<PAGE>

                                   Form 10-Q

                      SECURITIES AND EXCHANGE COMMISSION


                            Washington, D.C. 20549


  (Mark One)
         [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR
                  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.


                  For the quarterly period ended November 23, 1996.


                                      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 number 1-9637.



                          LILLIAN VERNON CORPORATION
-------------------------------------------------------------------------------
            (Exact Name of Registrant as Specified in its Charter)

        Delaware                                   13-2529859
-------------------------------------------------------------------------------
(State or other jurisdiction              (IRS Employer Identification Number)
 of incorporation or organization)

                 543 Main Street, New Rochelle, New York 10801
-------------------------------------------------------------------------------
              (Address of principal executive offices) (Zip Code)

                                 914-576-6400
-------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)

                                      N/A
-------------------------------------------------------------------------------
            (Former name, former address and former fiscal year, if
                          changed since last report)

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 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


Number of shares outstanding of each of the issuer's classes of common stock:


9,618,662 Shares of Common Stock, $.01 par value, as of January 3, 1997.






<PAGE>



                           LILLIAN VERNON CORPORATION


                                   Form 10-Q

                               November 23, 1996



Part I. Financial Information                                        Page #
-----------------------------                                        ------
      Item 1.
      Consolidated Balance Sheets as of
      November 23, 1996, November 25, 1995
      (unaudited) and February 24, 1996
      (audited)                                                       3

      Consolidated Statements of Income 
      for the quarter and nine months ended
      November 23, 1996 and November 25, 1995
      (unaudited)                                                     4

      Consolidated Statements of 
      Cash Flows for the nine months ended 
      November 23, 1996 and November 25, 1995
      (unaudited)                                                     5

      Notes to Consolidated Financial
      Statements                                                      6-7

      Item 2.
      Management's Discussion and Analysis
      of Financial Condition and Results
      of Operations                                                   8-9


Part II. Other Information                                            10
--------------------------                                            

Signatures                                                            11

Exhibits                                                              12






                                  Page 2 of 12


<PAGE>



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

                  LILLIAN VERNON CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                         November 23,      November 25,    February 24,
                                                                            1996               1995            1996
                                                                         ------------     -------------    -----------
                                                                                 (Unaudited)                 (Audited)
<S>                                                                      <C>              <C>                <C>
                                   ASSETS
Current assets:
    Cash and cash equivalents                                             $   3,443         $   8,939         $  25,771
    Accounts receivable                                                      32,522            33,039            21,435
    Merchandise inventories                                                  44,888            43,142            30,948
    Deferred income taxes                                                      --                --                 923
    Prepayments and other current assets                                     11,121            16,424            14,231
                                                                          ---------         ---------         ---------
         Total current assets                                                91,974           101,544            93,308

Property, plant and equipment, net (Note 1)                                  40,847            29,530            33,624
Deferred catalog costs                                                       19,196            18,163             6,506
Other assets                                                                  2,374             3,131             2,947
                                                                          ---------         ---------         ---------
         Total                                                            $ 154,391         $ 152,368         $ 136,385
                                                                          ---------         ---------         ---------


            LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Trade accounts payable and accrued expenses                           $  30,204         $  24,362         $  12,115
    Customer deposits                                                         1,641             1,993               128
    Current portion of long-term debt and lease obligations                   1,480             1,443             1,452
    Revolving debt (Note 2)                                                    --                --                --
    Income taxes payable                                                       --                --               2,892
    Deferred income taxes                                                     2,795             3,027              --
                                                                          ---------         ---------         ---------
         Total current liabilities                                           36,120            30,825            16,587

Long-term debt, less current portion                                          1,271             2,546             2,544
Capital lease obligations, less current portion                                 182               386               339
Deferred compensation                                                         3,400             3,092             3,099
Deferred income taxes                                                           393               714               623
                                                                          ---------         ---------         ---------
         Total liabilities                                                   41,366            37,563            23,192
                                                                          ---------         ---------         ---------


Stockholders' equity:
    Preferred stock, $.01 par value; 2,000,000 shares
         authorized; no shares issued and outstanding                          --                --                --
    Common stock, $.01 par value; 20,000,000 shares
         authorized; issued - 10,361,401 shares, 9,976,537 shares
         and 9,993,643 shares                                                   104               100               100
    Additional paid-in capital                                               30,764            26,816            27,026
    Retained earnings                                                        92,827            91,980            91,923
    Unearned compensation                                                      (127)             --                --
    Treasury stock, at cost -714,658 shares, 233,099 shares
         and 359,999 shares                                                 (10,543)           (4,091)           (5,856)
                                                                          ---------         ---------         ---------
         Total stockholders' equity                                         113,025           114,805           113,193
                                                                          ---------         ---------         ---------
         Total                                                            $ 154,391         $ 152,368         $ 136,385
                                                                          ---------         ---------         ---------

                                            See Notes to Consolidated Financial Statements

                                                             Page 3 of 12
</TABLE>


<PAGE>

                  LILLIAN VERNON CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
                    (In thousands, except per share amounts)
                                  (Unaudited)


<TABLE>
<CAPTION>

                                                            Third Quarter Ended                   Nine Months Ended
                                                      --------------------------------      ---------------------------------
                                                      November 23,        November 25,       November 23,        November 25,
                                                         1996                 1995              1996                1995
                                                      ------------        ------------       ------------        ------------
<S>                                                    <C>                 <C>                <C>                <C>         
Revenues                                               $ 100,343           $  97,450          $ 159,626          $ 163,984   
                                                                                                                             
Costs and expenses:                                                                                                          
    Product and delivery costs                            42,039              41,659             72,457             73,645   
    Selling, general and administrative expenses          44,984              43,159             82,582             82,315   
    Merger - related expenses (Note 3)                      --                  --                 --                  950   
                                                       ---------           ---------          ---------          ---------   
                                                          87,023              84,818            155,039            156,910   
                                                       ---------           ---------          ---------          ---------   
        Operating income                                  13,320              12,632              4,587              7,074   
Interest income                                                4                 109                418                997   
Interest expense                                            (265)               (165)              (492)              (455)  
                                                       ---------           ---------          ---------          ---------   
        Income before income taxes                        13,059              12,576              4,513              7,616   
                                                                                                                             
Provision for (benefit from) income taxes:                                                                                   
    Current                                                3,121               3,195             (1,929)              (662)  
    Deferred                                               1,261                 955              3,491              3,175   
                                                       ---------           ---------          ---------          ---------   
                                                           4,382               4,150              1,562              2,513   
                                                                                                                             
        Net income                                     $   8,677           $   8,426          $   2,951          $   5,103   
                                                       ---------           ---------          ---------          ---------   
                                                                                                                             
                                                                                                                             
Net income per common share outstanding                $     .90           $     .86          $     .31          $     .52   
                                                       ---------           ---------          ---------          ---------   
                                                                                                                             
                                                                                                                             
Weighted average number of shares outstanding              9,666               9,749              9,670              9,721   
                                                                                                                             

                                                See Notes to Consolidated Financial Statements

                                                             Page 4 of 12
</TABLE>



<PAGE>

                  LILLIAN VERNON CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                          Nine  Months  Ended
                                                                                  -------------------------------------
                                                                                   November 23,           November 25,
                                                                                       1996                   1995
                                                                                  --------------          -------------
                                                                                               (Unaudited)
<S>                                                                              <C>                       <C>
Cash flows from operating activities:
    Net income                                                                           $2,951                 $5,103  
    Adjustments to reconcile net income to net cash provided by                                                         
        (used in) operating activities:                                                                                 
        Depreciation                                                                      2,802                  2,413  
        Amortization                                                                        341                    285  
        (Increase) decrease in accounts receivable                                      (11,087)               (11,557) 
        (Increase) decrease in merchandise inventories                                  (13,940)               (12,724) 
        (Increase) decrease in prepayments and other current assets                       3,110                 (8,929) 
        (Increase) decrease in deferred catalog costs                                   (12,690)               (11,531) 
        (Increase) decrease in other assets                                                (201)                  (370) 
        Increase (decrease) in trade accounts payable and accrued expenses               18,089                 10,306  
        Increase (decrease) in customer deposits                                          1,513                  1,608  
        Increase (decrease) in income taxes payable                                      (2,892)                (3,576) 
        Increase (decrease) in deferred compensation                                        301                    179  
        Increase (decrease) in deferred income taxes                                      3,488                  3,176  
                                                                                  --------------            ----------- 
             Net cash used in operating activities                                       (8,215)               (25,617) 
                                                                                  --------------            ----------- 
                                                                                                                        
Cash flows from investing activities:                                                                                   
    Purchases of property, plant and equipment                                           (9,522)                (2,356) 
                                                                                  --------------            ----------- 
             Net cash used in investing activities                                       (9,522)                (2,356) 
                                                                                  --------------            ----------- 
                                                                                                                        
Cash flows from financing activities:                                                                                   
    Principal payments on long-term debt and capital lease obligations                   (1,402)                (1,380) 
    Proceeds from issuance of common stock                                                1,057                  1,381  
    Proceeds from short term borrowings                                                  12,500                     --  
    Repayment of short term borrowings                                                  (12,500)                    --  
    Dividends paid                                                                       (2,048)                (2,044) 
    Payments to acquire treasury stock                                                   (2,855)                   (77) 
    Other                                                                                   657                    253  
                                                                                  --------------            ----------- 
             Net cash used in financing activities                                       (4,591)                (1,867) 
                                                                                  --------------            ----------- 
                                                                                                                        
             Net decrease in cash and cash equivalents                                  (22,328)               (29,840) 
                                                                                  --------------            ----------- 
                                                                                                                        
Cash and cash equivalents at beginning of period                                         25,771                 38,779  
                                                                                  --------------            ----------- 
Cash and cash equivalents at end of period                                               $3,443                 $8,939  
                                                                                  --------------            ----------- 
                                                                                                                        
                                                                                                                        
Supplemental disclosures of cash flow information:                                                                      
    Cash paid during the period for:                                                                                    
        Interest                                                                           $563                   $571  
        Income taxes                                                                      3,129                  3,920
Supplemental disclosure of noncash financing activities--See Note 4

                                            See Notes to Consolidated Financial Statements

                                                          Page  5  of  12

</TABLE>



<PAGE>


                  LILLIAN VERNON CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. The year-end condensed balance sheet data was derived
from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. The interim financial
statements furnished with this report reflect all adjustments, consisting only
of items of a normal recurring nature, (except for the provision for merger
costs described in note 3), which are, in the opinion of management, necessary
for the fair statement of the consolidated financial condition and consolidated
results of operations for the interim periods presented. It is suggested that
these financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended February 24, 1996.


1. PROPERTY, PLANT AND EQUIPMENT

   Property, plant and equipment are summarized as follows (in thousands):

<TABLE>
<CAPTION>

                                     November 23,  November 25,   February 24,
                                         1996          1995          1996
                                     ------------  ------------   ------------
<S>                                     <C>          <C>          <C>
   Land and buildings                   $31,454      $21,140      $25,578
   Machinery and equipment               25,978       22,801       21,894
   Furniture and fixtures                 3,310        3,158        3,240
   Leasehold improvements                 3,772        3,690        3,777
   Capital leases                         1,262        1,262        1,262 
                                        -------      -------      --------
    Total property, plant &
     equipment, at cost                  65,776       52,051       55,751

    Less, accumulated depreciation
      and amortization                   24,929       22,521       22,127
                                        -------      -------      --------
   Property, plant and equipment - net  $40,847      $29,530      $33,624
                                        -------      -------      --------
</TABLE>

2. CREDIT FACILITY

On August 19, 1996, the Company entered into a $42 million four-year revolving
credit facility with Chase Manhattan Bank and NationsBank, which can be used
for general corporate purposes, including working capital needs, the expansion
of the National Distribution Center and up to $12 million of inventory letters
of credit. At the Company's option, up to $20 million of the facility can be
converted into term loans, with maturity dates no later than 2003. Interest is
payable at LIBOR plus 50 basis points, prime rate, bankers' acceptance rate
plus 50 basis points, or a fixed rate, at the Company's option. The credit
facility is unsecured, and the Company is subject to various financial
covenants principally relating to its working capital, net worth, interest
coverage ratio and capital spending restrictions. The credit facility replaced
previously existing credit facilities. Commitment fees range from 5 basis
points annually on the letters of credit to 20 basis points annually on the
available revolving credit line.

Through the third quarter of fiscal 1997, the Company had borrowed up to $12.5
million under the revolving credit facility, but as of November 23, 1996, had
repaid all of these borrowings. Interest was payable at a weighted average
interest rate of approximately 5.8%. There were approximately $5.9 million of
letters of credit outstanding as of November 23, 1996.


                                  Page 6 of 12


<PAGE>



3.TERMINATED MERGER AGREEMENT

On June 13, 1995, the Company entered into a Merger Agreement with an affiliate
of Freeman Spogli & Co. Incorporated, under which the Company would have been
recapitalized. The Merger Agreement was terminated on September 18, 1995 when
it was determined that financing for the transaction could not be obtained. A
provision for the costs of the terminated merger of $950,000 was recorded in
the financial statements for the period ended November 25, 1995. These costs
consisted principally of legal, accounting and filing fees.

4. NONCASH FINANCING ACTIVITIES

On May 25, 1996, non-qualified stock options aggregating 180,000 shares were
exercised by one of the Company's Officers, with a total exercise price of
$1,440,000. As consideration for the exercise price and for income taxes
required to be withheld, the Company received an aggregate of 133,759 shares
of Lillian Vernon Common Stock, which are reported as Treasury Stock on the
balance sheet. The number of shares was determined by the market price of the
Company's common stock on the exercise date.

5. RECLASSIFICATIONS

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










                                  Page 7 of 12

<PAGE>

ITEM 2.
-------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------

Results of Operations
---------------------
Quarter Ended November 23, 1996
-------------------------------
Revenues for the quarter ended November 23, 1996 were $100.3 million, an
increase of $2.9 million, or 3.0%, over the quarter ended November 25, 1995.
The increase in revenues was primarily attributable to approximately 3% higher
average revenue per order.

Product and delivery costs increased $.4 million, or 1.0%, in the quarter
ended November 23, 1996, as compared to the third quarter of the prior year.
These costs comprised a lower percentage of revenues, 41.9% in the quarter
ended November 23, 1996, as compared to 42.7% in the quarter ended November
25, 1995. The main reason was because product profit margin improved, mostly
because of less inventory liquidation.

Selling, general and administrative (SG&A) expenses, the largest component of
which is the cost of producing, printing and distributing the Company's
catalogs, increased $1.8 million, or 4.2%, in part because catalog circulation
was approximately 4% higher. In addition, other SG&A costs rose, particularly
to support the Company's specialty catalogs and to develop new business
strategies such as the Frequent Buyers' Club and the Japanese catalog mailing.
As a percentage of revenues, SG&A costs increased from 44.3% in the quarter
ended November 25, 1995 to 44.8% in the quarter ended November 23, 1996.

When prices were higher than current prices, the Company had purchased paper
in advance of its needs to ensure an adequate supply. As a result, during the
third quarter, it still had an inventory of higher-priced paper for its core
catalogs, which is not expected to be substantially utilized until the end of
the current fiscal year. The Company has also bought paper at the lower
current market prices, mostly for its specialty catalogs, and the third
quarter has begun to reflect these lower paper costs. For the third quarter,
the average cost of paper (per ton) used in the Company's catalogs was about
8% lower than last year.

Interest income for the quarter ended November 23, 1996 decreased $.1 million,
and interest expense rose $.1 million as compared to the same period last
year. This year, the Company did not have excess funds invested during the
third quarter, and instead, borrowed under its revolving credit facility.

The effective income tax rate was 33.6% for the quarter ended November 23,
1996 and 33% for the quarter ended November 25, 1995.

Nine Months Ended November 23, 1996
-----------------------------------
Revenues for the nine months ended November 23, 1996 were $159.6 million, a
decrease of $4.4 million, or 2.7%, lower than the corresponding period of the
prior year. The decline in revenues was primarily attributable to the
Company's strategic decision to reduce catalog circulation due to higher paper
prices in the first half of the fiscal year, and raise circulation in the
second half, its most important selling season. For the current nine-month
period, circulation was approximately 5% lower than the same period last year.
Average revenue per order increased 5% for the nine months ended November 23,
1996, while the volume of orders shipped declined about 7% as compared to the
corresponding nine month period last year.

Product and delivery costs declined $1.2 million, or 1.6%, for the nine months
ended November 23, 1996 because of the lower sales volume. These costs rose as
a percentage of revenues from 44.9% in the prior nine month period to 45.4% in
the current period. Although product profit margin improved principally
because of less inventory liquidation, the other elements of product and
delivery costs rose, particularly depreciation associated with the recent
expansion of the Company's National Distribution Center. Shipping and handling
revenue, which






                                  Page 8 of 12





<PAGE>



offsets product and delivery costs in the financial statements, was reduced by
certain promotions the Company ran this year, also contributing to higher net
product and delivery costs.

Selling, general and administrative (SG&A) expenses increased $.3 million, or
0.3%, for the nine months ended November 23, 1996, as compared to the
corresponding period of the prior year. As a percentage of revenues, SG&A
costs increased from 50.2% for the nine months ended November 25, 1995 to
51.7% for the current nine month period. Even though average revenue per
catalog rose by approximately 3% for the current nine-month period, higher
paper prices for the Company's catalogs, and a rise in the other elements of
SG&A expenses, particularly to support the Company's specialty catalogs and to
develop new business strategies, caused the amount and ratio of SG&A costs as
a percentage of revenues to increase.

The results for the nine month period ended November 25, 1995 reflect a
non-recurring provision of $950,000 for costs of the Company's terminated
merger with Freeman Spogli & Co. Incorporated. These costs consisted
principally of legal, accounting and filing fees.

Interest income for the current nine month period decreased $.6 million from
the corresponding period last year, due to a lower average investment balance.
Interest expense for the nine months ended November 23, 1996 was approximately
equal to the same period of the prior year. A reduction of interest expense
caused by the repayment of long-term debt was offset by additional interest
expense on borrowings under the Company's revolving credit facility in the
third quarter.

The effective income tax rate for the nine months ended November 23, 1996 was
34.6%, as compared to 33.0% for the corresponding period last year.

Financial Condition
-------------------
The Company's working capital ratio at November 23, 1996 was 2.55 to 1 as
compared to 5.63 to 1 at February 24, 1996 and 3.29 to 1 at November 25, 1995.
The Company's working capital needs have been met with funds generated from
operations, and from drawdowns against its revolving credit facility.

During the nine months ended November 23, 1996, the Company used less funds
for working capital needs than in the corresponding period last year, mostly
because of less advance purchases of paper for its catalogs. The Company
expended capital of approximately $9.5 million during the first nine months of
fiscal 1997, primarily to expand its National Distribution Center by an
additional 335,000 square feet, and to enhance its order processing system.
The expansion project was completed on time and on budget, and was fully
operational in early September 1996.

On August 19, 1996, the Company entered into a $42 million four-year revolving
credit facility with Chase Manhattan Bank and NationsBank. The funds drawn
down under the revolver can be used for general corporate purposes, including
working capital needs, capital spending, and up to $12 million of inventory
letters of credit. At the Company's option, up to $20 million can be converted
into term loans, with maturity dates no later than 2003. Interest is payable
at LIBOR plus 50 basis points, prime rate, bankers' acceptance rate plus 50
basis points, or a fixed rate, at the Company's option. The credit facility is
unsecured, and the Company is subject to various financial covenants
principally relating to its working capital, net worth, interest coverage
ratio, and capital spending restrictions. The credit facility replaced
previously existing credit lines. Through the third quarter of fiscal 1997,
the Company had borrowed up to $12.5 million under the revolving credit
agreement, but as of the end of the quarter, had repaid all of these
borrowings. There were approximately $5.9 million of letters of credit
outstanding as of November 23, 1996.

During the nine months ended November 23, 1996, the Company continued its open
market stock repurchase program, and acquired 220,900 shares of its common
stock for approximately $2.9 million. As of November 23, 1996, the Company had
acquired a total of 353,200 shares since the repurchase plan was authorized on
October 10, 1995.







                                  Page 9 of 12




<PAGE>



PART II.


                               OTHER INFORMATION


Items 1, 2, 3, 4, and 5 are not applicable and have been omitted.



Item 6.  Exhibits and Reports on Form 8-K

Exhibit 11:       Computation of Earnings per Share Assuming Primary and
                  Full Dilution

Reports on Form 8-K:                None
















                                 Page 10 of 12


<PAGE>




                                   SIGNATURES



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



                                           Lillian Vernon Corporation
                                           --------------------------
                                                   (Registrant)





Date:  January 6, 1997                      By:
       ---------------                         ------------------------
                                               Robert S. Mednick
                                               Vice President,
                                               Chief Financial Officer





                                 Page 11 of 12