
    during the first quarter of fiscal 2002.





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

    Settlement of pre-petition claims

         We recorded a gain of $5 representing the difference between the
    settlement value of certain pre-petition obligations and the amount recorded
    as an allowable claim.

    Other reorganization items

         We recorded a gain of $17 for the sale of pharmacy lists and $4 for
    interest income earned on excess cash balances. We also recorded a charge of
    $8 for other miscellaneous reorganization items.

7.  INTEREST EXPENSE, NET

         Interest income of $1 is included in the line Interest expense, net in
    the unaudited Condensed Consolidated Statements of Operations for each of
    the 13 week periods ended May 1, 2002 and May 2, 2001. Interest income
    earned as a result of excess cash balances due to the Chapter 11 filing are
    recorded in the line Reorganization items, net in the unaudited Condensed
    Consolidated Statements of Operations, for the 13 weeks ended May 1, 2002,
    see Note 6.

         As of the Petition Date, we ceased accruing interest on unsecured
    pre-petition debt classified as Liabilities subject to compromise in our
    unaudited Condensed Consolidated Balance Sheets in accordance with SOP 90-7.
    Interest at the stated contractual amount on unsecured debt that was not
    charged to results of operations for the 13 week period ended May 1, 2002
    was approximately $69.

8.  LIABILITIES SUBJECT TO COMPROMISE

         Under bankruptcy law, actions by creditors to collect indebtedness we
    owe prior to the Petition Date are stayed and certain other pre-petition
    contractual obligations may not be enforced against the Debtors. We have
    received approval from the Court to pay certain pre-petition liabilities
    including employee salaries and wages, benefits and other employee
    obligations. Except for secured debt and capital lease obligations, all
    pre-petition liabilities have been classified as Liabilities subject to
    compromise in the unaudited Condensed Consolidated Balance Sheets.
    Adjustments to the claims may result from negotiations, payments authorized
    by Court order, additional rejection of executory contracts including
    leases, or other events.

         Pursuant to an order of the Court, we mailed notices to all known
    creditors that the deadline for filing proofs of claim with the Court is
    July 31, 2002. Amounts that we have recorded may be different than amounts
    filed by our creditors. The number and amount of allowed claims cannot be
    presently ascertained.






                                       14
<PAGE>
    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
    (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
    (UNAUDITED)

         The following table summarizes the components of the liabilities
    classified as Liabilities subject to compromise in our unaudited Condensed
    Consolidated Balance Sheets as of May 1, 2002 and as of January 30, 2002:


<TABLE>
<CAPTION>
                                                                   (as restated -      (as restated -
                                                                    see Note 1)         see Note 1)
                                                                       May 1,           January 30,
                                                                        2002               2002
                                                                  ----------------    ----------------
                <S>                                               <C>                 <C>
                  Debt and notes payable                                   $3,329              $3,346
                  Accounts payable                                          2,681               3,153
                  Closed store reserves                                       845                 484
                  Other liabilities                                           312                 454
                  General liability and workers compensation                  301                 312
                  Pension obligation                                          190                 195
                  Taxes payable                                               147                 149
                                                                  ----------------    ----------------
                     Total liabilities subject to compromise               $7,805              $8,093
                                                                  ================    ================
</TABLE>


         Below is a reconciliation of the changes in Liabilities subject to
compromise for the period from the Petition Date through May 1, 2002:


<TABLE>
<CAPTION>
                                                                                        (as restated -
                                                                                          see Note 1)
                                                                                       Cumulative since
                                                                                         Petition Date
                                                                                       ----------------
<S>                                                                                   <C>
Balance, Petition Date                                                                        $8,585
First day court orders authorizing payment of employee wages, benefits and other
employee obligations, sales and use taxes and payments to critical vendors                      (737)
Adjustment to general liability and workers compensation accruals                               (174)
Adjustment to closed store reserves                                                              185
Court order authorizing payment of additional trade accounts payable                             (37)
Gain on pre-petition liabilities                                                                  (5)
Other                                                                                            (12)
                                                                                       ----------------
Balance, end of period                                                                        $7,805
                                                                                       ================
</TABLE>


9.  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. This charge is included in Cost of sales, buying and
    occupancy 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 relating 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 will no longer be 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.







                                       15
<PAGE>
    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
    (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
    (UNAUDITED)


10. EMPLOYEE SEVERANCE AND VERP

         During the first quarter of 2001, our workforce was reduced by 350
    employees through a voluntary early retirement program ("VERP") and other
    employee separations. The total cost of the realignment aggregated $23 ($15,
    net of tax), which is included in our unaudited Condensed Consolidated
    Statement of Operations for the quarter ended May 2, 2001 in the line item
    Charge for employee severance and VERP. The charge relates to 130 employees
    that accepted the VERP offer, with costs aggregating $6. The remaining 220
    employees were severed and given post-employment benefits including
    severance, outplacement services, continuation of healthcare benefits and
    other benefits totaling $17. Of the charge, $19 was reserved for and was
    paid out of our general corporate assets, including benefits for
    highly-compensated employees accepting the VERP offer, and the remaining $4
    was paid out of the Kmart Employee Pension Plan. Our first quarter cash
    payments in fiscal 2001 associated with these actions were $9.

11. RESTRUCTURING RESERVE ACTIVITY

         The following table provides information regarding reserve activity
    during the 13 week periods ended May 1, 2002 and May 2, 2001, respectively,
    for the fiscal year 2000 strategic actions charge, the fiscal year 2001
    employee severance and VERP charge, the fiscal year 2001 BlueLight.com
    restructuring charge, the fiscal year 2001 supply chain restructuring charge
    and the fiscal year 2002 store closings charge. Reserves established in
    connection with the fiscal 2002 store closings charge are comprised of $228
    relating to lease rejections. Please refer to Amendment No. 1 to our Annual
    Report on Form 10-K/A for the fiscal year ended January 30, 2002, to be
    filed with the SEC on January 14, 2003, for a discussion of the 2001
    BlueLight.com, 2001 supply chain and 2000 strategic actions charges. The
    liabilities aggregated $490 and $181 at May 1, 2002 and May 2, 2001,
    respectively.

<TABLE>
<CAPTION>
                                                                   13 Weeks Ended
                                      --------------------------------------------------------------------------
                                                         May 1,                                   May 2,
                                                          2002                                     2001
                                      ----------------------------------------------     -----------------------
                                                       2001        2001      2000           2001        2000
                                       2002 Store    BlueLight    Supply   Strategic        VERP/     Strategic
                                        Closings       .com       Chain     Actions       Severance    Actions
                                      ------------  ----------- --------- ----------     ----------- -----------
<S>                                   <C>           <C>         <C>       <C>            <C>         <C>
Balance, beginning of year                  $   -         $ 18      $ 11       $ 98            $  -       $ 177

Additions charged to operations:              228            -         -          -              19           -
Reclassifications                             144            -         -          -               -           -
                                      ------------  ----------- --------- ----------     ----------- -----------
Total additions                               372            -         -          -              19           -

Reductions:
  Cash payments:
    Lease obligations                           -            -         -          3               -           6
    Employee costs                              -            -         4          -               9           -
    Contractual obligations                     -            1         -          -               -           -
                                      ------------  ----------- --------- ----------     ----------- -----------

Balance, end of period                      $ 372         $ 17      $  7       $ 95            $ 10       $ 171
                                      ============  =========== ========= ==========     =========== ===========
</TABLE>



12. INVENTORIES AND COST OF MERCHANDISE SOLD

         A substantial portion of our inventory is accounted for using the
    last-in, first-out ("LIFO") method. Since LIFO costs can only be determined
    at the end of each fiscal year when inflation rates and inventory levels are
    finalized, estimates are used for LIFO purposes in the interim unaudited
    Condensed Consolidated Financial Statements. Inventories valued on LIFO at
    May 1, 2002, May 2, 2001 and January 30, 2002 were $269, $194 and $269
    lower, respectively, than the amounts that would have been reported under
    the first-in, first-out method.




                                       16
<PAGE>
    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
    (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
    (UNAUDITED)



13. INVESTMENTS IN AFFILIATED RETAIL COMPANIES

    Meldisco

         For the 13 week period ended May 1, 2002, Meldisco had net sales of
    $307, gross profit of $139 and net income of $17. For the 13 week period
    ended May 2, 2001, Meldisco had net sales of $288, gross profit of $136 and
    net income of $18.

    BlueLight.com

         On July 31, 2001, we acquired the remaining approximate 40% interest in
    BlueLight.com, and BlueLight.com's operations were fully consolidated into
    our financial statements. For the period from February 1, 2001 to May 2,
    2001, BlueLight.com had net sales of $4, gross profit of $1 and a net loss
    of $30.

    Penske

         On April 9, 2002, we reached an agreement with Penske Corporation,
    Penske Auto Centers, Inc., and Penske Auto Centers, LLC (collectively
    "Penske") whereby Penske and Kmart will work together to achieve an orderly
    wind-down of operations at auto service centers at more than 563 Kmart
    stores in 44 states following Penske's unilateral decision to close the
    business as of April 6, 2002. This matter did not have a material adverse
    affect on our liquidity, financial position or results of operations for the
    13 weeks ended May 1, 2002.

14. LOSS PER SHARE

         Net loss per common share is computed as follows :
<TABLE>
<CAPTION>

                                                                           (as restated - see Note 1)
                                                                                 13 Weeks Ended
                                                                         -------------------------------
                                                                          May 1, 2002      May 2, 2001
                                                                         -------------    --------------
<S>                                                                      <C>              <C>
        Basic/Diluted loss per common share:

        Net loss                                                              ($1,442)         ($   187)
                                                                         =============    ==============

        Basic/Diluted weighted average shares outstanding                        502.9             488.5

        Basic/Diluted loss per common share                                   ($ 2.87)         ($  0.38)
                                                                         =============    ==============
</TABLE>

         We calculate loss per share in accordance with SFAS No. 128, "Earnings
    Per Share." In all periods presented net losses were incurred, therefore
    dilutive common stock equivalents were not used in the calculation of
    earnings per share as they would have an anti-dilutive effect. Options to
    purchase 54.6 million and 58.3 million shares of common stock at prices
    ranging from $4.86 to $26.03 and $5.34 to $26.03 were excluded from the
    calculations for the 13 week periods ended May 1, 2002 and May 2, 2001,
    respectively. The calculations also exclude the effect of trust convertible
    preferred securities. For the 13 week periods ended May 1, 2002 and May 2,
    2001, diluted shares outstanding exclude approximately 59.9 million common
    shares from potential conversion of certain trust convertible preferred
    securities due to their anti-dilutive effect.






                                       17
<PAGE>
    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
    (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
    (UNAUDITED)


15. INCOME TAXES

         In the fourth quarter of fiscal 2001, we recorded a valuation allowance
    against our net deferred tax assets, including the tax benefits associated
    with the employee severance and VERP charges, in accordance with SFAS No.
    109, "Accounting for Income Taxes," as realization of such assets in future
    years is uncertain.

         We have continued to maintain a valuation allowance against our net
    deferred tax assets, and accordingly, we have not recognized any tax benefit
    from our losses in fiscal 2002. The $12 tax benefit recorded in the first
    quarter of fiscal 2002 relates primarily to amounts now refundable 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.

16. OTHER COMMITMENTS AND CONTINGENCIES

    Contingent Liabilities

         As of May 1, 2002, we had (i) guaranteed obligations for real property
    leases of certain current and former subsidiaries of Kmart including, but
    not limited to, The Sports Authority, Inc., OfficeMax, Inc. and Borders
    Group, Inc., some of which leases have been assigned pre-petition; (ii)
    contingent liability under real property leases assigned by Kmart
    pre-petition; and (iii) guaranteed $79 of indebtedness of other parties
    related to certain of our leased properties financed by industrial revenue
    bonds. Our rights and obligations with respect to our guarantee of leases of
    the former subsidiaries The Sports Authority, Inc., Office Max, Inc., and
    Borders Group, Inc., which are detailed below, are governed by Lease
    Guarantee, Indemnification and Reimbursement Agreements dated as of November
    23, 1994, November 9, 1994 and May 24, 1995, respectively, as they may be
    amended from time to time. Kmart's contingent obligations, described above,
    which are not reflected in our financial statements, are dependent on the
    future performance by the parties whose obligations we guarantee and are
    subject to settlement under a plan of reorganization to be voted upon by
    creditors and equity holders and approved by the Court.

         As of May 1, 2002, our outstanding guarantees for real property leases
    of The Sports Authority, Inc., Office Max, Inc., and Borders Group, Inc.
    were as follows:



<TABLE>
<CAPTION>
                                        Present Value of
                                          Future Lease          Gross Future
                                        Obligations @ 7%      Lease Obligations
                                       ------------------    -------------------
<S>                                    <C>                   <C>
The Sports Authority, Inc.                 $ 180                    $ 305
Borders Group, Inc.                           87                      147
OfficeMax, Inc.                               64                       94
                                         --------                 --------

Total                                      $ 331                    $ 546
                                         ========                 ========

</TABLE>


    Bankruptcy Proceedings

         On the Petition Date, Kmart and 37 of its U.S. subsidiaries filed
    voluntary petitions for reorganization under Chapter 11 of the Bankruptcy
    Code in the Court. The reorganization is being jointly administered under
    the caption "In re Kmart Corporation, et al., case No. 02 B 02474." Included
    in the unaudited Condensed Consolidated Financial Statements are
    subsidiaries operating outside of the United States, which have not
    commenced Chapter 11 cases or other similar proceedings elsewhere, and are
    not debtors. The assets and liabilities and results of operations of such
    non-filing subsidiaries are not considered material to the unaudited
    Condensed Consolidated Financial Statements. We retain control of our assets
    and are authorized to operate the business as a debtor-in-possession while
    being subject to the jurisdiction of the Court. As of the Petition Date,
    most pending litigation is stayed, and absent further order of the Court,
    substantially all pre-petition liabilities are subject to settlement under a
    plan of reorganization. At this time, it is not possible to predict the
    outcome of the Chapter 11 cases or their effect on our business. If it is
    determined that the liabilities subject to compromise in the Chapter 11
    cases exceed the fair value of the assets, unsecured claims may be satisfied
    at less than 100% of their fair value and the equity interests of our
    shareholders may have no value. See Note 5.



                                       18
<PAGE>
    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
    (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
    (UNAUDITED)


    Legal Proceedings

         Since February 21, 2002, five separate purported class actions have
    been filed on behalf of purchasers of Kmart common stock between May 17,
    2001 and January 22, 2002, inclusive, naming Charles Conaway as 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 that Mr. Conaway made material misstatements or omissions during the
    alleged class period that inflated the trading prices of Kmart's common
    stock and seek, among other things, damages under Section 10b-5 of the
    Securities and Exchange Act of 1934. Kmart is not a defendant in these
    litigations.

         Kmart is involved in discussions with the United States Attorney for
    the District of Puerto Rico regarding a criminal investigation arising out
    of the alleged actions of certain of our employees following the 1998
    Hurricane Georges.

         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 officers and directors of Kmart alleging breach of
    fiduciary duty under ERISA for excessive investment in company stock;
    failure to provide complete and accurate information about Kmart common
    stock and failure to provide accurate information regarding our financial
    condition. Class action allegations are also made for current and former
    employees who participate in the Kmart Corporation Retirement Savings Plan.
    Kmart is not a defendant in this litigation.

         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 that purchased stock of Bluelight.com, a subsidiary of Kmart,
    naming Charles C. Conaway, as 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 Kmart
    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 is not a defendant in this litigation.

         Kmart is a defendant in six putative class actions and one
    multi-plaintiff case pending in California, all relating to our
    classification of assistant managers and various other employees as "exempt"
    employees under the federal Fair Labor Standards Act and the California
    Labor Code and our 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 U.S. District Court for the Eastern District of
    California (Henderson v. Kmart), the U.S. 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 would 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 as a result of our bankruptcy
    and, based on our initial investigations, we believe that we have numerous
    defenses to each of these claims. As a result, we are currently unable to
    quantify the financial exposure of these cases.

         We are a party to a substantial number of other claims, lawsuits, and
    pending actions, most of which are routine and all of which are incidental
    to our business. Some matters involve claims for large amounts of damages as
    well as other relief. Kmart assesses the likelihood of potential
    losses on an ongoing basis and when they are considered probable and
    reasonably estimable, records 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. Although the final consequences of these proceedings are not
    presently determinable, in the opinion of management, they are not expected
    to have a material adverse effect on our liquidity, financial position or
    results of operations.




                                       19
<PAGE>
    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
    (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
    (UNAUDITED)


         In addition to the foregoing, there are numerous matters filed with the
    Court in our reorganization proceedings by creditors, landlords or other
    third parties related to our business operations or the conduct of our
    reorganization activities. Although none of these individual matters which
    have been filed to date have had or are expected to have a material adverse
    effect on Kmart, our ability to successfully manage the reorganization
    process and develop an acceptable reorganization plan could be negatively
    impacted by adverse determinations by the Court on certain of these matters.

    Investigative Matters

         Kmart has been provided with copies of anonymous letters sent to the
    SEC, our auditors, directors, legal counsel and others, expressing concern
    with respect to various matters. The letters purport to be sent by certain
    of our employees. The letters have been referred to the Audit Committee,
    which has 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 principle at the end of fiscal 2001 as discussed
    below, as well as the Staff's intention to continue to pursue its
    investigation of these matters. We are cooperating with the House Committee
    with respect to their inquiry.

    Events Subsequent to Filing of Original 10-Q

         During the Fall of 2002 and in response to inquiries from the staff of
    the SEC, Kmart reviewed its historical practices for the recording of
    allowances prior to the adoption in the fourth quarter of fiscal year 2001
    of a new accounting policy, effective February 1, 2001, for the interim
    financial reporting of vendor allowances. The effect of these practices
    relates only to Kmart's interim financial statements. See "Internal
    Investigation - Developments Since Filing of 2001 Form 10-K- Vendor
    Allowance Matters - Premature Recognition of Vendor Allowances" in the
    section entitled "Management's Discussion and Analysis of Results of
    Operations and Financial Condition" for a description of the impact of the
    premature recording of certain vendor allowances on Kmart's audited
    financial statements.

         For interim reporting periods in fiscal 2000 and prior, our policy was
    to record allowances not yet subject to a written agreement during the first
    three quarters of a fiscal year based upon our estimate of annual allowances
    ("our plan") as determined by historical experience and current
    understandings with our vendors. These amounts were supplemented by
    allowances obtained that were not contemplated in our plan ("incrementals").
    During the fourth quarter of fiscal 2001, we adopted a new accounting
    policy, effective as of February 1, 2001, for interim financial reporting
    only, requiring that cost recoveries from vendors be recognized only when a
    formal agreement for such amount has been obtained and the underlying
    activity for which the amount was provided has been performed.

         As part of its review of allowances, the current management of Kmart
    observed that the total level of allowances originally recorded during the
    first three quarters of fiscal year 2001 appeared high, given the challenges
    that faced the business in fiscal year 2001 and the fact that sales failed
    to increase as originally contemplated in Kmart's business plan. In that
    regard, it was noted that had Kmart recorded allowances during the first
    three quarters of fiscal year 2001 at rates which corresponded to more
    historical rates, Kmart would have recorded fewer allowances.

         During the first three quarters of fiscal year 2001, Kmart
    characterized and recorded as incremental allowances $110, $163 and $50,
    respectively. Kmart selectively identified for review certain of such
    allowances that had been characterized and recorded as incrementals prior to
    the adoption of the new accounting policy. Of those reviewed, the amount of
    allowances which appeared to be questionable, other than those previously
    disclosed, were $27, $42 and $23, respectively. The questions about these
    allowances relate to, among other things, the failure to have appropriate
    signed documentation in place, the failure to have adequate records
    demonstrating that the allowance was collectible or the failure to otherwise
    comply with Kmart's historical policies. Based on the investigation, it
    appears that some of these allowances may have been reported in error in the
    quarterly financial statements. Given, however, that Kmart's review of
    allowances was selective, as well as the difficulties of confirming on a
    retroactive basis whether an incremental allowance is supplemental to the
    plan, Kmart cannot exclude the possibility that there may be additional
    incremental allowances in fiscal year 2001 which could be subject to
    question.

         Any errors, as described in the preceding paragraphs, concerning the
    recording of allowances that were reflected in our fiscal year 2001 interim
    unaudited financial statements prior to the change in accounting policy were
    no longer



                                       20
<PAGE>
    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
    (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
    (UNAUDITED)


    reflected in our restated financial statements as filed with the SEC on May
    15, 2002. This results from the change in accounting policy, given that
    under the new accounting policy there is no longer a distinction between
    planned and incremental allowances, no allowances are recognized absent a
    formal agreement and the recording of allowances is no longer based on a
    plan.


    Key Brand Partners

         On March 20, 2002, the Court authorized our business relationships with
    several key brand partners. Motions were approved allowing Kmart to assume
    our license agreements with Martha Stewart Living Omnimedia, Inc. for Martha
    Stewart Everyday home, garden, colors, baby, kitchen, keeping and decorating
    products, along with candles and accessories; Jaclyn Smith G.H. Production,
    Inc. for Jaclyn Smith women's apparel, jewelry and accessories; Kathy
    Ireland World Wide, Inc. for Kathy Ireland women's apparel, accessories and
    exercise equipment; Disney Enterprises, Inc. for Disney apparel for infants
    and children; and Joe Boxer Licensing, LLC. for JOE BOXER apparel,
    accessories and home furnishings.

         On May 29, 2002, the Court authorized our business relationship with
    Sesame Workshop. Motions were approved allowing Kmart to assume our license
    agreement with Sesame Workshop for Sesame Street toys and infants and
    children's apparel.






                                       21
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

         This Form 10-Q/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 Factors
-    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,
-    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,
-    regulatory and legal developments,
-    our ability to attract, motivate and/or retain key executives and
     associates,
-    our ability to attract and retain customers,
-    other factors affecting business beyond our control,

Bankruptcy Related Factors
-    our ability to continue as a going concern,
-    our ability to operate pursuant to the terms of the DIP Credit Facility,
-    our ability to obtain Court approval with respect to motions in the Chapter
     11 proceeding from time to time,
-    our ability to develop, confirm and consummate one or more plans of
     reorganization with respect to the Chapter 11 cases,
-    risks associated with third parties seeking and obtaining court approval to
     terminate or shorten the exclusivity period that we have to propose and
     confirm one or more plans of reorganization, for the appointment of a
     Chapter 11 trustee or to convert the cases to Chapter 7 cases,
-    our ability to offset the negative effects that the filing for
     reorganization under Chapter 11 has had on our business, including the loss
     in customer traffic and the constraints placed on available capital,
-    our ability to obtain and maintain normal terms with vendors and service
     providers,
-    the ability of our vendors to obtain satisfactory credit terms from factors
     and other financing sources,
-    our ability to maintain contracts, including leases, that are critical to
     our operations,
-    the potential adverse impact of the Chapter 11 cases on our liquidity or
     results of operations,
-    our ability to develop a long-term strategy and/or market niche, and
-    our ability to fund and execute our business plan.


         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.



                                       22

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)


         Similarly, these and other factors, including the terms of any
reorganization plan ultimately confirmed, can affect the value of our various
pre-petition liabilities, common stock and/or other equity securities. No
assurance can be given as to what values, if any, will be ascribed in the
bankruptcy proceedings to each of these constituencies.

         A plan of reorganization could result in holders of Kmart common stock
receiving no distribution on account of their interests and cancellation of
their interests. Holders of Kmart common stock should assume that they could
receive little or no value as part of a plan of reorganization. In addition,
under certain conditions specified in the Bankruptcy Code, a plan of
reorganization may be confirmed notwithstanding its rejection by an impaired
class of creditors or equity holders and notwithstanding the fact that equity
holders do not receive or retain property on account of their equity interests
under the plan. In light of the foregoing, Kmart considers the value of the
common stock to be highly speculative and cautions equity holders that the stock
may ultimately be determined to have no value. Accordingly, Kmart urges that
appropriate caution be exercised with respect to existing and future investments
in Kmart common stock or any claims relating to pre-petition liabilities and/or
other Kmart securities.

         The following discussion and analysis should be read in conjunction
with the audited Consolidated Financial Statements and Notes to Consolidated
Financial Statements in Item 8. Financial Statements and Supplementary Data, of
Amendment No. 1 to our Annual Report on Form 10-K/A for our fiscal year ended
January 30, 2002, to be filed with the SEC on January 14, 2003.


RESTATEMENT OF CURRENT AND PRIOR PERIODS


         As part of the review and preparation of the Quarterly Report on Form
10-Q for the third quarter ended October 30, 2002, Kmart Corporation and its
subsidiaries ("Kmart," "we," "us" or "our") identified certain adjustments that
were recorded out-of-period, while others were previously identified and
described in our Quarterly Report on Form 10-Q for the second quarter ended July
31, 2002, filed with the Securities Exchange Commission ("SEC") on September 16,
2002. Upon review of the aggregate impact of the new, as well as the previously
disclosed and recorded adjustments, we concluded that restating our historical
financial statements was appropriate because the aggregate impact was material
to the current estimate of our fiscal year 2002 results.


         The tables below show the results of the restatements on reported
results for the 13 week periods presented in this Amendment No. 1 to our
Quarterly Report on Form 10-Q/A, which relate primarily to:


a)       Lease accrual adjustments - An understatement of historical accruals
         for certain leases with varying rent payments and a related
         understatement of historical rent expense.


b)       Accounts payable adjustments - A software programming error in Kmart's
         accounts payable system that resulted in some paid invoices awaiting a
         store report of delivery not being appropriately treated in our
         financial statements. This error, restricted to a single vendor with
         unique billing arrangements, resulted in an understatement of Cost of
         sales, buying and occupancy since 1999.


c)       Inventory loads - Adjustments, as previously disclosed in the Quarterly
         Report on Form 10-Q for the second quarter ended July 31, 2002, for
         certain costs formerly capitalized into inventory. Inventory included
         amounts added for internal purposes to analyze gross margin on a
         comparable basis across all business units and to optimize purchasing
         decisions. These amounts are commonly referred to in the retail
         industry as "inventory loads," and should have been eliminated for
         external reporting purposes to the extent the related inventory
         remained unsold at the end of the period.


d)       Vendor allowances - The premature recording, as previously disclosed in
         the Quarterly Report on Form 10-Q for the second quarter ended July 31,
         2002 of vendor allowance transactions in fiscal year 2000 and prior
         fiscal years.


         In addition, given the restatement for the items noted above, we are
adjusting previously reported financial results for miscellaneous immaterial
items that were identified and previously recorded in the ordinary course of
business. These items are now being recorded in the appropriate fiscal periods.


                                       23

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)


         The summary of the effects of the restatement on reported results for
prior fiscal periods is presented in the table below.

<TABLE>
<CAPTION>
                                                                                           Impact on
                                                                                            retained
                                                          Income (Expense)                  earnings
                                              -----------------------------------------------------------
                                                 Fiscal         Fiscal        Fiscal       January 30,
                                                  2001           2000          1999           1999
                                              -----------------------------------------------------------
<S>                                               <C>             <C>            <C>          <C>
Lease accrual adjustments                          ($5)            ($4)           ($10)        ($37)
Accounts payable adjustments                      ($42)            ($9)            ($1)          $-
Inventory loads                                    ($7)           ($12)           ($21)        ($17)
Vendor allowances                                  $94            ($52)           ($33)        ($28)
Other items                                        $47             $39              $4        ($135)
                                              -----------------------------------------------------------
Pre-tax impact of restatement                      $87            ($38)           ($61)       ($217)
(Benefit from) provision for income taxes         $115            ($14)           ($22)        ($79)
                                              -----------------------------------------------------------
Total impact of restatement                       ($28)           ($24)           ($39)       ($138)
                                              ===========================================================
</TABLE>


         The summary of the effects of the restatement on the 13 weeks ended May
1, 2002 and May 2, 2001, respectively, are presented in the tables below.

<TABLE>
<CAPTION>
                                                                       13 Weeks Ended May 1, 2002
                                    ------------------------------------------------------------------------------------------------
                                                                               Adjustments
                                                    -------------------------------------------------------------------
                                        As           Lease         Accounts
                                    previously      accrual        payable       Inventory       Vendor                     As
                                    reported*     adjustments    adjustments       loads       allowances      Other     restated
                                    ------------------------------------------------------------------------------------------------
<S>                                  <C>          <C>           <C>               <C>          <C>             <C>       <C>
Sales                                  $7,639             $-          $   -         $   -            $-           $-         $7,639
Cost of sales, buying
   and occupancy                       $7,016             $3            $10           ($9)          ($8)          $9         $7,021
                                    ------------------------------------------------------------------------------------------------
Gross margin                             $623            ($3)          ($10)           $9            $8          ($9)          $618
Selling, general and
   administrative expenses             $1,791            $ -             $-            $1            $-         ($22)        $1,770

Operating (loss) income               ($1,163)           ($3)          ($10)           $8            $8          $13       ($1,147)

Reorganization items, net                $265             $-             $-            $-            $-           $9           $274

                                    ------------------------------------------------------------------------------------------------
Net (loss) income                     ($1,449)           ($3)          ($10)           $8            $8           $4       ($1,442)
                                    ================================================================================================
Basic/Diluted (loss) earnings per
   common share                        ($2.88)          $0.00        ($0.02)         $0.01         $0.01        $0.01       ($2.87)
                                    ================================================================================================
</TABLE>



* - As previously reported in the Form 10-Q for the quarter ended May 1, 2002
    filed on June 14, 2002.


                                       24

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)




<TABLE>
<CAPTION>
                                                                       13 Weeks Ended May 2, 2001
                                    ------------------------------------------------------------------------------------------------
                                                                               Adjustments
                                                    -------------------------------------------------------------------
                                          As           Lease         Accounts
                                      previously      accrual        payable       Inventory       Vendor                     As
                                      reported**    adjustments    adjustments       loads       allowances     Other      restated
                                    ------------------------------------------------------------------------------------------------
<S>                                   <C>           <C>            <C>            <C>            <C>            <C>       <C>
Sales                                    $8,337           $-           $-            $-            $-           $-        $8,337
Cost of sales, buying
   and  occupancy                        $6,834           $1           $5           ($15)         ($41)        ($5)       $6,779
                                    ------------------------------------------------------------------------------------------------
Gross margin                             $1,503          ($1)         ($5)           $15           $41          $5        $1,558
Selling, general and
   administrative expenses               $1,712           $-           $-            $1            $-          ($19)      $1,694

Operating (loss) income                   ($248)         ($1)         ($5)           $14           $41          $24      ($175)

(Benefit from) provision for
    Income taxes                          ($109)          $-          ($2)           $5            $15          $9       ($82)
                                    ------------------------------------------------------------------------------------------------
Net (loss) income                         ($233)         ($1)         ($3)           $9            $26          $15      ($187)
                                    ================================================================================================
Basic/Diluted (loss) earnings per
   common share                          ($0.48)          $-           $-            $0.02         $0.05        $0.03    ($0.38)
                                    ================================================================================================
</TABLE>


         The following is a summary of the effects of the restatement on our
unaudited Condensed Consolidated Balance Sheets for all amounts that changed by
5% or more for the periods ended May 1, 2002, May 2, 2001 and January 30, 2002,
respectively.

<TABLE>
<CAPTION>
                                                               As
                                                           Previously             As
                                                            Reported           Restated
                                                          --------------     --------------
<S>                                                          <C>              <C>
May 1, 2002*
  Other long-term liabilities                                    $87              $140
  Accumulated deficit                                          ($188)            ($410)

May 2, 2001**
  Other assets and deferred charges                             $473              $543
  Other long-term liabilities                                   $828              $877

January 30, 2002***
  Accounts payable                                              $103               $89
  Accrued payroll and other liabilities                         $378              $420
  Other long-term liabilities                                    $79              $132
  Retained earnings                                           $1,261            $1,032
</TABLE>

*   - As previously reported in the Form 10-Q for the quarter ended May 1, 2002
      filed on June 14, 2002.
**  - As previously reported in the Form 10-Q/A for the quarter ended May 2,
      2001 filed on June 12, 2002.
*** - As previously reported in the Form 10-K for the fiscal year ended January
      30, 2002 filed on May 15, 2002.

                                       25

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)



OVERVIEW

         On January 22, 2002 ("Petition Date"), Kmart 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.
The reorganization is being jointly administered under the caption "In re Kmart
Corporation, et al. Case No. 02 B 02474."

         Under Chapter 11, we are operating our business as a
debtor-in-possession. As of the Petition Date, actions to collect pre-petition
indebtedness as well as most other pending litigation, are stayed and other
pre-petition contractual obligations generally may not be enforced against
Kmart. In addition, under the Bankruptcy Code we may assume or reject executory
contracts and unexpired leases, subject to approval of the Court and our
satisfaction of certain other requirements. Parties affected by these rejections
may file claims against the debtor in accordance with the reorganization
process. Absent an order of the Court, substantially all pre-petition
liabilities are subject to settlement under a plan of reorganization to be voted
upon by creditors and equity holders and approved by the Court.

         There can be no assurance that a reorganization plan or plans will be
proposed by the Debtors or confirmed by the Court, or that any such plan(s) will
be consummated; in addition, the timing of such actions may be other than
currently planned by Kmart. If the Debtors fail to file a plan of reorganization
during the exclusivity period described above (as such period may be extended)
or if such plan is not accepted by the required number of creditors and equity
holders, any party in interest may subsequently file its own plan of
reorganization. A plan of reorganization cannot become effective until confirmed
by the Court, upon certain findings being made by the Court which are required
by the Bankruptcy Code. The Court may confirm a plan notwithstanding the
non-acceptance of the plan by an impaired class of creditors or equity security
holders if certain requirements of the Bankruptcy Code are met.

         On March 20, 2002, the Court approved the closure of 283 stores, or
approximately 13% of our 2,114 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. Renegotiating lease terms was also explored to improve
store profitability and to avoid the need for closure. Shortly after receiving
Court approval we commenced store closing sales, which were completed June 2,
2002. Approximately 22,000 associates were impacted by the closures.

         On April 4, 2002, we announced that we had contracted with firms to
assist in the disposition of leases for these stores. Under the agreement, the
firms will assist our internal real estate staff in identifying retailers and
investors interested in an assignment and landlords interested in a termination
of the leases for the closing stores.

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

-    developing a long-term strategy and/or market niche to revitalize our
     business and return 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 DIP Credit 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 credit terms;
-    attracting, motivating and/or retaining key executives and associates; and
-    developing and, thereafter, having confirmed by the Court, a plan of
     reorganization.

         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.

                                       26


<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)


ANALYSIS OF OPERATIONS EXCLUDING NON-COMPARABLE ITEMS DESCRIBED BELOW

         The following table segregates non-comparable items from operating
income as reported in the unaudited Condensed Consolidated Statements of
Operations:


<TABLE>
<CAPTION>
                                                                       (as restated)
                                                                  ----------------------
                                                                      13 Weeks Ended
                                                                  ----------------------
                                                                   May 1,       May 2,
                                                                    2002         2001
                                                                  ---------    ---------

<S>                                                                <C>         <C>
    Sales                                                         $  7,639     $  8,337

    Cost of sales, buying and occupancy                              6,245        6,779
                                                                  ---------    ---------

    Gross margin                                                     1,394        1,558

    Selling, general and administrative                              1,770        1,694

    Equity income (loss) in unconsolidated subsidiaries                  5          (16)
                                                                  ---------    ---------

    Operating loss before non-comparable items                        (371)        (152)

    Non-comparable items:
       Charge for employee severance and VERP                            -           23
       Accelerated depreciation                                         18            -
       2002 inventory markdowns                                        758            -
                                                                  ---------    ---------

    Operating loss as reported                                    $ (1,147)    $   (175)
                                                                  =========    =========

    Same-store sales %                                               (8.8%)        1.9%
    Same-store sales %, excluding liquidation sales                 (11.7%)         N/A
</TABLE>



         Management uses operating loss before non-comparable items, among other
metrics, to measure operating performance. It supplements and is not intended to
represent a measure of performance in accordance with disclosures required by
accounting principles generally accepted in the United States.

         The following discussion and analysis excludes non-comparable items.
See the table above for a reconciliation to reported amounts and the section
titled Description of non-comparable items described below. Prior to the
restatement, and after adjustment for non-comparable items, the previously
reported amounts for gross margin, as a percentage of sales were 18.3% and 18.0%
for the 13 weeks ended May 1, 2002 and May 2, 2001, respectively; Selling,
general and administrative expenses ("SG&A"), as a percentage of sales, were
23.4% and 20.5% for the 13 weeks ended May 1, 2002 and May 2, 2001,
respectively; and Operating loss, as a percentage of sales, were (5.1%) and
(2.7%) for the 13 weeks ended May 1, 2002 and May 2, 2001, respectively.

         Same-store sales and total sales decreased (8.8%) and (8.4%),
respectively, for the 13 weeks ended May 1, 2002. The decrease in same-store
sales and total sales is primarily due to poor in-stock levels and negative
customer perception due to the bankruptcy filing. Same-store sales include sales
of all stores open, that have been open for greater than 13 full months.

         Gross margin decreased $164 to $1,394, for the 13 weeks ended May 1,
2002, from $1,558 for the 13 weeks ended May 2, 2001. The decrease in gross
margin is attributable to the decrease in total sales in fiscal 2002 as compared
to fiscal 2001.

         Gross margin, as a percentage of sales, decreased to 18.2% for the 13
weeks ended May 1, 2002, from 18.7% for the 13 week period ended May 2, 2001.
The decrease in gross margin rate is attributable to decreased vendor allowances
due to erosion in supplier confidence brought on by the effects of the
bankruptcy filing and reduced retail pricing as a result of competitive
pressures partially offset by decreased sales, as a percent of total sales, of
food and consumables, which carry lower margins, and to a shift from clearance
sales to regular sales.

                                       27

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS - (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 and $92 in
fiscal 2001) increased $76 for the 13 weeks ended May 1, 2002 to $1,770, or
23.2% of sales, from $1,694, or 20.3% of sales, for the 13 weeks ended May 2,
2001. The increase of $76 is due primarily to severance and contractual
obligations, increased bonus accruals, utility rate increases, decreased co-op
recoveries due to the erosion in supplier confidence brought on by the effect of
the bankruptcy filing and increased expenses for general liability claims,
partially offset by the elimination of our previous year customer service bonus
program for our store associates.

         Operating loss for the 13 weeks ended May 1, 2002 was ($371), or (4.9%)
of sales, as compared to operating loss of ($152), or (1.8%) of sales, for the
same period of the prior year. The increase in operating loss is attributable to
lower sales, decreased gross margin rate and increased SG&A expenses as
discussed above.

         Net interest expense for the 13 weeks ended May 1, 2002 and May 2, 2001
was $33 and $83, respectively. Included in net interest expense is interest
income of $1 for the 13 weeks ended May 1, 2002 and May 2, 2001. The decrease in
net interest expense is a result of our ceasing to accrue interest on unsecured
pre-petition debt classified as Liabilities subject to compromise in our
unaudited Condensed Consolidated Balance Sheets. Interest at the stated
contractual amount on unsecured debt that was not charged to earnings for the 13
weeks ended May 1, 2002 was approximately $60.

         Effective income tax rate was (0.8%) and (31.8%) for the 13 weeks ended
May 1, 2002 and May 2, 2001, respectively. The decrease in the effective income
tax benefit rate is due to a valuation allowance established for deferred tax
assets which we may not be able to utilize in future years. See Note 15 of the
Notes to Condensed Consolidated Financial Statements of this Form 10-Q/A. The
$12 tax benefit recorded in the first quarter of fiscal 2002 relates primarily
to amounts now refundable 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.

LIQUIDITY AND FINANCIAL CONDITION

         Shortly after the Petition Date, in conjunction with our filing under
Chapter 11, we entered into a $2 billion debtor-in-possession financing facility
("DIP Credit Facility"). On the Petition Date, the Court gave interim approval
authorizing borrowings up to $1.15 billion of the DIP Credit Facility for the
payment of certain pre-petition claims and the funding of working capital and
other general operating needs. On March 6, 2002, the Court approved the entire
$2 billion DIP Credit Facility. The DIP Credit Facility is a revolving credit
facility under which Kmart is the borrower and the rest of the Debtors are
guarantors. The DIP Credit Facility has been afforded superpriority claim status
in the Chapter 11 case and is collateralized by first liens on substantially all
of the Debtors' assets (subject to valid and unavoidable prepetition liens and
certain other permitted liens) and provides that proceeds be used for working
capital needs and other general corporate purposes. The DIP Credit Facility
requires that we maintain certain financial covenants and restrict liens,
indebtedness, capital expenditures, dividend payments and sale of assets. As of
May 1, 2002 we were in compliance with the DIP Credit Facility financial
covenants. Following the Petition Date, we have utilized cash flows from
operations and the DIP Credit Facility as our primary sources of working
capital. As of May 1, 2002 we had utilized $335 of the DIP Credit Facility for
letters of credit issued for ongoing import purchasing operations, contractual
and regulatory purposes. Total availability under the DIP Credit Facility as of
May 1, 2002 is $1.56 billion.

         As of May 1, 2002 there were $400 and $664 borrowings outstanding under
our $400 credit facility and $1.1 billion credit facility, respectively. These
borrowings are included in Liabilities subject to compromise in our unaudited
Condensed Consolidated Balance Sheet as of May 1, 2002. There were no borrowings
outstanding under our DIP Credit Facility as of May 1, 2002.


                                       28

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)



         Net cash provided by operating activities for the 13 weeks ended May 1,
2002 was $1,020 as compared to net cash used for operating activities of $278
for the same period in 2001. The increase in cash provided by operating
activities as compared to the same period of the prior year was primarily the
result of an increase in accounts payable, partially offset by lower net
earnings, excluding non-comparable items. The increase in accounts payable is
attributable to the bankruptcy filing as pre-petition indebtedness was stayed.
As we have been purchasing inventory since the bankruptcy filing, we expect our
accounts payable and related cash needs to return to more historical levels.

         Net cash used for investing activities was $52 for the 13 weeks ended
May 1, 2002 compared to $277 for the same period in 2001. The decrease in cash
used for investing activities was primarily due to restrictions on capital
expenditures mandated by our DIP Credit Facility.

         Net cash used for financing activities was $396 for the 13 weeks ended
May 1, 2002 compared to net cash provided by financing activities of $569 for
the comparable period in 2001. The decrease in cash provided by financing
activities in fiscal 2002 as compared to fiscal 2001 is primarily attributable
to the bankruptcy filing. As of the Petition Date, pre-petition indebtedness was
stayed resulting in substantial increases in cash balances in the first quarter
of fiscal 2002. In the first quarter of fiscal 2002 we were able to pay off $347
in borrowings outstanding at fiscal year end 2001 under our credit facilities.
In contrast, during the first quarter of fiscal 2001, we borrowed $592 under our
$1.6 billion credit facility to finance our operations.

         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 is 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 30% of total net sales in fiscal 2001. 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 DIP Credit 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 DIP Credit 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, margins fail to improve, and/or the DIP Credit 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.

         This liquidity section of MD&A should be read in conjunction with the
Quarterly Report on Form 10-Q for the 13 and 39 week periods ended October 30,
2002, filed with the SEC on December 23, 2002.


                                       29

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)



DESCRIPTION OF NON-COMPARABLE ITEMS

         During the 13 week periods ended May 1, 2002 and May 2, 2001,
respectively, we have instituted certain restructuring actions to improve our
operations. A more detailed description of these non-comparable items is as
follows:

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. This charge is included in Cost of sales, buying and occupancy
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 relating 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 will no longer be 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.

Accelerated depreciation

         On September 6, 2001, we announced that we would restructure certain
aspects of our supply chain operations. Part of the restructuring included
implementing new real-time distribution software across our supply chain
improving product flow and efficiency. Completion of the implementation is
expected by the end of the third quarter of fiscal 2003. The existing supply
chain software will continue to be utilized until replaced in 2003. Depreciation
has been accelerated to reflect the revised remaining useful lives. We recorded
a charge of $4 in the first quarter of fiscal 2002 related to the accelerated
depreciation for these assets. The charge is included in Cost of sales, buying
and occupancy in the unaudited Condensed Consolidated Statements of Operations.

         In the fourth quarter of fiscal 2001 we recorded a non-cash charge for
the impairment of long-lived assets in accordance with SFAS No. 144. Included in
the charge was the write-down to fair value of long-lived assets at our 283
stores for which we received Court approval to close. Depreciation on the
remaining asset values were accelerated to reflect the revised useful lives and
the assets will be fully-depreciated by the end of the second quarter of fiscal
2002. We recorded a charge of $14 related to the accelerated depreciation on
these assets in the first quarter of fiscal 2002. The charge is included in Cost
of sales, buying and occupancy in the unaudited Condensed Consolidated
Statements of Operations.

Employee severance and VERP

         During the first quarter of 2001, our workforce was reduced by 350
employees through a voluntary early retirement program ("VERP") and other
employee separations. The total cost of the realignment aggregated $23 ($15, net
of tax), which is included in our unaudited Condensed Consolidated Statement of
Operations for the quarter ended May 2, 2001 in the line item Charge for
employee severance and VERP. The charge relates to 130 employees that accepted
the VERP offer, with costs aggregating $6. The remaining 220 employees were
severed and given post-employment benefits including severance, outplacement
services, continuation of healthcare benefits and other benefits totaling $17.
Of the charge, $19 was reserved for and was paid out of our general corporate
assets, including benefits for highly-compensated employees accepting the VERP
offer, and the remaining $4 was paid out of the Kmart Employee Pension Plan. Our
first quarter cash payments in fiscal 2001 associated with these actions was $9.


                                       30

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)



REORGANIZATION ITEMS, NET

         Reorganization items represent amounts we incurred as a result of the
Chapter 11 and are presented separately in the unaudited Condensed Consolidated
Statements of Operations. For the 13 weeks ended May 1, 2002, the following have
been recorded:

<TABLE>
<CAPTION>
<S>                                                              <C>
              2002 store closings                                   $ 228
              Professional fees                                        38
              Employee costs                                           26
              Sale of pharmacy lists                                  (17)
              Settlement of pre-petition liabilities                   (5)
              Interest income                                          (4)
              Other                                                     8
                                                                 --------
              Total                                                 $ 274
                                                                 ========
</TABLE>

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

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. 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 and 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)" ("EITF 94-3"). During the period
that the stores remained open for business, rent and other costs of operations
continue to be reflected in our operating expenses. In the first quarter of
fiscal 2002, there were no payments charged to the reserve, see Note 11.

Professional fees

        In the first quarter of fiscal 2002, we recorded $38 for professional
fees. Professional fees include financial, legal, real estate and valuation
services directly associated with our reorganization process.

Employee costs

         In March 2002, we received Court approval to implement our Key Employee
Retention Plan ("KERP") which provides cash incentives and certain benefits to
key members of our salaried management team. The KERP is expected to encourage
employees to continue their employment with Kmart through the reorganization
process. In the first quarter of fiscal 2002, we recorded a charge of $26 for
the KERP and retention bonuses for associates in our 283 stores that were
closed. There were no payments charged to the reserve during the first quarter
of fiscal 2002.
Settlement of pre-petition claims

         We recorded a gain of $5 representing the difference between the
settlement value of certain pre-petition obligations and their recorded
allowable claims.


                                       31

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)



Other reorganization items

         We recorded a gain of $17 for the sale of pharmacy lists and $4 for
interest income earned on excess cash balances. We also recorded a charge of $8
for other miscellaneous reorganization items.

INTERNAL INVESTIGATION - DEVELOPMENTS SINCE FILING OF 2001 FORM 10-K AND
ORIGINAL FORM 10-Q

Investigative Matters

         The following sets forth developments that have occurred since the
filing of Kmart's Annual Report on Form 10-K for fiscal year 2001, dated May 15,
2002 (the "Original 2001 10-K") in connection with the internal investigation
and related stewardship review being conducted under the supervision of the
Audit Committee of the Board of Directors. As previously disclosed, following
the receipt of anonymous letters, the Board of Directors had instructed that an
internal investigation be undertaken under the supervision of the Audit
Committee by outside legal counsel, with the assistance of independent
accounting advisors. The Original 2001 10-K had reflected, as of the date of
filing, the results of the investigation with respect to various accounting
matters. As of the date of the filing, we believed that the investigation was
complete with respect to accounting matters affecting the financial statements
in the Original 2001 10-K. Set forth below is a discussion of certain matters
relating to vendor allowances and inventories that have been investigated since
the filing of the Original 2001 10-K.

Vendor Allowance Matters

         Premature Recognition of Vendor Allowances

         Since the filing of our Original 2001 10-K we became aware of documents
that indicated that there were certain vendor allowance transactions prematurely
recorded in our fiscal year 2000 fourth quarter financial statements that
required investigation. We also determined that such early recognition of vendor
allowances occurred in other prior fiscal periods, although the impact of these
transactions on our financial statements was less significant. We described the
effect of these items in our Form 10-Q for the thirteen week period ended July
31, 2002 that we filed with the SEC on September 16, 2002. In addition, we
recently became aware of allowances received from a vendor aggregating $14,
which had previously been recognized in our fiscal year 2000 financial
statements and that we have determined should more appropriately have been
recognized over the five-year life of the contract that we entered into with
this vendor.

         It is important to note that although we have conducted all procedures
we deemed reasonable under the circumstances to identify and quantify vendor
allowances that were prematurely recorded, and which were restated to correct
and record such allowances in the appropriate period, there can be no assurance
that we have captured all of such allowance transactions. Furthermore, we
believe that our ability to accurately identify prematurely recorded allowance
transactions diminishes with the passage of time. We have taken actions to
strengthen our internal controls concerning vendor allowance transactions and we
have restated our prior period financial statements for these adjustments.

         2001 Interim Recognition of Allowances

         During the Fall of 2002 and in response to inquiries from the staff of
the SEC, Kmart reviewed its historical practices for the recording of allowances
prior to the adoption in the fourth quarter of fiscal year 2001 of a new
accounting policy, effective February 1, 2001, for the interim financial
reporting of vendor allowances. The effect of these practices relates only to
Kmart's interim financial statements.

         For interim reporting periods in fiscal 2000 and prior, our policy was
to record allowances not yet subject to a written agreement during the first
three quarters of a fiscal year based upon our estimate of annual allowances
("our plan") as determined by historical experience and current understandings
with our vendors. These amounts were supplemented by allowances obtained that
were not contemplated in our plan ("incrementals"). During the fourth quarter of
fiscal 2001, we adopted a new accounting policy, effective as of February 1,
2001, for interim financial reporting only, requiring that cost recoveries from
vendors be recognized only when a formal agreement for such amount has been
obtained and the underlying activity for which the amount was provided has been
performed.


                                       32


<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)


         As part of its review of allowances, the current management of Kmart
observed that the total level of allowances originally recorded during the first
three quarters of fiscal year 2001 appeared high, given the challenges that
faced the business in fiscal year 2001 and the fact that sales failed to
increase as originally contemplated in Kmart's business plan. In that regard, it
was noted that had Kmart recorded allowances during the first three quarters of
fiscal year 2001 at rates which corresponded to more historical rates, Kmart
would have recorded fewer allowances.

         During the first three quarters of fiscal year 2001, Kmart
characterized and recorded as incremental allowances $110, $163 and $50,
respectively. Kmart selectively identified for review certain of such allowances
that had been characterized and recorded as incrementals prior to the adoption
of the new accounting policy. Of those reviewed, the amount of allowances which
appeared to be questionable, other than those previously disclosed, were $27,
$42 and $23, respectively. The questions about these allowances relate to, among
other things, the failure to have appropriate signed documentation in place, the
failure to have adequate records demonstrating that the allowance was
collectible or the failure to otherwise comply with Kmart's historical policies.
Based on the investigation, it appears that some of these allowances may have
been reported in error in the quarterly financial statements. Given, however,
that Kmart's review of allowances was selective, as well as the difficulties of
confirming on a retroactive basis whether an incremental allowance is
supplemental to the plan, Kmart cannot exclude the possibility that there may be
additional incremental allowances in fiscal year 2001 which could be subject to
question.

         Any errors, as described in the preceding paragraphs, concerning the
recording of allowances that were reflected in our fiscal year 2001 interim
unaudited financial statements prior to the change in accounting policy were no
longer reflected in our restated financial statements as filed with the SEC on
May 15, 2002. This results from the change in accounting policy, given that
under the new accounting policy there is no longer a distinction between planned
and incremental allowances, no allowances are recognized absent a formal
agreement and the recording of allowances is no longer based on a plan.

Inventory Matters

         Following the filing of the Original 2001 10-K and in response to
inquiries from the staff of the SEC, we have conducted an internal inventory
quality review with respect to our 1999, 2000 and 2001 fiscal years. We continue
to believe, following the conclusion of this review, that our inventory balances
during these periods were, in all material respects, appropriately valued at the
lower of cost or market and that, therefore, our financial statements require no
adjustment for inventory quality matters. However, we have provided the
following additional information with respect to our historical inventory
markdown and reserve practices so as to enhance a reader's understanding of our
financial statements as presented in Management's Discussion and Analysis in the
Original 2001 10-K and to be contained in Amendment No. 1 to our Annual Report
on Form 10-K/A for our fiscal year ended January 30, 2002, to be filed with the
SEC on January 14, 2003.

         2000 Strategic Actions Charge and Related Matters

         During the second quarter of fiscal year 2000, we reported a $740
charge for strategic actions including the closure of certain stores,
acceleration of certain inventory reductions and redefining our information
technology strategy. The $740 charge included $290 for the estimated loss on
disposal for the accelerated liquidation of certain discontinued product, which
was characterized in Management's Discussion and Analysis of our 2001 10-K as a
"non-comparable" item. During the course of the recent internal inventory
review, we analyzed the assumptions of the charge related to the accelerated
liquidation of the discontinued merchandise, including historical markdown
cadences, or the timing for recognizing markdowns in our financial statements,
for discontinued product. In carrying out such review, current management
observed that the effect of an accelerated markdown cadence, combined with
certain transfer costs, approximated $156. In light of these observations with
respect to accelerated markdown cadences, current management noted that
approximately $134, the remaining portion of the charge, could have been viewed
as an operating item and, as such, not reported as a "non-comparable" item.
Similarly, current management observes that if the $134 portion of the charge
had been reflected as an operating item, it could have been recorded against an
existing inventory reserve.


                                       33


<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)



         Inventory Valuation Reserves

         At the end of fiscal year 1999, Kmart had designated valuation reserves
related to its discontinued and aged seasonal merchandise inventories of $63, as
well as general reserves existing in its LIFO provision of $158. In light of
these reserves, the inventory at the end of fiscal 1999 was, in the judgment of
current management, properly stated at the lower of cost or market in accordance
with generally accepted accounting principles. During the fourth quarter of
fiscal year 2000, the $158 general reserve that existed in our LIFO valuation
was recharacterized within inventory reserves as a reserve for markdowns on
discontinued and aged seasonal merchandise.

         During the first quarter of 2001, we changed our method of recording
the effect of permanent markdowns and began to record them as a direct reduction
in the carrying value of the related inventory instead of being estimated and
recorded as a valuation reserve. At that time, the then existing reserves of
$172 for permanent markdowns on discontinued and aged seasonal merchandise were
applied directly to the marked-down merchandise. Accordingly, a permanent
markdown accrual was no longer necessary.

         2001 Clearance Markdowns

         As indicated in our Original 2001 10-K, inventory valuation is
considered to be one of our critical accounting policies as significant
judgments and estimates are required in determining merchandise markdowns, among
other reasons. A number of factors are considered in determining the timing and
amount of merchandise markdowns including rate of product sell-through,
projected future demand, and market conditions and weather conditions. The
timing of such decisions may have a significant effect on quarterly financial
results.

         During our recent internal inventory review, we noted that levels of
clearance markdowns in the second and third quarter of 2001 appeared low in
relation to historical markdown experience apparently as a result of, among
other things, decisions to minimize markdown activity and related charges in
light of Kmart's then operating performance. Although current management found
that inventory balances had been properly stated, in all material respects,
under our policy of valuing inventory at the lower of cost or market value
during each of the quarterly periods of 2001, current management noted that the
fewer markdowns in the second and third quarters of 2001 served to increase
reported earnings in those quarters, and increase markdowns and decrease
reported earnings in the first and fourth quarters. For example, we observed
that had markdowns been taken in each quarter of 2001 in a manner which, on a
percentage of sales basis, corresponded to the average of the markdowns taken,
on a quarterly basis, during fiscal years 1998, 1999 and 2000, excluding the
effect of special events such as store closings, the level of clearance
markdowns in 2001 could have been increased by $55 and $105 in the second and
third quarters, respectively, and reduced by $40 and $120 in the first and
fourth quarters, respectively. The actual effect, however, that a different
markdown practice could have had on our quarterly net income for the full fiscal
year is difficult to predict, given the numerous other factors, estimates and
assumptions that would affect our results.

OTHER MATTERS

         Contingent Liabilities

         As of May 1, 2002, we had (i) guaranteed obligations for real property
leases of certain current and former subsidiaries of Kmart including, but not
limited to, The Sports Authority, Inc., OfficeMax, Inc. and Borders Group, Inc.,
some of which leases have been assigned pre-petition; (ii) contingent liability
under real property leases assigned by Kmart pre-petition; and (iii) guaranteed
$79 of indebtedness of other parties related to certain of our leased properties
financed by industrial revenue bonds. Our rights and obligations with respect to
our guarantee of leases of the former subsidiaries The Sports Authority, Inc.,
Office Max, Inc., and Borders Group, Inc., which are detailed below, are
governed by Lease Guarantee, Indemnification and Reimbursement Agreements dated
as of November 23, 1994, November 9, 1994 and May 24, 1995, respectively, as
they may be amended from time to time. Kmart's contingent obligations, described
above, which are not reflected in our financial statements, are dependent on the
future performance by the parties whose obligations we guarantee and are subject
to settlement under a plan of reorganization to be voted upon by creditors and
equity holders and approved by the Court.


                                       34

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)



         As of May 1, 2002, our outstanding guarantees for real property leases
of The Sports Authority, Inc., Office Max, Inc., and Borders Group, Inc. were as
follows:

<TABLE>
<CAPTION>
                                            Present Value of
                                              Future Lease           Gross Future
                                            Obligations @ 7%       Lease Obligations
                                        ---------------------    ---------------------

<S>                                           <C>                   <C>
The Sports Authority, Inc.                      $   180              $   305
Borders Group, Inc.                                  87                  147
OfficeMax, Inc.                                      64                   94
                                               ---------            ---------

Total                                           $   331              $   546
                                               =========            =========
</TABLE>




Key Brand Partners

         On March 20, 2002, the Court authorized our business relationships with
several key brand partners. Motions were approved allowing Kmart to assume our
license agreements with Martha Stewart Living Omnimedia, Inc. for Martha Stewart
Everyday home, garden, colors, baby, kitchen, keeping and decorating products,
along with candles and accessories; Jaclyn Smith G.H. Production, Inc. for
Jaclyn Smith women's apparel, jewelry and accessories; Kathy Ireland World Wide,
Inc. for Kathy Ireland women's apparel, accessories and exercise equipment;
Disney Enterprises, Inc. for Disney apparel for infants and children; and Joe
Boxer Licensing, LLC. for JOE BOXER apparel, accessories and home furnishings.

         On May 29, 2002, the Court authorized our business relationship with
Sesame Workshop. Motions were approved allowing Kmart to assume our license
agreement with Sesame Workshop for Sesame Street toys and infants and children's
apparel.

         Our key brand partners will continue to be a key element in our
merchandising and marketing initiatives. As a result, decline in the demand for
our key brands or their failure to achieve or maintain broad market acceptance,
could have a material effect on our results of operations.

Penske

         On April 9, 2002, we reached an agreement with Penske Corporation,
Penske Auto Centers, Inc., and Penske Auto Centers, LLC (collectively "Penske")
whereby Penske and Kmart will work together to achieve an orderly wind-down of
operations at auto service centers at more than 563 Kmart stores in 44 states
following Penske's unilateral decision to close the business as of April 6,
2002. This matter did not have a material adverse affect on our liquidity,
financial position or results of operations for the 13 weeks ended May 1, 2002.



                                       35
<PAGE>



ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



         At May 1, 2002, 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 DIP
Credit Facility, which is a variable rate financing agreement. We do not use
swaps or other interest rate protection agreements to hedge this risk.

                                       36

<PAGE>



PART II. OTHER INFORMATION

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         As a result of its Chapter 11 filing, Kmart has not made principal or
interest payments on unsecured indebtedness incurred prior to January 22, 2002.
In addition, Kmart is not permitted to pay dividends on its trust convertible
preferred securities. The dividend arrearage on the trust convertible securities
from December 18, 2001 through May 1, 2002 is approximately $18.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

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

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

         Exhibit 99.2 - CFO 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 during the 13 weeks ended May 1, 2002:

         1.       March 11, 2002 - Press release dated March 8, 2002, announcing
                  the closure of 284 under-performing stores, and the press
                  release dated March 11, 2002, announcing the appointments and
                  promotions of senior officers.

         2.       March 29, 2002 - Monthly Operating Report for the period from
                  January 22, 2002 to February 27, 2002, as filed with the
                  Bankruptcy Court.

         3.       April 22, 2002 - Monthly Operating Report for the period from
                  February 28, 2002 to March 27, 2002, as filed with the
                  Bankruptcy Court.


                                       37



<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:                 January 14, 2003
                                                 Kmart Corporation
                                  ----------------------------------------------
                                                   (Registrant)



                          By:              /s/ James B. Adamson
                                  ----------------------------------------------
                                               James B. Adamson
                                        CHAIRMAN OF THE BOARD AND CHIEF
                                               EXECUTIVE OFFICER
                                         (Principal Executive Officer)

                                              /s/ A. A. Koch
                                  ----------------------------------------------
                                                  A. A. Koch
                                            CHIEF FINANCIAL OFFICER
                                         (Principal Financial Officer)

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




                                       38



<PAGE>



                                 CERTIFICATIONS

CEO Certification

I, James B. Adamson, certify that:

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

     3. Based on my knowledge, the financial statements, and other financial
        information included in this quarterly report, fairly present in all
        material respects the financial condition, results of operations and
        cash flows of the registrant as of, and for, the periods presented in
        this quarterly report.

     Date: January 14, 2003

/s/ James B. Adamson
-------------------------
James B. Adamson
Chairman of the Board and
Chief Executive Officer


                                       39

<PAGE>




CFO Certification

I, Albert A. Koch, certify that:

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

      3. Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this quarterly report.

      Date: January 14, 2003


/s/ Albert A. Koch
--------------------------
Albert A. Koch
Chief Financial Officer



                                       40

<PAGE>



                                 EXHIBIT INDEX


EXHIBIT
  NO.                          DESCRIPTION


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

 99.2                CFO Certification pursuant to Section 906 of the
                     Sarbanes-Oxley Act of 2002.