During the first quarter of fiscal 2002, Kmart recorded a charge of $758 million to write-down inventory in the 283 stores that were closed in May and June, and inventory transferred from the remaining stores to the closing stores. Of this charge, $384 million relates to the write-down of inventory at the closed stores to estimated selling value. Another $266 million relates to the write-down of inventory that was transferred from other Kmart stores to the closed stores and included in the liquidation sales. The remaining $108 million of the charge related to liquidation fees and expenses associated with the store closing sales.

Kmart recorded a total charge of $265 million for reorganization items in the first quarter of 2002, including a store-closing charge of $233 million for lease terminations and other costs associated with the 283 closed stores.

KMART CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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KMART CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

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KMART CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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Kmart Corporation is a $36 billion company that serves America with more than 1,800 Kmart and Kmart SuperCenter retail outlets and through its e-commerce shopping site, www.bluelight.com .

Cautionary Statement Regarding Forward-looking Information

The foregoing, as well as other statements made by Kmart, may include 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 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,
• changes in consumer spending and our ability to anticipate buying patterns and implement appropriate inventory strategies,
• competitive pressures and other third party actions,
• ability to timely acquire desired goods and/or fulfill labor needs at planned costs,
• 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,

• 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 prosecuted by it from time to time,
• our ability to develop, prosecute, 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 obtain and maintain normal terms with vendors and service providers,
• our ability to maintain contracts that are critical to our operations,
• the potential adverse impact of the Chapter 11 cases on our liquidity or results of operations, 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.

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 value for their interests. Because of such possibilities, the value of the common stock is highly speculative. Accordingly, we urge that appropriate caution be exercised with respect to existing and future investments in any of these liabilities and/or securities.

Other risk factors are listed from time to time in the Company's SEC reports, including, but not limited to the annual report on Form 10-K for the year ended January 30, 2002. The forward-looking statements contained herein or otherwise that we make or are made in 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.