<PAGE>
 
________________________________________________________________________________



                      SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D.C. 20549-1004

                             _____________________

                                   FORM 10-K
                                        
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

          For the 52-Week Period Ended                 Commission file number
                January 2, 1999                             No. 0-17540

                             _____________________

                         MONTGOMERY WARD HOLDING CORP.
            (Exact name of Registrant as specified in its charter)

               DELAWARE                                        36-3571585
     (State or other jurisdiction                           (I.R.S. Employer
     of incorporation or organization)                     Identification No.)

          MONTGOMERY WARD PLAZA,                             60671-0042
          CHICAGO, ILLINOIS                                  (Zip code)
     (Address of principal executive offices)

      Registrant's telephone number, including area code:  (312) 467-2000

                             _____________________

          Securities registered pursuant to Section 12(b) of the Act:

          Title of each class          Name of each exchange on which registered
          -------------------          -----------------------------------------
             Not Applicable                            None

          Securities registered pursuant to Section 12(g) of the Act:

                Class A Common Stock, Series 1, $.01 Par Value
                               (Title of class)
                Class A Common Stock, Series 2, $.01 Par Value
                               (Title of class)
                     Class B Common Stock, $.01 Par Value
                               (Title of class)

     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 ___.
                                                       ---          

     At April 2, 1999, there were 18,322,152 shares of Class A Common Stock and
     25,000,000 shares of Class B Common Stock of the Registrant outstanding.

________________________________________________________________________________
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ITEM 1.   BUSINESS

Forward-Looking Statements

     Information included in this Report on Form 10-K may constitute forward-
     looking statements that involve a number of risks and uncertainties. From
     time to time, information provided by the Company or statements made by its
     employees may contain other forward-looking statements. Factors that could
     cause actual results to differ materially from the forward-looking
     statements include but are not limited to: Bankruptcy Court actions or
     proceedings related to the bankruptcy, general economic conditions
     including inflation, consumer debt levels, trade restrictions and interest
     rate fluctuations; competitive factors including pricing pressures,
     technological developments and products offered by competitors; inventory
     risks due to changes in market demand or the Company's business strategies;
     and changes in effective tax rates.

     Readers are cautioned not to place undue reliance on these forward-looking
     statements, which speak only as of the date made. The Company undertakes no
     obligation to publicly update or revise any forward-looking statements,
     whether as a result of new information, future events or otherwise.

General

     Montgomery Ward Holding Corp., a Delaware corporation ("the Company" or "MW
     Holding"), and its wholly-owned subsidiary, Montgomery Ward & Co.,
     Incorporated ("Wards"), are engaged in retail merchandising in the United
     States. Signature Financial/Marketing, Inc. ("Signature"), a wholly-owned
     subsidiary of Wards, is engaged in direct marketing in the United States.
     On February 1, 1999, Wards announced its intention to sell Signature to
     General Electric Capital Corporation ("GE Capital") (see Business -
     Signature).

     Founded in 1872 and incorporated in Illinois in 1968, Wards is one of the
     nation's largest retail merchandising organizations. After the planned
     closing of 39 retail stores in early 1999, Wards will operate 252 retail
     stores in 32 states with approximately 20 million square feet of selling
     space. In addition, Wards operates six outlet and liquidation centers, 16
     distribution facilities and 51 product service centers.

Chapter 11 Filing

     On July 7, 1997 (the "Petition Date"), MW Holding and certain of its U.S.
     subsidiaries filed petitions for reorganization under Chapter 11 of the
     Bankruptcy Code in the United States Bankruptcy Court for the District of
     Delaware (the "Bankruptcy Court"). These related proceedings are being
     jointly administered under the caption "In re Montgomery Ward Holding
     Corp., a Delaware corporation, et. al.", Case No. 97-1409 (PJW), pursuant
     to an order of the Bankruptcy Court. The following U.S. subsidiaries were
     not included in the bankruptcy filings: Signature and its direct and
     indirect subsidiaries; Marinco Insurance U.S.A., Inc. ("Marinco"); and
     Montgomery Ward Foundation.

     After a long period of negotiation, Wards was unable to reach an out-of-
     court settlement with its lenders. Accordingly, bankruptcy petitions were
     filed in order to obtain an opportunity to reorganize and begin
     implementing the Company's strategies while working to restructure its
     indebtedness. Pursuant to the Post-Petition Loan and Guaranty Agreement
     dated July 8, 1997, among Wards and Lechmere, Inc. ("Lechmere"), as
     borrowers; MW Holding and other debtor subsidiaries of MW Holding, as
     guarantors; GE Capital, as agent and lender; and various lenders, as
     amended (the "DIP Facility"), the lenders have agreed to provide up to $1
     billion in post-petition financing to Wards.

                                       1
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ITEM 1.   BUSINESS (CONTINUED)

Chapter 11 Filing (continued)

     As a result of the Chapter 11 filings, absent approval of the Bankruptcy
     Court, the Company is prohibited from paying, and creditors are prohibited
     from attempting to collect, claims or debts arising prior to the Petition
     Date.

     On February 1, 1999, the Company announced its intention to emerge from
     Chapter 11 bankruptcy protection in mid-1999. The Company will file its
     plan of reorganization and disclosure statement with the Bankruptcy Court
     shortly. The plan of reorganization will set forth the means for satisfying
     claims and interests in the Company and its debtor subsidiaries, including
     the Liabilities subject to compromise. Under the reorganization plan, when
     filed, secured and non-tax priority claimholders will generally receive
     cash equal to the amount of their allowed claim. Claims held by unsecured
     creditors and certain allowed vendor claims held by GE Capital will be
     satisfied by cash distributions for a portion of the allowed claims. GE
     Capital will receive a significant equity interest in the Company in
     exchange for its remaining claims. The Company intends to fund its
     distributions under the plan of reorganization principally through funds
     placed in escrow by GE Capital and through the termination of its over-
     funded defined benefit pension plan. The Company expects to repay GE for
     the funds placed in escrow by GE with the proceeds from the sale of
     Signature (see Business - Signature). The consummation of a plan of
     reorganization for the Company and its debtor subsidiaries will require the
     requisite vote of impaired creditors and stockholders and confirmation by
     the Bankruptcy Court, which is expected to be completed by the Summer of
     1999.

Merchandising

     The major product offerings by the Company are apparel, furniture and home
     furnishings, appliances and electronics, fine jewelry, and automotive,
     including service.

     The apparel offering includes branded, value-oriented merchandise in
     women's, men's, children's and intimate apparel as well as footwear and
     accessories. The apparel brand and price point offering is targeted at the
     large middle market between department stores and discounters. An offering
     of prominent name brands has been built, including Lee, Playtex, Bugle Boy,
     Bestform, Converse, Gloria Vanderbilt, Hanes, New Balance, LEI, Zana-Di,
     Munsingwear, Starter, Tan-jay, Teddy, Wilson and others. In addition, the
     Company has developed licensed and proprietary brands for certain product
     categories, such as Ship 'N Shore in women's apparel and BIKE in men's and
     children's activewear.

     Furniture and home furnishings include broad selections emphasizing
     furniture, textiles and housewares. Furniture includes name brand
     offerings, such as Broyhill, Bassett and La-Z-Boy, displayed in
     accessorized room groupings to provide customers shopping and decorating
     convenience. Furniture also includes a wide selection of mattresses from
     prominent name brands such as Sealy, Serta, Simmons and Stearns and Foster.

     The Company offers combined consumer electronics and appliance product
     categories, including video, audio, telephones, electronic games and
     kitchen, laundry and other major appliances. The product offering includes
     significant national brands including, but not limited to, Sony and
     Panasonic in electronics and Maytag, Whirlpool and General Electric in
     appliances.

                                       2
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ITEM 1.   BUSINESS (CONTINUED)

Merchandising (continued)

     Fine jewelry offers all major merchandise categories: diamonds, gemstones,
     gold and watches. Wards has become one of the largest jewelry retailers in
     the country, and its major vendor relationships enable it to offer highly
     featured products at outstanding prices.

     Automotive focuses on the sale and installation of tires, batteries, brakes
     and shocks. Wards is one of the leading retailers of branded tires,
     including Goodyear, Firestone, Bridgestone and General.

     Wards' retail business is seasonal, with approximately one-third of sales
     occurring in the fourth quarter. The results of Wards' operations are also
     subject to changes in consumer demand associated with general economic
     conditions, which is especially true with respect to demand for durable
     goods and other "big ticket" merchandise. Wards' retail operations are
     supported by its corporate buying division which has its principal office
     in Chicago, and includes foreign purchasing offices in Hong Kong, Taiwan,
     Japan, and Korea.

Performance Initiatives

Facility Closings and Divestitures

     In 1997, management undertook a review of the retail operations of Wards,
     and determined that the number of different retail formats then in
     operation resulted in a lack of focus on Wards' core business. In August
     1997, Wards announced its exit of its non-core specialty retail 
     businesses - Lechmere, Home Image by Lechmere and Electric Avenue & More.
     Management also reviewed the performance of retail stores operating under
     the core retail format and closed 53 underperforming retail stores and four
     outlet and liquidation centers in 1997, and nine underperforming retail
     stores in 1998. In 1999, Wards will complete the closing of 39
     underperforming retail stores. In addition, sales of automotive products
     and services were discontinued in 17 operating retail stores in January
     1999. The financial performance of the remaining retail stores will be
     reviewed on a continuing basis and additional stores may be closed, if such
     closures are warranted.

Other Divestitures

     In December 1997, the Bankruptcy Court approved the disposition of Wards'
     investment in the common stock and warrants to purchase common stock of
     ValueVision International, Inc. ("ValueVision"). In addition, the
     agreements relating to ValueVision's sales promotion rights with regard to
     the Wards credit cardholder file were restructured. Under the restructured
     agreements, Wards' obligation to purchase advertising from ValueVision was
     significantly reduced. Additionally, ValueVision and its affiliates agreed
     to cease direct mail solicitations to its customers using the Wards
     servicemarks after March 31, 1998. ValueVision may continue to use the
     servicemark in connection with televised home shopping through July 31,
     2008. The transaction was consummated on January 15, 1998.

New Merchandising Strategy

     Middle-income females aged 30 to 55 with family incomes of $25,000 to
     $50,000 have been targeted as Wards' core fashion customer. Wards' core
     hardlines customer is defined more broadly, representing both males and
     females with higher income levels and wider age distributions than the core
     fashion customer.

     Management believes that these core customers share lifestyle
     characteristics and shopping preferences typical of today's time-pressed,
     value-conscious families with traditional/conservative values and fashion
     tastes.

                                       3
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ITEM 1.   BUSINESS (CONTINUED)

Performance Initiatives (continued)

New Merchandising Strategy (continued)

     Wards' strategic plan has been developed to focus its merchandise offering
     around categories of business that meet the needs of the targeted customer,
     as well as those categories that also offer opportunities to drive sales
     and gross margin rate improvements. Wards intends to leverage current areas
     of merchandising strength (major appliances, fine jewelry and furniture,
     for example) to drive near-term profit improvements and capture additional
     market share. Additionally, Wards has targeted certain categories,
     primarily family apparel, domestics, seasonal and home theater, as areas in
     which growth in terms of penetration and market position must be
     dramatically improved. Resources will be focused on developing "trend-
     right" assortments and substantially improving merchandising and marketing
     in these businesses. Finally, Wards will strive to improve the in-store
     execution of its important electronics, automotive and housewares
     businesses in order to maintain its market share, improve margins and
     achieve a service level comparable to its competitors.

     In September 1998, Wards introduced its new prototype store in Las Vegas,
     Nevada; Bloomingdale, Illinois; and Towson, Maryland. The prototype
     features a circular, racetrack design which creates a comfortable and
     aesthetically pleasing environment. It incorporates wide aisles, clear site
     lines and easy navigation providing customers with an efficient shopping
     experience while promoting cross-shopping and the total merchandising
     solutions offered by Wards. The prototype stores also incorporate bright
     lighting, warm colors, improved fixturing and display, expanded fitting
     rooms, increased customer service facilities, and clear, educational
     signage highlighting value, trend-right merchandise. These three stores
     have reflected sales increases over the prior year in excess of 40
     percentage points above the combined performance of the entire chain from
     September 1998 through February 1999. Wards is remodeling an additional 40
     stores in 1999 and anticipates remodeling a minimum of 40 stores in each of
     2000 and 2001.

Store Operations/Customer Service Strategy

     Wards continues to focus on improving the presentation of its retail stores
     and improving overall customer satisfaction. In addition to the remodeling
     of the three stores in 1998, Wards evaluated the appearance of all stores
     and cleaned, relamped and painted where necessary. In addition, new
     fixtures were added in several departments including apparel, shoes, fine
     jewelry, housewares and furniture. Store policies and procedures continued
     to be reviewed in order to redeploy time spent from non-service oriented
     tasks to customer-directed activities.

     A customer-service culture is being instilled in both corporate
     headquarters and store associates. As a first step, a Director of Customer
     Service was appointed in 1997. The primary focus of this position is to
     improve service and coordination at all levels of the organization. Also in
     1997, the "Kick It Up A Notch" program was initiated to reward store
     associates who provide exceptional customer service. In 1998, Wards has
     been closely monitoring customer satisfaction through independent surveys.
     Overall, Wards has experienced improvements during the year in ratings on
     merchandise availability, the friendliness, knowledge and availability of
     associates, wait time and accuracy of check-out, store appearance, the
     value of merchandise for price paid, and the recommendation of Wards to
     others.

                                       4
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ITEM 1.   BUSINESS (CONTINUED)

Performance Initiatives (continued)

Logistics Strategy

     Wards is continually reviewing its logistics network to better serve the
     retail stores at an optimal cost. Improved management of the flow of goods
     through the network is expected to result in improved product velocity and
     reduced inventory levels, while still maintaining an optimal in-stock level
     at the retail stores. A particular focus is improvement in the home
     delivery process, including the simplification of the current computer
     systems and implementation of an automated routing process. These changes
     are expected to allow a customer delivery to be scheduled for a more
     precise time window, thereby improving customer service while maximizing
     the productivity of routing staffs.

     In 1998, Wards closed distribution facilities in Grand Ledge, Michigan, and
     Pennsauken, New Jersey, and distribution facilities in Portland, Oregon and
     Phoenix, Arizona were converted to cross-dock facilities. In early 1999,
     Wards will close its distribution facility in Garden Grove, California and
     open a new distribution facility in Chino, California.

Systems Strategy

     In February 1999, Wards entered into a post-petition contract with Axciom
     Corporation ("Axciom") to outsource most of its information processing
     services. Wards management believes that the benefits of the outsourcing
     agreement include gaining the knowledge and economics of scale of Axciom,
     who is engaged in data processing and related activities as its core
     business; maintaining and improving service levels to Wards; and obtaining
     fixed pricing, to the extent possible, for information technology services.
     The transition of information technology services is anticipated to be
     completed by the Summer of 1999.

     Computerized information systems are currently under development that will
     support the merchandising, customer service and logistics strategies
     previously discussed. The systems under development are primarily focused
     on supply chain efficiencies (through the implementation of state-of-the-
     art buying and warehouse management systems) and customer service
     improvements (through the implementation of a new point of sale system and
     the enhancement of customer delivery systems). Additionally, a major
     initiative is underway to assure the ability of all continuing systems to
     process dates that occur in the next century.

     The Company began addressing Year 2000 date conversion issues in the fall
     of 1996 and has developed a plan to assess and remediate both information
     technology ("IT") and non-IT systems. The Company's plan consists of two
     phases. The assessment phase includes the inventory of all systems (IT and
     non-IT) subject to the Year 2000 issue and developing a plan for addressing
     the problem as related to each system. The remediation phase includes the
     implementation of the identified changes required and testing of these
     changes before implementation.

     For IT systems, the Company has completed its assessment phase and the
     remediation phase is 90% complete. The remainder of the remediation phase
     is expected to be completed in the first half of 1999. For non-IT systems,
     the Company anticipates the assessment phase to be completed in early 1999
     and the remediation phase to be completed by September 30, 1999. The
     Company is also in the process of assessing the Year 2000 readiness of its
     suppliers and service providers and is participating in a National Retail
     Federation survey of such providers.

                                       5
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ITEM 1.   BUSINESS (CONTINUED)

Performance Initiatives (continued)

Systems Strategy (continued)

     In 1998, the Company expensed $22 million related to Year 2000 readiness.
     Prior to 1998, the Company expensed $12 million. The Company estimates an
     additional $3 million will be expensed as incurred to become Year 2000
     ready. In addition, the Year 2000 issue has accelerated the timing of an
     estimated $26 million of capital expenditures of which $17 million has been
     capitalized as of January 2, 1999. No significant capital projects have
     been delayed as a result of addressing the Year 2000 issue. Based on the
     Company's plan, the remaining costs to be expended to become Year 2000
     ready are not expected to materially impact future cash flows.

     The Company believes that its program will result in Year 2000 readiness.
     However, due to the complexity of the issue, there can be no assurances
     given that the Company's plan will be fully effective. The Company could
     experience interruptions of business at some of its operations, including
     those caused by, but not limited to, the inability of utility companies to
     provide telecommunications and electrical services, the failure of
     financial institutions to process transactions, and the inability of
     vendors to deliver products on a timely basis. The Company is in the
     process of developing contingency plans which are anticipated to be
     completed by September 30, 1999, with respect to the Company's facilities
     and merchandise supply and distribution networks.

Signature

     On February 1, 1999, Wards announced its intention to sell Signature to GE
     Capital. The sale is expected to close in the second half of 1999 after the
     receipt of all required insurance regulatory approvals. Subsequent to the
     sale, Wards will continue to receive a marketing fee for allowing Signature
     to market its credit cardholder file.

     The Signature Group, headquartered in Schaumburg, Illinois, is a leading
     provider of fee-based membership services offered to consumers through
     direct response marketing. Signature provides consumers with a broad range
     of continuity club products including credit card registration, auto,
     dental and legal services as well as insurance products, including credit
     insurance and various supplemental life and health insurance policies.
     Signature's products typically are sold through affiliations with major
     bank, oil or retail credit cards, including the Wards proprietary credit
     card. Signature's clients include seven of the top 10 issuers of bank
     credit cards, nine of the top 10 issuers of oil company credit cards, all
     major airlines and a number of leading retailers and affinity groups such
     as Home Depot, Disney and AARP. Signature's teleservices unit also provides
     a variety of inbound and outbound telemarketing services as well as
     customer retention services to various financial, insurance and
     telecommunications clients.

     Established in 1966 as a wholly-owned subsidiary of Wards, Signature has
     over 30 years of expertise developing targeted marketing programs.
     Signature is the largest outbound telemarketer for the credit card industry
     in the country, with over 5,800 employees in 26 locations. It operates 26
     call centers with 2,000 workstations and annually conducts over 66 million
     carefully scripted telemarketing presentations. Signature also mails over
     232 million solicitations annually. The combination of leading-edge
     technology and marketing expertise allows Signature to offer a completely
     integrated marketing plan to its customers. Signature assigns a multi-
     functional account team to each client to manage every aspect of their
     marketing program, from the development and execution of marketing plans to
     the establishment of billing, fulfillment, customer service and post-
     marketing analysis. In addition to its proven experience marketing directly
     to consumers, Signature's auto, dental and legal services plans utilize
     networks of Signature-managed independent service providers and
     professionals to deliver value and quality customer service to the
     Company's customer. These networks have been developed over many years and
     are integral to the successful delivery of Signature's products.

                                       6
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ITEM 1.   BUSINESS (CONTINUED)

Signature (continued)

     Signature works in partnership with its clients and other organizations to
     offer consumers convenience and significant savings when purchasing a wide
     array of high-quality goods and services. Signature has a total of 12.2
     million consumer members including 3.7 million Wards credit card customers
     and 8.5 million other credit card customers. Signature has exclusive
     marketing rights to the entire Wards credit card file. It also markets on
     behalf of approximately 130 other clients, including some of the nation's
     largest financial institutions, retailers, airlines, oil companies,
     associates, unions and employer groups. Signature's major third party
     clients include American Airlines, AARP, American Express, Amoco, BankOne,
     Brylane, Chase, Citigroup, Delta, Discover, Exxon, General Electric, MBNA,
     Merrill Lynch, Mobil, Shell, Texaco, TWA, United Airline, Wachovia and
     Wells Fargo.

     On March 18, 1999, Signature entered into a definitive agreement whereby
     Transmedia Network Inc. acquired the assets of Dining a la Card from
     Signature. As part of the Agreement, Signature will continue to acquire
     dining members from its airline frequent flyer partner programs as well as
     other client programs.

     Since 1994, Signature has aggressively sought to diversify its customer
     account base through the development of new third-party client (non-Wards)
     relationships and business acquisitions. As of December 31, 1998, 8.5
     million, or 69% of the Company's total members were from third-party
     clients, up significantly from 3.1 million, or 33%, of total members at the
     end of 1994.

Competition and Regulation

     The sale of merchandise by Wards is conducted under highly competitive
     conditions. Buying and selling are each done in open competitive markets.
     Wards' stores are in competition with specialty stores, department stores
     and other types of retail outlets in the areas in which they operate. The
     Company believes that merchandise assortments, brand names, competitive
     pricing and availability of services such as credit, delivery, installation
     and repair, are the principal factors which differentiate it from
     competitors.

     Certain of Signature's operations are highly regulated and conducted under
     highly competitive conditions. To date, Signature has been able to compete
     effectively with other companies which offer programs similar to those
     provided by Signature. Signature also competes with traditional methods of
     marketing by unaffiliated dentists and lawyers. Insurance companies operate
     pursuant to specific state statutes, rules and regulations and are required
     to file reports with such agencies at least quarterly.

     Telemarketing and direct mail solicitations are regulated at state and
     federal levels, and management believes that these activities will
     increasingly be subject to such regulation. Such regulation may limit
     Signature's ability to solicit new members or to offer more products and
     services to existing members and may materially adversely affect
     Signature's business and revenues.

     The requirements of environmental protection laws and regulations have not
     had a material effect upon Wards' operations. Compliance may, in certain
     cases, lengthen the lead-time of expansion plans and could increase
     construction and operating costs.

Account Purchase Agreements

     Credit is extended to Wards' customers under an open-end revolving credit
     plan and is an important element in generating sales, especially in the big
     ticket businesses. Wards' private label credit card sales were 43.9% and
     46.9% of total sales for 1998 and 1997, respectively. Bankcard sales were
     an additional 23.6% and 21.2% of total sales for 1998 and 1997,
     respectively.

                                       7
<PAGE>
 
ITEM 1.   BUSINESS (CONTINUED)

Account Purchase Agreements (continued)

     Wards entered into a Bank Credit Card Program Agreement ("Card Agreement")
     effective April 1, 1996 with Monogram Credit Card Bank of Georgia
     ("Monogram"), and an Account-Related Agreement ("Account Related
     Agreement") effective April 1, 1996 with Montgomery Ward Credit Corporation
     ("Montgomery Ward Credit") (collectively referred to as the "Agreements")
     pursuant to which Monogram and Montgomery Ward Credit (collectively
     referred to as the "Montgomery Ward Credit Companies" or "MWCC"), both of
     which are affiliates of GE Capital, make payments to Wards as to their
     receivables generated by sales to customers of Wards, its affiliates and
     licensees who utilize the Wards private label credit card, and provide
     services to Wards, all of which are guaranteed by GE Capital. Under the
     Agreements, Monogram has the exclusive right to operate the Wards private
     label credit card system and the obligation to pay to Wards the face amount
     of Monogram's receivables generated by the Wards private label credit card
     system, up to $7 billion outstanding at any time. If Wards desires to
     receive payment for receivables generated by the Wards private label credit
     card system at any time when Montgomery Ward Credit Companies own $7
     billion or more of such receivables and do not desire to finance additional
     receivables, alternative arrangements, such as the sale of receivables to
     banks or other financial institutions, would be required unless Monogram
     agrees to fund the excess. As of January 2, 1999, there were $3.3 billion
     of Wards private label credit card receivables owned by Montgomery Ward
     Credit Companies, and the average outstanding amount of such receivables
     owned by Montgomery Ward Credit Companies during 1998 was $3.6 billion.

     Under the Card Agreement, Wards is required to pay Monogram the excess
     interest costs on a monthly basis if a blended interest rate applicable to
     funding costs with respect to the receivables exceeds 10% per annum. This
     blended interest rate has been less than 10% since 1988.

     Wards generally bears the risk of credit losses due to non-payment by
     cardholders to the extent of (i) the amount of credit losses that are
     between 3.9% and 5.0% of average outstanding receivables, plus (ii) 50% of
     credit losses that are between 5.0% and 8.0% of average outstanding
     receivables, subject to offsets described below relating to Wards' share of
     certain incremental increases in finance charges and late fees payable by
     cardholders. Wards is also responsible for losses on certain higher risk
     starter card accounts to the extent the loss percentage as to those
     accounts exceeds the loss percentage experience on the rest of the
     portfolio. Wards' net unpaid liability for credit losses for 1991 through
     1998 is to be payable to Montgomery Ward Credit pursuant to a note
     (Continuation Note) due in early 2003, which provides that: (i) the
     outstanding balance of such note cannot exceed $300 million, (ii) scheduled
     monthly principal payments ranging from $.4 million to $2.8 million are
     required through 2002, and (iii) starter card losses are payable currently.
     Interest on Wards' unpaid liability for credit losses is payable at the
     monthly GE Capital commercial paper rate. Notes consisting of $285 million
     for losses incurred prior to July 8, 1997 were executed. A remaining note
     of $15 million, consisting of losses incurred after July 7, 1997 for the
     remaining portion of 1997, was executed which provides for monthly
     principal payments in the amount of 5% of the scheduled monthly principal
     payments for the Continuation Note. Payments of principal and interest on
     notes outstanding as of July 7, 1997, has been stayed by the Chapter 11
     proceedings.

     In exchange for Wards' agreement to allow Montgomery Ward Credit to
     increase finance charge rates and late fees in selected states, Wards
     receives a share of incremental finance charges and late fees resulting
     from such increases. Such amount is available for offset against Wards'
     unpaid liability for its share of credit losses, and to the extent not
     currently paid or offset earns interest at the same rate as amounts owed by
     Wards to Montgomery Ward Credit. Effective April 1996, Monogram implemented
     additional finance charge and late fee increases in various states. The
     amount of these additional incremental finance charges and late fees are
     calculated each year pursuant to a formula specified in the Account Related
     Agreement, which makes certain of these amounts available to Wards. As the
     increased finance charge rate and late fees are added to the credit card
     balances, this will cause the amount of losses to increase. The higher
     finance charges and late fees also decrease the credit available by the
     credit card customer.

                                       8
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ITEM 1.   BUSINESS (CONTINUED)

Account Purchase Agreements (continued)

     In the event that, due to the increase in finance charge rates and late
     fees, refunds are required to be made, Wards and Montgomery Ward Credit
     have agreed in certain cases to share the financial risk. Legislation has
     from time-to-time been introduced in certain jurisdictions, which if
     enacted, may require rescinding all or a portion of such increases, in
     which case Wards' share of such increases may be substantially reduced.

     In connection with the foregoing arrangements, Wards owes $72 million for
     1998 credit losses offset by incremental finance charges and late fee
     assessments. Wards has previously executed notes for certain of its unpaid
     share of credit losses through 1997, offset by incremental finance charges
     and late fee assessments due to Wards for a net obligation of $300 million.

     Monogram has the right of first refusal to implement certain new financing
     programs proposed by Wards.

     The Agreements are scheduled to expire on December 31, 2011, provided the
     terms shall continue thereafter from year to year unless either party gives
     ten years prior notice of its election to terminate. Except upon the
     occurrence of certain events of default, the Agreements may generally not
     be terminated by either party prior to December 31, 2011.

     On April 3, 1998, the Bankruptcy Court approved an interim amendment to the
     Bank Program and Account- Related Agreements ("Interim Account Agreement")
     that provides the Company the ability to utilize the private label credit
     card through the expected duration of the Company's Chapter 11 status. The
     Interim Account Agreement provides for additional payments to Montgomery
     Ward Credit of $2.5 million for the months of January 1998 through June
     1998, $3.0 million per month for the remainder of 1998, $2.5 million per
     month from January 1999 though June 1999, and $2.0 million per month from
     July 1999 through December 1999.

     Wards is obligated to make all such payments through December 1999 whether
     the Interim Amount Agreement is terminated or not, except in the
     termination circumstance where the Company would be liquidated or when
     certain defaults occur, then payments shall be made through the later of
     the date of termination or the last Thursday in June 1999. The Interim
     Account Agreement will terminate on the earliest of the following events:
     (a) the date the Bankruptcy Court enters an order for rejection of the
     Agreements, (b) the sale of the portfolio of receivables covered by the
     Agreements, (c) the date the Bankruptcy Court enters an order for
     assumption of the Agreements, provided Montgomery Ward Credit may withdraw
     its consent to assumption at any time prior to such an order, (d) if the
     Bankruptcy Court enters an order authorizing Wards to discontinue all of
     its retail operations or converts the case to Chapter 7, (e) upon certain
     defaults by the Company or Wards or default by Monogram or Montgomery Ward
     Credit, or (f) December 31, 1999.

Associates

     At January 2, 1999, Wards and its subsidiaries employed the equivalent of
     34,000 full-time associates. During certain seasons, temporary associates
     are added and peak employment is approximately 49,000 associates during the
     Christmas season. Approximately 1,500 Wards associates are covered by
     various collective bargaining agreements. Wards has experienced no major
     labor-related interruption or curtailment of operations during the last 15
     years.

                                       9
<PAGE>
 
ITEM 2.   PROPERTIES

     At January 2, 1999, excluding the retail stores announced to be closed in
     early 1999, the Company owned or leased 325 retail, distribution and other
     operating facilities. The Company's properties are located throughout the
     continental United States and cover approximately 44 million square feet.

     These properties are summarized as follows:

<TABLE>
<CAPTION>
                                      Number of          Approximate Total       
                  Use                 Locations             Square Feet          
---------------------------------     ---------             -----------          
<S>                                   <C>                   <C>                     
Montgomery Ward Retail Stores:                                       
    Full Line                               248              33,916,000 
    Limited Line                              4                 344,000 
Corporate Office Complex                      1               2,975,000 
Miscellaneous Operating Locations            72               6,913,000 
                                      ---------             ----------- 
                                                                         
    Total Locations                         325              44,148,000  
                                      =========             ===========
</TABLE>
     Owned and leased retail stores include approximately 20 million square feet
     of selling space and 14 million square feet devoted to storage, office and
     related uses. Miscellaneous operating locations include warehouses, office
     buildings and distribution centers, but exclude vacant land parcels and
     properties held for disposition. See Note 11 to the Consolidated Financial
     Statements for information with respect to leased properties.

     The nationwide scope of Wards' operations helps minimize the impact of
     changes in the economies of specific regions on the overall performance of
     its retail stores and allows Wards to merchandise to a variety of
     demographic profiles.

                                       10
<PAGE>
 
ITEM 2.   PROPERTIES (CONTINUED)

     The regional distribution of Ward's retail stores, as of January 2, 1999,
     excluding the retail stores announced to be closed in early 1999, is
     indicated in the following table:

                        State               Total
                    ------------            -----
                    Arizona                    9
                    Arkansas                   1
                    California                49
                    Colorado                   8
                    Florida                   12
                    Georgia                    2
                    Illinois                  17
                    Indiana                    4
                    Iowa                       3
                    Kansas                     5
                    Kentucky                   1
                    Louisiana                  5
                    Maryland                  15
                    Michigan                  12
                    Minnesota                  2
                    Missouri                   7
                    Nebraska                   1
                    Nevada                     3
                    New Mexico                 3
                    New York                   3
                    North Carolina             3
                    Ohio                       4
                    Oklahoma                   5
                    Oregon                     7
                    Pennsylvania              11
                    South Carolina             2
                    Tennessee                  1
                    Texas                     37
                    Virginia                  12
                    Washington                 3
                    West Virginia              4
                    Wisconsin                  1
                                            -----
     
                    Total                    252
                                            =====
              

                                       11
<PAGE>
 
ITEM 3.  LEGAL PROCEEDINGS 
              
     At the close of business on July 7, 1997, Montgomery Ward Holding Corp. and
     certain of its U.S. subsidiaries filed petitions for reorganization under
     Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for
     the District of Delaware. These related proceedings are being jointly
     administered under the caption "In re Montgomery Ward Holding Corp., a
     Delaware corporation, et. al.", Case No. 97-1409 (PJW). The following U.S.
     subsidiaries were not included in the bankruptcy filings: Signature and its
     direct and indirect subsidiaries, Marinco, and Montgomery Ward Foundation.
     The filing of the petitions and the rejection of certain contracts created
     certain claims related to the filing. Among these cases is "Reliance
     Insurance Company v. Forum Insurance Company." This case alleges that Forum
     Insurance Company, an indirectly wholly-owned subsidiary of Signature, is
     liable under an indemnification agreement of which Wards is a signatory for
     the surety bonds issued to secure certain of Wards' obligations. The matter
     is now pending before the Bankruptcy Court. The potential liability related
     to the outcome of this claim cannot be estimated at this time.

     The Company and its subsidiaries are engaged in various litigation,
     including purported class actions, and have a number of unresolved claims.
     While the amounts claimed are substantial and the ultimate liability with
     respect to such litigation and claims cannot be determined at this time,
     management is of the opinion that such liability, to the extent not
     provided for through insurance or otherwise, is not likely to have a
     material impact on the financial condition or the results of operations of
     the Company.

     In 1979, a suit entitled "United States v. Midwest Solvent Recovery, Inc.,
     et.al." (Civil Action Number H-79-556) was initiated by the United States
     Department of Justice on behalf of the Environmental Protection Agency in
     the U.S. District Court for the Northern District of Indiana, and an
     Amended Complaint was filed in January 1984. This suit was against Standard
     T Chemical Company, Inc., a Delaware corporation and wholly-owned
     subsidiary of Wards ("Standard T"), which ceased operations in 1994 and is
     currently an inactive entity and is a debtor in the bankruptcy proceedings
     described above, and others involving two waste disposal sites and seeks
     reimbursement for the cost of surface clean-up, investigation studies
     concerning possible contamination of the soil and ground water and remedial
     action. In January 1990, the United States filed a second Amended Complaint
     seeking inter alia, treble damages and monetary sanctions. Standard T
     signed a consent decree, whereby it was obligated to provide a financial
     assurance. The financial assurance in the amount of $2.77 million has been
     drawn in order to remediate the site. The Company currently anticipates
     that its obligation will not exceed that amount.

     In 1985, the New York Environmental Protection Agency brought an action for
     remediation of a site in Staten Island, New York against the owner of the
     property. The owner asserted that Standard T, among others, generated
     wastes that were disposed of by a prior owner of the site. Standard T is in
     the process of completing the clean up of this site and has purchased the
     site from the owner for $1.45 million. The proposed remedy has a present
     value cost of $2.9 million.

     In February 1986, Standard T, along with approximately 330 other companies,
     was notified by the United States Environmental Protection Agency that the
     agency was mandating a remediation of the contamination of the American
     Chemical Services, Inc. ("A.C.S.") site located in Griffith, Indiana, under
     authority vested in it by the Comprehensive Environmental Response,
     Compensation and Liability Act of 1980. Standard T and a Wards paint
     factory were each identified as a Potentially Responsible Party ("PRP"),
     under the terms of the Act, because of their alleged status as generators
     of hazardous waste ultimately disposed of at the A.C.S. site. The Company
     will pay its proportionate share of the costs of the studies, and may
     ultimately pay a share of the costs of abating the contamination of the
     A.C.S. site. One estimate by the EPA of future costs of abating
     contamination at the A.C.S. site is $69 million, of which $24 million has
     been paid by deminimus settling parties. The proposed settlement of the
     proof of claim in the bankruptcy proceedings is $2.9 million.

                                       12
<PAGE>
 
ITEM 3.   LEGAL PROCEEDINGS (CONTINUED)

     Standard T and Wards are also involved at various stages with several other
     sites where Standard T and Wards have been notified or sued as a PRP. The
     potential liability related to these sites cannot be estimated at this 
     time.

     On April 29, 1997, MW Holding, Wards and Lechmere were served with a
     complaint, purporting to represent a nationwide class, filed by certain
     bankrupt credit card holders of Wards and Lechmere credit cards. The
     complaint alleged that MW Holding, Wards and Lechmere, benefited from the
     actions taken by Hurley, Lechmere's previous credit card provider, and MWCC
     and Monogram (both of which are affiliates of GE Capital), Wards' and
     Lechmere's current credit card providers, in that the recoveries received
     from the bankrupt credit card holders, allegedly were in violation of the
     bankruptcy laws dealing with reaffirmations, and ultimately reduced Wards'
     and Lechmere's loss sharing obligations. Hurley, MWCC and Monogram took all
     actions related to bankruptcy reaffirmations. A final settlement has been
     executed by Monogram and MWCC with the plaintiffs, which releases MW
     Holding, Wards and Lechmere of any liability. The plaintiffs have withdrawn
     their proofs of claim.

     In 1997, a suit entitled "Trent v. Montgomery Ward," was initiated by Karen
     Trent and four other plaintiffs alleging, on behalf of themselves and a
     class of other commissioned sales employees, fraud and breach of contract
     in the calculation of their sales commissions. This class action currently
     is being heard in the Federal District Court for the District of Wyoming.
     The suit claims that from 1992 to the present, Wards devised a commission
     sales plan that was designed to underpay commissions promised to employees
     and that Wards in fact paid employees less than the commissions they were
     supposed to have earned. Plaintiffs seek certification of the class and
     actual and punitive damages. Wards has denied the allegations and intends
     to aggressively defend this matter. The case currently is in the early
     stage of class discovery, and damage exposure cannot be determined at this
     time. A limited lifting of the bankruptcy automatic stay has been granted
     so that the class certification issue can be resolved. The court has
     determined that it does not have jurisdiction of the case and has remanded
     the case to the Wyoming State court. The plaintiffs have filed a motion for
     reconsideration. The plaintiffs have now filed a class claim in the
     Bankruptcy Court and it is expected that their claim will be resolved in
     the Bankruptcy Court.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     None.

                     EXECUTIVE OFFICERS OF THE REGISTRANT
                                        
     Listed below are the names and ages of the executive officers of the
     Company as of March 26, 1999, and the positions each has held during the
     past five years:

     Roger V. Goddu, 48, has been a director of the Company and Chairman and
     Chief Executive Officer of Wards since January 6, 1997. Prior thereto, he
     was with Toys "R" Us, where from 1996 until 1997, he was President-U.S.
     Merchandising, and from 1989 to 1995, he was Executive Vice
     President/General Merchandise Manager. Prior to 1989, Mr. Goddu was a
     Senior Vice President and General Merchandise Manager of Target, a division
     of Dayton Hudson Corporation.

     Thomas J. Austin, 51, has been Executive Vice President - Men's and
     Children's Apparel and Shoes of Wards since May 19, 1997. Prior thereto,
     Mr. Austin was Senior Vice President - Divisional Merchandise Manager of
     Kohl's Corporation, where he spent 15 years in various merchandising
     positions of increasing responsibility.

                                       13
<PAGE>
 
               EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
                                        
     Louis J. Caporale, 45, has been Executive Vice President - Women's Apparel
     and Fine Jewelry of Wards since May 27, 1997. Prior to joining Wards, Mr.
     Caporale was Senior Vice President - Divisional Merchandise Manager of
     Kohl's Corporation. From 1993 through 1997, he was Vice President -
     Divisional Merchandise Manager of Kohl's. Prior to joining Kohl's, Mr.
     Caporale held various merchandising positions with Federated Department
     Stores for 16 years.

     Don Civgin, 37, has been Vice President and Treasurer of the Company and
     Senior Vice President - Finance of Wards since May 8, 1997. Prior thereto,
     he was Vice President - Treasurer of Alliant Foodservice, Inc. from 1995 to
     1997. From 1986 through 1995, Mr. Civgin held various financial management
     positions with Itel Corporation.

     Robert C. Claxton, 44, has been Senior Vice President - Advertising and
     Marketing of Wards since March 23, 1998. Prior thereto, he was Vice
     President of Advertising of Wards from June 1997 to March 1998. Prior
     thereto, he held positions at Wards as Vice President of Home Image from
     February 1996 to June 1997, Regional Managing Director from November 1995
     to February 1996, and Field Director of Electric Avenue & More from
     September 1995 to November 1995. Prior to joining Wards, he was Divisional
     Vice President of Store Operations at Silo, Inc. since 1989.

     Alan E. DiGangi, 52, has been Executive Vice President - Appliances,
     Electronics and Automotive of Wards since November 1996. Prior thereto, he
     was Executive Vice President Marketing of Wards from March 1996 through
     November 1996. Mr. DiGangi was Executive Vice President, Electric Ave.,
     Rooms & More/Soft Home of Wards from January 1996 through March 1996. Prior
     thereto, he was Senior Vice President, Electric Ave. & More from April 1995
     to January 1996. From 1993 though 1995, Mr. DiGangi was Vice President of
     Wards, with responsibilities in Store Management, Field Operations,
     Marketing and Sales Promotion.

     Kevin Freeman, 48, has been Executive Vice President - Store Operations of
     Wards since May 1, 1997. Prior thereto, he was Executive Vice President of
     Store Operations for Caldor from 1994 until 1997. Mr. Freeman was Executive
     Vice President - Store Operations with Roses Stores from 1991 to 1994.
     Prior thereto, Mr. Freeman held various positions with Target, a division
     of Dayton Hudson Corporation, from 1978 to 1991, leaving as Senior Vice
     President of Store Operations.

     Thomas G. Grimes, 61, has been Executive Vice President - Home of Wards
     since November 7, 1997. Mr. Grimes joined the Company on February 24, 1997
     as Chief Executive Officer of Lechmere, Inc. and President - Hardlines.
     Prior thereto, he was Managing Director of Trimingham Bros. Ltd. from
     January 1996 through February 1997. Prior to joining Trimingham Bros. Ltd.,
     Mr. Grimes was Chairman and Chief Executive Officer of the John Breuner
     Company, a division of Batus Inc., from 1986.

     Spencer H. Heine, 56, has been an Executive Vice President, Secretary and
     General Counsel of the Company since September 30, 1991 and was a director
     from May 15, 1992 through January 6, 1997. Mr. Heine has been Executive
     Vice President, Secretary and General Counsel of Wards and President -
     Montgomery Ward Properties since April 12, 1994. Prior thereto, Mr. Heine
     served as Executive Vice President - Legal of Wards from September 30, 1991
     through April 11, 1994. Mr. Heine was Chairman and Chief Executive Officer
     of Signature from March 8, 1993 through April 11, 1994.

     Robert A. Kasenter, 52, has been an Executive Vice President of the Company
     since February 21, 1992. Mr. Kasenter has served as Executive Vice
     President, Human Resources of Wards since January 27, 1992 and was Senior
     Vice President- Human Resources and Customer Satisfaction from June 23,
     1988 to January 26, 1992. Mr. Kasenter announced his resignation from the
     Company in March 1999 and will be leaving in May 1999.

                                       14
<PAGE>
 
               EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)

     Thomas J. Paup, 50, has been an Executive Vice President and Chief
     Financial Officer of Wards since September 22, 1997. Prior to joining
     Wards, Mr. Paup was Senior Vice President, Finance and Distribution of Lord
     & Taylor, a division of The May Department Stores Company from 1990 to
     1997.
     
 
                                    PART II

ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS

     There is no established public trading market for the Common Stock of the
     Company. All shares are subject to restrictions on transfers contained in
     the Stockholders' Agreement dated as of June 17, 1988, as amended
     ("Stockholders' Agreement"), or the Terms and Conditions ("Terms and
     Conditions") imposed under the Montgomery Ward & Co., Incorporated Stock
     Ownership Plan ("Stock Ownership Plan"). Management believes the stock has
     little or no value due to the bankruptcy filing.

     Transfers of shares of Class A Common Stock are restricted for a period of
     three years from certain applicable dates under the Stockholders' Agreement
     and the Terms and Conditions. Transfers of Class A shares purchased other
     than pursuant to the Stock Ownership Plan are restricted for a period of
     three years from the holder's first acquisition of any such shares, while
     transfers of shares received under the Stock Ownership Plan are restricted
     for a period of three years after the award of such shares, exercise of
     purchase rights for such shares or grant of options with respect to such
     shares, as applicable. After the applicable three-year periods, limited
     transfers of such shares which have become vested in accordance with the
     Stockholders' Agreement or the Terms and Conditions, as applicable, are
     permitted, subject to certain rights of first refusal. All of the Class B
     shares and virtually all of the outstanding Class A shares are eligible for
     transfer.

     The redemption provisions of the Company's outstanding preferred stock have
     been stayed by the Chapter 11 proceedings. No further dividends will be
     declared or paid on the preferred stock prior to the approval of a plan of
     reorganization. Future payments of dividends, if any, are dependent upon
     the approval of a plan of reorganization.

     As of March 26, 1999, there were 91 holders of record of Class A Common
     Stock, Series 1, 192 such holders of Class A, Common Stock, Series 2, and
     one such holder of Class B Common Stock. No shares of Class A Common Stock,
     Series 3, were outstanding as of that date. On June 21, 1998, the Voting
     Trust Agreement dated as of June 21, 1988, under which Voting Trust
     Certificates representing shares of Class A Common Stock, Series 1 and
     Series 2, of the Company had been issued, expired pursuant to its terms.

                                       15
<PAGE>
 
ITEM 6.   SELECTED FINANCIAL DATA

     The following summary of certain financial information for each of the five
     fiscal years in the period ended January 2, 1999 has been derived from the
     Consolidated Financial Statements of MW Holding. Signature's results of
     operations have been classified as discontinued operations and prior
     periods have been restated. See Note 3 to the Consolidated Financial
     Statements on page 34 for a summary of financial data of discontinued
     operations. Such information for each fiscal year should be read in
     conjunction with the Consolidated Financial Statements and notes thereto
     and the report of independent public accountants beginning on page 22.

<TABLE>
<CAPTION>
                                                                             As of and for the
                                     ---------------------------------------------------------------------------------------------
                                         52-Week              53-Week
                                          Period              Period
                                          Ended                Ended                          52-Week Period Ended
                                     -------------       --------------      -----------------------------------------------------
 
(Dollars in millions, except             Jan. 2,              Jan. 3,            Dec. 28,            Dec. 30,           Dec. 31,
Per share amounts)                        1999                 1998                1996                1995               1994
                                     -------------       --------------      -------------       -------------      --------------
<S>                                  <C>                 <C>                 <C>                 <C>                <C>
Net Sales                                  $ 3,634           $    4,534           $  5,879           $   6,531            $  6,564
 
Income (Loss) from Continuing
  Operations before Reorganization
  Costs and Income Taxes                      (418)              (1,003)              (446)               (109)                 89
 
Reorganization Costs                           218                  553                  -                   -                   -
 
Net Income (Loss) before
  Discontinued Operations                     (942)              (1,170)              (282)                (63)                 61
 
Net Income (Loss) Applicable
  to Common Shareholders                      (971)              (1,160)              (249)                (13)                135
 
Net Income (Loss) per Class A
  Common Share before
  Discontinued Operations                   (25.46)              (32.17)             (7.48)              (1.69)               1.37
 
Total Assets                                 3,492                4,080              4,187               4,442               4,132
 
Long-term Debt                                  46                  108                 77                 389                 220
 
Obligations Under Capital
  Leases (a)                                     -                    -                 90                 102                 122
 
Total Shareholders' Equity
  (Deficit)                                 (1,688)                (716)               433                 700                 707
 
Redeemable Preferred Stock                     177                  177                175                 175                  75
 
Cash Dividends per Common
  Share                                          -                    -                  -                   -                 .50
</TABLE>
                                                                                
(a)  Excludes $64 and $77 million of Obligations under capital leases included
in Liabilities subject to compromise as of January 2, 1999 and January 3, 1998,
respectively.

                                       16
<PAGE>
 
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

     The following discussion and analysis of results of operations for the
     Company compares 1998 to 1997, as well as 1997 to 1996. Wards is on a 52-
     or 53-week fiscal year basis, with 1998 being a 52-week year, 1997 a 53-
     week year, and 1996 a 52-week year. All dollar amounts are in millions and
     all income and expense items and gains and losses are shown before income
     taxes, unless specifically stated otherwise.

     The Company's retail business is seasonal, with approximately one-third of
     sales occurring in the fourth quarter.

Results of Operations: 1998 Compared with 1997

     Net sales were $3,634, compared with $4,534 in 1997, a decrease of $900, or
     20%. Sales on a comparable store basis decreased approximately 2% after
     adjusting for the closing of stores, the exit of certain product lines and
     the noncomparable impact of sales that occurred in the 53rd week of 1997.
     The decrease in net sales is attributable to the closing of nine retail
     stores in the third quarter of 1998 and 101 retail stores and liquidation
     and outlet centers in the second half of 1997, as a result of the Company's
     decision to exit its non-core retail businesses and to close certain
     underperforming Wards retail stores. These closed stores reported net sales
     of $686 in 1997. The sales decrease was also caused by the Company's
     decision to exit certain product offerings which reported sales of $74 in
     1997 and the noncomparable impact of sales that occurred in the 53rd week
     of 1997. Wards' management also believes that the decline in promotional
     offers to Wards' credit cardholders during 1998 and an aggressive markdown
     and promotional advertising strategy to liquidate inventory during the
     first six months of 1997 contributed to the 1998 year-to-date sales
     decrease.

     Gross margin (net sales less cost of goods sold) dollars were $685, an
     increase of $105, or 18%, from 1997. This increase was due to an increase
     in the gross margin rate on sales of $246 and decreased occupancy and other
     margin-related expenses of $104 primarily related to the closed stores,
     offset by the gross margin impact of decreased sales of $245. The
     improvement of 6 percentage points in the gross margin rate in 1998, as
     compared to 1997, was due the effects of the increase in the margin rates
     in nearly every category of merchandise and the impact of closing Lechmere
     and Electric Avenue & More stores, which historically reported lower gross
     margin rates, as well as the negative impact of the aggressive markdown
     strategy employed in the first six months of 1997 to liquidate inventories.

     Operating, selling, general and administrative expenses decreased $428, or
     29%, from the prior year. The decrease was primarily due to decreased
     payroll costs primarily related to the closed stores of $215, decreased
     advertising and other promotional costs of $103, decreased bad debt expense
     of $48, write-downs of investments and other unrealizable assets in the
     prior year of $42, increased pension income of $17, and a decrease in all
     other costs of $35, offset by decreased product service income of $32.

     Net interest expense decreased $52, or 48%, from the prior year. The
     Company stopped accruing interest on its pre-petition short-term debt in
     connection with the Chapter 11 filing. The weighted-average borrowings for
     1998, excluding pre-petition debt, decreased by approximately $700 as
     compared to 1997.

     Reorganization costs were $218 in 1998 as compared to $553 in 1997. These
     costs are related to the Company's exit of its non-core strategies, certain
     dispositions of assets and various other expenses. See Note 5 to the
     Consolidated Financial Statements for the components of these costs.

     Income tax expense of $306 was recorded for 1998 as compared to a benefit
     of $386 for 1997. See Note 9 to the Consolidated Financial Statements for a
     discussion of management's determination of the valuation allowance
     provided during 1998.

                                       17
<PAGE>
 
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS (CONTINUED)

Results of Operations: 1998 Compared with 1997 (continued)

     On February 1, 1999, Wards announced that GE Capital, a major shareholder
     and creditor, will acquire Signature, Wards' direct marketing response
     operations segment. Signature's results of operations have been classified
     as discontinued operations. The loss from discontinued operations was $29
     million in 1998 as compared to income of $18 million in 1997. The current
     year's results of discontinued operations included the write-off of $33
     million of capitalized fulfillment costs and $31 million associated with
     the estimated loss on Signature's sale of its dining operations. In
     addition, in 1998 no tax benefit was recorded and in 1997 tax expense of
     $11 million was recorded.

Results of Operations: 1997 Compared with 1996

     Due to Wards' inability to reach an out-of-court settlement with its
     lenders, petitions for reorganization under Chapter 11 of the Bankruptcy
     Code were filed at the close of business on July 7, 1997. The Company's
     performance reflected difficult competitive conditions and financial
     pressures, as well as the negative impact of the aggressive markdowns and
     promotional advertising to liquidate inventory in the first half of 1997.

     Net sales were $4,534, compared with $5,879 in 1996, a decrease of $1,345
     or 23%. After adjusting for the noncomparable impact of sales that occurred
     in the 53rd week, sales on a comparable store basis, which reflect only the
     stores in operation for all of 1997 and 1996, decreased 16%. $534 of the
     sales decrease reflects the closings of 101 retail stores and liquidation
     and outlet centers, including the exit of the Lechmere and Electric Avenue
     & More formats. 1997 sales results also reflect the Company's decision to
     exit certain product offerings, including personal computers. 1996 third
     and fourth quarter sales for the affected product lines were $84.
     Additionally, the Company's management believes that merchandise shipment
     interruptions as a result of the bankruptcy filing and the decline in
     promotional offers to Wards' credit cardholders in the second half of 1997
     (4 in 1997 versus 19 in 1996), contributed to the sales decline.

     Gross margin (net sales less cost of goods sold) dollars were $580, a
     decrease of $431, or 43%, from 1996. This decrease was due to the gross
     margin impact of the decreased sales of $298 and a decrease in the margin
     rate on sales of $167, offset by decreased occupancy costs of $34,
     primarily related to closed stores. The liquidation of slow moving and
     discontinued inventory, as well as the Chapter 11 filing, negatively
     impacted margin rates. As certain of the Company's vendors halted shipments
     for portions of the third quarter, a higher mix of third quarter sales
     represented sales of lower margin clearance merchandise. Gross margins
     showed substantial improvement in the fourth quarter of 1997. Despite a
     $579 decrease in 1997 fourth quarter sales, gross margin dollars increased
     by $4 and fourth quarter 1997 margin rates improved by 5 percentage points
     over fourth quarter 1996 rates.

     Operating, selling, general and administrative expenses increased $137, or
     10%, from the prior year. The increase was due to increased bad debt
     expense of $29; write-downs of investments and other unrealizable assets of
     $57 and decreased product service income of $66, offset by all other
     decreased expenses of $15.

     Net interest expense decreased $11, or 9%, from the prior year. The net
     decrease reflects a $30 increase in interest expense for the first and
     second quarters of 1997 offset by a $41 decrease in interest expense for
     the third and fourth quarters of 1997. The first half increase reflects
     increased borrowings (including borrowings under vendor financing programs)
     and an increase in the weighted-average borrowing rate. The Company has
     stopped accruing interest on its short-term debt in connection with the
     Chapter 11 filing. Second-half 1997 borrowings under the DIP Facility were
     substantially below second-half 1996 borrowing levels.

     Reorganization costs of $553 were related to the Company's exit of its non-
     core strategies, certain dispositions of assets and various other expenses.
     See Note 5 to the Consolidated Financial Statements for the components of
     these costs.

                                       18
<PAGE>
 
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS (CONTINUED)

Results of Operations: 1997 Compared with 1996 (continued)

     The income tax benefit was $386 as compared to a benefit of $164 for 1996.
     See Note 9 to the Consolidated Financial Statements for a discussion of
     management's determination of the benefit recorded and the related
     valuation allowance provided during 1997.

     The income from discontinued operations in 1997 was $18 million as compared
     to $45 million in 1996. The decrease in income from discontinued operations
     was due to an increase in amortization and other direct marketing related
     costs of $150 million offset by an increase in direct response marketing
     revenues of $111 million. Income tax expense was $11 million and $26
     million in 1997 and 1996, respectively.

Discussion of Financial Condition

     Due to the inability of Wards to negotiate an out-of-court settlement with
     its lenders, MW Holding and certain of its subsidiaries have filed
     petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Court.
     As a result of the Chapter 11 filing the Company and those subsidiaries
     have ceased making certain debt, interest, trade payable and other
     liability payments that arose prior to the Chapter 11 filing. Payments
     related to these liabilities are deferred, in most cases, until a plan for
     reorganization is confirmed by the Bankruptcy Court.

     On February 1, 1999, the Company announced its intention to emerge from
     Chapter 11 bankruptcy protection in mid-1999. The Company will file its
     plan of reorganization and disclosure statement with the Bankruptcy Court
     shortly. The plan of reorganization will set forth the means for satisfying
     claims and interests in the Company and its debtor subsidiaries, including
     the Liabilities subject to compromise. Under the reorganization plan, when
     filed, secured and non-tax priority claimholders will generally receive
     cash equal to the amount of their allowed claim. Claims held by unsecured
     creditors and certain allowed vendor claims held by GE Capital will be
     satisfied by cash distributions for a portion of the allowed claims. GE
     Capital will receive a significant equity interest in the Company in
     exchange for its remaining claims. The Company intends to fund its
     distributions under the plan of reorganization principally through funds
     placed in escrow by GE Capital and through the termination of its over-
     funded defined benefit pension plan. The Company expects to repay GE for
     the funds placed in escrow by GE with the proceeds from the sale of
     Signature. The consummation of a plan of reorganization for the Company and
     its debtor subsidiaries will require the requisite vote of impaired
     creditors and stockholders and confirmation by the Bankruptcy Court, which
     is expected to be completed by the Summer of 1999.

     Net cash used in the Company's operating activities for continuing
     operations totaled $167 for 1998 compared to $292 for 1997, a decrease of
     $125. The lower cash usage is summarized as follows:

<TABLE>
          <S>                                                        <C>
          Cash impact of smaller operating loss                      $  517
          Decrease in cash received from facility closings             (108)
          Higher payments of liabilities subject to compromise          (32)
          Lower cash provided by accounts payable                      (213)
          All other cash from operations                                (37)
                                                                     ------
                                                                     $  125
                                                                     ======
</TABLE>

     Cash received from facility closings, which represents proceeds from the
     disposition of inventory and properties, net of costs associated with the
     going out-of-business sales, declined to $47 million in 1998 from $155 in
     1997. The 1997 net receipts included the proceeds from the exit of its non-
     core specialty retail businesses and a portion of the proceeds from the
     closing of the 53 Wards stores. The 1998 net receipts included the
     remaining proceeds from the 1997 store closing program and the closing of
     an additional nine Wards stores in 1998.

                                       19
<PAGE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (CONTINUED)

Discussion of Financial Condition (continued)

  Higher payments of liabilities subject to compromise represents an increase in
  the settlement amount of reclamation claims, the offset of restricted cash
  against interest claims, and payments of advertising and real estate and
  personal property tax claims. The lower cash provided by accounts payable was
  due to the effects of the bankruptcy filing in the third quarter of 1997.

  Net cash used for investing activities of continuing operations totaled $93
  for 1998, compared to $35 million for 1997. Capital expenditures were $93 for
  1998 compared to $47 for 1997. The Company has capitalized $12 on the
  remodeling of three stores in 1998. These stores, unveiled in September 1998,
  will serve as the prototype for the remodeling of future stores. These three
  stores reflected sales increases over the prior year in excess of 30
  percentage points above the combined performance of the entire chain from
  September 1998 through February 1999. The Company plans to spend $180 over the
  next three years related to the remodeling of approximately 120 stores.

  Net cash provided by financing activities of continuing operations totaled
  $225 for 1998, compared to $438 for 1997. The Company had borrowed to the full
  extent of its financing facilities (excluding the Seasonal Credit Agreement)
  prior to the Chapter 11 filing. Net borrowings under the DIP facility were
  $254 in 1998.

  Wards is the only subsidiary of the Company and, therefore, Wards and its
  subsidiaries are the Company's sole source of funds.

  Wards entered into the DIP Facility on July 8, 1997, as amended, which was
  approved by the Bankruptcy Court on July 31, 1997. Under the DIP Facility, the
  lenders have agreed to provide a revolving credit and letter of credit
  facility, the maximum amount of which is based on the book value of eligible
  inventory (as defined in the DIP Facility), the fair market value of eligible
  real property (as defined in the DIP Facility) and the earnings of Signature.
  In no case may borrowings exceed $1,000. Under the DIP Facility, Wards may
  select among several interest rate options, all of which are based on market
  rates plus a margin.

  A commitment fee is payable based on the unused amount of the facility. The
  facility expires on July 7, 1999, or earlier in the case of an event of
  default. Total borrowings outstanding were $304 and letters of credit
  outstanding were $108 at January 2, 1999. The Company had $363 of borrowing
  availability under the DIP Facility at January 2, 1999.

  On February 20, 1998, Wards obtained a waiver and second amendment to the DIP
  Facility (the "Waiver and Second Amendment Agreement") which was approved by
  the Bankruptcy Court on March 31, 1998. The Waiver and Second Amendment
  Agreement waived and amended certain provisions of the DIP Facility, including
  a reduction in the level of earnings required, as defined in the DIP
  Agreement.

  On November 9, 1998, Wards obtained a Third Amendment to the DIP Facility
  ("Third Amendment Agreement") which was approved by the Bankruptcy Court on
  February 1, 1999. The Third Amendment Agreement amended certain provisions of
  the DIP Facility , including an increase in the interest rate margin and a
  reduction in the level of earnings required, as defined in the DIP Agreement.

  Prior to the bankruptcy filing, Wards entered into a long term credit
  agreement, as amended, ("Long Term Credit Agreement") and a short term credit
  agreement, as amended, ("Short Term Credit Agreement") both dated as of
  September 15, 1994; note purchase agreements, as amended, dated March 1, 1993
  and July 11, 1995 ("Note Purchase Agreements"); and a credit agreement, as
  amended, ("Seasonal Credit Agreement") dated October 4, 1996. The Company is
  currently in default of the terms of these agreements and no future amounts
  may be drawn thereunder. The Seasonal Credit Agreement was terminated as a
  result of the Chapter 11 filings. There were no borrowings outstanding under
  this agreement.

                                       20
<PAGE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (CONTINUED)

Discussion of Financial Condition (continued)

  On September 15, 1998, the Company received approval from the Bankruptcy Court
  to permit Lechmere to lend Signature the funds to repay its borrowings of $102
  under a Credit Agreement between Signature and various lenders, plus interest
  and other fees associated with the extension and refinancing of such
  agreement. On September 30, 1998, Signature's loan under the Credit Agreement
  was repaid from the $105 of funds advanced by Lechmere to Signature. The
  Lechmere loan to Signature, which accrues interest at either the prime rate
  plus 1.75% or the LIBO rate plus 2.75%, is secured by a pledge of stock of
  certain Signature subsidiaries and is guaranteed by Wards. Such guarantee is
  subordinate to the DIP Facility. The loan shall become immediately due upon
  the earliest of (i) upon demand; (ii) the effective date of a plan of
  reorganization for the debtor subsidiary; (iii) the conversion of the
  bankruptcy case from a Chapter 11 case to a Chapter 7 case under the
  Bankruptcy Code; (iv) the sale of all or substantially all of Signature's
  assets, the merger or consolidation of Signature with or into another entity,
  or the sale of more than 50% of an interest in Signature to another entity; or
  (v) December 31, 1999.
 
  In 1997, Wards had facilities available under vendor financing programs (which
  are reflected in liabilities subject to compromise) which totaled $725. At
  June 28, 1997, these facilities were principally drawn. These facilities are
  no longer available due to the Chapter 11 filing.

  The Company intends to improve its financial condition and reduce its
  dependence on borrowing by increasing its sales base, continuing to improve
  its gross margin rates and controlling expenses. In addition, the financial
  performance of the remaining retail stores will be reviewed on a continuing
  basis and additional stores may be closed if warranted. Management has also
  reevaluated the Company's merchandising, marketing, store operations and
  logistics strategies, and is in the early stages of implementing the new
  strategy.

  Future cash is expected to continue to be provided by ongoing operations,
  receipt of payment for credit sales under the agreements with Montgomery Ward
  Credit Companies and borrowings under the DIP Facility.

  The Company began addressing Year 2000 date conversion issues in the fall of
  1996 and has developed a plan to assess and remediate both information
  technology ("IT") and non-IT systems. The Company's plan consists of two
  phases. The assessment phase includes the inventory of all systems (IT and 
  non-IT) subject to the Year 2000 issue and developing a plan for addressing
  the problem as related to each system. The remediation phase includes the
  implementation of the identified changes required and testing of these changes
  before implementation.

  For IT systems, the Company has completed its assessment phase and the
  remediation phase is 90% complete. The remainder of the remediation phase is
  expected to be completed in the first half of 1999. For non-IT systems, the
  Company anticipates the assessment phase to be completed in early 1999 and the
  remediation phase to be completed by September 30, 1999. The Company is also
  in the process of assessing the Year 2000 readiness of its suppliers and
  service providers and is participating in a National Retail Federation survey
  of such providers.

  In 1998, the Company had expensed $22 related to Year 2000 readiness. Prior to
  1998, the Company expensed $12. The Company estimates an additional $3 will be
  expensed as incurred to become Year 2000 ready. In addition, the Year 2000
  issue has accelerated the timing of an estimated $26 of capital expenditures
  of which $17 has been capitalized as of January 2, 1999. No significant
  capital projects have been delayed as a result of addressing the Year 2000
  issue. Based on the Company's plan, the remaining costs to be expended to
  become Year 2000 ready are not expected to materially impact future cash
  flows.

                                       21
<PAGE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (CONTINUED)

Discussion of Financial Condition (continued)

  The Company believes that its program will result in Year 2000 readiness.
  However, due to the complexity of the issue, there can be no assurances given
  that the Company's plan will be fully effective. The Company could experience
  interruptions of business at some of its operations, including those caused
  by, but not limited to, the inability of utility companies to provide
  telecommunications and electrical services, the failure of financial
  institutions to process transactions, and the inability of vendors to deliver
  products on a timely basis. The Company is in the process of developing
  contingency plans which are anticipated to be completed by September 30, 1999,
  with respect to the Company's facilities and merchandise supply and
  distribution networks.

  As discussed in Note 2 to the Consolidated Financial Statements, the
  accompanying consolidated financial statements have been prepared on a going
  concern basis. The appropriateness of using the going concern basis is
  dependent upon, among other things, confirmation of a plan of reorganization,
  future profitable operations, the ability to comply with the terms of the DIP
  Facility and the ability to generate sufficient cash from operations and
  financing arrangements to meet obligations.

  Capital expenditures during 1998 of $93 were primarily related to systems
  development, remodeling of three stores, merchandise fixture and presentation
  programs, and retail facility improvements.

<TABLE>
<CAPTION>
                                                              1998      1997      1996
                                                            --------  --------  --------
  <S>                                                       <C>       <C>       <C>
  Total capital expenditures                                  $  93    $  47     $  79
  Capital appropriations authorized during the year              89       57        90
  Cancellations of prior year's appropriations                   (3)     (66)      (34)
  Unexpended capital appropriations at year-end                  50       57       113
</TABLE>

  Wards is not contractually committed to spend all of the capital
  appropriations unexpended at January 2, 1999, but generally expects to do so.
  The DIP Agreement restricts the amount of capital expenditures Wards may make
  during the term of the Agreement.

ITEM 8.  FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                      Page
                                                                                    --------
  <S>                                                                               <C>
  Report of Independent Public Accountants                                             23
 
  For the 52-Week Period Ended January 2, 1999, the 53-Week Period
    Ended January 3, 1998 and the 52-Week Period Ended December 28, 1996
      Consolidated Statements of Income                                                24                          
      Consolidated Statements of Shareholders' Equity (Deficit)                        26                          
      Consolidated Statements of Cash Flows                                            28                          
                                                                                                                  
  Consolidated Balance Sheets at January 2, 1999 and January 3, 1998                                              
                                                                                                                  
  Notes to Consolidated Financial Statements                                           25                          
</TABLE>

                                       22
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                   ----------------------------------------


To the Board of Directors and Shareholders
 of Montgomery Ward Holding Corp.:

We have audited the accompanying consolidated balance sheets of MONTGOMERY WARD
HOLDING CORP. (a Delaware Corporation) AND SUBSIDIARIES (of which Montgomery
Ward Holding Corp. and certain of its U.S. subsidiaries filed petitions for
reorganization on July 7, 1997 under Chapter 11 of the United States Bankruptcy
Code), as of January 2, 1999 and January 3, 1998, and the related consolidated
statements of income, shareholders' equity (deficit) and cash flows for the
fiscal years ended January 2, 1999, January 3, 1998 and December 28, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Montgomery Ward
Holding Corp. and Subsidiaries as of January 2, 1999 and January 3, 1998 and the
results of their operations and their cash flows for the fiscal years ended
January 2, 1999, January 3, 1998 and December 28, 1996, in conformity with
generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2, the
Company expects to file a plan of reorganization with the Bankruptcy Court
shortly. The Company anticipates emerging from bankruptcy in July 1999. On July
7, 1997, the Company filed a voluntary petition seeking to reorganize under
Chapter 11 of the United States Bankruptcy Code. The Chapter 11 filing was the
result of violation of certain debt covenants, recurring operating losses,
deterioration of vendor support, and cash flow deficiencies. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Although the Company is currently operating as a Debtor-In-Possession
under the jurisdiction of the Bankruptcy Court, the continuation of the business
as a going concern is contingent upon, among other things, the approval and
confirmation by the creditors and Bankruptcy Court of the aforementioned plan of
reorganization, the success of future operations, and the ability to recover the
carrying amount of assets and/or the amount and classification of liabilities.
The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.


Arthur Andersen LLP
Chicago, Illinois
February 11, 1999

                                       23
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                    52-Week              53-Week              52-Week
                                                                     Period               Period               Period
                                                                     Ended                Ended                Ended
                                                               ---------------      ---------------      ---------------

                                                                    Jan. 2,              Jan. 3,              Dec. 28,
(In millions, except per share amounts)                               1999                 1998                 1996
                                                               ---------------      ---------------      ---------------
<S>                                                              <C>                  <C>                  <C>
Net sales, including leased and licensed department sales              $ 3,634              $ 4,534               $5,879
 
Costs and Expenses
  Cost of goods sold, including net occupancy and
    buying expense                                                       2,949                3,954                4,868
  Operating, selling, general and administrative
    expenses ( Notes 11 and 17)                                          1,047                1,475                1,338
  Interest expense, net (Note 15)                                           56                  108                  119
                                                               ---------------      ---------------      ---------------
      Total Costs and Expenses                                           4,052                5,537                6,325
                                                               ---------------      ---------------      ---------------

Loss from Continuing Operations before Reorganization
  Costs and Income Taxes                                                  (418)              (1,003)                (446)
Reorganization Costs (Note 5)                                              218                  553                    -
                                                               ---------------      ---------------      ---------------
Loss before Income Taxes and Discontinued Operations                      (636)              (1,556)                (446)
Income Tax Expense (Benefit) (Note 9)                                      306                 (386)                (164)
                                                               ---------------      ---------------      ---------------
Loss before Discontinued Operations                                       (942)              (1,170)                (282)
Income (Loss) from Discontinued Operations,
  net of Income Taxes (Note 3)                                             (29)                  18                   45
                                                               ---------------      ---------------      ---------------
Net Loss                                                                  (971)              (1,152)                 237
Preferred Stock Dividend Requirements (Note 12)                              -                   (8)                 (12)
                                                               ---------------      ---------------      ---------------
Net Loss Applicable to Common Shareholders                             $  (971)             $(1,160)              $ (249)
                                                               ===============      ===============      =============== 
  
Net Income (Loss) per Common Share (Note 13)
  Class A
     Before Discontinued Operations                                    $(25.46)             $(32.17)              $(7.48)
     Discontinued Operations                                              (.79)                 .50                 1.15
                                                               ---------------      ---------------      ---------------
                                                                       $(26.25)             $(31.67)              $(6.33)
                                                               ===============      ===============      ===============
   
  Class B
     Before Discontinued Operations                                    $(18.99)             $(23.54)              $(6.17)
     Discontinued Operations                                              (.59)                 .37                  .65
                                                               ---------------      ---------------      ---------------
                                                                       $(19.58)             $(23.17)              $(5.22)
                                                               ===============      ===============      ===============
</TABLE>

                See notes to consolidated financial statements.

                                       24
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                Jan. 2,                   Jan. 3,
(In millions)                                                                     1999                     1998
                                                                          ------------------       -------------------
<S>                                                                         <C>                      <C> 
Assets
  Cash and cash equivalents (Note 1)                                           $          58               $       164
  Investments of insurance operations                                                      3                         3
                                                                               -------------               -----------
       Total Cash and Investments                                                         61                       167
                                                                                                            
  Trade and other accounts receivable                                                    187                       153
  Accounts and notes receivable from affiliates (Notes 6 and 10)                         123                        17
                                                                               -------------               -----------
        Total Receivables                                                                310                       170
                                                                                                           
  Merchandise inventories                                                                953                     1,120
  Prepaid pension cost (Note 7)                                                          402                       366
  Properties, plants and equipment, net of accumulated                                                     
    depreciation and amortization (Note 8)                                               963                     1,052
  Net assets of discontinued operations (Note 3)                                         666                       732
  Other assets (Note 8)                                                                  137                       174
  Deferred income taxes (Note 9)                                                           -                       299
                                                                               -------------               -----------
        Total Assets                                                           $       3,492               $     4,080
                                                                               =============               ===========
                                                                                                           
Liabilities                                                                                                
  Short-term debt (Note 10)                                                    $         328               $        14         
  Trade accounts payable                                                                 444                       442         
  Accrued liabilities and other obligations (Note 6)                                     738                       561         
  Long-term debt (Note 10)                                                                46                       108         
  Liabilities subject to compromise (Notes 4, 6, and 11)                               3,447                     3,494          
                                                                               -------------               -----------
        Total Liabilities                                                              5,003                     4,619
                                                                                                           
Commitments and Contingent Liabilities (Notes 10 and 16 )                                                  
                                                                                                           
Redeemable Preferred Stock (Note 12)                                                     177                       177
                                                                                                           
Shareholders' Deficit                                                                                      
  Common stock (Note 13)                                                                   1                         1
  Capital in excess of par value                                                          65                        64
  Accumulated deficit                                                                 (1,622)                     (651)
  Accumulated other comprehensive income                                                   7                         9
  Less:  Treasury stock, at cost                                                        (139)                     (139)
                                                                               -------------               -----------
      Total Shareholders' Deficit                                                     (1,688)                     (716)
                                                                               -------------               -----------
Total Liabilities and Shareholders' Deficit                                    $       3,492               $     4,080
                                                                               =============               ===========
</TABLE>

                See notes to consolidated financial statements.

                                       25
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                (Dollars in millions, except per share amounts)

<TABLE>
<CAPTION>
                        Class A     Class B
                         Common     Common               Capital
                         Stock       Stock                 In                    Accum.     Treasury       Total
                          $.01       $.01                Excess                  Other       Stock        Share-
                          Par         Par      Common    of Par     Retained     Comp.         At        Holders'
                         Value       Value     Stock     Value      Earnings     Income       Cost        Equity
                    ------------  ----------  --------  --------  -----------  ----------   --------   ----------
                           (in thousands)
<S>                 <C>           <C>         <C>       <C>       <C>          <C>          <C>        <C>
Balance
  Dec. 30, 1995          19,210      25,000        $1        $45       $ 758        $10        $(114)       $ 700
 
Net loss                      -           -         -          -        (237)         -            -         (237)
 
Unrealized losses
  on securities, net
  of  reclassification
  adjustment                  -           -         -          -           -         (1)           -           (1)
                                                                                                       -----------
Comprehensive
 loss                                                                                                        (238)
 
Cash dividends
  declared and paid           -           -         -          -          (9)         -            -           (9)
 
Cash dividends
  declared                    -           -         -          -          (3)         -            -           (3)
 
Compensation
  expense on
  stock option
  exercises and
  other share
  exchanges                   -           -         -          5           -          -            -            5
 
Shares repur-
  chased as
  treasury stock         (1,242)          -         -          -           -          -          (25)         (25)
 
Shares issued
  upon exercise
  of options                352           -         -          3           -          -            -            3
 
Shares issued
  upon exercise
  of conversion
  rights                      2           -         -          -           -          -            -            -
                        -------     -------    ------      -----     -------     ------      -------      -------
Balance,
  Dec. 28, 1996          18,322      25,000        $1        $53       $ 509        $ 9        $(139)       $ 433
                        =======     =======    ======      =====     =======     ======      =======      =======
</TABLE>

                See notes to consolidated financial statements.

                                       26
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                (Dollars in millions, except per share amounts)

<TABLE>
<CAPTION>
                         Class A    Class B              Capital
                         Common     Common                 in                                             Total
                          Stock      Stock               Excess                  Accum.    Treasury      Share-
                           $.01       $.01                of        Retained     Other      Stock       Holders'
                           Par        Par      Common      Par      Earnings     Comp.        at         Equity
                          Value      Value     Stock      Value     (Deficit)    Income      Cost       (Deficit)
                       ----------  ---------  --------  --------  ------------  ---------  ---------   ---------
<S>                    <C>         <C>        <C>       <C>       <C>           <C>        <C>         <C> 
                           (In thousands)
Balance
  Dec. 28, 1996           18,322     25,000        $1        $53     $   509         $9       $(139)    $    433
 
Net loss                       -          -         -          -      (1,152)         -           -       (1,152)
 
Unrealized losses
  on securities,  net
  of reclassification
  adjustment                   -          -         -          -           -          -           -            -
                                                                                                        --------
 
Comprehensive
   loss                                                                                                   (1,152)
 
Cash dividends
  declared and paid            -          -         -          -          (3)         -           -           (3)
 
Cash dividends
  declared                     -          -         -          -          (5)         -           -           (5)
 
Grants of restricted
  stock and stock
  Options by
  Majority
  Shareholder
  (Note 17)                    -          -         -         11           -          -           -           11
                       ---------   --------   -------   --------    --------   --------   ---------   ----------
Balance,
  Jan. 3, 1998            18,322     25,000      $  1       $ 64       $(651)      $  9    $   (139)   $    (716)
                       ---------   --------   -------   --------    --------   --------   ---------   ---------- 

Net loss                       -          -         -          -        (971)         -           -         (971)  
 
Unrealized losses
  on securities,  net
  of reclassification
  Adjustment                   -          -         -          -           -         (2)          -           (2)
                                                                                                      ----------
     
Comprehensive                                                                                               (973)
   loss                
 
Grants of restricted
  stock and stock
  Options by
  Majority
  Shareholder
  (Note 17)                    -          -         -          1           -          -         -              1         
                       ---------   --------   -------   --------    --------   --------   ---------   ---------- 
Balance,
  Jan. 2, 1999            18,322     25,000   $     1   $     65    $ (1,622)      $  7    $ (139)     $  (1,688)
                       =========   ========   =======   ========    ========   ========   =========   ==========
</TABLE> 

                See notes to consolidated financial statements.

                                       27
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          52-Week               53-Week              52-Week  
                                                                           Period                Period              Period   
                                                                           Ended                 Ended                Ended   
                                                                    -----------------      ---------------      --------------
                                                                                                                              
                                                                          Jan. 2,               Jan. 3,             Dec. 28,  
(In millions)                                                               1999                  1998                1996    
                                                                    -----------------      ---------------      -------------- 
<S>                                                                 <C>                    <C>                  <C> 
Cash flows used for operating activities:
  Net loss                                                                    $(971)             $(1,152)              $(237)
  Adjustments to reconcile net loss to net cash used for
    operating activities:
      (Income) loss from discontinued operations                                 29                  (18)                (45)
      Provision for disposition of assets of Lechmere, Inc.                       -                  280                   -
      Provision for closing of Wards and Electric Avenue
        & More stores                                                           125                  204                   -
      Provision for other reorganization costs                                   36                   38                   -
      Net receipts of cash relating to disposition of assets of
        Lechmere, Inc. and closing of Wards and Electric
        Avenue & More stores                                                     47                  155                   -
      Depreciation and goodwill amortization                                     95                  119                 128
      Deferred income taxes                                                     299                 (375)               (110)
Changes in operating assets and liabilities:
    Trade and other accounts receivable                                           7                  (28)                (18)
    Accounts and notes receivable from affiliates                                (1)                  (9)                (11)
    Merchandise inventories                                                     163                  191                 225
    Prepaid pension cost                                                        (36)                 (19)                (13)
    Other assets                                                                 44                   33                  48
    Trade accounts payable                                                       (4)                 209                (219)
    Liabilities subject to compromise                                           (44)                 (12)                  -
    Federal income taxes payable, net                                             -                   (4)                 (2)
    Accrued liabilities and other obligations                                    44                   96                 (38)
                                                                    ---------------        -------------        ------------ 
      Net cash used for continuing operations                                  (167)                (292)               (292)
      Net cash provided by (used for) discontinued operations                     4                   66                 (22)
                                                                    ---------------        -------------        ------------ 
      Net cash used for operating activities                            $      (163)       $        (226)       $       (314)
                                                                    ---------------        -------------        ------------
</TABLE>

                See notes to consolidated financial statements.

                                       28
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                        52-Week                 53-Week               52-Week
                                                                         Period                  Period                Period
                                                                         Ended                   Ended                 Ended
                                                                    ---------------         ---------------        --------------
 
                                                                        Jan. 2,                 Jan. 3,               Dec. 28,
(In millions)                                                             1999                    1998                  1996
                                                                    ---------------         ---------------        --------------
<S>                                                                 <C>                     <C>                    <C>
Cash flows used in investing activities:
  Purchase of short-term investments                                      $       -               $       -           $       (2)
  Capital expenditures                                                          (93)                    (47)                 (79)
  Disposition of properties, plants and equipment, net                            -                      12                   19
  Other investments                                                               -                       -                   (9)
                                                                    ---------------         ---------------        -------------- 
    Net cash used in investing activities of
     continuing  operations                                                     (93)                    (35)                 (71)
    Net cash provided by (used in) investing activities of
     discontinued operations                                                     27                     (58)                 (95)
                                                                    ---------------         ---------------        --------------
    Net cash used in investing activities                                       (66)                    (93)                 (166)
                                                                    ---------------         ---------------        --------------
 
Cash flows provided by financing activities:
  Proceeds from issuance of short-term debt, net                                  -                     409                  486
  Borrowings under Post-Petition Loan and Guaranty
    Agreement                                                                   937                     321                    -
  Payments under Post-Petition Loan and Guaranty
    Agreement                                                                  (683)                   (271)                   -
  Restricted cash applied as payments under Long Term
    Credit Agreement                                                            (14)                      -                    -
  Payments of long-term debt                                                     (2)                     (5)                 (56)
  Payments of obligations under capital leases                                  (13)                    (13)                 (12)
  Cash dividends paid                                                             -                      (3)                  (9)
  Proceeds from issuance of common stock                                          -                       -                    3
  Purchase of treasury stock, at cost                                             -                       -                  (20)
                                                                    ---------------         --------------          -------------
    Net cash provided by financing activities of
     continuing operations                                                      225                     438                  392
    Net cash provided by (used for) financing activities
       of discontinued operations                                              (102)                      -                  102
    Net cash provided by financing activities                                   123                     438                  494
                                                                    ---------------         ---------------        --------------
 
Increase (decrease) in cash and cash equivalents                               (106)                    119                   14
Cash and cash equivalents at beginning of period                                164                      45                   31
                                                                    ---------------           -------------        --------------
Cash and cash equivalents at end of period                                $      58               $     164           $       45
                                                                    ===============         ===============        ==============
</TABLE>
                                                                               
                See notes to consolidated financial statements.

                                       29
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

1.   MAJOR ACCOUNTING POLICIES

Business Segments

     Montgomery Ward Holding Corp. ("the Company" or "MW Holding") and its
     wholly owned subsidiary, Montgomery Ward & Co., Incorporated ("Wards"), are
     engaged in retail merchandising. As of January 2, 1999, retail
     merchandising operations are conducted through Wards. The assets of Wards'
     wholly-owned subsidiary, Lechmere, Inc. ("Lechmere") were disposed of in
     fiscal 1997 (see Note 4) and Lechmere's retail merchandising operations
     closed. On February 1, 1999 Wards announced its intention to sell its
     wholly-owned subsidiary, Signature Financial/Marketing, Inc. ("Signature")
     which operates in the direct response marketing segment. See Note 3 for
     information regarding the discontinued direct response marketing
     operations.

Principles of Consolidation; Use of Estimates

     The consolidated financial statements include the Company and all
     subsidiaries. Investments in 20 percent to 50 percent owned affiliates,
     where significant influence exists, are accounted for using the equity
     method. All significant intercompany accounts and transactions are
     eliminated in consolidation. Certain prior period amounts have been
     reclassified to be comparable with the current period presentation.

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets, liabilities, the
     disclosure of contingent assets and liabilities at the date of the
     financial statements, and the reported amounts of revenues and expenses
     during the reporting period. Actual results could differ from those
     estimates.

Fiscal Year

     The Company operates on a 52- or 53- week fiscal year basis. The Company's
     fiscal year ends on the Saturday closest to December 31. The fiscal years
     ended January 2, 1999 and December 28, 1996 included 52 weeks. The fiscal
     year ended January 3, 1998 included 53 weeks.

Cash and Cash Equivalents

     Cash and cash equivalents include cash on hand, time deposits and highly
     liquid debt instruments with an original maturity of three months or less.
     The carrying amount reported in the financial statements for cash and cash
     equivalents approximates the fair value of these assets.

     Cash and cash equivalents includes $8 million and $110 million at January
     2, 1999 and January 3, 1998, respectively, of restricted cash generated
     from the disposition of the assets of Lechmere. The proceeds may be used to
     pay Lechmere's post-petition obligations, or may be used for other purposes
     only pursuant to order of the Bankruptcy Court. In September 1998, Lechmere
     loaned $105 million of its proceeds from the disposition of its assets to
     Signature. In addition, the Company has approximately $5 million and $29
     million at January 2, 1999 and January 3, 1998, respectively, of cash held
     in segregated accounts by various banks who were lenders to the Company
     under the Long Term and Short Term Credit Agreements. This cash is being
     held subject to potential offset, pursuant to the order of the Bankruptcy
     Court.

     In June 1998, $24 million of pre-petition debt and interest under the Long
     Term Credit Agreement and Short Term Credit Agreement was offset against
     this cash.
  

                                       30
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

1.   MAJOR ACCOUNTING POLICIES (CONTINUED)

Cash and Cash Equivalents (continued)

     Following is a summary of cash payments for interest and income taxes and
     non-cash financing and investing activities:

<TABLE>
<CAPTION>
                                                                 52-Week                    53-Week                  52-Week
                                                                  Period                     Period                  Period
                                                                  Ended                      Ended                    Ended
                                                            ----------------            -----------------       ----------------
                                                     
                                                                 Jan. 2,                    Jan. 3,                 Dec. 28,
     (In millions)                                                 1999                       1998                    1996
                                                            ----------------            -----------------       ----------------
     <S>                                                    <C>                         <C>                     <C>     
     Cash paid (refunded) for:                       
       Income taxes                                                 $   3                      $   1                  $ (22)
       Interest                                                        38                         74                    111
                                                                  
     Non-cash financing activities:                               
       Notes issued for purchase of treasury stock                      -                          -                      5
                                                                  
     Non-cash investing activities:                               
       Grants of restricted stock and stock options               
         by majority shareholder                                        1                         11                      -
       Increase in liquidation value of preferred                 
         stock                                                          -                          2                      -
       Changes in unrealized gain on marketable                   
         securities                                                    (2)                         -                     (1)
</TABLE>

Investments of Insurance Operations

     The Company accounts for investments under Statement of Financial
     Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments
     In Debt and Equity Securities". Under SFAS No. 115, all debt and equity
     securities are classified by management as "available-for-sale" and are
     stated at fair market value with all changes in unrealized gains or losses,
     net of applicable income taxes, included in Shareholders' Equity (Deficit).

Merchandise Inventories

     Merchandise inventories consist primarily of merchandise held for resale
     and are valued at the lower of the cost or market using the retail, first-
     in, first-out ("FIFO") method.

Properties, Plants and Equipment

     Depreciation is computed on a straight-line basis over the estimated useful
     life of the asset, with annual rates ranging between 2% and 3% for
     buildings and between 12% and 25% for fixtures and equipment. Leasehold
     improvements and assets under capital leases are amortized on a straight-
     line basis over no longer than the primary term of the lease. Depreciation
     expense includes amortization of assets under capital leases.

                                       31
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

1.   MAJOR ACCOUNTING POLICIES (CONTINUED)

Properties, Plants and Equipment (continued)

     Interest relating to construction in progress is capitalized and amortized
     over the useful life of the property. In 1996, pre-opening costs, which
     were not capital in nature, were expensed upon store openings. No pre-
     opening costs were incurred in 1997 or 1998. Statement of Position ("SOP")
     98-5 "Reporting of Costs of Start-up Activities" requires costs of start-up
     activities to be expensed as incurred. SOP 98-5 is effective for fiscal
     years beginning after December 15, 1998. The Company will expense all costs
     as incurred relating to future store openings. Normal maintenance and
     repairs are expensed as incurred. Major repairs that materially extend the
     lives of properties are capitalized. SOP 98-1, "Accounting for the Costs of
     Computer Software Developed or Obtained for Internal Use," provides
     guidance on accounting for the costs of computer software developed or
     obtained for internal use and requires certain costs incurred to be
     expensed or capitalized depending on the stage of its development and
     nature. This SOP is effective for fiscal years beginning after December 15,
     1998. The Company's current accounting policy complies with this Statement.
     Results of operations and financial position of the Company will be
     unaffected by this new standard.

Impairment of Long-lived Assets

     In the event facts and circumstances indicate the cost of any long-lived
     assets may be impaired, an evaluation of recoverability would be performed.
     If an evaluation is required, the estimated future undiscounted cash flows
     associated with the assets would be compared to the carrying amount of the
     assets to determine if a write-down to market value or discounted cash flow
     value is required.

Interest Rate Exchange and Cap Agreements

     Amounts paid or received pursuant to interest rate exchange and cap
     agreements are deferred and amortized as interest expense or income over
     the remaining life of the applicable agreement.

Income Taxes

     The Company accounts for income taxes in accordance with Statement of
     Financial Accounting Standards No. 109, "Accounting for Income Taxes"
     ("SFAS 109"). SFAS 109 requires the recognition of deferred tax assets and
     liabilities for the expected future tax consequences of temporary
     differences by applying enacted statutory tax rates to differences between
     the financial statement carrying amounts and tax bases of existing assets
     and liabilities. In addition, the amount of any future tax benefits is
     reduced by a valuation allowance to the extent such benefits are not
     expected to be realized on a more likely than not basis.

Advertising Costs

     The Company expenses production costs of print, radio and television
     advertisements on the date the advertising first takes place. Advertising
     expenses included in operating, selling, general and administrative
     expenses were $229 million, $334 million and $373 million for the periods
     ended January 2, 1999, January 3, 1998 and December 28, 1996, respectively.

                                       32
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

1.   MAJOR ACCOUNTING POLICIES (CONTINUED)

Comprehensive Income

     In 1998, the Company adopted Statement of Financial Accounting Standards
     No. 130 ("SFAS 130"), Reporting Comprehensive Income. This statement
     establishes rules for reporting of comprehensive income and its components.
     Comprehensive income (loss) consists of net income (loss) plus unrealized
     holding gains and losses on available-for-sale securities. The adoption of
     SFAS 130 had no impact on total shareholders' equity (deficit). The
     components of the unrealized gains (losses) on securities are as follows:

<TABLE>
<CAPTION>
                                                           52-Week               53-Week              52-Week
                                                            Period               Period                Period
                                                            Ended                 Ended                Ended
                                                       --------------         -------------         -------------  
                                                                                                                   
                                                           Jan. 2,               Jan. 3,              Dec. 28,     
     (In millions)                                           1999                 1998                  1996       
                                                       --------------         -------------         -------------  
     <S>                                               <C>                    <C>                   <C>
     Unrealized holding gains arising during                                                    
       the period                                            $   6                  $   3                  $   2
     Less:  reclassification adjustment for gains                                                    
       included in net income                                   (8)                    (4)                    (2)
                                                        ----------             ----------            -----------
                                                             $  (2)                 $  (1)                 $   -
                                                        ==========             ==========            ===========
</TABLE>

     The unrealized holding gains and the reclassification adjustment for gains
     included in net loss for the period ended January 2, 1999 are net of income
     taxes of $3 million and $5 million, respectively. The income taxes
     associated with the unrealized holding gains and reclassification
     adjustment for gains included in net income for the periods ended January
     3, 1998 and December 28, 1996 are not significant.

2.   REORGANIZATION

     At the close of business on July 7, 1997 (the "Petition Date"), MW Holding
     and certain of its U.S. subsidiaries filed petitions for reorganization
     under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy
     Court for the District of Delaware. These related proceedings are being
     jointly administered under the caption "In re Montgomery Ward Holding
     Corp., a Delaware corporation, et. al.", Case No. 97-1409 (PJW). The
     following U.S. subsidiaries were not included in the bankruptcy filings:
     Signature and its direct and indirect subsidiaries; Marinco Insurance
     U.S.A., Inc. ("Marinco"); and Montgomery Ward Foundation.

     After a long period of negotiation, Wards was unable to reach an out-of-
     court settlement with its lenders. Accordingly, bankruptcy petitions were
     filed in order to obtain an opportunity to reorganize and begin
     implementing the Company's strategies while working to restructure its
     indebtedness. Pursuant to the Post-Petition Loan and Guaranty Agreement
     dated July 8, 1997, among Wards and Lechmere, as borrowers; MW Holding and
     other debtor subsidiaries of MW Holding, as guarantors; General Electric
     Capital Corporation ("GE Capital"), as agent and lender; and various
     lenders, as amended (the "DIP Facility"), the lenders have agreed to
     provide up to $1 billion in post-petition financing to Wards.

                                       33
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

2.   REORGANIZATION (CONTINUED)

     On February 1, 1999, the Company announced its intention to emerge from
     Chapter 11 bankruptcy protection in mid-1999. The Company will file its
     plan of reorganization and disclosure statement with the Bankruptcy Court
     shortly. The plan of reorganization will set forth the means for satisfying
     claims and interests in the Company and its debtor subsidiaries, including
     the Liabilities subject to compromise. Under the reorganization plan, when
     filed, secured and non-tax priority claimholders will generally receive
     cash equal to the amount of their allowed claim. Claims held by unsecured
     creditors and certain allowed vendor claims held by GE Capital will be
     satisfied by cash distributions for a portion of the allowed claims. GE
     Capital will receive a significant equity interest in the Company in
     exchange for its remaining claims. The Company intends to fund its
     distributions under the plan of reorganization principally through funds
     placed in escrow by GE Capital and through the termination of its over-
     funded defined benefit pension plan. The Company expects to repay GE for
     the funds placed in escrow by GE with the proceeds from the sale of
     Signature. The consummation of a plan of reorganization for the Company and
     its debtor subsidiaries will require the requisite vote of impaired
     creditors and stockholders and confirmation by the Bankruptcy Court, which
     is expected to be completed by the Summer of 1999.

     The accompanying consolidated financial statements have been prepared on a
     going concern basis, which contemplates continuity of operations,
     realization of assets and liquidation of liabilities in the ordinary course
     of business. However, as a result of the Chapter 11 filing and
     circumstances relating to this event, including the Company's leveraged
     financial structure and losses from operations, such realization of assets
     and liquidation of liabilities is subject to significant uncertainty. While
     under the protection of Chapter 11, the Company may sell or otherwise
     dispose of assets, and liquidate or settle liabilities, for amounts other
     than those reflected in the financial statements. Further, 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.
 
     The appropriateness of using the going concern basis is dependent upon,
     among other things, confirmation of a plan of reorganization, future
     profitable operations, the ability to comply with the terms of the DIP
     Facility and the ability to generate sufficient cash from operations and
     financing arrangements to meet obligations.

3.   DISCONTINUED OPERATIONS

     On February 1, 1999, Wards announced that GE Capital, a major shareholder
     and creditor, will acquire Signature, Wards' direct marketing response
     operations segment. Signature's results of operations have been classified
     as discontinued operations and prior periods have been restated. The net
     loss for the period ended January 2, 1999 includes the cumulative effect of
     $33 million associated with a change in the method of accounting for the
     printing and mailing of membership material costs. Historically, these
     costs were capitalized and amortized ratably over the membership period as
     revenue is recognized. Effective in fiscal year 1998, these costs were
     expensed upon the mailing of membership materials. The net loss for the
     period ended January 2, 1999 also includes a $31 million charge associated
     with the estimated loss on the sale of its dining operations. In March
     1999, Signature signed a definitive agreement for the sale of its dining
     business to Transmedia Network Inc. Summarized financial data of
     discontinued operations are as follows:

                                       34
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.   DISCONTINUED OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
                                                             52-Week                   53-Week                 52-Week
                                                             Period                    Period                  Period
                                                              Ended                     Ended                   Ended
                                                        --------------             -------------           -------------  
                                                                                                                          
                                                             Jan. 2,                   Jan. 3,                Dec. 28,    
(In millions)                                                 1999                      1998                    1996      
                                                        --------------             -------------           -------------  
<S>                                                    <C>                        <C>                     <C>
Revenues                                                       $ 831                    $ 852                   $ 741
Income (loss) from operations before                          
  income taxes                                                   (29)                      29                      71
Income tax expense                                                 -                      (11)                    (26)
Net income (loss)                                                (29)                      18                      45
</TABLE>

<TABLE>
<CAPTION>
                                                                      January 2,                      January 3,
     (In millions)                                                       1999                            1998
                                                                    --------------                 ---------------   
     <S>                                                            <C>                            <C>
     Net assets of discontinued operations           
                                                     
       Cash and investments                                                 $ 440                           $ 408
       Direct response and insurance acquisition costs                        466                             559
       Other assets                                                           293                             302
       Short-term debt                                                       (105)                           (102)
       Insurance policy claim reserves                                       (234)                           (236)
       Accrued liabilities                                                   (194)                           (199)
                                                                     ------------                   -------------
     Net assets of discontinued operations                                  $ 666                           $ 732
                                                                     ============                   =============
</TABLE>

     The short-term debt balance at January 2, 1999 represents a loan from
     Lechmere (see Note 10).

4.   LIABILITIES SUBJECT TO COMPROMISE

     The principal categories of claims classified as liabilities subject to
     compromise under reorganization proceedings are identified below. All
     amounts below may be subject to future adjustment depending on Bankruptcy
     Court action, further developments with respect to disputed claims,
     determination as to the value of any collateral securing claims, or other
     events. Additional claims may arise resulting from rejection of additional
     executory contracts or unexpired leases by the Company.

                                       35
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

4.   LIABILITIES SUBJECT TO COMPROMISE (CONTINUED)

<TABLE>
<CAPTION>
                                                                     January 2,                  January 3, 
     (In millions)                                                      1999                        1998
                                                                   --------------              --------------  
                                             
     <S>                                                         <C>                         <C>
     Accounts payable                                                     $1,380                      $1,376
     Long Term Credit Agreement                                              603                         603
     Short Term Credit Agreement                                             442                         456
     Note Purchase Agreements                                                276                         276
     Other long-term debt                                                      4                           9
     Obligations under capital leases                                         64                          77
     Lease and other contract rejection claims                               118                         104
     Other liabilities                                                       560                         593
                                                                       ---------                  ----------
                                                                          $3,447                      $3,494
                                                                       =========                  ==========     
</TABLE>

  The Company has $56 million of liabilities due Marinco which have been
  eliminated in consolidation but are subject to compromise.  In addition,
  obligations under capital leases include amounts due Signature of $22 million
  and $26 million at January 2, 1999 and January 3, 1998, respectively.

  In June 1998, upon approval of the Bankruptcy Court, cash held in segregated
  accounts by various banks, who were lenders to the Company under the Long Term
  Credit Agreement and Short Term Credit Agreement, totaling $24 million was
  offset against pre-petition debt ($14 million) and interest ($10 million)
  claims.

  As a result of the bankruptcy filing, no principal or interest payments will
  be made on any pre-petition debt without Bankruptcy Court approval or until a
  reorganization plan defining the repayment terms has been approved.
  Contractual interest expense not recorded on certain pre-petition debt totaled
  $122 million for the period ended January 2, 1999 and $61 million for the
  period from July 8, 1997 through January 2, 1999.

    Prior to the bankruptcy filing, the Company's debt consisted primarily of
  borrowings under the Long Term Credit Agreement, the Short Term Credit
  Agreement and Note Purchase Agreements.  The Company was in default of the
  terms of each applicable loan agreement.  Each of these agreements had a
  maturity date of August 29, 1997 and were to bear interest at varying rates.
  The Company was also in default of the terms of the Seasonal Credit Agreement,
  which was terminated as a result of the Chapter 11 filing.  There were no
  borrowings outstanding under this agreement.  The caption "Accounts payable,"
  included in Liabilities subject to compromise, includes facilities Wards had
  available under vendor financing programs which totaled $725 million.  At June
  28, 1997, these facilities were principally drawn. These facilities are no
  longer available due to the Chapter 11 filing.

  The Company had entered into interest rate exchange and cap agreements with
  various banks to offset the market risk associated with an increase in
  interest rates under both the Long Term and Short Term Credit Agreements.  The
  aggregate notional principal amounts under the interest rate exchange
  agreements was $175 million.  The interest rate exchange agreements were
  terminated upon  the Company's bankruptcy filing.  Pursuant to the early
  termination, the Company incurred a pre-petition liability of $3 million which
  has been included in Liabilities subject to compromise.  The cap agreements,
  which all expired during fiscal 1997, were not terminated early.

                                       36
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

4.   LIABILITIES SUBJECT TO COMPROMISE (CONTINUED)

     As part of the Chapter 11 reorganization process, the Company has attempted
     to notify all known or potential creditors of the Chapter 11 filing for the
     purpose of identifying all pre-petition claims against the Company.
     Generally, creditors whose claims arose prior to the Petition Date had
     until March 2, 1998 ("Bar Date") to file claims or be barred from asserting
     claims in the future. Claims arising from rejection of executory contracts
     and leases by the Company and claims related to certain other items were
     permitted to be filed by other dates set by the Bankruptcy Court.
     Differences between amounts shown by the debtors and claims filed by
     creditors are being investigated and will either be amicably resolved or
     adjudicated. The ultimate amount of and settlement terms for such
     liabilities are subject to the plan of the reorganization when confirmed,
     and accordingly are not presently determinable.

5.   REORGANIZATION COSTS

     Reorganization costs recorded in fiscal 1998 and 1997 consisted of the
     following (in millions):
 
<TABLE>
<CAPTION>
                                                            52-Week                    53-Week         
                                                          Period Ended               Period Ended 
                                                         --------------             --------------    

                                                             Jan. 3,                    Jan. 2,
                                                               1999                       1998
                                                         --------------             --------------    
<S>                                                      <C>                        <C>
Store closings                                                   $ 125                      $ 484
Interim Account Agreement Fees (Note 6)                             30                          3
Professional fees                                                   17                         10
Distribution center closings                                        15                          -
Other                                                               39                         58
Interest income                                                     (8)                        (2)
                                                         --------------             --------------    
                                                                 $ 218                      $ 553
                                                         ==============             ==============  
</TABLE>

     In 1997, Wards announced its exit of its non-core specialty retail
     businesses- Lechmere, Home Image by Lechmere and Electric Avenue & More and
     the closing of 53 underperforming retail stores and four outlet and
     liquidation centers. In 1998, Wards announced the closing of nine stores.
     1998 store closing charges include 9 stores closed during 1998 and 39 store
     closings that will be completed in 1999. Sales of automotive products and
     services were discontinued in 17 operating retail stores in January 1999.
     The charges associated with these restructuring efforts included losses and
     costs associated with the liquidation of assets, lease rejection claims,
     severance payments, and other related expenses.

     Professional fees incurred consisted of consulting and legal fees for
     bankruptcy activity and restructuring efforts on behalf of the Company and
     Creditors' Committee.

     Distribution center closings include expenses associated with the closing
     and downsizing of facilities including the losses on liquidation of assets,
     lease rejection claims, severance payments, and other related expenses.

     Other reorganization costs represent expenses associated with retention
     bonuses, severance and other expenses.

                                       37
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

6.   ACCOUNTS AND NOTES RECEIVABLE FROM AFFILIATES

     Wards entered into a Bank Credit Card Program Agreement ("Card Agreement")
     effective April 1, 1996 with Monogram Credit Card Bank of Georgia
     ("Monogram"), and an Account-Related Agreement ("Account Related
     Agreement") effective April 1, 1996 with Montgomery Ward Credit Corporation
     ("Montgomery Ward Credit") (collectively referred to as the "Agreements")
     pursuant to which Monogram and Montgomery Ward Credit (collectively
     referred to as the "Montgomery Ward Credit Companies" or "MWCC"), both of
     which are affiliates of GE Capital provide services to Wards, and MWCC
     makes payments to Wards as to their receivables generated by sales to
     customers of Wards, its affiliates and licensees who utilize the Wards
     private label credit card.

     Under the Agreements, Monogram has the exclusive right to operate the
     Wards' private label credit card system and the obligation to pay to Wards
     the face amount of Monogram's receivables generated by the Wards private
     label credit card system, up to $7 billion outstanding at any time. Sales
     of receivables to Montgomery Ward Credit under the prior arrangements, and
     payments with respect to receivables under the current Agreements, were
     $2.1 billion, $2.6 billion and $3.6 billion for the periods ended January
     2, 1999, January 3, 1998 and December 28, 1996, respectively. At January 2,
     1999 and January 3, 1998, there were $3.3 billion and $4.2 billion,
     respectively, of Wards credit card receivables owned by Montgomery Ward
     Credit Companies. Amounts receivable from Monogram in connection with such
     receivables are included in Accounts and notes receivable from affiliates.

     Under the Card Agreement, Wards is required to pay Monogram the excess
     interest costs on a monthly basis if a blended interest rate applicable to
     funding costs with respect to the receivables exceeds 10% per annum. This
     blended interest rate has been less than 10% since 1988.

     Should Montgomery Ward Credit Companies, or their guarantor GE Capital,
     fail to perform their obligations under the Agreements, Wards would suffer
     an accounting loss up to the amount of Wards' share of finance charges and
     late fees (as described below), net of applicable reserves carried by
     Montgomery Ward Credit. Wards estimates that any accounting loss would be
     immaterial at January 2, 1999. Montgomery Ward Credit Companies'
     obligations under the Agreements are not collateralized.

     Wards generally bears a portion of the risk of credit losses due to non-
     payment by cardholders up to a maximum of 2.6% of average outstanding
     receivables, subject to offsets relating to Wards' share of certain
     incremental increases in finance charges and late fees payable by
     cardholders. Wards is also responsible for losses on certain higher risk
     starter card accounts to the extent the loss percentage as to those
     accounts exceeds the loss percentage experience of the rest of the
     portfolio.

     Wards' net unpaid liability for credit losses for 1991 through 1998 are to
     be payable to Montgomery Ward Credit pursuant to a note ("Continuation
     Note") due in early 2003, provided that the outstanding balance of such
     note cannot exceed $300 million. A remaining note in the amount of $15
     million, consisting of losses incurred after July 7, 1997 for the remaining
     portion of 1997, was executed which provides for monthly principal payments
     in the amount of 5% of the scheduled monthly principal payments for the
     Continuation Note. Starter card losses are payable currently. Interest on
     Wards' unpaid liability for credit losses is to be payable at the monthly
     GE commercial paper rate. Interest on notes outstanding as of July 7, 1997,
     has been stayed by the Chapter 11 proceeding.

                                       38
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

6.   ACCOUNTS AND NOTES RECEIVABLE FROM AFFILIATES (CONTINUED)

     In exchange for Wards' agreement to allow MWCC to increase finance charge
     rates and late fees in selected states, Wards receives a share of
     incremental finance charges and late fees resulting from such increases.
     Such amount is available for offset against Wards' unpaid liability for its
     share of credit losses, and to the extent not currently paid or offset
     earns interest at the same rate as amounts owned by Wards to Montgomery
     Ward Credit. In the event that, due to the increase in finance charge rates
     and late fees, refunds are required to be made, Wards and MWCC have agreed
     in certain cases to share the financial risk.

     In connection with the foregoing arrangements, Wards owes $72 million for
     1998 credit losses offset by incremental finance charges and late fee
     assessments. Wards has previously executed notes for certain of its unpaid
     share of credit losses through 1997, offset by incremental finance charges
     and late fee assessments due to Wards for a net obligation of $300 million.
     At January 2, 1999 and January 3, 1998, $288 million of the net obligation
     is included in Liabilities subject to compromise and the remainder of the
     net obligation of $84 million and $40 million at January 2, 1999 and
     January 3, 1998, respectively, is included in Accrued liabilities and other
     obligations. As the $300 million threshold has been reached, it is expected
     that future payments may be required depending upon the level of credit
     card losses.

     The Agreements are scheduled to expire on December 31, 2011, provided the
     terms shall continue thereafter from year to year unless either party gives
     ten years prior notice of its election to terminate. Except upon the
     occurrence of certain events of default, the Agreements may generally not
     be terminated by either party prior to December 31, 2011.

     On April 3, 1998, the Bankruptcy Court approved an interim amendment to the
     Bank Program and Account- Related Agreements ("Interim Account Agreement")
     that provides the Company the ability to utilize the private label credit
     card through the expected duration of the Company's Chapter 11 status. The
     Interim Account Agreement provides for additional payments to Montgomery
     Ward Credit Corporation ("Montgomery Ward Credit"), an affiliate of General
     Electric Capital Corporation, of $2.5 million for the months of January
     1998 through June 1998, $3.0 million per month for the remainder of 1998,
     $2.5 million per month from January 1999 though June 1999, and $2.0 million
     per month from July 1999 through December 1999.

     Wards is obligated to make all such payments through December 1999 whether
     the Interim Amount Agreement is terminated or not, except in the
     termination circumstance where the Company would be liquidated or when
     certain defaults occur, then payments shall be made through the later of
     the date of termination or the last Thursday in June 1999. The Interim
     Account Agreement will terminate on the earliest of the following events:
     (a) the date the Bankruptcy Court enters an order for rejection of the
     Agreements, (b) the sale of the portfolio of receivables covered by the
     Agreements, (c) the date the Bankruptcy Court enters an order for
     assumption of the Agreements, provided Montgomery Ward Credit may withdraw
     its consent to assumption at any time prior to such an order, (d) if the
     Bankruptcy Court enters an order authorizing Wards to discontinue all of
     its retail operations or converts the case to Chapter 7, (e) upon certain
     defaults by the Company or Wards or default by Monogram or Montgomery Ward
     Credit, or (f) December 31, 1999.

                                       39
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

7.   RETIREMENT PLANS

     Retirement plans cover a majority of full-time associates of Wards and its
     subsidiaries. Retirement benefits are provided through a defined benefit
     pension plan and a defined contribution plan. In addition, certain
     associates who retire after participation in the retirement plan for ten
     years and who were members of the health care plan for the year prior to
     retirement are eligible for certain post-retirement health care benefits,
     the cost of which is shared with the retirees. Certain associates who
     retired before January 1, 1996 are eligible for post-retirement life
     insurance benefits. The post-retirement healthcare benefits cease at age 65
     for associates who retire on or after January 1, 1996 and who do not meet
     certain age and service requirements. In 1992, the Company established a
     limit on its future annual contributions on behalf of retirees at a maximum
     of 125% of the projected 1992 company contributions. The Company continues
     to evaluate ways in which it can better manage retiree benefits and control
     costs. Any changes in the plan or revisions to assumptions that affect the
     amount of expected future benefits may have a significant effect on the
     amount of the reported obligation and annual expense.

<TABLE>
<CAPTION>
                                                                PENSION                          POST-RETIREMENT 
                                                                BENEFITS                             BENEFITS     
                                                    -------------------------------     --------------------------------
                                                          1998              1997              1998               1997        
                                                    -------------     -------------     --------------     -------------      

     <S>                                            <C>               <C>               <C>                <C>     
     CHANGE IN BENEFIT OBLIGATION              
     Benefit obligation at beginning of year            $  691             $ 677              $ 109             $ 119
     Service cost                                           11                11                  1                 1
     Interest cost                                          45                48                  6                 8
     Benefit payments                                      (70)              (66)                (8)               (8)
     Actuarial (gains)/losses                               (8)               42                (12)              (10)
     Plan amendments                                         -               (21)                (2)               (1)
                                                    -------------     -------------     --------------     -------------
     Benefits obligation at end of year                 $  669             $ 691              $  94             $ 109
                                                    -------------     -------------     --------------     -------------
                                               
     CHANGE IN PLAN ASSETS                     
     Fair value of plan assets at beginning             $  967             $ 946
     of year                                   
     Actual return on plan assets                          234                87
     Benefits paid                                         (70)              (66)
                                                    -------------     -------------
     Fair value of plan assets at end of year           $1,131             $ 967
                                                    =============     =============
                                               
     Funded status                                      $  462             $ 277              $ (94)            $(109)
     Unrecognized net actuarial (gain)/loss                (49)              103                (25)              (14)
     Unrecognized prior service cost                       (11)              (14)               (15)              (15)
                                                    -------------     -------------     --------------     -------------
     Prepaid (accrued) benefit cost                     $  402             $ 366              $(134)            $(138)
                                                    =============     =============     ==============     =============
                                               
     WEIGHTED-AVERAGE ASSUMPTIONS AS OF YEAR   
     END                                       
     Discount rate for obligation                         6.75%             7.00%              6.75%             7.00%
     Expected return on plan assets                       9.50%             9.50%                 -                 -
     Rate of compensation increase                        3.00%             3.00%                 -                 -
</TABLE>

                                       40
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
7.   RETIREMENT PLANS  (CONTINUED)

Components of net periodic benefit cost are as follows:

<TABLE>
<CAPTION>
                                                              PENSION                          POST-RETIREMENT
                                                              BENEFITS                             BENEFITS
                                                 -------------------------------     -----------------------------------
                                                       1998              1997               1998                1997
                                                 -------------     -------------     ---------------     ---------------
     <S>                                         <C>               <C>               <C>                 <C>   
     COMPONENTS OF NET PERIODIC BENEFIT   
       (INCOME) EXPENSE                   
     Service cost                                    $  11             $  11               $   1               $   1       
     Interest cost                                      45                48                   6                   8      
     Expected return on assets                         (90)              (80)                 (2)                 (1)     
     Amortization of prior service cost                  -                (1)                 (1)                 (1)     
     Amortization of actuarial loss/(gain)              (2)                3                   -                   -      
                                                 -------------     -------------     ---------------     --------------- 
     Net periodic benefit (income) expense           $ (36)            $ (19)              $   4               $   7       
                                                 =============     =============     ===============     ===============
</TABLE> 

     The Company provides a 401(k) defined contribution plan to eligible
     employees. Company matching contributions amounted to $2 million, $4
     million and $6 million for the periods ended January 2, 1999, January 3,
     1998 and December 28, 1996, respectively.

     The assumed health care cost trend rate and the impact of a 1% change in
     the medical trend rate on the accumulated post-retirement benefit
     obligation, service cost and interest cost are not applicable due to caps
     established on current cost levels.

     A motion was approved by the Bankruptcy Court on February 19, 1999, which
     would allow the Company to spin-off and then terminate a portion of its
     over-funded defined benefit pension plan in order to partially fund its
     distributions under its plan of reorganization. Annuities will be purchased
     to fund the benefits of active, terminated and retired associates. A
     portion of the excess benefits will be contributed to a replacement plan
     for active associates. Subject to government approval, the remaining assets
     will revert to the Company, after payment of applicable taxes. In
     connection with the termination of the plan, the Company estimates it will
     incur a loss in excess of $100 million in 1999.

8.   PROPERTIES, PLANTS AND EQUIPMENT

     The details of the properties, plants and equipment accounts at cost are
     shown below:

<TABLE>
<CAPTION>
                                                                                   Jan. 2,                   Jan. 3,
      (In millions)                                                                 1999                       1998
                                                                           --------------------       -------------------
      <S>                                                                  <C>                        <C>
      Land                                                                         $ 154                    $  162        
      Buildings                                                                      712                       768        
      Leasehold improvements                                                         243                       275        
      Fixtures and equipment                                                         450                       462        
      Deferred software costs                                                         70                        39        
      Assets under capital leases                                                    123                       143        
      Less accumulated depreciation and amortization                                (789)                     (797)        
                                                                           --------------------       -------------------
      Properties, plants and equipment, net                                        $ 963                    $1,052
                                                                           ====================       ===================
</TABLE>
                                                                               

                                       41
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

8.   PROPERTIES, PLANTS AND EQUIPMENT (CONTINUED)

     Depreciation expense for properties, plants and equipment was $94 million,
     $117 million and $124 million for the periods ended January 2, 1999,
     January 3, 1998 and December 28, 1996, respectively. Assets held for
     disposition, representing primarily closed retail and warehouse facilities,
     of $82 million and $76 million at January 2, 1999 and January 3, 1998,
     respectively, are included in Other assets. Losses of $42 million and $16
     million for the periods ended January 2, 1999 and January 3, 1998,
     respectively, which are included in Reorganization Costs, were recognized
     in connection with the write-down of these properties to their net
     realizable values.

9.   INCOME TAXES

     As of January 2, 1999, the Company has a tax credit of $831 million
     attributable to net operating loss ("NOL") carryforwards available, which
     expire beginning in 2007; targeted jobs tax credit ("TJTC") carryforwards
     of $7 million, which expire beginning in 2009; alternative minimum tax
     ("AMT") credits of $3 million available to offset future federal income tax
     liabilities; and capital loss carryforward credits of $3 million expiring
     in 2002.

     At year-end 1997, management evaluated the realizability of the tax
     carryforwards and established a valuation reserve based upon its tax
     planning strategy of selling certain appreciated, non-operating assets,
     prior to emerging from Chapter 11, to avoid the carryforwards expiring
     without being used. During the third quarter of 1998, management determined
     that the tax benefits will more likely be realized through emergence from
     bankruptcy and the related expected restructuring of liabilities. As a
     result of the foregoing, the Company increased its valuation allowance by
     $299 million at January 2, 1999, since the consolidated financial
     statements do not give effect to adjustments that might result from a plan
     of reorganization. It is anticipated that the implementation of a plan of
     reorganization would significantly reduce or eliminate the amount of tax
     credits available.

     The approximate tax effects of temporary differences and carryforwards that
     give rise to the net deferred tax asset are as follows:

<TABLE>
<CAPTION>
                                                                                    Jan. 2,                     Jan. 3,
      (In millions)                                                                  1999                        1998
                                                                          ------------------------       -------------------
      <S>                                                                   <C>                            <C>
      Accrued liabilities                                                      $            262             $         114   
      Postretirement benefits                                                                47                        48   
      Insurance reserves                                                                     54                        57   
      Other deferred tax assets                                                               7                        13    
                                                                          ------------------------       -------------------
            Total deferred tax assets                                                       370                       232
                                                           
      Prepaid pension contribution                                                         (146)                     (131)
      Net deferred liabilities of discontinued operations                                  (148)                     (185)
      Properties, plants and equipment                                                     (148)                     (117)
      Other deferred tax liabilities                                                        (19)                      (39)
                                                                          ------------------------       -------------------
            Total deferred tax liabilities                                                 (461)                     (472)
                                                           
      NOL, TJTC, AMT and capital loss credit carryforwards                                  831                       744
      Valuation allowance                                                                  (740)                     (205)
                                                                          ------------------------       -------------------
        Net deferred tax asset                                                 $              -             $         299
                                                                          ========================       ===================
</TABLE>
                                                                               

                                       42
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
9.   INCOME TAXES (CONTINUED)

     Income tax expense (benefit) consists of:

<TABLE>
<CAPTION>
                                                                   52-Week                   53-Week                  52-Week
                                                                    Period                   Period                   Period
                                                                    Ended                     Ended                    Ended
                                                            --------------------      ------------------        ----------------

                                                                   Jan. 2,                   Jan. 3,                 Dec. 28,
      (In millions)                                                 1999                      1998                     1996
                                                            --------------------      ------------------        ----------------
      <S>                                                   <C>                       <C>                       <C>   
      Federal                                       
        Current                                                $             2         $             2            $          2   
        Deferred                                                           299                    (372)                   (160)  
      State, local and foreign                                               5                     (16)                     (6)   
                                                            --------------------      ------------------        ----------------
        Income tax expense (benefit) before         
          discontinued operations                                          306                    (386)                   (164)  
        Income tax expense related to discontinued                                                                              
          operations                                                         -                      11                      26   
                                                            --------------------      ------------------        ----------------
      Total income tax expense (benefit)                       $           306         $          (375)           $       (138)   
                                                            ====================      ==================        ================
</TABLE>

     A reconciliation of the statutory to effective federal income tax rate is
     as follows:

<TABLE>
<CAPTION>
                                                                   52-Week              53-Week               52-Week
                                                                    Period              Period                 Period
                                                                    Ended                Ended                 Ended
                                                              ---------------     ----------------      -----------------
 
                                                                   Jan. 2,              Jan. 3,               Dec. 28,
                                                                     1999                1998                   1996
                                                              ---------------     ----------------      -----------------
      <S>                                                     <C>                 <C>                   <C>
      Federal income tax rate                                        (35)%                (35)%                  (35)%     
      State taxes, net of reduction of federal tax                                                                        
        and NOL benefit                                                1                   (1)                    (1)     
      Tax credits                                                      -                    -                     (2)     
      Permanent differences                                            1                    -                      1      
      Change in valuation allowance                                   81                   11                      -       
                                                              ---------------     ----------------      -----------------
      Effective income tax rate                                       48%                 (25)%                  (37)%      
                                                              ===============     ================      =================     
</TABLE>

                                       43
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.  SHORT-TERM AND LONG-TERM DEBT

     The long-term debt of Wards and its subsidiaries is as follows:

<TABLE>
<CAPTION>
                                                                                    Jan. 2,                     Jan. 3,
      (In millions)                                                                   1999                       1998
                                                                            ----------------------      ---------------------
      <S>                                                                   <C>                         <C>   
      Wards                                                         
        Post-Petition Loan and Guaranty Agreement                             $               -            $            50   
                                                                                                                             
      Wards' Real Estate Subsidiaries                                                                                        
        11.50% Secured Note, due serially to September 1, 2001                               11                         11   
        7.50% Secured Note, due serially to November 30, 2002                                 5                          5   
        9.45% Secured Notes, due serially to November 30, 2003                               14                         14   
        7.75% Secured Notes, due serially to August 31, 2004                                 15                         16   
        7.875% Secured Notes, due serially to December 15, 2005                               7                          7   
        9.00% Secured Notes, due serially to January 1, 2006                                 11                         11   
        Other                                                                                 7                          8    
                                                                            ----------------------      ---------------------
      Total long-term debt                                                                   70                        122   
      Less:  current portion                                                                 24                         14    
                                                                            ----------------------      ---------------------
                                                                              $              46            $           108
                                                                            ======================      =====================  
</TABLE>
                                                                                
     Maturities of long-term debt for the five years succeeding January 2, 1999
     are as follows: 1999--$24 million, 2000--$11 million, 2001--$10 million,
     2002--$9 million, 2003--$8 million, and thereafter --$8 million.

     Based on the borrowing rates currently available to the Company for bank
     loans with similar terms and average maturities, the carrying value of
     long-term debt approximates fair value.

     Wards entered into the Post-Petition Loan and Guaranty Agreement ("DIP
     Facility") on July 8, 1997, as amended, which was approved by the
     Bankruptcy Court on July 31, 1997. Under the DIP Facility, the lenders have
     agreed to provide a revolving credit and letter of credit facility, the
     maximum amount of which is based on the book value of eligible inventory
     (as defined in the DIP Facility), the fair market value of eligible real
     property (as defined in the DIP Facility) and the earnings of Signature. In
     no case may borrowings exceed $1 billion. Wards had borrowed $304 million
     under the DIP facility at January 2, 1999 which has been classified as
     short-term debt due to the facility expiring on July 7, 1999. Total letters
     of credit outstanding were $108 million at January 2, 1999. The Company had
     $363 million of borrowing availability under the DIP Facility at January 2,
     1999.

     Under the DIP Facility, Wards may select among several interest rate
     options, all of which are based on market rates plus a margin, as amended.
     A commitment fee is payable based on the unused amount of the facility. The
     facility expires on July 7, 1999, or earlier in the case of an event of
     default. The Company is currently in default of the terms of each of the
     Long Term Credit Agreement, the Short Term Credit Agreement and the Note
     Purchase Agreements and no future amounts may be drawn thereunder. The
     Company was also in default of the Seasonal Credit Agreement, which was
     terminated as a result of the Chapter 11 filings. There were no borrowings
     outstanding under this agreement.

                                       44
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        

10.  SHORT-TERM AND LONG-TERM DEBT (CONTINUED)

     On February 20, 1998, Wards obtained a waiver and second amendment to the
     DIP Facility (the "Waiver and Second Amendment Agreement") which was
     approved by the Bankruptcy Court on March 31, 1998. The Waiver and Second
     Amendment Agreement waived and amended certain provisions of the DIP
     Facility, including a reduction in the level of earnings required, as
     defined in the DIP Agreement.

     Effective November 9, 1998, Wards obtained a Third Amendment to the DIP
     Facility ("Third Amendment Agreement") which was approved by the Bankruptcy
     Court on February 1, 1999. The Third Amendment Agreement amended certain
     provisions of the DIP Facility , including an increase in the interest rate
     margin and a reduction in the level of earnings required, as defined in the
     DIP Agreement.

     On September 15, 1998, the Company received approval from the Bankruptcy
     Court to permit Lechmere to lend Signature the funds to repay its
     borrowings of $102 under a Credit Agreement between Signature and various
     lenders, plus interest and other fees associated with the extension and
     refinancing of such agreement. On September 30, 1998, Signature's loan
     under the Credit Agreement was repaid from the $105 of funds advanced by
     Lechmere to Signature. The Lechmere loan to Signature, which accrues
     interest at either the prime rate plus 1.75% or the LIBO rate plus 2.75%,
     is secured by a pledge of stock of certain Signature subsidiaries and is
     guaranteed by Wards. Such guarantee is subordinate to the DIP Facility. The
     loan shall become immediately due upon the earliest of (i) upon demand;
     (ii) the effective date of a plan of reorganization for the debtor
     subsidiary; (iii) the conversion of the bankruptcy case from a Chapter 11
     case to a Chapter 7 case under the Bankruptcy Code; (iv) the sale of all or
     substantially all of Signature's assets, the merger or consolidation of
     Signature with or into another entity, or the sale of more than 50% of an
     interest in Signature to another entity; or (v) December 31, 1999.

     The Secured Notes of the real estate subsidiaries are secured by mortgage
     liens and/or assignments of rental agreements whereby the real estate
     subsidiaries have assigned to trustees certain monies payable under leases
     with Wards. As the Secured Notes of the real estate subsidiaries are
     adequately collateralized by the respective properties, these obligations
     are not considered subject to compromise.

11.  LEASES

     The Company leases real and personal property principally through
     noncancelable capital and operating leases, which generally provide for the
     payment of minimum rentals and, in certain instances, executory costs and
     additional rentals based upon a percentage of sales. The terms of the real
     estate leases typically contain renewal +options for additional periods.

                                       45
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        

11.  LEASES (CONTINUED)

     At January 2, 1999, the minimum lease payments under all noncancelable
     operating leases with an initial term of more than one year, not including
     $16 million of future sublease rentals, and under capital leases are as
     follows:

<TABLE>
<CAPTION>
                                                               Capital                     Operating
      (In millions)                                             Leases                      Leases
                                                      -----------------------      -----------------------
      <S>                                             <C>                          <C>
      1999                                               $             17             $             70     
      2000                                                             15                           61     
      2001                                                             14                           51     
      2002                                                             14                           45     
      2003                                                             12                           41     
      Thereafter                                                       18                          286      
                                                      =======================      -----------------------
        Total Minimum Lease Payments                      $            90             $            554     
                                                                                   =======================
      Less: Executory costs, principally real  
        estate taxes to be paid by the lessor                          (2)    
      Less: Imputed interest                                          (24)     
                                                      -----------------------
      Present value of net minimum capital    
        lease payments including portion due  
        within one year of $6                            $             64
                                                      =======================
</TABLE>

     The obligations under capital leases have been included in Liabilities
     subject to compromise at January 2, 1999 and January 3, 1998.

     Net rent expense charged to earnings was $91 million, $128 million and $124
     million for the periods ended January 2, 1999, January 3, 1998 and December
     28, 1996, respectively, after deducting rentals from subleases of $7
     million, $9 million and $10 million for the periods ended January 2, 1999,
     January 3, 1998 and December 28, 1996, respectively. Rent expense includes
     contingent lease rentals for capital and operating leases of $4 million, $7
     million, and $10 million for the periods ended January 2, 1999, January 3,
     1998 and December 28, 1996, respectively. These contingent lease rentals
     are generally based on sales revenues.

     Some rental agreements contain escalation provisions that may require
     higher future rent payments. Rent expense incurred under rental agreements
     which contain escalation clauses is recognized on a straight-line basis
     over the life of the lease. 

                                       46
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        

12.  REDEEMABLE PREFERRED STOCK

     On December 29, 1995, Wards issued 1,750 shares of senior preferred stock
     ("MW Senior Preferred Stock"), par value of $1.00 per share, to GE Capital
     in exchange for $175 million in cash. Subsequent to year end 1995, Wards
     used a portion of the proceeds to finance the purchase of the Amoco Motor
     Club by its wholly-owned subsidiary, Signature. The subscription agreement
     for the MW Senior Preferred Stock contained an exchange option which gave
     GE Capital the option to exchange the MW Senior Preferred Stock for senior
     preferred stock of the Company with substantially the same terms. On
     January 31, 1996, GE Capital exercised this exchange option. On March 29,
     1996, the Company issued 1,750 shares of senior preferred stock ("Senior
     Preferred Stock") to GE Capital in exchange for the 1,750 shares of MW
     Senior Preferred Stock held by GE Capital. Dividends on the Senior
     Preferred Stock are payable quarterly at an annual rate of $7,010 per
     share. The Company is required to redeem the Senior Preferred Stock on June
     30, 2002, with the option of redeeming all or any portion prior to June 30,
     2002.

     On March 4, 1997, GE Capital, Wards and Lechmere amended the Program
     Agreement under which GE Capital provided funds to Wards and Lechmere to
     pay manufacturers and distributors of goods purchased by Wards and
     Lechmere. In exchange for a $150 million increase in the maximum amount of
     funds GE Capital agreed to provide, MW Holding agreed to issue shares of a
     new series of preferred stock having a liquidation value of $21 million. On
     April 1, 1997, GE Capital further increased its funding under the Program
     Agreement by $100 million and the Board of Directors of MW Holding agreed
     to issue additional shares of the new series of preferred stock.

     At its Annual Meeting held on May 29, 1997, the stockholders of MW Holding
     approved an amendment to its Certificate of Incorporation authorizing the
     issuance of up to 25,000 shares of preferred stock. The amendment allows
     future issuances of preferred stock by action of the Board of Directors
     without the need for further action by the stockholders. The Board of
     Directors designated 1,000 shares of the newly authorized preferred stock
     to be Series C Preferred Stock and MW Holding issued 352 shares of the
     Series C Preferred Stock to GE Capital in full payment of the obligations
     described above.

     All of the Series C Preferred Stock is required to be redeemed on September
     30, 2002 at a redemption price of $100,000 per share (the "Liquidation
     Value") plus unpaid accrued dividends. Dividends are payable quarterly at a
     rate per annum equal to 15%, with the first payment based on the number of
     days from and including March 4, 1997. If for any reason the full dividend
     on any payment date is not paid in cash on such date, the unpaid amount
     thereof will automatically, without further action, be deemed added to the
     Liquidation Value. MW Holding did not pay the dividend due June 30, 1997 of
     $2 million and such amount has been added to the liquidation value of the
     Series C Preferred Stock.

     MW Holding also did not pay dividends due on June 30, 1997 on its Senior
     Preferred Stock. The redemption provisions of the Series C and Senior
     Preferred Stock have been stayed by the Chapter 11 proceedings. No further
     dividends will be declared or paid on the Series C or Senior Preferred
     Stock prior to the approval of a plan of reorganization.

                                       47
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        

13.  COMMON STOCK

     As of January 2, 1999, the Company has the following authorized classes of
     common stock:

          Class A Common Stock, Series 1; $.01 par value; 25,000,000 shares
          authorized; 18,222,706 shares issued and outstanding, net of 6,777,294
          shares held in treasury.

          Class A Common Stock, Series 2; $.01 par value; 5,412,000 shares
          authorized; 99,446 shares issued and outstanding, net of 2,118,185
          shares held in treasury.

          Class A Common Stock, Series 3; $.01 par value; 12,400,000 shares
          authorized; no shares issued or outstanding.

          Class B Common Stock; $.01 par value; 25,000,000 shares authorized,
          issued and outstanding; all owned by GE Capital.

     The Company has repurchased 5,982,897 shares held by certain former
     officers of the Company, Wards and Signature and their permitted
     transferees by making cash payments and issuing installment notes in the
     aggregate of approximately $54 million. As of January 2, 1999, the
     outstanding balance of these notes was $7 million. These installment notes
     bear interest at varying rates, are payable over multi-year periods
     (generally three to five years) and are secured by shares of common stock.
     These notes are classified as Liabilities subject to compromise. The
     Company does not have the capacity under its borrowing agreements to
     satisfy the payments for these notes. A noteholder may foreclose on the
     pledge of shares repurchased if note payments are not made within one year
     of becoming due; provided, however that the foreclosure remedy has been
     stayed by the Chapter 11 filing. The escrow accounts holding the shares of
     common stock have been closed and the stock is now being held by the
     noteholders.

     Each share of Class B Common Stock entitles the holder thereof to one vote.
     All shares of Class A Common Stock entitle the holders to a total of
     25,000,000 votes, or one vote per share if the total number of Class A
     shares issued and outstanding is less than 25,000,000.

     In 1997, the Company adopted Statement of Financial Accounting Standards
     Number 128, "Earnings per Share" ("FAS 128"). FAS 128 requires the
     presentation of "basic" earnings per share (income applicable to common
     shareholders divided by the weighted-average number of common shares
     outstanding during the period) and "diluted" earnings per share (which
     gives effect to all dilutive potential common shares that were outstanding
     during the period). All prior-period earnings per share data have been
     restated to conform to FAS 128. Basic and diluted earnings per share are
     the same for the periods ended January 2, 1999, January 3, 1998

                                       48
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        

13.  COMMON STOCK (CONTINUED)

     and December 28, 1996, as all common stock equivalents are antidilutive,
     due to the net loss incurred during these periods.

<TABLE>
<CAPTION>
                                             For the 52-Week                 For the 53-Week                 For the 52-Week
      (In millions,                            Period Ended                    Period Ended                   Period Ended
        except share                          January 2, 1999                 January 3, 1998                December 28, 1996
                                   --------------------------------    ----------------------------    ---------------------------
        and per share   
        amounts)                         Class A         Class B         Class A         Class B         Class A         Class B
                                   ----------------   -------------    ----------------------------    ---------------------------
      <S>                          <C>                 <C>             <C>             <C>             <C>             <C> 
      Net loss applicable to
        common shareholders            $       481     $       490     $       580     $       580     $       118     $       131
      Weighted average number
        of common shares 
        outstanding                     18,322,173      25,000,000      18,322,247      25,000,000      18,710,601      25,000,000
 
      Net loss per              
        common share,           
      Before discontinued       
        operations                     $    (25.46)    $    (18.99)    $    (32.17)    $    (23.54)    $     (7.48)    $    (6.17)
      Discontinued operations                 (.79)           (.59)            .50             .37            1.15             .95
                                   ----------------    ------------    ------------    ------------    ------------    -----------  
                                       $    (26.25)    $    (19.58)    $    (31.67)    $    (23.17)    $     (6.33)    $    (5.22)
                                   ================    ============    ============    ============    ============    ===========  
</TABLE>

14.  STOCK OWNERSHIP PLAN
 
     The Montgomery Ward & Co., Incorporated Stock Ownership Plan was adopted
     effective July 19, 1988. A total of 1,000,000 Class A Common Stock, Series
     1, 5,412,000 shares of Class A Common Stock, Series 2, and 12,400,000
     shares of Class A Common Stock, Series 3, have been reserved for issuance
     under the plan. Key associates of Wards and its subsidiaries are eligible
     to participate and may receive awards, purchase rights and options. Awards
     are grants of shares for no consideration. The Stock Ownership Plan expired
     on July 19, 1998 and, therefore, no additional stock options may be granted
     thereunder.

     During 1991, the Board of Directors approved the Directors Plan. The
     Directors Plan was established to, among other things, allow outside
     directors to receive all or any portion of the fees for their services as
     directors of the Company and Wards via conversion rights in Series 1 or
     Series 2 shares. In 1998, no shares were issued from treasury stock as
     payment for directors fees. In 1997 and 1996, 706 and 2,421 Series 1 shares
     were issued from treasury stock as payment for directors fees,
     respectively.

                                       49
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        

14.  STOCK OWNERSHIP PLAN (CONTINUED)

     Following is a summary of activity under the plans:

<TABLE>
<CAPTION>
                                          January 2,                          January 3,                           December 28,     
                                            1999                                1998                                  1996          
                                --------------------------------     -------------------------------     ---------------------------
                                                        Wtd.                                Wtd.                            Wtd.    
                                     Shares             Avg.             Shares             Avg.              Shares        Avg.    
                                      (000)         Ex. Price            (000)           Ex. Price             (000)       Ex. Price
                                -------------      -------------     ------------      -------------     --------------   ----------
<S>                             <C>                <C>               <C>               <C>               <C>               <C>   
      Outstanding,                                                                                                                  
        beg. of year                    6,761             $11.64            4,338             $17.87              5,165       $17.61
        Granted                             -                  -            4,721               7.32                340        23.95
        Exercised                           -                  -                -                  -               (352)        9.52
        Forfeited                        (315)             18.51             (970)             18.61               (458)       21.14
        Canceled                         (204)             10.05           (1,328)             11.54               (357)       23.86
                                -------------      -------------     ------------      -------------     --------------     --------
      Outstanding,                                                                                                                  
        end of year                     6,242             $11.67            6,761             $11.64              4,338        $17.8
                                =============      =============     ============      =============     ==============     ========
      Exercisable,                                                                                                                  
        end of year                     4,253             $13.71            3,688             $15.23              3,981        $16.3
                                =============      =============     ============      =============     ==============     ========

</TABLE>

     4.9 million of the 6.2 million options outstanding at January 2, 1999 have
     exercise prices between $2.91 and $18.75, with a weighted-average exercise
     price of $8.60 and a weighted-average remaining contractual life of 6.9
     years. 2.9 million of these options are exercisable. The remaining 1.3
     million options have exercise prices between $22.50 and $26.50, with a
     weighted-average exercise price of $23.27 and a weighted-average remaining
     contractual life of 4.9 years. All of these options are exercisable.

     In 1996, the Company adopted the disclosure only provisions of SFAS No.
     123, "Accounting for Stock-Based Compensation," requiring pro-forma net
     loss and net loss per common share be determined as though stock-based
     compensation expense had been recognized using an option pricing model.
     However, due to the Company's bankruptcy filing and the significant losses
     incurred in fiscal 1998 and 1997, the Company does not believe the pro-
     forma net loss and net loss per common share would be materially different
     from the reported amounts.

                                       50
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        

15.  INTEREST EXPENSE, NET OF INVESTMENT INCOME

     Net interest expense is as follows:

<TABLE>
<CAPTION>
                                                                          52-Week                  53-Week               52-Week    
                                                                           Period                  Period                 Period    
                                                                           Ended                    Ended                 Ended     
                                                                   -------------------       ---------------------------------------
                                                                          Jan. 2,                  Jan. 3,               Dec. 28,   
      (In millions)                                                         1999                    1998                   1996     
                                                                   -------------------       -----------------     -----------------
<S>                                                                <C>                       <C>                   <C>            
      Interest on short-term borrowings                            $                22       $              54     $             53
      Interest on long-term debt and obligations under                                                                              
        capital leases                                                              25                      18                   36
      Miscellaneous interest, net                                                   10                      36                   32
      Investment income                                                             (1)                      -                   (2)
                                                                   -------------------       -----------------     -----------------
          Total interest expense, net of investment income         $                56       $             108     $            119
                                                                   ===================       =================     =================
</TABLE>


16.  LITIGATION AND OTHER PROCEEDINGS

     MW Holding, Wards and its subsidiaries are engaged in various litigation
     and have a number of unresolved claims. While the amounts claimed are
     substantial and the ultimate liability with respect to such litigation and
     claims cannot be determined at this time, management is of the opinion that
     such liability, to the extent not provided for through insurance or
     otherwise, is not likely to have a material impact on the financial
     condition and the results of operations of the Company.

17.  RELATED PARTY TRANSACTIONS

Bernard F. Brennan

     In conjunction with a Relationship Agreement entered into between Mr.
     Brennan and the Company in December 1996, the Company provided a loan to
     Mr. Brennan of $12.5 million. Class A common stock of the Company owned by
     Mr. Brennan and his permitted transferees is pledged as collateral for this
     loan. The loan does not bear interest. In addition, Mr. Brennan is to be
     paid $1.5 million annually (for a five-year period) for consulting services
     he provides to the Company. The Company ceased payment for such consulting
     services upon the bankruptcy filing.

GE Capital Corporation

     Certain key executives in 1997 and 1998 were granted restricted stock and
     stock options of General Electric Company ("GE"). Roger Goddu, Chairman and
     Chief Executive Officer, was granted 120,000 shares of GE restricted stock
     which had a fair market value of $6.1 million at the date of grant. The
     shares vest equally over a five-year period on each December 31, beginning
     on December 31, 1997, subject to continuing employment.

                                       51
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        

17.  RELATED PARTY TRANSACTIONS (CONTINUED)

     Mr. Goddu and six other key executives were granted GE stock options with a
     fair market value of $5.6 million at the grant date. The shares vest over
     periods ranging from four to six years, subject to continuing employment.
     The exercise price equaled in each case the fair market value of the common
     stock at the grant date.

     As a result of the above transactions, the Company recorded the grants of
     GE restricted stock and stock options of $11.7 million as a capital
     contribution and established an asset, unearned compensation expense. Total
     expense recorded related to the amortization of the unearned compensation
     was $3.0 million for the fiscal years ended January 2, 1999 and January 3,
     1998, respectively.

     The Company engages in various other transactions with GE Capital as
     described in Notes 2, 6, 12 and 13.

ValueVision International, Inc.

     On December 30, 1997, the Bankruptcy Court approved a restructuring of the
     operating agreement between Wards and ValueVision. ValueVision agreed to
     cede exclusive use of the Wards' name for catalog and mail order catalog
     "syndicates" back to Wards in exchange for Wards' return to ValueVision of
     warrants covering the purchase of approximately 3.8 million shares of
     ValueVision common stock. In addition, ValueVision agreed to repurchase
     1.28 million shares of its stock owned by Wards, at a price of $3.80 per
     share. Under the new operating agreement, Wards' commitment to support
     ValueVision's television spot advertising purchases will be $2 million
     annually, for a period of three years. The transaction was consummated on
     January 15, 1998. In connection with this transaction, Wards recorded a
     loss on the sale of its investment in ValueVision of approximately $25
     million, which is included in Reorganization Costs.

Merchant Partners

     In July 1994, Wards became a limited partner in Merchant Partners. Wards
     made capital contributions to the partnership of $17 million in 1996, $4
     million in 1995 and $1 million in 1994. In December 1995, Merchant Partners
     made a partnership distribution of $22 million to Wards, resulting in a
     gain of $16 million. On December 31, 1996, Wards entered into an agreement
     under which Wards assigned, transferred and set over unto, the general
     partner of Merchant Partners Wards' entire right, title and interest in and
     to its limited partnership interest. The general partner assumed the
     performance of all of the covenants and obligations associated with the
     interest under the Limited Partnership Agreement. The agreement eliminated
     Wards' future obligations with respect to its interest in Merchant
     Partners. Wards recognized a charge to earnings of $7.8 million and $10.0
     million for the periods ended January 3, 1998 and December 28, 1996,
     respectively, which is included in Operating, selling, general and
     administrative expense.

                                       52
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


18.  PARENT COMPANY FINANCIAL INFORMATION

     Following are the MW Holding balance sheets as of January 2, 1999 and
     January 3, 1998 and the statements of income and cash flows for the 52-week
     period ended January 2, 1999, the 53-week period ended January 3, 1998 and
     the 52-week period ended December 28, 1996.

                                BALANCE SHEETS
                                        
<TABLE>
<CAPTION>
                                                                                    Jan. 2,                       Jan. 3,      
     (In millions)                                                                   1999                          1998        
                                                                               -------------------           -----------------
<S>                                                                            <C>                           <C>                 
     Assets                                                                                                                         
       Deferred income taxes                                                   $                      -      $               2
       Investment in Wards                                                                       (1,596)                  (623)
       Redeemable preferred stock of Wards                                                          175                    175
       Other assets                                                                                   6                      9
                                                                               ------------------------       ----------------
             Total Assets                                                      $                 (1,415)      $           (437)
                                                                               ========================       ================

     Liabilities                                                                                                                   
       Accounts payable to Wards                                                $                     85       $             91
       Liabilities subject to compromise                                                              11                     11
                                                                                ------------------------       ---------------- 
             Total Liabilities                                                                        96                    102
                                                                                                                                   
     Redeemable Preferred Stock                                                                      177                    177
                                                                                                                                   
     Shareholders' Deficit                                                                                                         
       Common stock                                                                                    1                      1
       Capital in excess of par value                                                                 65                     64 
       Accumulated deficit                                                                        (1,622)                  (651)
       Accumulated other comprehensive income                                                          7                      9
       Less:  Treasury stock, at cost                                                               (139)                  (139)
                                                                                ------------------------       ---------------- 
             Total Shareholders' Deficit                                                          (1,511)                  (716)
                                                                                ------------------------       ---------------- 
             Total Liabilities and Shareholders' Deficit                        $                 (1,415)      $           (437)
                                                                                ========================       ================ 
</TABLE>

                                       53
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

18.  PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

                             STATEMENTS OF INCOME
                                        
<TABLE>
<CAPTION>
                                                                       Jan. 2,                    Jan. 3,                Dec. 28,
     (In millions)                                                       1999                       1998                    1996 
                                                               ---------------------       -------------------     ----------------
<S>                                                            <C>                         <C>                     <C>           
     Miscellaneous expenses                                    $                   -       $                (1)    $             (2)
                                                               ---------------------       -------------------     ----------------
           Total costs and expenses                                                -                        (1)                  (2)
                                                               ---------------------       -------------------     ----------------
     Net loss before earnings of Wards                                             -                        (1)                  (2)
     Equity in net loss of Wards                                                (971)                   (1,151)                (235)
                                                               ---------------------       -------------------     ----------------
     Net loss                                                                   (971)                   (1,152)                (237)
     Preferred stock dividend requirements                                         -                        (8)                 (12)
                                                               ---------------------       -------------------     ----------------
       Net loss available for common shareholders              $                (971)      $            (1,160)    $           (249)
                                                               =====================       ===================     ================
</TABLE>


                           STATEMENTS OF CASH FLOWS
                                        
<TABLE>
<CAPTION>
                                                                       52-Week                     53-Week                 52-Week
                                                                        Period                     Period                  Period
                                                                        Ended                       Ended                  Ended
                                                               ---------------------       --------------------      ---------------
                                                                       Jan. 2,                     Jan. 3,                  Dec. 28,
     (In millions)                                                       1999                       1998                      1996  
                                                               ---------------------       --------------------      --------------
<S>                                                            <C>                         <C>                       <C>
     Net loss                                                  $                (971)      $             (1,152)     $         (237)
     Adjustments to reconcile net loss to net cash                                                                             
       Provided by operations:                                                                                                 
         Change in undistributed earnings of subsidiary                          971                      1,157                 235
         Compensation expense on stock option grants/                                                                           
           repurchases                                                             -                          -                   5
         Change in operating assets and liabilities:                                                                              
           Accounts payable to Wards                                               -                         (2)                 36
           Accrued liabilities and liabilities subject to                                                                        
             compromise                                                            -                          -                 (13)
                                                               ---------------------       --------------------      --------------
     Net cash provided by operating activities                 $                   -       $                  3      $           26
                                                               ---------------------       --------------------      --------------
</TABLE>

                                       54
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

18.  PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

                           STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                              Jan. 2,                Jan. 3,                Dec. 28,    
     (In millions)                                              1999                   1998                   1996      
                                                        -----------------      -----------------      ------------------
<S>                                                     <C>                    <C>                    <C>              
     Cash flows from financing activities:                                                                              
       Proceeds from issuance of common stock           $               -      $               -      $                3
       Proceeds from issuance of preferred stock                        -                      -                     175
       Purchase of Wards preferred stock                                -                      -                    (175)
       Cash dividends paid                                              -                     (3)                     (9)
       Purchase of treasury stock, at cost                              -                      -                     (20)
                                                        -----------------      -----------------      ------------------
     Net cash used for financing activities                             -                     (3)                    (26)
                                                        -----------------      -----------------      ------------------
     Cash at end of period                              $               -      $               -      $                -
                                                        =================      =================      ==================

     Non-cash investing activities:                                                                                     
       Grants of restricted stock and stock options                                                                     
          by majority shareholder                       $               1      $              11      $                -
       Increase in liquidation value of preferred                                                                       
         stock                                                          -                      2                       -
       Change in unrealized gain on marketable                                                                          
         securities                                                    (2)                     -                      (1)
                                                                                                                        
     Non-cash financing activities:                                                                                     
       Notes issued for purchase of treasury stock      $               -      $               -      $                5 
</TABLE>

                                       55
<PAGE>
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

None.

                                       56
<PAGE>
 
                                   PART III
                                        

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Board of Directors

  The following persons currently serve as directors of the Company: Roger V.
  Goddu, Bernard F. Brennan, Tommy T. Cato, Silas S. Cathcart, James A. Parke,
  Denis J. Nayden, Dennis D. Dammerman and Edward D. Stewart.

  Under that certain Stockholders' Agreement dated as of June 17, 1988, as
  amended to date (the "Stockholders' Agreement"), the By-laws of the Company
  shall provide (and the By-laws of the Company do so provide), and the parties
  to the Stockholders' Agreement agree to vote, for the election of a Board of
  Directors consisting of ten members, three to be designated by Mr. Brennan
  (which three shall include Mr. Brennan), five to be designated by GE Capital
  and two to be designated by the Chief Executive Officer of Wards (which two
  shall include such Chief Executive Officer). Of the nominees listed below, Mr.
  Brennan has designated himself and Mr. Cato, GE Capital has designated Messrs.
  Cathcart, Parke, Nayden, Dammerman and Stewart, and Mr. Goddu, who is the
  Chief Executive Officer of Wards, has designated himself as a director of the
  Company. A directorship to be designated by Mr. Brennan and a directorship to
  be desginated by Mr. Goddu are each vacant.
 
  Pursuant to the Stockholders' Agreement, if GE Capital and its affiliates
  cease to own more than 50% of the number of shares of Common Stock purchased
  by them in June 1988, the number of directors which Mr. Brennan is permitted
  to designate will be increased by one, and the number of directors which GE
  Capital may designate shall be reduced by one. If GE Capital and its
  affiliates cease to own 20% or more of such shares of Common Stock, except as
  described below, GE Capital shall have no right to designate any directors,
  and the number of directors shall be reduced to nine, seven to be elected by
  the holders of Class A Common Stock, voting as a class, and two to be elected
  by the holders of Class B Common Stock, voting as a class, provided that, so
  long as the Account Purchase Agreement between Wards and Montgomery Ward
  Credit relating to the purchase by Montgomery Ward Credit of customer
  receivables of Wards remains in effect, and GE Capital or any of its
  affiliates owns any Common Stock, GE Capital will have the right to elect one
  of the two directors to be elected by the holders of Class B Common Stock.

  Also pursuant to the Stockholders' Agreement, if Mr. Brennan and his permitted
  transferees cease to own more than 50% of the number of shares of Common Stock
  held by them on December 1, 1996, the number of directors which GE Capital is
  permitted to designate will be increased by two and the number of directors
  which Mr. Brennan may designate shall be reduced by two. If Mr. Brennan and
  his permitted transferees cease to own 20% or more of such shares of Common
  Stock, Mr. Brennan shall no longer have the right to designate any directors
  and the directors that Mr. Brennan would have been entitled to designate
  (after taking into account the application of the preceding sentence) shall be
  designated by the Chief Executive Officer of Wards.

  The holder of the Senior Preferred Stock (currently GE Capital) has the right
  to elect one director to be an additional member of the Board of Directors (a)
  during the period following a default in the payment of accrued dividends on
  the Senior Preferred Stock for four consecutive quarters until such accrued
  dividends shall have been paid in full and (b) during the period following any
  failure to make a mandatory redemption of Senior Preferred Stock until such
  failure shall have been cured.

  Information with respect to ages of the directors is as of March 26, 1999 and
  information as to their ownership of shares of the Company as of that date is
  provided under Item 12 below.

                                       57
<PAGE>
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)

Board of Directors (continued)

  Roger V. Goddu, 48, has been a director of the Company and Chairman and Chief
  Executive Officer of Wards since January 6, 1997. Prior thereto, he was with
  Toys "R" Us, where from 1996 until 1997, he was President-U.S. Merchandising,
  and from 1989 to 1995, he was Executive Vice President/General Merchandise
  Manager. Prior to 1989, Mr. Goddu was a Senior Vice President and General
  Merchandise Manager of Target, a division of Dayton Hudson Corporation.

  Bernard F. Brennan, age 60, has been a director of the Company since February
  9, 1988, has been Chairman of the Company since June 17, 1988, and was Chief
  Executive Officer of the Company from February 9, 1988 through December 10,
  1996. Mr. Brennan served as Chief Executive Officer of Wards from May 13, 1985
  through December 10, 1996. Mr. Brennan has been a director of Itel Corporation
  since 1988.

  Tommy T. Cato, age 57, has been a director of the Company since August 20,
  1997. Mr. Cato served as Executive Vice President of the Company from May 15,
  1992, until February 4, 1994. Mr. Cato was Executive Vice President -Logistics
  and Product Service of Montgomery Ward from November 8, 1990 through February
  3, 1994.

  Silas S. Cathcart, age 72, has been a director of the Company since June 25,
  1988. Mr. Cathcart is retired Chairman of Illinois Tool Works, Inc. and
  Kidder, Peabody Group, Inc. He is a director of Allegiance Corporation and
  General Electric Company.

  Dennis D. Dammerman, age 53, has been a director of the Company since January
  26, 1999. Mr. Dammerman was named Vice Chairman of the Board and Executive
  Officer of General Electric Company and Chairman and Chief Executive Officer
  of GE Capital Services, Inc. in 1998. Prior thereto, he was Senior Vice
  President, Finance since 1984.

  Denis J. Nayden, age 44, has been a director of the Company since June 25,
  1988. Mr. Nayden has been President and Chief Operating Officer of GE Capital
  since January 1, 1995. Mr. Nayden served as President and Chief Operating
  Officer of Kidder, Peabody Group, Inc. from June 1994 through December 1994.
  Prior thereto, Mr. Nayden was an Executive Vice President of GE Capital from
  February 1989 to June 1994. Mr. Nayden is a director of General Electric
  Capital Services, Inc. and GE Capital.

  James A. Parke, age 53, has been a director of the Company since March 31,
  1997 and previously was a director from April 27, 1990 through December 17,
  1996. He has been Senior Vice President - Finance of General Electric
  Financial Services since November 1989. Mr. Parke is a director of GE Capital,
  FGIC Corporation, Polaris Holding Co., and Financial Guaranty Insurance Co.

  Edward D. Stewart, age 56, has been a director of the Company since December
  10, 1996. Mr. Stewart has been an Executive Vice President of GE Capital since
  January 1, 1992. Mr. Stewart serves on the board of directors of GE Capital.

Executive Officers

  Information with respect to the executive officers of the Company is included
in Part I of this Form 10-K.

                                       58
<PAGE>
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)

Section 16(a) Reporting

  Section 16(a) of the Securities Exchange Act of 1934, and the rules
  promulgated thereunder, requires the Company's executive officers, directors
  and holders of 10% or more of the Common Stock to file reports of ownership
  and changes in ownership with the Securities and Exchange Commission. On June
  21, 1998, the Voting Trust Agreement dated as of June 21, 1988 expired
  pursuant to its terms. All holders of voting trust certificates received
  shares of Class A Common Stock in respect of such voting trust certificates on
  that date. None of those directors and executive officers who received shares
  of such common stock timely reported such transaction under Section 16(a).
  During 1998, Mr. Robert Claxton became an executive officer of the Company and
  Mr. Dammerman became a director of the Company. Neither Mr. Claxton nor Mr.
  Dammerman filed a Form 3 in connection with such appointment.

ITEM 11. EXECUTIVE COMPENSATION

  The Company (Montgomery Ward Holding Corp.) had no employees and paid no
  compensation in 1998. The following information details compensation accrued
  by Wards and its subsidiaries to executive officers of the Company.

                                       59
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)

Summary Compensation Table

     The following table sets forth summary compensation information for (i) Mr.
     Goddu, who was the only person to serve as Chief Executive Officer during
     the Company's 1998 fiscal year, and (ii) the four most highly compensated
     other executive officers who were serving as executive officers at the end
     of the Company's 1998 fiscal year. Due to the bankruptcy filing, management
     believes that the securities underlying options have little or no value.

<TABLE>
<CAPTION>
                                           Annual Compensation                          Long-Term Compensation
                          ---------------------------------------------------  ---------------------------------------
                                                                   Other        Securities                    All
                                                                   Annual       Underlying      LTIP         Other
          Name and                      Salary       Bonus      Compensation      Options      Payout     Compensation
  Principal Position          Year       ($)          ($)            ($) /1/       (#)          ($)            ($) /2/
  --------------------      -------   ----------   ---------   --------------  -------------  ---------  -------------
  <S>                       <C>       <C>          <C>         <C>              <C>           <C>        <C> 
  Roger V. Goddu              1998    1,000,000    350,000            5,984     2,596,219          -          120,112
    Chairman and Chief        1997      985,215    350,000           10,296     2,596,219          -        2,849,330
    Executive Officer /3/
 
  Thomas J. Paup              1998      400,000    150,000            1,708             -          -           10,461
    Executive Vice            1997      110,000    150,000               40             -          -           87,999
    President and
    Chief Financial
    Officer /3/
 
  Kevin Freeman               1998      450,000     75,000            3,224       200,000          -              259
    Executive Vice            1997      306,250    150,000               20       200,000          -           62,079
    President -Store
    Operations /3/
 
  Spencer H. Heine            1998      400,000    125,000            1,244       225,000          -            2,490
    Executive Vice            1997      400,000    125,000            2,934       225,000          -          403,075
    President, Secretary      1996      400,000          -            4,869             -          -          352,952
    and General Counsel
 
  Thomas G. Grimes            1998      450,000     50,000           19,880       500,000          -              863
    Executive Vice            1997      417,262    200,000            6,181       500,000          -           84,396
    President - Home /3/
</TABLE>


    /1/  No named executive officer received perquisites exceeding $50,000 or
        10% of salary and bonus.
 
    /2/  Represents company matching contributions to the Savings and Profit
        Sharing Plan and company payments of premiums on group term life
        insurance policies. In 1998 and 1997, Mr. Goddu was paid $115,200 and
        $93,600, respectively, representing an amount equivalent to dividends on
        non-vested GE restricted stock shares. Relocation costs for Mr. Goddu
        were $4,653 and $533,782 in 1998 and 1997, respectively. In 1997, Mr.
        Goddu was paid $2,221,948 as compensation for benefits accrued with Mr.
        Goddu's prior employer which were lost by Mr. Goddu in connection with
        the termination of his employment with such former employer. Relocation
        costs for Mr. Paup were $10,461 and $37,854 in 1998 and 1997,
        respectively. Mr. Paup received a hiring bonus of $50,000 in 1997. Mr.
        Freeman was paid $12,079 and $50,000 in 1997 for relocation costs and a
        hiring bonus, respectively. For 1997, amounts paid to Mr. Heine include
        $400,000 in exchange for his waiver of the diminution of his position
        upon removal from the Board of Directors in January 1997. For 1996,
        amounts paid to Mr. Heine include $200,000 under a retention plan and
        $150,000 under a security plan due to the triggering of a change of
        control event. Mr. Grimes was paid $34,396 and $50,000 in 1997 for
        relocation costs and a hiring bonus, respectively.

     /3/  Messrs. Goddu and Grimes joined Wards in January 1997. Mr. Messrs.
        Paup and Freeman joined Wards in September 1997 and May 1997,
        respectively.

                                       60
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
 
Option Grants and Exercises

  The following table sets forth the value of unexercised options held by
  Messrs. Goddu, Freeman, Heine and Grimes as of January 2, 1999.  No stock
  options or stock appreciation rights were granted to or exercised by any of
  the Named Executive Officers in 1998.

                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL YEAR END OPTION VALUES
                                        
<TABLE>
<CAPTION>
                                    Number of Securities Underlying            Value of Unexercised
                                   Unexercised Options at FY-End (#)    In-the-Money Options at FY-End /1/
                               ---------------------------------------  ----------------------------------
 
             Name                   Exercisable       Unexercisable      Exercisable       Unexercisable
  -------------------------    --------------------  -----------------  ----------------  ------------------
 
  <S>                          <C>                    <C>                <C>               <C>
  Roger V. Goddu                          1,298,110          1,298,109         $     -          $        -
 
  Kevin Freeman                              80,000            120,000                 -                   -
 
  Spencer H. Heine                           75,000            150,000                 -                   -
 
  Thomas G. Grimes                          200,000            300,000                 -                   -
</TABLE>

  1  The stock was deemed to have value below the exercise price as the Company
     has filed for reorganization under Chapter 11 of the Bankruptcy Code.
 
Long-Term Incentive Plan Awards

  Prior to the bankruptcy filing, senior executives of Wards, generally Senior
  Vice Presidents and above, were eligible to participate in the Executive Long-
  Term Incentive Plan.  The Executive Long-Term Incentive Plan generally
  consisted of three-year cycles that could be initiated annually.  If specific
  objectives for the pre-tax earnings and return on equity for the Company and
  its subsidiaries established by the Incentive Compensation Committee were
  achieved for any designated cycle, cash was awarded based upon a target
  Executive Long-Term Incentive Plan payout, which was a percentage (determined
  by the Incentive Compensation Committee) of the base salary of each
  participant, but in no event would the target Executive Long-Term Incentive
  Plan payout for any participant exceed $2,000,000 for any cycle.  The plan has
  not been operational subsequent to the bankruptcy filing and no future
  benefits for outstanding cycles will be paid.

Executive Emergence Bonus Plan

  Certain senior executives of Wards participate in the Montgomery Ward Special
  Emergence Bonus Plan ("Emergence Bonus Plan").  The Emergence Bonus Plan
  (subject to amendment or modification in the plan of reorganization) provides
  for a lump sum bonus payment within 30 days of court approval of a plan of
  reorganization.  To be eligible for the full bonus, the executive must be
  actively employed on the date of the court approval of the plan of
  reorganization or the executive must have separated from employment after a
  Change of Control (as defined in the Severance Plan described below) but
  within six months of approval of the plan of reorganization.  If the plan of
  reorganization is approved as of April 1, 1999, the bonus amount for Messrs.
  Goddu, Paup, Freeman, Heine and Grimes would be $1,250,000, $500,000,
  $562,500, $500,000 and $625,000, respectively.  If the plan of reorganization
  is approved after April 1, 1999, but prior to or as of October 1, 1999, the
  bonus amount for Messrs. Goddu, Paup, Freeman, Heine and Grimes would be
  $1,000,000, $400,000, $450,000, $400,000 and $500,000, respectively.  If the
  plan of reorganization is approved after October 1, 1999, the bonus amount for
  Messrs. Goddu, Paup, Freeman, Heine and Grimes would be $500,000, $200,000,
  $225,000, $200,000 and $250,000, respectively.

                                       61
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
 
Pension Plan

  In 1998, executive officers of Wards, in addition to many other associates,
  participated in a pension plan (the "Pension Plan"), which provides benefits
  defined by formulae based primarily on a participant's compensation, offset,
  with respect to periods prior to July 1, 1997, as provided by benefits
  provided by the participant's accounts in the Savings Plan ("Savings Plan"),
  in which executive officers of Wards, in addition to many other associates,
  participate.  From 1989 through 1993, no more than $200,000, as adjusted
  annually under Section 401(a)(17) of the Internal Revenue Code of 1986, as
  amended (the "Code"), of any participant's compensation was considered for any
  purpose, including for purposes of the formulae, under the Pension Plan.
  Beginning in 1994, no more than $150,000, as adjusted, ($160,000 in 1998) of
  any participant's compensation is considered for any purpose, including for
  purposes of the formulae, under the Pension Plan.  The monthly pension benefit
  to which current associates are entitled under the Pension Plan at the normal
  retirement age of 65 is generally based on different benefit formulae that are
  applicable to different years of service.  The formula for service on and
  after July 1, 1997 is a credit of $.70 to $1.35 (depending on age) for each $1
  contributed  as a basic contribution (3% of compensation) to the Savings Plan.
  Such Pension Plan accounts will be credited with interest at a rate based on
  the 30-year rate earned by government securities.  The formula for service
  after 1988 and before July 1, 1997 applies to credited service, as defined in
  the Pension Plan, earned during such period while making contributions to the
  Savings Plan and is based on "career earnings".

  A participant's annual benefit under such 1988 - 1997 formula is 1.5% of the
  participant's eligible pay for each year of credited service after 1988 and
  before July 1, 1997.

  A participant's benefit determined under the Pension Plan based on the
  formulae through June 30, 1997 is reduced by an amount equivalent to an
  annuity which could be purchased with the participant's Basic Contribution and
  Transferred Contribution accounts in the Savings Plan as of June 30, 1997.
  The Pension Plan formulae benefit is determined by adding the benefit under
  the formula in effect commencing July 1, 1997 to the participant's accrued
  benefit under the Pension Plan as of June 30, 1997, as determined under the
  formulae in effect prior to July 1, 1997.

  The following table sets forth the estimated annual benefits (calculated on a
  straight life annuity basis) upon retirement at age 65 (for executives who
  have not retired or resigned) under the Pension Plan, which is the only
  defined benefit plan under which associates of Wards can currently accrue
  benefits, to the Named Executive Officers (calculated on the basis of
  estimated years of service at retirement age; levels of compensation paid in
  calendar year 1998 assuming 6% annual increases for executives who have not
  retired or resigned and the Named Executive Officers make basic contributions
  (3% of compensation) to the Savings Plan; but with regard to Code limitations
  on compensation and benefits and without regard to any reduction for benefits
  under the Savings Plan):

                                                     Estimated
                                                      Annual
                                                    Pension at
           Name of Participant                      Retirement
  ----------------------------------------      -----------------
 
  Roger V. Goddu                                       $25,883
  Thomas J. Paup                                        22,518
  Kevin Freeman                                         25,892
  Spencer H. Heine                                      71,526
  Thomas G. Grimes                                       4,628

                                       62
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)

Certain Arrangements

  In the course of recruiting new executives, promoting existing associates to
  executive positions, increasing the responsibilities of existing executives
  and retaining executives,  Wards frequently enters into employment agreements
  which set forth the general terms of the compensation arrangements for such
  executive.  Such agreements have, in the past, typically set forth, among
  other things, a recipient's base salary, the target annual bonus under the
  Senior Executive Performance Management Program ("PMP"), the maximum
  percentage of the target bonus under the PMP that can be earned, bonus
  guarantees, if any, relocation payments and the number of stock options, if
  any, that are expected to be initially granted to the executive in his or her
  new position.  Of the executive officers named in the Summary Compensation
  Table, Messrs. Paup, Freeman, Heine and Grimes have agreements of this type,
  each of which were entered into in connection with the commencement of the
  executive's employment with Wards (other than the agreement with Mr. Heine,
  which was entered into connection with his retention as an executive officer
  of Wards).

  The agreements with Messrs. Paup, Freeman, Heine and Grimes provide for,
  respectively, (i) annual base salary of $400,000, $450,000, $400,000 and
  $450,000; and (ii) PMP target bonuses of $150,000, $150,000, $125,000 and
  $200,000 in each case guaranteed at 100% for 1997 (the target bonuses for
  Messrs. Paup and Freeman were also guaranteed at 100% and 50%, respectively,
  for 1998) and in each case with opportunities to earn up to 150% of such
  target bonuses. The agreements with Messrs. Freeman, Heine and Grimes also
  provide for the grant of options to purchase common stock of the Company.  Due
  to the bankruptcy filing, management believes that the options and the
  securities underlying the options are of little or no value.


  The agreements with Messrs. Paup, Freeman and Grimes provided for hiring
  bonuses of $50,000 each, which were paid in 1997.  The Company agreed to
  reimburse Messrs. Paup, Freeman and Grimes for certain relocation costs in
  connection with their moves.  In the case of a separation of employment
  initiated by the Company for a reason other than "Cause," the agreements
  provide that Messrs. Paup, Freeman, Heine and Grimes will receive their base
  salaries through September 22, 2000 in the case of Mr. Paup, and through
  October 1, 2000 in the case of Messrs. Freeman, Heine and Grimes (however, not
  less than twenty-four months).  In addition, if the agreements of Messrs.
  Paup, Freeman, Heine and Grimes are not renewed at the end of the respective
  agreement, a lump sum payment equal to twenty-four months base salary will be
  owed.  In the event of a change of control, in which a sale of substantially
  all of the business occurs, and for a period of three years after such date,
  if Messrs. Paup, Freeman, Heine and Grimes are separated from the Company for
  a reason other than "Cause", the lump sum severance payment will be three
  years base salary plus three times their target bonus amount.

  In September 1997, GE granted options to Mr. Paup to purchase 20,000 shares of
  GE common stock with an exercise price of $66.25, which options vest 50% on
  September 12, 2000 and 50% on September 12, 2002.  In June 1997, GE granted
  options to Mr. Freeman to purchase 40,000 shares, of GE common stock with an
  exercise price of $65.3125, which options vest 50% on September 27, 1999 and
  50% on September 27, 2001. In February 1997, GE granted options to Mr. Grimes
  to purchase 40,000 shares,  of GE common stock, with an exercise price of
  $52.50, which options vest 50% on September 7, 1999 and 50% on September 7,
  2001.

  GE Capital has agreed to pay Messrs. Paup, Freeman and Grimes their base
  salary for the first three years of their 1997 employment agreements described
  above and the guaranteed bonus under such agreements if Wards fails to pay
  such amounts for any reason other than the executives' termination of
  employment either voluntarily by the executives or for cause by Wards.

                                       63
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)

Certain Arrangements (continued)

  Mr. Goddu joined the Company as Chief Executive Officer and as Chairman and
  Chief Executive Officer of Wards effective January 6, 1997.  In connection
  with his employment with Wards, Mr. Goddu, the Company and  Wards entered into
  an employment agreement dated as of December 20, 1996 (the "Goddu Agreement").
  The Goddu Agreement expires on December 31, 2001. During the term of the Goddu
  Agreement (unless his employment is earlier terminated), Mr. Goddu is to serve
  as Chairman of the Board and Chief Executive Officer of Wards and as Chief
  Executive Officer of the Company.  Pursuant to the Goddu Agreement, Mr. Goddu
  is to receive a base salary of $1,000,000 per annum, increasing at a rate of
  $50,000 per year or such larger increase as the Board of Directors may
  determine.  Mr. Goddu waived his annual increase for 1998 and has elected not
  to accept contractual annual increases until the Company successfully emerges
  from Chapter 11.

  In addition, the Goddu Agreement provides that Mr. Goddu is eligible to
  receive an annual cash bonus of up to 50% of his base salary, based on
  performance targets to be established from time to time by the Board of
  Directors or a committee thereof.  For each of 1997, 1998 and 1999, Mr.
  Goddu's bonus is guaranteed to be at least $350,000 without regard to such
  targets.  The bonus may be increased by up to an additional 50% of base salary
  based on the achievement of exceptional performance against the targets.  The
  Goddu Agreement also provides that Mr. Goddu will be provided with a
  supplemental pension benefit on the same terms as his arrangement with his
  prior employer with an actuarial present value at age 60 of $3.9 million.  The
  Company also agreed to pay Mr. Goddu $2,221,948 as compensation for benefits
  accrued with Mr. Goddu's prior employer which were lost by Mr. Goddu in
  connection with the termination of his employment with such former employer.

  Mr. Goddu's agreement also provides for the grant of options to purchase
  common stock of the Company.  Due to the bankruptcy filing, management
  believes that the options and the securities underlying the options are of
  little or no value.

  The Goddu Agreement also provides that Wards would provide Mr. Goddu a loan in
  the principal amount of $2,000,000, payable in five years, and bearing
  interest at LIBOR plus 25 basis points payable in arrears on each January 8
  during the loan term.  The Company provided such loan to Mr. Goddu on January
  8, 1997, and Mr. Goddu executed a Promissory Note (the "Goddu Note") with
  respect thereto on that date.  As of March 6, 1999, the outstanding balance of
  the loan including interest accrued thereon was $2,017,118.

  The Goddu Agreement provides that in the event his employment is terminated
  due to his death or disability, he (or his estate, as applicable) would be
  entitled to unpaid base salary through the month in which his death or
  disability occurs, an amount equal to 50% of his base salary in effect on the
  date of his death or disability (in lieu of any bonus), and a restatement of
  the Goddu Note to provide a maturity date of the third anniversary of Mr.
  Goddu's death or disability.  In the event his employment is terminated by
  Wards for cause (as defined in the Goddu Agreement), he would be entitled to
  unpaid base salary through the month in which the termination of his
  employment occurs, and amounts outstanding under the Goddu Note will become
  immediately due and payable 90 days after such termination.

  In the event that his employment is terminated without cause or through a
  constructive termination, as provided in the Goddu Agreement, he would be
  entitled to a prorated bonus through the date of termination of employment,
  continuation of his then-current base salary for a period of 24 months and, in
  lieu of further bonus, an amount equal to $700,000 (which salary continuation
  and amount may be paid in a lump sum) and cancellation of Mr. Goddu's
  obligations under the Goddu Note.

                                       64
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)

Certain Arrangements (continued)

  In the event his employment is terminated by the expiration of the Goddu
  Agreement, Mr. Goddu would be entitled to continuation of his then-current
  base salary for a period of 24 months and, in lieu of further bonus, an amount
  equal to $700,000 (which salary continuation and amount may be paid in a lump
  sum).

  The Goddu Agreement is not guaranteed by GE Capital if Wards fails to pay such
  amounts.

  Also in connection with Mr. Goddu's employment with Wards, Mr. Goddu and GE
  Capital entered into a letter agreement dated as of December 20, 1996 (the
  "Goddu Letter Agreement").   The Goddu Letter Agreement provides that on or
  before January 6, 1997, General Electric Company ("GE"), the indirect parent
  of GE Capital, would grant to Mr. Goddu 60,000 shares of common stock of  GE,
  with restrictions lapsing on 12,000 of such shares on each December 31,
  beginning on December 31, 1997, and would grant to Mr. Goddu options to
  purchase 60,000 shares of common stock of GE with an exercise price equal to
  the NYSE closing price of such shares on the date of grant (which was $102.25
  per share), which options will vest in cumulative annual installments of
  20,000 underlying shares on January 6, 1999, January 6, 2001 and January 6,
  2003.  Such shares and options were granted to Mr. Goddu on December 20, 1996.
  The Goddu Letter Agreement also provides that on an annual basis beginning in
  1997, GE will grant to Mr. Goddu, at such time as similar grants are made to
  its employees, options to purchase up to 25,000 shares of common stock of GE,
  up to an aggregate of 125,000 such shares, with exercise prices equal to the
  NYSE closing price of such shares on the applicable date of grant, and which
  options will vest 50% three years from the date of grant and 50% five years
  from the date of grant.  In accordance with the terms of his letter agreement,
  options were granted to Mr. Goddu on September 12,1997 and September 11, 1998.
  Such options will vest 50% three years from the date of issuance and 50% five
  years from the date of issuance.  On April 28, 1997, after the date of the
  Goddu Letter Agreement, the shares of GE Common Stock split 2-for-1.

  The Wards Executive Committee Severance Plan ("Severance Plan") provides that
  if the employment of certain senior executives is terminated other than for
  Cause (as defined in the Severance Plan), the executive will receive a lump
  sum payment equal to the greater of the executive's base salary for the
  remainder of the executive's employment agreement or the executive's base
  salary for 24 months.  In addition, the executive will receive executive
  outplacement services and continue to participate in executive benefit plans.
  If such termination occurs within three years of a Change of Control (as
  defined in the Severance Plan), the lump sum payment is increased to three
  years base salary plus three times the executives' target bonus.  Amounts
  otherwise payable under the Severance Plan are reduced dollar for dollar for
  any additional amounts representing base salary or bonus payable under the
  executive's employment contract or other severance plan.

Director Compensation Arrangements

  The Directors Plan (the "Directors Fee Plan") permits directors (as designated
  by the Directors Fee Plan Committee, as defined below) to receive Series 1 and
  Series 2 Shares.  The plan provides for the establishment of a committee (the
  "Directors Fee Plan Committee") to (i) administer the Directors Fee Plan, (ii)
  estimate director fees payable to directors for the fiscal year and (iii)
  permit directors to elect to receive Class A Shares with a value determined by
  the Directors Fee Plan Committee not to exceed the estimated fees.

                                       65
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)

Director Compensation Arrangements (continued)

  Under the Directors Fee Plan, participating directors are automatically
  granted rights ("Conversion Rights") after the end of each fiscal quarter of
  the Company in a number determined by dividing the director fees for the
  fiscal quarter by the fair market value per share of the Company's Common
  Stock.  The number of Class A Shares acquired pursuant to accelerated
  Conversion Rights (as described below) reduces the number of automatically
  granted Conversion Rights.  The acquisition of Class A Shares by directors
  pursuant to Conversion Rights does not require any direct payment by a
  director, but the director fees which otherwise would be payable to the
  director are reduced by such fair market value of the Class A Shares acquired.
  If directors acquire Class A Shares pursuant to Conversion Rights, the Company
  will pay the directors an amount sufficient to pay all applicable federal and
  state taxes payable by the directors with respect to the Class A Shares
  acquired pursuant to Conversion Rights and the amount attributable to this
  payment.  The Directors Fee Plan Committee decides based on the past service
  of the director whether there should be an acceleration of the grant of
  Conversion Rights based on an estimate of director fees for the fiscal year.
  If the grant of Conversion Rights is accelerated by the Directors Fee Plan
  Committee, the Directors Fee Plan Committee determines the number of Class A
  Shares to which the Conversion Rights relate, the value of the Class A Shares,
  the duration of the Conversion Rights and the limitations on the Class A
  Shares acquired pursuant to the Conversion Rights.  It is currently
  anticipated that any Class A Shares acquired pursuant to accelerated
  Conversion Rights would be forfeited to the extent a director does not earn
  the anticipated director fees for the fiscal year.

  Directors of the Company or Wards other than members of the Directors Fee Plan
  Committee are eligible to participate in the Directors Fee Plan if designated
  by the Directors Fee Plan Committee.  The Directors Fee Plan Committee is
  comprised of not fewer than two directors who are appointed by the Board of
  Directors and who serve at the pleasure of the Board of Directors.  The
  current members of the Directors Fee Plan Committee are Messrs. Brennan and
  Stewart.  Of the seven eligible directors, the Directors Fee Plan Committee
  has designated only Mr. Cathcart as a participant in the Directors Fee Plan.
  Pursuant to an irrevocable election made in 1992, Mr. Cathcart elected to
  receive all of the fees earned for service as a director of the Company and of
  Wards in Series 1 Shares. Through the date of the bankruptcy filing, Mr.
  Cathcart had acquired 8,987 Series 1 Shares and Mr. Myron Lieberman, a former
  director, had acquired 10,235 Series 1 Shares, pursuant to Conversion Rights
  under the Directors Fee Plan.  No shares have been distributed under the
  Directors Fee Plan since the bankruptcy filing.

  The Board of Directors may amend or terminate the Directors Fee Plan, except
  that no such action by the Board of Directors may change the terms and
  conditions of any Conversion Rights previously granted in a manner adverse to
  the holder of the Conversion Right without the consent of such holder.  The
  Directors Fee Plan Committee has the right to make adjustments with respect to
  Conversion Rights if Wards or the Company dissolves or is liquidated or upon
  the occurrence of a public offering of shares of the Company.

                                       66
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)

Director Compensation Arrangements (continued)

  In connection with the termination of the employment of Bernard F. Brennan as
  Chief Executive Officer of the Company and as Chairman and Chief Executive
  Officer of Wards, Mr. Brennan, the Company, Montgomery Ward and GE Capital
  entered into a Relationship Agreement dated as of December 10, 1996 (the
  "Relationship Agreement").  The Relationship Agreement provided the terms of
  Mr. Brennan's separation from the Company and Wards, including with respect to
  his continued participation as Chairman of the Company and a director of each
  of the Company and Wards.  Pursuant to the Relationship Agreement, the Company
  loaned to Mr. Brennan $12.5 million in cash, without interest, for which the
  Company's sole recourse is the shares of Common Stock owned by Mr. Brennan and
  his permitted transferees.  In the Relationship Agreement, Mr. Brennan agreed
  that within five business days after he or any permitted transferee sells any
  such shares or receives any proceeds with respect to any such shares (other
  than as a result of certain charity loans), such proceeds would be applied
  toward any outstanding balance of such loan, provided that if proceeds are
  received pursuant to the "put" provisions of the Stockholders' Agreement, only
  75% of such proceeds need be so applied.  The Relationship Agreement also
  provides that amounts outstanding under the loan, if not paid sooner, shall be
  due and payable on the last to occur of the deaths of Mr. Brennan, his wife
  and his children.

  The Relationship Agreement provides that Mr. Brennan is engaged as a
  consultant to the Company and Wards for the lesser of five years or until the
  date on which he and his permitted transferees no longer own any shares of
  Common Stock.  The Company and Wards agreed to make annual cash consulting
  payments totaling $1.5 million to Mr. Brennan in installments not less
  frequently than semi-monthly throughout the consulting period.  Wards ceased
  payment of the consulting fees as of the Bankruptcy date. Also in connection
  with his resignation, Mr. Brennan, the Company and GE Capital entered into an
  Amendment Agreement dated as of December 10, 1996 with respect to certain
  amendments to the Stockholders' Agreement and the Company's By-laws (the
  "Amendment Agreement").  Pursuant to the Amendment Agreement, Mr. Brennan's
  right to require the Company to purchase his shares of Common Stock will
  become effective on January 1, 1999.  The Amendment Agreement also amended the
  Stockholders' Agreement to provide the director designation rights described
  herein and the supermajority requirements described herein.  See Item 10.
  Finally, the Amendment Agreement provides Mr. Brennan and his affiliates with
  certain rights to participate in transfers of shares of Common Stock by GE
  Capital, provides for Mr. Brennan's and his affiliates' participation in
  certain sales of the stock or assets of the Company, and provides GE Capital,
  Mr. Brennan and their respective affiliates with a right of first refusal on
  new securities issued by the Company.

Compensation Committee Interlocks And Insider Participation

  Mr. Brennan, Chairman of the Company and a former executive officer of the
  Company, serves as a member of the Compensation Committee of Wards' Board of
  Directors. Robert A. Kasenter, Executive Vice President of the Company and
  Executive Vice President, Human Resources of Wards, serves as Secretary of the
  Compensation Committee of Wards' Board of Directors, although Mr. Kasenter is
  not a director of the Company or of Wards.

                                       67
<PAGE>
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The following table sets forth the beneficial ownership, as of March 26, 1999,
  of Class A Shares (i) by each person who is a director of the Company (none of
  whom except the individuals identified beneficially owns any shares of the
  Company's equity securities), (ii) by each of the Named Executive Officers
  (none of whom except the individuals identified beneficially owns any shares
  of the Company's equity securities), (iii) by each person who is known to be a
  holder of more than 5% of Class A Shares and (iv) by all directors and
  executive officers of the Company as a group.

      Individual or Group                  Shares                %
  ----------------------------    --------------------     --------------
   Bernard F. Brennan (a)                   13,025,750              71.1%
   Edwin G. Pohlmann (b)                     2,892,500              15.8%
   Tommy T. Cato                               227,875               1.2%
   Silas S. Cathcart                            18,987               0.1%
   Roger V. Goddu (c)                        1,298,110               6.6%
   Kevin Freeman (d)                           140,000               0.8%
   Spencer H. Heine  (e)                       401,250               2.2%
   Thomas G. Grimes (f)                        350,000               1.9%
   Tamara Brennan (g)                        2,200,000              12.0%
   All directors and executive
    officers as a group (19
    persons) (h)                            15,736,772              77.6%

  (a) Represents 13,025,750 Class A Shares (71.1% of the Class A Shares and
      30.1% of the Company's common stock ("Common Stock") outstanding as of
      March 26, 1999) owned of record by Mr. Brennan and with respect to which
      Mr. Brennan has sole investment and voting power.  Does not include
      2,200,000 Class A Shares (12.0% of the Class A Shares and 5.1% of the
      Common Stock outstanding as of March 26, 1999) which are owned by Edwin G.
      Pohlmann, as trustee of a trust (the "Family Trust") for the benefit of
      members of Mr. Brennan's family with respect to which Mr. Brennan has no
      voting or investment power, but with respect to which Tamara Brennan, Mr.
      Brennan's wife, may acquire shared voting and dispositive power.  See Note
      (g) below.  Mr. Brennan disclaims beneficial ownership of such 2,200,000
      Class A Shares.  Mr. Brennan's business address is 5000 Sawgrass Village
      Circle, Suite Five, Ponte Vedra, FL  32082.

  (b) Does not include 200,000 Class A Shares held by trusts for the benefit of
      members of Mr. Pohlmann's family, with respect to which Mr. Pohlmann has
      no voting or investment power.  Includes 2,200,000 Class A Shares with
      respect to which Mr. Pohlmann has sole voting and investment power as
      trustee of the Family Trust. Mr. Pohlmann's business address is 9300 Sante
      Fe Springs Road, Sante Fe Springs, CA  90670.

  (c) Includes 1,298,110 Class A Shares which may be acquired by Mr. Goddu
      pursuant to options exercisable on March 26, 1999. Does not include
      1,298,110 Class B Shares which may be acquired by Mr. Goddu from GE
      Capital pursuant to options exercisable on December 31, 1998 and December
      31, 1997, as described herein. See Item 11 above. Mr. Goddu's business
      address is Montgomery Ward Plaza, Chicago, IL 60671.

  (d) Represents 140,000 Class A Shares which may be acquired by Mr. Freeman
      pursuant to options currently exercisable.

   (e) Includes 150,000 Class A Shares which may be acquired by Mr. Heine
     pursuant to exercisable options.

                                       68
<PAGE>
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(CONTINUED)

  (f) Includes 350,000 Class A Shares which may be acquired by Mr. Grimes
      pursuant to exercisable options.

  (g) Represents Class A Shares with respect to which Mrs. Brennan, if she were
      to elect to become an advisor to the trustee of the Family Trust, may
      acquire shared power to vote or direct the vote of,  and shared power to
      dispose or direct the disposition of, such shares.  See Notes (a) and (b)
      above.

  (h) Represents all Class A Shares with respect to which executive officers and
      directors have investment power, which is in each case sole investment
      power. Includes 2,170,410 Class A Shares which may be acquired by
      executive officers or directors at purchase prices ranging from $2.91 to
      $24.50 per share pursuant to options exercisable on March 26, 1999 or on
      April 1, 1999 (date within 60 days after March 26, 1999).

  GE Capital owns 100% of the 25,000,000 Class B Shares currently outstanding.
  Such shares represented 57.7% of the outstanding Common Stock as of March 26,
  1999.  GE Capital has granted to Mr. Goddu an option, 50% of which is
  exercisable as of March 26, 1999, to purchase from GE Capital that number of
  shares of Common Stock which equals 5% of the issued and outstanding shares of
  Common Stock of the Company on a fully-diluted basis.  For purposes of this
  calculation, the number of shares of Common Stock underlying such options is
  to be adjusted upwards from time to time until the last day of the Company's
  1998 fiscal year to give effect to the grant of stock options after December
  20, 1996 to management employees of Wards covering up to 10% of the
  outstanding shares of Common Stock on a fully-diluted basis.  As of March 26,
  1999, pursuant to the foregoing, such option is exercisable with respect to
  1,298,110 Class B Shares (4.9% of the outstanding Class B Shares and 2.9% of
  the outstanding Common Stock).  GE Capital's address is 260 Long Ridge Road,
  Stamford, Connecticut 06927.

  GE Capital owns 100% of the 1,750 shares of Senior Preferred Stock of the
  Company, having a liquidation value of $100,000 per share (the "Senior
  Preferred Stock") outstanding as of the date hereof, and 100.0% of the 352
  shares of Series C Preferred Stock of the Company, having a liquidation value
  of $100,000 per share (the "Series C Preferred Stock") outstanding as of the
  date hereof.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  Wards entered into a Bank Credit Card Program Agreement ("Card Agreement")
  effective April 1, 1996 with Monogram Credit Card Bank of Georgia
  ("Monogram"), and an Account-Related Agreement ("Account Related Agreement")
  effective April 1, 1996 with Montgomery Ward Credit Corporation ("Montgomery
  Ward Credit") (collectively referred to as the "Agreements") pursuant to which
  Monogram and Montgomery Ward Credit (collectively referred to as the
  "Montgomery Ward Credit Companies"), both of which are affiliates of GE
  Capital, make payments to Wards as to their receivables generated by sales to
  customers of Wards, its affiliates and licensees who utilize the Wards'
  private label credit card, and provide services to Wards, all of which are
  guaranteed by GE Capital.  Set forth below is a description of various
  transactions entered into in connection with the Agreements.  Unless otherwise
  specified, information given is for aggregate transactions under both the Card
  Agreement and the Account Related Agreement.  As of January 2, 1999, there
  were $3.3 billion of Wards' private label credit card receivables owned by the
  Montgomery Ward Credit Companies.  During the 1998, 1997 and 1996 fiscal
  years, the Credit Companies paid to Wards, pursuant to the Agreements and
  predecessor agreements, approximately $2.1 billion, $2.6 billion and $3.6
  billion, respectively, in respect of such receivables.  As of February 27,
  1999, the Credit Companies have paid approximately $209 million to Wards in
  respect of such receivables during the current fiscal year.  Wards generally
  bears the risk of credit losses due to non-payment by cardholders to the
  extent of (i) the amount of credit losses that are between 3.9% and 5.0% of
  average outstanding receivables, plus (ii) 50% of credit losses that are
  between 5.0% and 8.0% of average outstanding receivables, subject to offsets
  described below relating to Wards' share of certain incremental increases in
  finance charges and late fees payable by cardholders.

                                       69
<PAGE>
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)

     Wards' net unpaid liability for credit losses for 1991 through 1998 are to
     be payable to Montgomery Ward Credit pursuant to a note ("Continuation
     Note") due in early 2003, provided that the outstanding balance of such
     note cannot exceed $300 million. A remaining note in the amount of $15
     million, consisting of losses incurred after July 7, 1997 for the remaining
     portion of 1997, was executed which provides for monthly principal payments
     in the amount of 5% of the scheduled monthly principal payments for the
     Continuation Note. Starter card losses are payable currently. Interest on
     Wards' unpaid liability for credit losses is to be payable at the monthly
     GE commercial paper rate. Interest on notes outstanding as of July 7, 1997,
     has been stayed by the Chapter 11 proceeding.

     In connection with the foregoing arrangements, Wards owes $72 million for
     1998 credit losses offset by incremental finance charges and late fee
     assessments. Wards has previously executed notes for certain of its unpaid
     share of credit losses through 1997, offset by incremental finance charges
     and late fee assessments due to Wards for a net obligation of $300 million.
     At January 2, 1999 and January 3, 1998, $288 million of the net obligation
     is included in Liabilities subject to compromise and the remainder of the
     net obligation of $84 million and $40 million at January 2, 1999 and
     January 3, 1998, respectively, is included in Accrued liabilities and other
     obligations. As the $300 million threshold has been reached, it is expected
     that future payments may be required depending upon the level of credit
     card losses.

     In exchange for Wards' agreement to allow the Montgomery Ward Credit
     Companies to increase finance charge rates and late fees in selected
     states, Wards receives a share of incremental finance charges and late fees
     resulting from such increases. Such amount is available for offset against
     Wards' unpaid liability for its share of credit losses. To the extent not
     currently paid or offset, such amounts earn interest at the same rate as
     amounts owned by Wards to Montgomery Ward Credit. The Montgomery Ward
     Credit Companies also provide administrative services in connection with
     Signature products.

     Lechmere, Inc., a wholly-owned subsidiary of Wards ("Lechmere"), entered
     into an Interim Consumer Credit Card Program Agreement (the "Lechmere
     Agreement") effective as of March 13, 1996 with Monogram pursuant to which
     Monogram (among other things) made payments to Lechmere in respect of
     Monogram's receivables generated by sales to customers of Lechmere who
     utilized the Lechmere private label credit card issued by Monogram pursuant
     to the Lechmere Agreement. Such payments were equal to the face amount of
     such receivables. The Lechmere Agreement, as executed, was scheduled to
     expire on the earlier of August 31, 1996 or the execution by the parties
     thereto of a long-term agreement. The long-term agreement never was
     executed and the Lechmere Agreement was extended by numerous letter
     agreements between the parties. Pursuant to an order of the Bankruptcy
     Court overseeing Lechmere's bankruptcy (which, like the bankruptcy filing,
     was filed on July 7, 1997), Lechmere and Monogram continued to perform
     under the Lechmere Agreement as though such Agreement had been assumed by
     Lechmere. On or around August 1, 1997 (before any assumption or rejection
     of the Lechmere Agreement), Lechmere announced that its assets would be
     sold and liquidated. Shortly thereafter, Monogram, Lechmere and Wards
     entered into a stipulation and order for adequate protection defining the
     parties' respective rights during the wind-down of the Lechmere credit card
     program and the liquidation of receivables that arose in connection
     therewith. Pursuant to that stipulation and order, purchases made using
     Lechmere cards ceased on or around August 8, 1997. Lechmere, to date, has
     neither assumed or rejected the Lechmere Agreement.

     Wards and Lechmere also entered into an agreement on April 3, 1996 for the
     sale of certain commercial customer receivables to Montgomery Ward Credit.
     During 1998, Montgomery Ward Credit paid $2.5 million to Wards and Lechmere
     pursuant to this agreement and, as of February 27, 1999, Montgomery Ward
     Credit has paid $379,000 to Wards in respect of such receivables during the
     current fiscal year.

                                      70
<PAGE>
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)

     Wards and Lechmere have entered into a Program Agreement dated October 12,
     1989, as amended on March 6, 1997, with GE Capital, under which GE Capital
     pays certain manufacturers and distributors a discounted invoice price of
     products acquired by Wards and Lechmere and whereby Wards and Lechmere
     reimburse GE Capital for such payments according to an agreed-upon
     schedule. The aggregate amount of outstanding payments and other amounts
     payable under the Program Agreement is not to exceed $650 million at any
     one time. At June 28, 1997, this facility was principally drawn. This
     facility is no longer available due to the bankruptcy.

     Wards entered into the Post-Petition Loan and Guaranty Agreement ("DIP
     Facility"), as amended, with GE Capital as agent and lender; and various
     other lenders, on July 8, 1997, which was approved by the Bankruptcy Court
     on July 31, 1997. Under the DIP Facility, the lenders have agreed to
     provide a revolving credit and letter of credit facility, the maximum
     amount of which is based on the book value of eligible inventory (as
     defined in the DIP Facility), the fair market value of eligible real
     property (as defined in the DIP Facility) and the earnings of Signature. In
     no case may borrowings exceed $1 billion. Total letters of credit
     outstanding were $108 million at January 2, 1999. The Company had $363
     million of borrowing availability under the DIP Facility at January 2,
     1999. Under the DIP Facility, Wards may select among several interest rate
     options, all of which are based on market rates plus a margin. A commitment
     fee is payable based on the unused amount of the facility. The facility
     expires on July 7, 1999, or earlier in the case of an event of default. GE
     Capital's portion of the commitment under the DIP Facility is $300 million.

     On February 1, 1999, Wards announced its intention to sell Signature to GE
     Capital. The sale is expected to close in the second half of 1999 after the
     receipt of all required insurance regulatory approvals.

     GE, the indirect parent of GE Capital, is, in the ordinary course of its
     business, a major supplier of consumer goods to Wards for sale at Wards'
     stores in the ordinary course of its business.

     As more fully described above, Mr. Goddu is indebted to the Company under
     the Goddu Note in the initial principal amount of $2,000,000 and Mr.
     Brennan is indebted to the Company in connection with the loan provided him
     pursuant to the Relationship Agreement in the initial principal amount of
     $12,500,000. See Item 11 above.

                                      71
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)  1.  Financial Statements

<TABLE>
<CAPTION>
                                                                                                Page
                                                                                          ---------------
<S>                                                                                       <C>                                
     Report of Independent Public Accountants                                                    23
     For the 52-Week Period Ended January 2, 1999,
      the 53-Week Period Ended January 3, 1998 and the 52-Week Period
      Ended December 28, 1996
       Consolidated Statements of Income                                                         24
       Consolidated Statements of Shareholders' Equity (Deficit)                                 26
       Consolidated Statements of Cash Flows                                                     28
     Consolidated Balance Sheets at January 2, 1999 and January 3, 1998                          25
     Notes to Consolidated Financial Statements                                                  30
</TABLE>

          2.  Financial Statement Schedules

     Schedules have been omitted because they are not applicable, not required,
     not material, or the required information is given in the financial
     statements or notes thereto or combined with the information presented in
     other schedules or exhibits.

                                      72
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)

3.  Exhibits

     3.1             Third Restated Certificate of Incorporation of the Company,
                     filed June 28, 1994, incorporated by reference to Exhibit
                     3.2 (ii) of the Company's Registration Statement on Form S-
                     1 (Registration No. 33-33252).

     3.1 (i)         Certificate of Amendment to Certificate of Incorporation of
                     Montgomery Ward Holding Corp. dated October 25, 1994,
                     incorporated by reference to Exhibit 3.2 (iv) of the
                     Company's Quarterly Report on Form 10-Q for the fiscal
                     quarterly period ended October 1, 1994.

     3.1 (ii)        Certificate of Amendment to Certificate of Incorporation of
                     Montgomery Ward Holding Corp. dated March 29, 1996,
                     incorporated by reference to Exhibit 3.1 (ii) of the
                     Company's Annual Report on Form 10-K for the fiscal year
                     ended December 28, 1996.

     3.1 (iii)       Certificate of Amendment to Certificate of Incorporation of
                     Montgomery Ward Holding Corp. dated May 29, 1997,
                     incorporated by reference to Exhibit 3.1 (iii) of the
                     Company's Quarterly Report on Form 10-Q for the fiscal
                     quarter quarterly period ended June 28, 1997.

     3.1 (iv)        Certificated of Stock Designation of Montgomery Ward
                     Holding Corp. dated May 29, 1997, incorporated by reference
                     to Exhibit 3.1 (iv) of the Company's Quarterly Report on
                     Form 10-Q for the fiscal quarterly period ended June 28,
                     1997.

     3.3             Amended and Restated By-laws of the Company, dated as of
                     December 29, 1994, incorporated by reference to Exhibit 3.3
                     of the Company's Annual Report on Form 10-K for the fiscal
                     year ended December 30, 1995.

     3.3 (i)         Amendment to By-laws of Montgomery Ward Holding Corp.,
                     dated as of December 10, 1996, incorporated by reference to
                     Exhibit 3.3 (i) of the Company's Annual Report on Form 10-K
                     for the fiscal year ended December 28, 1996.

     9. (i)          Voting Trust Agreement dated as of October 21, 1994,
                     incorporated by reference to Exhibit 9. (i) of the
                     Company's quarterly report on Form 10-Q for the fiscal
                     quarterly period ended October 1, 1994.

     10. (i) (A) (1) Stockholders' Agreement dated as of June 17, 1988, as
                     amended and restated as of December 29, 1994, incorporated
                     by reference to Exhibit 4. (e) to the Company's
                     Registration Statement on Form S-8 (Registration No. 33-
                     57075).

     10. (i) (A) (2) Amendment Agreement dated as of December 10, 1996,
                     incorporated by reference to Exhibit 1 of the Company's
                     Current Report on Form 8-K for an event occurring January
                     6, 1997.

     10. (i) (A) (3) Montgomery Ward & Co., Incorporated Stock Ownership Plan
                     Terms and Conditions, as amended and restated, as of
                     December 29, 1994, incorporated by reference to Exhibit 4.
                     (f) of the Company's Registration Statement on Form S-1
                     (Registration No. 33-57075).

                                      73
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)

3.  Exhibits (continued)

     10. (i) (A) (4) Amendment No. 17 to Stockholders' Agreement, dated as of
                     March 31, 1997, incorporated by reference to Exhibit 10.
                     (i) (A) (3) of the Company's Quarterly Report on Form 10-Q
                     for the fiscal quarterly period ended March 19, 1997.

     10. (i) (B)     Stock Purchase Agreement dated March 6, 1988 between Mobil
                     Corporation, Marcor Inc. and BFB Acquisition Corp.
                     incorporated by reference to Exhibit 10. (i) (B) of the
                     Company's Registration Statement on Form S-1 (Registration
                     No. 33-23403).

     10. (i) (C)     Subscription Agreement dated as of December 29, 1995
                     between General Electric Capital Corporation, Montgomery
                     Ward & Co., Montgomery Ward Holding Corp., and Bernard F.
                     Brennan, incorporated by reference to Exhibit 10. (i) (C)
                     of the Company's Annual Report on Form 10-K for the fiscal
                     year ended December 30, 1995.

     10. (i) (F)     Note Purchase Agreements dated March 1, 1993 between
                     Montgomery Ward & Co., Incorporated and various lenders,
                     incorporated by reference to Exhibit 10. (i) (F) of the
                     Company's Annual Report on Form 10-K for the fiscal year
                     ended January 2, 1993.

     10. (i) (F) (1) Amendment dated June 30, 1995 to Note Purchase Agreements
                     dated March 1, 1993 between Montgomery Ward & Co.,
                     Incorporated and various lenders, incorporated by reference
                     to Exhibit 10. (i) (F) (1) of the Company's quarterly
                     report on Form 10-Q for the fiscal quarterly period ended
                     July 1, 1995.

     10. (i) (F) (2) Limited waiver and First Amendment to Note Purchase
                     Agreements dated as of March 29, 1997 among Montgomery Ward
                     & Co., Incorporated and various lenders, incorporated by
                     reference to Exhibit 10. (i) (F) (2) of the Company's
                     Quarterly Report on Form 10-Q for the fiscal quarterly
                     period ended March 29, 1997.

     10. (i) (G)     U.S. $1,000,000,000 Post-Petition Loan and Guaranty
                     Agreement dated as of July 8, 1997, among Montgomery Ward &
                     Co., Incorporated and Lechmere, Inc. as borrowers and
                     various guarantors and General Electric Capital Corporation
                     as agent and lender and various lenders, incorporated by
                     reference to Exhibit 10. (i) (G) of the Company's Quarterly
                     Report on Form 10-Q for the fiscal quarterly period ended
                     June 28, 1997.

     10. (i) (G) (1) Waiver and First Amendment to Post-Petition Loan and
                     Guaranty Agreement dated as of July 30, 1997, incorporated
                     by reference to Exhibit and 10. (i) (G) (1) of the
                     Company's Quarterly Report on Form 10-Q for the fiscal
                     quarterly period ended June 28, 1997.

     10. (i) (G) (2) Waiver to Post-Petition Loan and Guaranty Agreement among
                     Montgomery Ward & Co., as borrower; Montgomery Ward Holding
                     Corp. and other debtor subsidiaries of Montgomery Ward
                     Holding Corp., as guarantors; General Electric Capital
                     Corporation, as agent and lender; and various lenders dated
                     as of August 12, 1997, incorporated by reference to Exhibit
                     10. (i) (G) (2) of the Company's Quarterly Report on Form
                     10-Q for the fiscal quarterly period ended September 27,
                     1997.

                                      74

 
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)

3.  Exhibits (continued)

     10. (i) (G) (3) Waiver to Post-Petition Loan and Guaranty Agreement among
                     Montgomery Ward & Co., as borrower; Montgomery Ward Holding
                     Corp. and other debtor subsidiaries of Montgomery Ward
                     Holding Corp., as guarantors; General Electric Capital
                     Corporation, as agent and lender; and various lenders dated
                     as of September 24, 1997, incorporated by reference to
                     Exhibit 10. (i) (G) (3) of the Company's Quarterly Report
                     on Form 10-Q for the fiscal quarterly period ended
                     September 27, 1997.

     10. (i) (G) (4) Waiver to Post-Petition Loan and Guaranty Agreement among
                     Montgomery Ward & Co., as borrower; Montgomery Ward Holding
                     Corp. and other debtor subsidiaries of Montgomery Ward
                     Holding Corp., as guarantors; General Electric Capital
                     Corporation, as agent and lender; and various lenders dated
                     as of November 7, 1997, incorporated by reference to
                     Exhibit 10. (i) (G) (4) of the Company's Annual Report on
                     Form 10-K for the fiscal year ended January 3, 1998.

     10. (i) (G) (5) Waiver and Second Amendment to Post-Petition Loan and
                     Guaranty Agreement among Montgomery Ward & Co.,
                     Incorporated, as borrower; Montgomery Ward Holding Corp.
                     and other debtor subsidiaries of Montgomery Ward Holding
                     Corp., as guarantors; General Electric Capital Corporation,
                     as agent and lender; and various lenders dated as of
                     February 20, 1998, incorporated by reference to Exhibit 10.
                     (i) (G) (5) of the Company's quarterly report on Form 10-Q
                     for the fiscal quarterly period ended April 4, 1998.

     10. (i) (G) (6) Waiver to Post-Petition Loan and Guaranty Agreement among
                     Montgomery Ward & co., Incorporated, as borrower;
                     Montgomery Ward Holding Corp. and other debtor subsidiaries
                     of Montgomery Ward Holding Corp., as guarantors; General
                     Electric Capital Corporation, as agent and lender; and
                     various lenders as of June 26, 1998, incorporated by
                     reference to Exhibit 10. (i) (G) (6) of the Company's
                     quarterly report on Form 10-Q for the fiscal quarterly
                     period ended October 3, 1998.

     10. (i) (G) (7) Waiver to Post-Petition Loan and Guaranty Agreement among
                     Montgomery Ward & Co., Incorporated, as borrower;
                     Montgomery Ward Holding Corp. and other debtor subsidiaries
                     of Montgomery Ward Holding Corp., as guarantors; General
                     Electric Capital Corporation, as agent and lender; and
                     various lenders dated as of September 2, 1998, incorporated
                     by reference to Exhibit 10. (i) (G) (7) of the Company's
                     quarterly report on Form 10-Q for the fiscal quarterly
                     period ended October 3, 1998.

     10. (i) (G) (8) Amendment to Post-Petition Loan and Guaranty Agreement
                     among Montgomery Ward & Co., Incorporated, as borrower;
                     Montgomery Ward Holding Corp. and other debtor subsidiaries
                     of Montgomery Ward Holding Corp., as guarantors; General
                     Electric Capital Corporation, as agent and lender; and
                     various lenders dated as of November 9, 1998.

     10. (i) (H)     Long Term Credit Agreement dated as of September 15, 1994
                     among Montgomery Ward & Co., Incorporated, various banks,
                     The First National Bank of Chicago, as Documentary Agent,
                     The Bank of Nova Scotia, as Administrative Agent, The Bank
                     of New York, as Negotiated Loan Agent and Bank of America
                     National Trust and Savings Association, as Advisory Agent,
                     incorporated by reference to Exhibit 10. (i) (H) of the
                     Company's Quarterly Report on Form 10-Q for the fiscal
                     quarterly period ended October 1, 1994.

                                      75
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)

3.  Exhibits (continued)

     10. (i) (H) (1) Amended Schedule 1 to the Long Term Credit Agreement dated
                     as of September 15, 1994 among Montgomery Ward & Co.,
                     Incorporated, various banks, The First National Bank of
                     Chicago, as Documentary Agent, The Bank of Nova Scotia, as
                     Administrative Agent, The Bank of New York, as Negotiated
                     Loan Agent and Bank of America National Trust and Savings
                     Association, as Advisory Agent incorporated by reference to
                     Exhibit 10. (i) (H) (1) of the Company's Quarterly Report
                     on Form 10-Q, for the fiscal quarterly period ended
                     September 30, 1995.

     10. (i) (H) (2) Amendment dated March 19, 1996 to the Long Term Credit
                     Agreement dated as of September 15, 1994 among Montgomery
                     Ward & Co., Incorporated, various banks, The First National
                     Bank of Chicago, as Documentary Agent, The Bank of Nova
                     Scotia, as Administrative Agent, The Bank of New York, as
                     Negotiated Loan Agent and Bank of America National Trust
                     and Savings Association, as Advisory Agent, incorporated by
                     reference to Exhibit 10. (i) (H) (2) of the Company's
                     Quarterly Report on Form 10-Q for the fiscal quarterly
                     period ended March 30, 1996.

     10. (i) (H) (3) Amendment to Long Term Credit Agreement dated as of
                     September 15, 1994 among Montgomery Ward & Co.,
                     Incorporated, various banks, The First National Bank of
                     Chicago, as Documentary Agent, The Bank of Nova Scotia, as
                     Administrative Agent, The Bank of New York, as Negotiated
                     Loan Agent and Bank of America National Trust and Savings
                     Association, as Advisory Agent, which became effective
                     September 6, 1996, incorporated by reference to Exhibit 10.
                     (i) (H) (3) of the Company's Quarterly Report on Form 10-Q
                     for the fiscal quarterly period ended September 28, 1996.

     10. (i) (H) (4) Amendment to Long Term Credit Agreement dated as of
                     December 23, 1996 among Montgomery Ward & Co.,
                     Incorporated, various banks, The First National Bank of
                     Chicago, as Documentary Agent, The Bank of Nova Scotia, as
                     Administrative Agent, The Bank of New York, as Negotiated
                     Loan Agent and Bank of America National Trust and Savings
                     Association, as Advisory Agent, incorporated by reference
                     to Exhibit 10. (i) (H) (5) of the Company's Annual Report
                     on Form 10-K for the fiscal year ended December 28, 1996.

     10. (i) (H) (5) Waiver and Fourth Amendment to Long Term Credit Agreement
                     dated as of March 29, 1997 among Montgomery Ward & Co.,
                     Incorporated and various banks, incorporated by reference
                     to Exhibit 10. (i) (H) (5) of the Company's Annual Report
                     on Form 10-Q for the fiscal quarterly period ended March
                     29, 1997.

     10. (i) (H) (6) Fifth Amendment to the Long Term Credit Agreement dated as
                     of May 22, 1998 among Montgomery Ward and Co.,
                     Incorporated, various banks, The First National Bank of
                     Chicago, as Documentary Agent, The Bank of Nova Scotia, as
                     Administrative Agent, The Bank of New York, as Negotiated
                     Loan Agent and Bank of American National Trust and Savings
                     Association, as Advisory Agent, incorporated by reference
                     to Exhibit 10. (i) (H) (6) of the Company's quarterly
                     report on Form 10-Q for the fiscal quarterly period ended
                     July 4, 1998.

                                      76
<PAGE>
 
Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)

3.  Exhibits (continued)

     10. (i) (I)     Short Term Credit Agreement dated as of September 15, 1994
                     among Montgomery Ward & Co., Incorporated, various banks,
                     The First National Bank of Chicago, as Documentary Agent,
                     The Bank of Nova Scotia, as Administrative Agent, The Bank
                     of New York, as Negotiated Loan Agent and Bank of America
                     National Trust and Savings Association, as Advisory Agent,
                     incorporated by reference to Exhibit 10. (i) (H) of the
                     Company's Quarterly Report on Form 10-Q for the fiscal
                     quarterly period ended October 1, 1994.

     10. (i) (I) (1) Amended Schedule 1 to the Short Term Credit Agreement dated
                     as of September 15, 1994 among Montgomery Ward & Co.,
                     Incorporated, various banks, The First National Bank of
                     Chicago, as Documentary Agent, The Bank of Nova Scotia, as
                     Administrative Agent, the Bank of New York, as Negotiated
                     Loan Agent and Bank of America National Trust and Savings
                     Association, as Advisory Agent, incorporated by reference
                     to Exhibit 10. (i) (I) (1) of the Company's Quarterly
                     Report on Form 10-Q for the fiscal quarterly period ended
                     September 30, 1995.

     10. (i) (I) (2) Amendment dated March 19, 1996 to the Short Term Credit
                     Agreement dated as of September 15, 1994 among Montgomery
                     Ward & Co., Incorporated, various banks, The First National
                     Bank of Chicago, as Documentary Agent, The Bank of Nova
                     Scotia, as Administrative Agent, The Bank of New York, as
                     Negotiated Loan Agent and Bank of America National Trust
                     and Savings Association, as Advisory Agent, incorporated by
                     reference to Exhibit 10. (i) (I) (2) of the Company's
                     Quarterly Report on Form 10-Q for the fiscal quarterly
                     period ended March 30, 1996.

     10. (i) (I) (3) Amendment dated September 6, 1996 to the Short Term Credit
                     Agreement dated as of September 15, 1994 among Montgomery
                     Ward & Co., Incorporated, various banks, The First National
                     Bank of Chicago, as Documentary Agent, The Bank of Nova
                     Scotia, as Administrative Agent, The Bank of New York, as
                     Negotiated Loan Agent and Bank of America National Trust
                     and Savings Association, as Advisory Agent, incorporated by
                     reference to Exhibit 10. (i) (I) (3) of the Company's
                     Quarterly Report on Form 10-Q for the fiscal quarterly
                     period ended September 28, 1996.

     10. (i) (I) (4) Confirmation of New Bank executed by The Industrial Bank of
                     Japan, Limited, Chicago Branch and The Bank of Nova Scotia,
                     as Administrative Agent, pursuant to Section 2.6(c) of the
                     Short Term Credit Agreement dated as of September 15, 1994
                     among Montgomery Ward & Co., Incorporated, various banks,
                     The First National Bank of Chicago, as Documentary Agent,
                     The Bank of Nova Scotia, as Administrative Agent, The Bank
                     of New York, as Negotiated Loan Agent and Bank of America
                     National Trust and Savings Association, as Advisory Agent,
                     as amended and extended, and (b) a letter dated October 24,
                     1996 from The Bank of Nova Scotia, as Administrative Agent,
                     to the Banks and other Agents who are parties to said Short
                     Term Credit Agreement transmitting an attached revised
                     Schedule 1 to such Agreement, incorporated by reference to
                     Exhibit 10. (i) (I) (4) of the Company's Quarterly Report
                     on Form 10-Q for the fiscal quarterly period ended
                     September 28, 1996.

                                      77
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)

3.  Exhibits (continued)

     10. (i) (I) (5) Amendment dated December 23, 1996 to the Short Term Credit
                     Agreement dated as of September 15, 1994 among Montgomery
                     Ward & Co., Incorporated, various banks, The First National
                     Bank of Chicago, as Documentary Agent, The Bank of Nova
                     Scotia, as Administrative Agent, The Bank of New York, as
                     Negotiated Loan Agent and Bank of America National Trust
                     and Savings Association, as Advisory Agent, incorporated by
                     reference to Exhibit 10. (i) (I)(5) of the Company's Annual
                     Report on Form 10-K for the fiscal year ended December 28,
                     1996.

     10. (i) (I) (6) Waiver and Fourth Amendment to Short Term Credit Agreement
                     dated as of March 29, 1997 among Montgomery Ward & Co.,
                     Incorporated and various banks, incorporated by reference
                     to Exhibit 10. (I) (I) (6) of the Company's Quarterly
                     Report on Form 10-Q for the fiscal quarterly period ended
                     March 29, 1997.

     10. (i) (I) (7) Fifth Amendment to the Short Term Credit Agreement dated as
                     of May 22, 1998 among Montgomery Ward and Co.,
                     Incorporated, various banks, the First National Bank of
                     Chicago, as Documentary Agent, The Bank of Nova Scotia, as
                     Administrative Agent, The Bank of New York, as Negotiated
                     Loan Agent and Bank of American National Trust and Savings
                     Association, as Advisory Agent, incorporated by reference
                     to Exhibit 10. (i) (I) (7) of the Company's Quarterly
                     Report on Form 10-Q for the fiscal quarterly period ended
                     July 4, 1998.

     10. (i) (J)     Note Purchase Agreement dated July 11, 1995 between
                     Montgomery Ward & Co., Incorporated and various lenders,
                     incorporated by reference to Exhibit 10. (i) (J) of the
                     Company's Quarterly Report on Form 10-Q for the fiscal
                     quarterly period ended July 1, 1995.

     10. (i) (J) (1) Limited waiver and First Amendment to Note Purchase
                     Agreements dated as of March 29, 1997 among Montgomery Ward
                     & Co., Incorporated and various lenders, incorporated by
                     reference to Exhibit 10. (i) (F) (2) of the Company's
                     Quarterly Report on Form 10-Q for the fiscal quarterly
                     period ended March 29, 1997.

     10. (i) (L)     Credit Agreement dated as of September 27, 1996 as amended
                     and restated as of October 21, 1996, among Signature
                     Financial/Marketing, Inc., various lenders, The Bank of New
                     York, as Documentation Agent and The Bank of Nova Scotia,
                     as Administrative Agent, incorporated by reference to
                     Exhibit 10. (i) (L) of the Company's Annual Report on Form
                     10-K for the fiscal year ended December 28, 1996.

     10. (i) (L) (1) Amendment to Credit Agreement dated as of December 23, 1996
                     among Signature Financial/Marketing, Inc., various lenders,
                     The Bank of New York, as Documentation Agent and The Bank
                     of Nova Scotia, as Administrative Agent, incorporated by
                     reference to Exhibit 10. (i) (L) (1) of the Company's
                     Annual Report on Form 10-K for the fiscal year ended
                     December 28, 1996.

     10. (i) (L) (2) Waiver Letter dated as of March 27, 1997 addressed to
                     Signature Financial/Marketing, Inc. from the Bank of New
                     York and The Bank of Nova Scotia, incorporated by reference
                     to Exhibit 10. (i) (L) (2) of the Company's Quarterly
                     Report on Form 10-Q for the fiscal quarterly period ended
                     March 29, 1997.

                                      78
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)

3.  Exhibits (continued)

     10. (i) (L) (3) Correction Letter Agreement dated as of March 27, 1997
                     among Signature Financial/Marketing, Inc., The Bank of New
                     York and The Bank of Nova Scotia, incorporated by reference
                     to Exhibit 10. (i) (L) (3) of the Company's Quarterly
                     Report on Form 10-Q for the fiscal quarterly period ended
                     March 29, 1997.

     10. (i) (L) (4) Waivers and Recision of Acceleration dated July 15, 1997,
                     among The Bank of New York, The Bank of Nova Scotia and
                     Signature Financial/Marketing, Inc., incorporated by
                     reference to Exhibit 10. (i) (L) (4) of the Company's
                     Quarterly Report on Form 10-Q for the fiscal quarterly
                     period ended June 28, 1997.

     10. (i) (L) (5) Waiver, Amendment and Extension Agreement dated as of
                     August 29, 1997, among Signature Financial Marketing, Inc.,
                     various lenders, The Bank of New York, as Documentation
                     Agent and The Bank of Nova Scotia, as Administrative Agent,
                     incorporated by reference to Exhibit 10. (i) (L) (5) of the
                     Company's Annual Report on Form 10-K for the fiscal year
                     ended January 3, 1998.

     10. (i) (L) (6) Waiver, Amendment and Extension Agreement dated as of
                     January 31, 1998, among Signature Financial/Marketing,
                     Inc., various lenders, The Bank of New York, as
                     Documentation Agent, and The Bank of Nova Scotia, as
                     Administrative Agent, incorporated by reference to Exhibit
                     10. (i) (L) (6) of the Company's Quarterly Report on Form
                     10-Q for the fiscal quarterly period ended July 4, 1998.

     10. (i) (L) (7) Waiver, Amendment and Extension Agreement dated as of July
                     31, 1998, among Signature Financial/Marketing, Inc.,
                     various lenders, The Bank of New York, as Documentation
                     Agent, and The Bank of Nova Scotia, as Administrative
                     Agent, incorporated by reference to Exhibit 10. (i) (L) (7)
                     of the Company's Quarterly Report on Form 10-Q for the
                     fiscal quarterly period ended October 3, 1998.

     10. (i) (M)     Credit Agreement dated October 4, 1996 among Montgomery
                     Ward & Co., Incorporated, various lenders, The Bank of Nova
                     Scotia, as Administrative Agent, and The Bank of New York,
                     as Documentation Agent, incorporated by reference to
                     Exhibit 10. (i) (M) of the Company's Quarterly Report on
                     Form 10-Q for the fiscal quarterly period ended September
                     28, 1996.

     10. (i) (M) (1) Amendment to Credit Agreement dated as of December 23, 1996
                     among Montgomery Ward & Co., Incorporated, various lenders,
                     The Bank of Nova Scotia, as Administrative Agent, and The
                     Bank of New York, as Documentation Agent, incorporated by
                     reference to Exhibit 10. (i) (M) (1) of the Company's
                     Annual Report on Form 10-K for the fiscal year ended
                     December 28, 1996.

     10. (i) (M) (2) Second Amendment to Credit Agreement dated as of December
                     23, 1996 among Montgomery Ward & Co., Incorporated, various
                     lenders, The Bank of Nova Scotia, as Administrative Agent,
                     and The Bank of New York, as Documentation Agent,
                     incorporated by reference to Exhibit 10. (i) (M) (2) of the
                     Company's Annual Report on Form 10-K for the fiscal year
                     ended December 28, 1996.

                                      79
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
          (CONTINUED)

3.  Exhibits (continued)

     10. (i)(M)(3)     Waiver and Third Amendment to Credit Agreement dated as
                       of March 29, 1997 among Montgomery Ward & CO.,
                       Incorporated and various lenders, incorporated by
                       reference to Exhibit 10. (i) (M) (3) of the Company's
                       Quarterly Report on Form 10-Q for the fiscal quarterly
                       period ended March 29, 1997.

     10. (i)(N)        Asset Purchase, License & Agency Agreement for the
                       Purchase of Certain Assets of Lechmere, Inc. and
                       Montgomery Ward & Co., Incorporated, by Schottenstein
                       Bernstein Capital Group LLC dated August 14, 1997,
                       incorporated by reference to Exhibit 10. (i) (N) of the
                       Company's Quarterly Report on Form 10-Q for the fiscal
                       quarterly period ended September 27, 1997.

     10. (i)(O)        Agency Agreement between Schottenstein Bernstein Capital
                       Group LLC and Montgomery Ward & Co., Incorporated, as of
                       August 14, 1997, incorporated by reference to Exhibit 10.
                       (i) (O) of the Company's Quarterly Report on Form 10-Q
                       for the fiscal quarterly period ended September 27, 1997.

     10. (i)(P)        Agency Agreement dated as of October 31, 1997 between the
                       joint venture composed of Gordon Brothers Partners, Inc.,
                       Hilco Trading, Inc./Garcel, Inc. D/B/A Great American
                       Asset Management and Alco Capital Group, Inc., as agent
                       and Montgomery Ward & Co., Incorporated, incorporated by
                       reference to Exhibit 10. (i) (P) of the Company's Annual
                       Report on Form 10-K for the fiscal year ended January 3,
                       1998.

     10. (i)(Q)        Promissory Note among Lechmere, Inc. and Signature
                       Financial/Marketing, Inc. dated September 30, 1998,
                       incorporated by reference to Exhibit 10. (i) (Q) of the
                       Company's Quarterly Report on Form 10-Q for the fiscal
                       quarterly period ended October 3, 1998.

     10. (i)(R)        Master Service Agreement for Information Technology
                       Services and Service Agreements No. 1 through 7 between
                       Montgomery Ward & Co., Incorporated and Axciom
                       Corporation dated November 6, 1998.

     10. (ii)(A)*      Interim Consumer Credit Card Program dated as of April 1,
                       1996, as amended, restated and renamed the Bank Credit
                       Card Program Agreement dated as of April 1, 1996 by and
                       between Monogram Credit Card Bank of Georgia and
                       Montgomery Ward & Co., Incorporated, incorporated by
                       reference to Exhibit 10. (ii) (A) of the Company's Annual
                       Report on Form 10-K for the fiscal year ended December
                       28, 1996.

     10. (ii)(B)*      Account Purchase Agreement dated as of June 24, 1988, as
                       amended, restated and renamed the Account-Related
                       Agreement and dated as of April 1, 1996 by and between
                       Montgomery Ward Credit Corporation and Montgomery Ward &
                       Co., Incorporated, incorporated by reference to Exhibit
                       10. (ii) (B) of the Company's Annual Report on Form 10-K
                       for the fiscal year ended December 28, 1996.

     10. (ii)(B)(1)    Letter Agreement dated March 27, 1998 by and between
                       Montgomery Ward & Co., Incorporated and Monogram Credit
                       Card Bank of Georgia amending the Bank Program Agreement
                       dated as of April 1, 1996, incorporated by reference to
                       Exhibit 10. (ii) (B) (1) of the Company's quarterly
                       report on Form 10-Q for the fiscal quarterly period ended
                       April 4, 1998.

*   Confidential treatment has been requested from the Secretary of the
    Commission, with respect to portions of this document.

                                       80
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
          (CONTINUED)

3.  Exhibits (continued)

     10. (ii)(B)(2)    Letter Agreement dated March 20, 1998 by and between
                       Montgomery Ward & Co., Incorporated and Montgomery Ward
                       Credit Corporation amending the Account-Related Agreement
                       dated as of April 1, 1996, incorporated by reference to
                       Exhibit 10. (ii) (B) (2) of the Company's quarterly
                       report on Form 10-Q for the fiscal quarterly period ended
                       April 4, 1998.

     10. (ii)(B)(3)    Interim Amendment Agreement Relating to Bank Program and
                       Account-Related Agreements dated as of April 1, 1998 by
                       and between Monogram Credit Card Bank of Georgia,
                       Montgomery Ward Credit Corporation and Montgomery Ward &
                       Co., Incorporated, incorporated by reference to Exhibit
                       10. (ii) (B) (3) of the Company's quarterly report on
                       Form 10-Q for the fiscal quarterly period ended April 4,
                       1998.

     10. (ii)(C)(1)    Letter Agreement dated as of April 1, 1996 between
                       Signature Financial/Marketing, Inc., Monogram Credit Card
                       Bank of Georgia, Montgomery Ward Credit Corporation, and
                       Montgomery Ward & Co., Incorporated, incorporated by
                       reference to Exhibit 10. (ii) (C) (1) of the Company's
                       Annual Report on Form 10-K for the fiscal year ended
                       December 28, 1996.

     10. (ii)(C)(2)    Letter Agreement dated as of April 1, 1996 between
                       Signature Financial/Marketing, Inc. and Montgomery Ward
                       Credit Corporation, incorporated by reference to Exhibit
                       10. (ii) (C) (2) of the Company's Annual Report on Form
                       10-K for the fiscal year ended December 28, 1996.
                      
     10. (ii)(C)(3)    Letter Agreement dated September 17, 1996 between
                       Montgomery Ward & Co., Incorporated, Monogram Credit Card
                       Bank of Georgia and Montgomery Ward Credit Corporation,
                       incorporated by reference to Exhibit 10. (ii) (C) (3) of
                       the Company's Annual Report on Form 10-K for the fiscal
                       year ended December 28, 1996.

     10. (ii)(C)(4)*   Letter Agreement dated as of August 2, 1995 between
                       Monogram Retailer Credit Services, Inc. and Montgomery
                       Ward & Co., Incorporated, incorporated by reference to
                       Exhibit 10. (ii) (C) (4) of the Company's Annual Report
                       on Form 10-K for the fiscal year ended December 28, 1996.

     10. (ii)(D)*      Interim Consumer Credit Card Program Agreement dated as
                       of March 13, 1996 between Monogram Credit Card Bank of
                       Georgia and Lechmere, Inc., incorporated by reference to
                       Exhibit 10. (ii) (D) of the Company's Annual Report on
                       Form 10-K for the fiscal year ended December 28, 1996.

     10. (ii)(D)(1)*   Letter Agreement dated January 23, 1996 between
                       Montgomery Ward & Co., Incorporated, Montgomery Ward
                       Credit and General Electric Capital Corporation,
                       incorporated by reference to Exhibit 10. (ii) (D) (1) of
                       the Company's Annual Report on Form 10-K for the fiscal
                       year ended December 28, 1996.

* Confidential treatment has been requested from the Secretary of the
  Commission, with respect to portions of this document.

                                       81
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
          (CONTINUED)

3.  Exhibits (continued)

     10. (ii)(D)(2)    Letter Agreement dated March 13, 1996 between Montgomery
                       Ward & Co., Incorporated, Lechmere, Inc., General
                       Electric Capital Corporation and Montgomery Ward Credit
                       Corporation, incorporated by reference to Exhibit 10.
                       (ii) (D) (2) of the Company's Annual Report on Form 10-K
                       for the fiscal year ended December 28, 1996.

     10. (ii)(E)*      MWCC Program Agreement dated as of April 3, 1996 between
                       Montgomery Ward Credit Corporation, Montgomery Ward &
                       Co., Incorporated and Lechmere, Inc., incorporated by
                       reference to Exhibit 10. (ii) (E) of the Company's Annual
                       Report on Form 10-K for the fiscal year ended December
                       28, 1996.

     10. (ii)(F)       Letter Agreement dated July 7, 1997, among Montgomery
                       Ward & Co., Incorporated, Monogram Credit Card Bank of
                       Georgia, Montgomery Ward Credit Corporation and Lechmere,
                       Inc., incorporated by reference to Exhibit 10. (ii) (F)
                       of the Company's Quarterly Report on Form 10-Q for the
                       fiscal quarterly period ended June 28, 1997.

     10. (iii)(A)      Program Agreement dated October 12, 1989 between
                       Montgomery Ward & Co., Incorporated and General Electric
                       Capital Corporation, incorporated by reference to Exhibit
                       10. (iii) (A) of the Company's Annual Report on Form 10-K
                       for the fiscal year ended December 28, 1996.

     10. (iii)(B)      Amendment to Program Agreement dated March 4, 1997
                       between General Electric Corporation, Montgomery Ward &
                       Co., Incorporated and Lechmere, Inc., incorporated by
                       reference to Exhibit 10. (iii) (B) of the Company's
                       Annual Report on Form 10-K for the fiscal year ended
                       December 28, 1996.

     10. (iii)(C)      Waiver letter of General Electric Capital Corporation
                       dated March 27, 1997, incorporated by reference to
                       Exhibit 10. (iii) ( C) of the Company's Quarterly Report
                       on Form 10-Q for the fiscal quarterly period ended March
                       27, 1997.

     10. (iii)(D)      Letter Agreement dated June 25, 1997 among General
                       Electric Capital Corporation, Montgomery Ward Holding
                       Corp., Montgomery Ward & Co., Incorporated and Lechmere,
                       Inc., incorporated by reference to Exhibit 10. (iii) (D)
                       of the Company's Quarterly Report on Form 10-Q for the
                       fiscal quarterly period ended June 28, 1997.

     10. (iv)(A)       Montgomery Ward & Co., Incorporated Stock Ownership Plan,
                       amended and restated as of May 20, 1994, incorporated by
                       reference to Exhibit 10. (iv) (A) (ii) (A) of the
                       Company's Registration Statement on Form S-1 (No. 33-
                       33252).
 
     10. (iv)(A)(1)    Amendment No. 1 to the Amended and Restated Montgomery
                       Ward & Co. Stock Ownership Plan dated October 20, 1994,
                       incorporated by reference to Exhibit 10. (iv) (A) (iii)
                       of the Company's Quarterly Report on Form 10-Q for the
                       fiscal quarterly period ended October 1, 1994.

* Confidential treatment has been requested from the Secretary of the
  Commission, with respect to portions of this document.

                                       82
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
          (CONTINUED)

3.  Exhibits (continued)

     10. (iv)(A)(2)    Amendment No. 2 to the Amended and Restated Montgomery
                       Ward & Co., Incorporated Stock Ownership Plan, dated as
                       of May 29, 1997, incorporated by reference to Exhibit 10.
                       (iv) (A) (2) of the Company's Quarterly Report on Form 
                       10-Q for the fiscal quarterly period ended June 28, 1997.

     10. (iv)(B)       Montgomery Ward & Co., Incorporated Long-Term Incentive
                       Plan, incorporated by reference to Exhibit 10. (iv) (B)
                       of the Company's Registration Statement on Form S-1
                       (Registration No. 33-23403).

     10. (iv)(B)(i)    Montgomery Ward & Co., Incorporated Executive Long-Term
                       Incentive Plan, incorporated by reference to Exhibit 10.
                       (iv) (B) (1) of the Company's Registration Statement on
                       Form S-1 (No. 33-33252).

     10. (iv)(C)       Montgomery Ward & Co., Incorporated Performance
                       Management Program, incorporated by reference to Exhibit
                       10. (iv) (C) of the Company's Registration Statement on
                       Form S-1 (Registration No. 33-23403).

     10. (iv)(C)(i)    Montgomery Ward & Co., Incorporated Senior Executive
                       Performance Management Program, incorporated by reference
                       to Exhibit 10. (iv) (C) (i) of the Company's Registration
                       Statement on Form S-1 (No. 33-33252).

     10. (iv)(D)(6)    Montgomery Ward & Co., Incorporated Retirement Security
                       Plan (as amended and restated effective as of January 1,
                       1998).

     10. (iv)(D)(7)    First Amendment to the Montgomery Ward & Co.,
                       Incorporated Retirement Security Plan effective November
                       25, 1998.

     10. (iv)(D)(8)    Second Amendment to the Montgomery Ward & Co.,
                       Incorporated Retirement Security Plan effective January
                       2, 1999.

     10. (iv)(D)(9)    Third Amendment to the Montgomery Ward & Co.,
                       Incorporated Retirement Security Plan effective January
                       1, 1999.

     10. (iv)(D)(10)   Fourth Amendment to the Montgomery Ward & Co.,
                       Incorporated Retirement Security Plan effective January
                       29, 1999.

     10. (iv)(D)(11)   Fifth Amendment to the Montgomery Ward & Co.,
                       Incorporated Retirement Security Plan effective March 6,
                       1999.

     10. (iv)(E)       Montgomery Ward & Co., Incorporated Supplemental
                       Retirement Plan, incorporated by reference to Exhibit 10.
                       (iv) (E) of the Company's Registration Statement on Form
                       S-1 (Registration No. 33-23403).

     10. (iv)(F)       Montgomery Ward Holding Corp. Directors Fee and Stock
                       Ownership Plan, incorporated by reference to Exhibit 10.
                       (iv) (F) of the Company's Registration Statement on Form
                       S-1 (Registration No. 33-41161).

                                       83
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
          (CONTINUED)

3.  Exhibits (continued)

     10. (iv)(G)       Montgomery Ward Holding Corp. Senior Officer Severance
                       Plan, incorporated by reference to Exhibit 10. (iv) (G)
                       of the Company's Annual Report on Form 10-K for the
                       fiscal year ended January 2, 1993.

     10. (iv)(G)(1)    Montgomery Ward & Co., Incorporated Executive Committee
                       Severance Plan incorporated by reference to Exhibit 10.
                       (iv) (G) (1) of the Company's Annual Report on Form 10-K
                       for the fiscal year ended January 3, 1998.

     10. (iv)(H)(3)    Montgomery Ward & Co., Incorporated Savings Plan (as
                       amended and restated effective as of January 1, 1998).

     10. (iv)(I)       Montgomery Ward & Co., Incorporated Success Plan,
                       incorporated by reference to Exhibit 10. (iv) (I) of the
                       Company's Registration Statement on Form S-1 (No.33-
                       33252).

     10. (iv)(J)       Form of Montgomery Ward Special Retention Plan document
                       entered into with the following persons: Alan E. DiGangi,
                       Spencer H. Heine, Carol J. Harms, Robert A. Kasenter,
                       Frederick E. Meiser, Edwin G. Pohlmann, Robert J.
                       Stevenish and John Workman, incorporated by reference to
                       Exhibit 10. (iv) (J) of the Company's Quarterly Report on
                       Form 10-Q for the fiscal quarterly period ended March 30,
                       1996.

     10. (iv)(L)       Form of Montgomery Ward Change of Control Security Plan
                       document entered into with the following persons: Alan E.
                       DiGangi, Spencer H. Heine, Carol J. Harms, Robert A.
                       Kasenter, Frederick E. Meiser, Edwin G. Pohlmann, Robert
                       J. Stevenish and John Workman, incorporated by reference
                       to Exhibit 10. (iv) (L) of the Company's Quarterly Report
                       on Form 10-Q for the fiscal quarterly period ended March
                       30, 1996.

     10. (v)           Relationship Agreement effective December 10, 1996
                       between Bernard F. Brennan, Montgomery Ward Holding
                       Corp., Montgomery Ward & Co., Incorporated and General
                       Electric Capital Corporation, incorporated by reference
                       to Exhibit 10. (v) of the Company's Annual Report on Form
                       10-K for the fiscal year ended December 28, 1996.

     10. (vi)(A)       Employment Agreement effective December 20, 1996 between
                       Montgomery Ward & Co., Incorporated, Montgomery Ward
                       Holding Corp., and Roger V. Goddu, incorporated by
                       reference to Exhibit 10. (vi) of the Company's Annual
                       Report on Form 10-K for the fiscal year ended December
                       28, 1996.

     10. (vi)(B)       Letter Agreement dated December 20, 1996 between General
                       Electric Capital Corporation and Roger V. Goddu,
                       incorporated by reference to Exhibit 10. (vi) (B) of the
                       Company's Annual Report on Form 10-K for the fiscal year
                       ended January 3, 1998.

     10. (vi)(C)       Letter Agreement dated November 3, 1997 between
                       Montgomery Ward & Co., Incorporated and Roger V. Goddu,
                       regarding Court Approval of Executive Compensation Plan
                       for Executive Committee Members and Montgomery Ward &
                       Co., Incorporated Special Emergence Bonus Plan,
                       incorporated by reference to Exhibit 10. (vi) (C) of the
                       Company's Annual Report on Form 10-K for the fiscal year
                       ended January 3, 1998.

                                       84
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
          (CONTINUED)

3.  Exhibits (continued)

     10. (vii)(A)      Employment Agreement effective January 31, 1997 between
                       Montgomery Ward & Co., Incorporated, Montgomery Ward
                       Holding Corp., and Burnett Donoho, incorporated by
                       reference to Exhibit 10. (vii) (A) of the Company's
                       Annual Report on Form 10-K for the fiscal year ended
                       December 28, 1996.

     10. (vii)(B)      General Release and Agreement Not to Sue dated January
                       23, 1998 between Montgomery Ward & Co., Incorporated and
                       Burnett Donoho, incorporated by reference to Exhibit 10.
                       (vii) (B) of the Company's Annual Report on Form 10-K for
                       the fiscal year ended January 3, 1998.
 
     10. (viii)        Line of Credit Agreement effective December 19, 1996
                       between Montgomery Ward & Co., Incorporated and The
                       Northern Trust Company, incorporated by reference to
                       Exhibit 10. (viii) of the Company's Annual Report on Form
                       10-K for the fiscal year ended December 28, 1996.

     10. (ix)(A)       Employment Agreement effective November 3, 1997, between
                       Montgomery Ward & Co., Incorporated and Alan E. DiGangi,
                       incorporated by reference to Exhibit 10. (ix) (A) of the
                       Company's Annual Report on Form 10-K for the fiscal year
                       ended January 3, 1998.

     10. (ix)(B)       Letter agreement dated November 3, 1997, between
                       Montgomery Ward & Co., Incorporated and Alan E. DiGangi,
                       regarding court approval of Executive Compensation Plan
                       for Executive Committee members and Montgomery Ward &
                       Co., Incorporated Special Emergence Bonus Plan,
                       incorporated by reference to Exhibit 10. (ix) (B) of the
                       Company's Annual Report on Form 10-K for the fiscal year
                       ended January 3, 1998.

     10. (x)(A)        Employment Agreement effective February 3, 1997, between
                       Montgomery Ward & Co., Incorporated and Thomas Grimes,
                       incorporated by reference to Exhibit 10. (x) (A) of the
                       Company's Annual Report of Form 10-K for the fiscal year
                       ended December 28, 1996.

     10. (x)(B)        Letter Agreement dated February 18, 1997 between General
                       Electric Capital Corporation and Thomas Grimes,
                       incorporated by reference to Exhibit 10. (x) (B) of the
                       Company's Annual Report on Form 10-K for the fiscal year
                       ended January 3, 1998.

     10. (x)(C)        Letter Agreement dated November 3, 1997, between
                       Montgomery Ward & Co., Incorporated and Thomas Grimes,
                       regarding court approval of Executive Compensation Plan
                       for Executive Committee members and Montgomery Ward &
                       Co., Incorporated Special Emergence Bonus Plan,
                       incorporated by reference to Exhibit 10. (x) (C) of the
                       Company's Annual Report on Form 10-K for the fiscal year
                       ended January 3, 1998.

     10. (x)(D)        Supplemental Employment Agreement effective November 6,
                       1997, between Montgomery Ward & Co., Incorporated and
                       Thomas Grimes.

     10. (xi)(A)       Employment Agreement effective April 15, 1997, between
                       Montgomery Ward & Co., Incorporated and Thomas J. Austin,
                       incorporated by reference to Exhibit 10. (xi) (A) of the
                       Company's Annual Report on Form 10-K for the fiscal year
                       ended January 3, 1998.

 

                                       85
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
          (CONTINUED)

3.  Exhibits (continued)

     10. (xi)(B)       Letter Agreement dated April 30, 1997 between General
                       Electric Capital Corporation and Thomas J. Austin,
                       incorporated by reference to Exhibit 10. (xi) (B) of the
                       Company's Annual Report on Form 10-K for the fiscal year
                       ended January 3, 1998.
 
     10. (xi)(C)       Letter Agreement dated November 3, 1997, between
                       Montgomery Ward & Co., Incorporated and Thomas J. Austin,
                       regarding court approval of Executive Compensation Plan
                       for Executive Committee members and Montgomery Ward &
                       Co., Incorporated Special Emergence Bonus Plan,
                       incorporated by reference to Exhibit 10. (xi) (C) of the
                       Company's Annual Report on Form 10-K for the fiscal year
                       ended January 3, 1998.

     10. (xii)(A)      Employment Agreement effective April 15, 1997, between
                       Montgomery Ward & Co., Incorporated and Louis J.
                       Caporale, incorporated by reference to Exhibit 10. (xii)
                       (A) of the Company's Annual Report on Form 10-K for the
                       fiscal year ended January 3, 1998.

     10. (xii)(B)      Letter Agreement dated April 30, 1997 between General
                       Electric Capital Corporation and Louis. J. Caporale,
                       incorporated by reference to Exhibit 10. (xii) (B) of the
                       Company's Annual Report on Form 10-K for the fiscal year
                       ended January 3, 1998.

     10. (xii)(C)      Letter agreement dated November 3, 1997, between
                       Montgomery Ward & Co., Incorporated and Louis J.
                       Caporale, regarding court approval of Executive
                       Compensation Plan for Executive Committee members and
                       Montgomery Ward & Co., Incorporated Special Emergence
                       Bonus Plan, incorporated by reference to Exhibit 10.
                       (xii) (C) of the Company's Annual Report on Form 10-K for
                       the fiscal year ended January 3, 1998.

     10. (xiv)(A)      Employment Agreement effective April 13, 1997 between
                       Montgomery Ward & Co., Incorporated and Spencer H. Heine,
                       incorporated by reference to Exhibit 10. (xiv) of the
                       Company's Quarterly Report on Form 10-Q for the fiscal
                       quarterly period ended March 29, 1997, incorporated by
                       reference to Exhibit 10. (xiv) (A) of the Company's
                       Annual Report on Form 10-K for the fiscal year ended
                       January 3, 1998.

     10. (xiv)(B)      Amendment to Employment Agreement effective November 3,
                       1997, between Montgomery Ward & Co., Incorporated and
                       Spencer H. Heine.

     10. (xiv)(C)      Letter Agreement dated November 3, 1997, between
                       Montgomery Ward & Co., Incorporated and Spencer H. Heine,
                       regarding court approval of Executive Compensation Plan
                       for Executive Committee members and Montgomery Ward &
                       Co., Incorporated Special Emergence Bonus Plan.

     10. (xv)          Employment Agreement dated March 6, 1998 between
                       Montgomery Ward & Co., Incorporated and Worthington W.
                       Linen, incorporated by reference to Exhibit 10. (xv) of
                       the Company's Annual Report on Form 10-K for the fiscal
                       year ended January 3, 1998.
 
     10. (xvi)(A)      Employment Agreement dated September 2, 1997 between
                       Montgomery Ward & Co., Incorporated and Thomas J. Paup.

     10. (xvi)(B)      Letter Agreement dated September 4, 1997 between General
                       Electric Capital Corporation and Thomas J. Paup.

                                       86
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
          (CONTINUED)

3.  Exhibits (continued)

     10. (xvi)(C)      Letter Agreement dated November 3, 1997, between
                       Montgomery Ward & Co., Incorporated and Thomas J. Paup,
                       regarding court approval of Executive Compensation Plan
                       for Executive Committee members and Montgomery Ward &
                       Co., Incorporated Special Emergence Bonus Plan.

     10. (xvii)(A)     Employment Agreement effective March 19, 1997 between
                       Montgomery Ward & Co., Incorporated and Kevin Freeman.

     10. (xvii)(B)     Letter Agreement dated April 30, 1997 between General
                       Electric Capital Corporation and Kevin Freeman.

     10. (xvii)(C)     Letter Agreement dated November 3, 1997, between
                       Montgomery Ward & Co., Incorporated and Kevin Freeman,
                       regarding court approval of Executive Compensation Plan
                       for Executive Committee members and Montgomery Ward &
                       Co., Incorporated Special Emergence Bonus Plan.

     10. (xvii)(D)     Supplemental Employment Agreement effective November 6,
                       1997, between Montgomery Ward & Co., Incorporated and
                       Kevin Freeman.

     11.   Not applicable.

     12.   Not applicable.
                          
     13.   Not applicable.
                          
     16.   Not applicable.
                          
     18.   Not applicable.
                          
     19.   Not applicable. 

     21.   Subsidiaries of the Registrant, incorporated by reference to Exhibit
           21 of the Company's Registration Statement on Form S-1 (Registration
           No. 33-33252).
        
     22.   Not applicable.
        
     23.   Consent of independent public accountants.

     24.   Power of attorney.

     27.   Financial data schedule.

     28.   Not applicable.

     (b)   Reports on Form 8-K.

           None.

                                       87
<PAGE>
 
                                  SIGNATURES
                                        
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant, Montgomery Ward Holding Corp., has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

REGISTRANT         MONTGOMERY WARD HOLDING CORP.


BY                 /s/ Thomas J. Paup
                   ----------------------------------------------------------
NAME AND TITLE     Thomas J. Paup, Executive Vice President, Chief Financial
                   Officer
DATE               April 2, 1999


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.


BY                 /s/ Thomas J. Paup
                   ----------------------------------------------------------
NAME AND TITLE     Roger V. Goddu*, Director and Chief Executive Officer
DATE               April 2, 1999


BY                 /s/ Thomas J. Paup
                   ----------------------------------------------------------
NAME AND TITLE     Thomas J. Paup, Executive Vice President, Chief Financial
                   Officer
DATE               April 2, 1999


BY                 /s/ Thomas J. Paup
                   ----------------------------------------------------------
NAME AND TITLE     Bernard F. Brennan*, Director
DATE               April 2, 1999


BY                 /s/ Thomas J. Paup
                   ----------------------------------------------------------
NAME AND TITLE     Silas S. Cathcart*, Director
DATE               April 2, 1999


BY                 /s/ Thomas J. Paup
                   ----------------------------------------------------------
NAME AND TITLE     Tommy T. Cato*, Director
DATE               April 2, 1999


BY                 /s/ Thomas J. Paup
                   ----------------------------------------------------------
NAME AND TITLE     Dennis D. Dammerman*, Director
DATE               April 2, 1999


*  By power of attorney.

                                       88
<PAGE>
 
                            SIGNATURES (CONTINUED)
                                        

BY                 /s/ Thomas J. Paup
                   --------------------------------------------------------
NAME AND TITLE     Denis J. Nayden*, Director
DATE               April 2, 1999


BY                 /s/ Thomas J. Paup
                   --------------------------------------------------------
NAME AND TITLE     James A. Parke*, Director
DATE               April 2, 1999


BY                 /s/ Thomas J. Paup
                   --------------------------------------------------------
NAME AND TITLE     Edward D. Stewart*, Director
DATE               April 2, 1999

* By power of attorney.

                                       89
<PAGE>
 
                                             EXHIBIT INDEX
                             --------------------------------------------------


10.   (i)    (G)   (8)       Amendment to Post-Petition Loan and Guaranty
                             Agreement among Montgomery Ward & Co.,
                             Incorporated, as borrower; Montgomery Ward Holding
                             Corp. and other debtor subsidiaries of Montgomery
                             Ward Holding Corp., as guarantors; General Electric
                             Capital Corporation, as agent and lender; and
                             various lenders dated as of November 9, 1998.

10.   (i)    (R)             Master Service Agreement for Information Technology
                             Services and Service Agreements No. 1 through 7
                             between Montgomery Ward & Co., Incorporated and
                             Axciom Corporation dated November 6, 1998.

10.   (iv)   (D)   (6)       Montgomery Ward & Co., Incorporated Retirement
                             Security Plan (as amended and restated effective as
                             of January 1, 1998).

10.   (iv)   (D)   (7)       First Amendment to the Montgomery Ward & Co.,
                             Incorporated Retirement Security Plan effective
                             November 25, 1998.

10.   (iv)   (D)   (8)       Second Amendment to the Montgomery Ward & Co.,
                             Incorporated Retirement Security Plan effective
                             January 2, 1999.

10.   (iv)   (D)   (9)       Third Amendment to the Montgomery Ward & Co.,
                             Incorporated Retirement Security Plan effective
                             January 1, 1999.

10.   (iv)   (D)   (10)      Fourth Amendment to the Montgomery Ward & Co.,
                             Incorporated Retirement Security Plan effective
                             January 29, 1999.

10.   (iv)   (D)   (11)      Fifth Amendment to the Montgomery Ward & Co.,
                             Incorporated Retirement Security Plan effective
                             March 6, 1999.

10.   (iv)   (H)   (3)       Montgomery Ward & Co., Incorporated Savings Plan
                             (as amended and restated effective as of January 1,
                             1998).

10.   (x)    (D)             Supplemental Employment Agreement effective
                             November 6, 1997, between Montgomery Ward & Co.,
                             Incorporated and Thomas Grimes.

10.   (xiv)  (B)             Amendment to Employment Agreement effective
                             November 3, 1997, between Montgomery Ward & Co.,
                             Incorporated and Spencer H. Heine.

10.   (xiv)  (C)             Letter Agreement dated November 3, 1997, between
                             Montgomery Ward & Co., Incorporated and Spencer H.
                             Heine, regarding court approval of Executive
                             Compensation Plan for Executive Committee members
                             and Montgomery Ward & Co., Incorporated Special
                             Emergence Bonus Plan.

10.   (xvi)  (A)             Employment Agreement dated September 2, 1997
                             between Montgomery Ward & Co., Incorporated and
                             Thomas J. Paup.

10.   (xvi)  (B)             Letter Agreement dated September 4, 1997 between
                             General Electric Capital Corporation and Thomas J.
                             Paup.


<PAGE>
 


10.   (xvi)   (C)            Letter Agreement dated November 3, 1997, between
                             Montgomery Ward & Co., Incorporated and Thomas J.
                             Paup, regarding court approval of Executive
                             Compensation Plan for Executive Committee members
                             and Montgomery Ward & Co., Incorporated Special
                             Emergence Bonus Plan.
                             
10.   (xvii)  (A)            Employment Agreement effective March 19, 1997
                             between Montgomery Ward & Co., Incorporated and
                             Kevin Freeman
                             
10.   (xvii)  (B)            Letter Agreement dated April 30, 1997 between
                             General Electric Capital Corporation and Kevin
                             Freeman.
                             
10.   (xvii)  (C)            Letter Agreement dated November 3, 1997, between
                             Montgomery Ward & Co., Incorporated and Kevin
                             Freeman, regarding court approval of Executive
                             Compensation Plan for Executive Committee members
                             and Montgomery Ward & Co., Incorporated Special
                             Emergence Bonus Plan.
                             
10.   (xvii)  (D)            Supplemental Employment Agreement effective
                             November 6, 1997, between Montgomery Ward & Co.,
                             Incorporated and Kevin Freeman.



23.                          Consent of Independent Public Accountants.

24.                          Power of Attorney.

27.                          Financial Data Schedule.