<PAGE>
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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                         WASHINGTON, D.C.  20549-1004

                                 ____________

                                   FORM 10-Q

(MARK ONE)
         X  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 1996

                                      OR

        __  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

                        Commission File Number 0-17540


                         MONTGOMERY WARD HOLDING CORP.
            (Exact Name Of Registrant As Specified In Its Charter)


             DELAWARE                                    36-3571585
     (State Of Incorporation)               (I.R.S. Employer Identification No.)


  Montgomery Ward Plaza, Chicago, Illinois                         60671
  (Address Of Principal Executive Offices)                      (Zip Code)


       Registrant's Telephone Number Including Area Code:  312/467-2000

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

                         Yes  X       No 
                             ---          -----   

     As of October 26, 1996 the Registrant had 18,695,859 shares of Class A
Common Stock and 25,000,000 shares of Class B Common Stock of the Registrant
outstanding.

<PAGE>
 
                        PART 1 - FINANCIAL INFORMATION


Item 1.  Financial Statements


                                     INDEX
<TABLE>
<CAPTION>
 
                                                                     Page
Montgomery Ward Holding Corp.
 
<S>                                                                  <C>
   Consolidated Statement of Income...........................        2

   Consolidated Balance Sheet.................................        4

   Consolidated Statement of Cash Flows.......................        5

   Notes to Consolidated Financial Statements.................        7


</TABLE>

                                       1
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                       CONSOLIDATED STATEMENTS OF INCOME
                                  (UNAUDITED)
<TABLE>
<CAPTION>


                                                  For the 13-Week
                                                   Periods Ended
                                           September 28,    September 30,
                                               1996             1995
<S>                                           <C>             <C>

(Millions, except per share amounts)
Revenues
   Net sales, including leased and
    licensed department sales...........       $1,376          $1,562
   Direct response marketing revenues,
    including insurance.................          191             142
                                               ------          ------
       Total Revenues...................        1,567           1,704
                                               ------          ------
Costs and Expenses
 Cost of goods sold, including net
  occupancy and buying expense..........        1,096           1,240
 Operating, selling, general and
  administrative expenses, including
  benefits and losses of direct response
  operations............................          501             435
 Interest expense.......................           28              24
                                               ------          ------
     Total Costs and Expenses...........        1,625           1,699
                                               ------          ------

(Loss)/Income Before Taxes..............          (58)              5
Income Tax (Benefit)/Expense............          (23)              2
                                               ------          ------
Net (Loss)/Income.......................          (35)              3
Preferred Stock Dividend Requirements...            3               1
                                               ------          ------
Net (Loss)/Income Applicable to
 Common Shareholders....................       $  (38)         $    2
                                               ======          ======

Net (Loss)/Income per Common Share
 Class A................................        $(.95)           $.05
 Class B................................        $(.82)           $.04


</TABLE>
                See notes to consolidated financial statements.

                                       2
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                       CONSOLIDATED STATEMENTS OF INCOME
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
 
                                                For the 39-Week
                                                 Periods Ended
                                          September 28,    September 30,
                                              1996             1995
<S>                                       <C>           <C>
 
(Millions, except per share amounts)
Revenues
  Net sales, including leased and
    licensed department sales.............   $3,984           $4,439
   Direct response marketing revenues,
      including insurance.................      553              407
                                          -------------    -------------
         Total Revenues...................    4,537            4,846
                                          -------------    -------------

Costs and Expenses
  Cost of goods sold, including net
    occupancy and buying expense..........    3,233            3,528
  Operating, selling, general and
    administrative expenses, including
    benefits and losses of
    direct response operations............    1,349            1,237
  Interest expense........................       75               67
                                          -------------    -------------
         Total Costs and Expenses.........    4,657            4,832
                                          -------------    -------------

(Loss)/Income Before Taxes................     (120)              14
Income Tax (Benefit)/Expense..............      (48)               4
                                          -------------    -------------

Net (Loss)/Income.........................      (72)              10
Preferred Stock Dividend Requirements.....        9                3
                                          -------------    -------------

Net (Loss)/Income Applicable to
  Common Shareholders.....................   $  (81)          $    7
                                          =============    =============


Net (Loss)/Income per Common Share
  Class A.................................   $(1.99)          $  .17
  Class B.................................   $(1.73)          $  .14

Cash dividends per Common Share...........   $    -           $    -

</TABLE>
                See notes to consolidated financial statements.

                                       3
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
 
 
                                            September 28,   December 30,
                                                1996            1995
                                             (Unaudited)

                                     ASSETS
 
(Millions)
<S>                                            <C>      <C>
Cash and cash equivalents....................  $   42          $   37
Short-term investments.......................       3               1
Investments of insurance operations..........     311             345
                                               ------          ------
     Total Cash and Investments..............     356             383

Trade and other accounts receivable..........     243             166
Accounts and notes receivable from
 affiliates..................................      32              22
                                               ------          ------ 
     Total Receivables.......................     275             188

Merchandise inventories......................   1,762           1,770
Prepaid pension cost.........................     337             335
Prepaid federal income taxes.................      48               -
Properties, plants and equipment, net of
  accumulated depreciation and
  amortization...............................   1,319           1,366
Direct response and insurance
  acquisition costs..........................     579             395
Other assets.................................     541             447
                                               ------          ------
     Total Assets............................  $5,217          $4,884
                                               ======          ======

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Short-term debt..............................  $  819          $  160
Trade accounts payable.......................   1,507           1,804
Federal income taxes payable.................       -               6
Accrued liabilities and other
 obligations.................................   1,158           1,195
Insurance policy claim reserves..............     237             236
Long-term debt...............................     495             423
Obligations under capital leases.............      62              66
Deferred income taxes........................     165             119
                                               ------          ------
     Total Liabilities.......................   4,443           4,009

Commitments and Contingent Liabilities

Redeemable Preferred Stock...................     175             175

Shareholders' Equity
  Common stock...............................       1               1
  Capital in excess of par value.............      49              45
  Retained earnings..........................     677             758
  Unrealized gain on marketable
    securities...............................       6              10
  Less:  Treasury stock, at cost.............    (134)           (114)
                                               ------          ------
     Total Shareholders' Equity..............     599             700
                                               ------          ------
Total Liabilities and Shareholders'
  Equity.....................................  $5,217          $4,884
                                               ======          ======
</TABLE>
                See notes to consolidated financial statements.

                                       4
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                              For the 39-Week
                                                               Periods Ended
                                                         September 28,    September 30,
(Millions)                                                   1996             1995
<S>                                                      <C>              <C>

Cash flows from operating activities:
 Net (Loss) Income.....................................     $ (72)           $  10
 Adjustments to reconcile net (loss) income to net
  cash provided by (used for) operating activities:
   Depreciation and amortization.......................        93               89
   Amortization of Goodwill............................         7                4
   Amortization of Direct response and
    insurance costs....................................       147              103
   Deferred income taxes...............................        (5)              (5)
   Gain on sale of assets..............................        (3)             (10)
                                                            -----            -----
     Net (loss) income adjusted for non-cash expenses..       167              191
                                                            -----            -----
Changes in operating assets and liabilities:
 (Increase) decrease in:
   Trade and other accounts receivable.................       (52)             (24)
   Accounts and notes receivable from affiliates.......       (10)             (14)
   Merchandise inventories.............................         8             (169)
   Prepaid pension cost................................        (3)              (5)
   Federal income taxes receivable, net................       (48)
   Direct response insurance acquisition costs.........      (208)            (140)
   Other assets........................................       (21)             (47)
 Increase (decrease) in:
   Trade accounts payable..............................      (300)            (233)
   Federal income taxes payable, net...................        (6)             (10)
   Accrued liabilities and other obligations...........      (120)            (159)
   Insurance policy claim reserves.....................         1                2
                                                            -----            -----
     Net cash used for operations......................      (592)            (608)
                                                            -----            -----

Cash flows from investing activities:
 Investment in ValueVision International, Inc..........        --               (8)
 Investment in Merchant Partners.......................        (7)              --
 Acquisition of Amoco Enterprises......................      (100)              --
 Purchase of short-term investments....................       (19)             (14)
 Purchase of investments of insurance operations.......      (495)            (465)
 Sale of short-term investments........................        31               14
 Sale of investments of insurance operations...........       521              443
 Capital expenditures..................................       (55)             (90)
 Disposition of properties, plants and equipment, net..        12               24
                                                            -----            -----
     Net cash used for investing activities............     $(112)           $ (96)
                                                            -----            -----
</TABLE>

                See notes to consolidated financial statements.

                                       5

<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                   For the 39-Week
                                                                    Periods Ended
                                                              September 28,    September 30,
(Millions)                                                        1996             1995
<S>                                                           <C>              <C>

Cash flows from financing activities:
 Net proceeds from short-term borrowings....................     $ 635             $526
 Proceeds from issuance of long-term debt...................       102              205
 Payments of Montgomery Ward long-term debt.................        (6)              (6)
 Payments of obligations under capital leases...............        (5)              (5)
 Proceeds from issuance of Common Stock.....................         3                4
 Cash dividends paid........................................        (6)              (3)
 Purchase of treasury stock, at cost........................       (14)              (7)
                                                                 -----             ----
  Net cash provided by financing activities.................       709              714
                                                                 -----             ----

Increase (decrease) in cash and cash equivalents............         5               10
Cash and cash equivalents at beginning of period............        37               33
                                                                 -----             ----

Cash and cash equivalents at end of period..................     $  42             $ 43
                                                                 =====             ====

Supplemental disclosure of cash flow information
 Cash paid during the period for:
  Income taxes..............................................     $   2             $ 22
  Interest..................................................     $  81               61

Non-cash financing activity:
 Notes issued for purchase of Treasury stock................     $   6             $ --

Non-cash investing activity:
 Change in unrealized gain on marketable equity securities..     $  (4)            $  8
</TABLE>

                See notes to consolidated financial statements.

                                       6
 
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Millions of dollars, except per share amounts)


1. Accounting Policies
 
   Basis of Presentation

   The Consolidated Balance Sheet as of September 28, 1996 and the Consolidated
   Statements of Income for the thirteen- and thirty-nine weeks ended September
   28, 1996 and September 30, 1995, and the Consolidated Statement of Cash Flow
   for the thirty-nine weeks then ended are unaudited. The interim financial
   statements reflect all adjustments which are, in the opinion of management,
   necessary for a fair statement of the results for the interim periods
   presented. The interim financial statements should be read in the context of
   the financial statements and notes thereto filed with the Securities and
   Exchange Commission in MW Holding's 1995 Annual Report on Form 10-K.
   Capitalized terms not otherwise defined herein have the meaning ascribed to
   such terms in the 1995 Annual Report on Form 10-K. Certain prior period
   amounts have been reclassified to be comparable with the current period
   presentation.

   Accounting for Long-Lived Assets

   Effective December 31, 1995, the Company adopted SFAS No. 121, "Accounting
   for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
   Disposed Of." The provisions require a review of long-lived assets for
   impairment whenever events or changes in circumstances indicate that the
   carrying amount of an asset may not be recoverable. If it is determined that
   an impairment loss has occurred based on expected undiscounted future cash
   flows, the loss will be recognized in the income statement and certain
   disclosures will be made regarding the impairment. There was no financial
   impact from the adoption of this statement on the financial statements for
   the thirty-nine weeks ended September 28, 1996.

2. Net (Loss)/Earnings Per Common Share

   Net (Loss)/Earnings per common share is computed as follows:
<TABLE>
<CAPTION>
                                                       For the 13-Week
                                                        Periods Ended
                                         September 28, 1996         September 30, 1995
                                       Class A       Class B       Class A      Class B
<S>                                    <C>           <C>           <C>          <C>
Net (Loss) Earnings applicable to
    Common Shareholders............    $(18)         $(21)           $1           $1
 
Weighted average number of common
    shares outstanding.............  19,230,539    25,000,000    20,919,243   25,000,000
 
Net (Loss) Earnings per share......    $(.95)        $(.82)          $.05         $.04
</TABLE>

                                       7
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Millions of dollars, except per share amounts)

2.  Net (Loss)/Earnings Per Common Share (continued)

<TABLE>
<CAPTION>
                                                       For the 39-Week
                                                        Periods Ended
                                         September 28, 1996         September 30, 1995
                                        Class A       Class B       Class A      Class B
<S>                                  <C>           <C>           <C>          <C>
Net (Loss)/Earnings applicable to
   Common Shareholders.............      $(38)         $(43)          $3           $4
 
Weighted average number of
   common shares outstanding.......   19,269,681    25,000,000    19,915,677   25,000,000
 
Net (Loss)/Earnings per share......    $(1.99)       $(1.73)         $.17         $.14

</TABLE>

3. Insurance Benefits and Losses

   Operating, selling, general and administrative expenses include insurance
   benefits and losses related to direct response marketing operations of $43
   and $28 for the 13-week periods ended September 28, 1996 and September 30,
   1995, respectively, and $115 and $83 for the 39-week periods then ended.  The
   increases of $15 and $32, respectively, are due primarily to the costs of the
   Amoco Motor Club.

4. Preferred Stock

   On January 31, 1996, GE Capital exercised the exchange option contained in
   the MW Senior Preferred Stock subscription agreement which allowed an
   exchange of the MW Senior Preferred Stock for senior preferred stock of the
   Company with substantially the same terms.  On March 28, 1996, the Company's
   Certificate of Incorporation was amended to authorize the issuance of a new
   series of senior preferred stock (New Senior Preferred Stock).  On March 29,
   1996, the Company issued all of the 1,750 shares of New 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 New Senior Preferred Stock are payable quarterly at an
   annual rate of $7,010 per share.  The Company is required to redeem the New
   Senior Preferred Stock on June 30, 2002, with the option of redeeming all or
   any portion prior to June 30, 2002.


                                       8
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Millions of dollars, except per share amounts)

5. Acquisition of Amoco Enterprises, Inc.

   On December 31, 1995, Montgomery Ward acquired all of the outstanding capital
   stock of Amoco Enterprises, Inc. (Enterprises), operator of the Amoco Motor
   Club and a wholly-owned subsidiary of Amoco Oil Holding Company.  The
   purchase price was $100.  The acquisition was financed through the use of the
   majority of the proceeds generated from the issuance of the MW Senior
   Preferred Stock.  On January 2, 1996, Montgomery Ward's wholly-owned
   subsidiary, Signature, purchased Enterprises from Montgomery Ward for $100.

   The acquisition was accounted for as a purchase.  The purchase price has been
   allocated to Enterprises' net assets based upon preliminary results of asset
   valuations and liability and contingency assessments.  Actual adjustments may
   differ based on the results of further evaluations of the fair value of the
   acquired assets and liabilities.  Any differences between preliminary and
   actual adjustments are not expected to have a material impact on the
   Consolidated Financial Statements.

   The preliminary allocation is summarized as follows:

<TABLE>
<CAPTION>
 
<S>                                        <C>
             Accounts receivable........   $ 25
             Federal income tax         
              receivable................      1
             Properties, plant &        
              equipment.................      3
             Direct response and
               insurance acquisition
               costs....................    126
             Goodwill...................     67
             Other assets...............      4
             Trade accounts payable.....     (3)
             Accrued liabilities and    
              other obligations.........    (76)
             Deferred income taxes......    (47)
                                           ----
                                           $100
                                           ====
</TABLE>

6. Commitments and Contingent Liabilities

   MW Holding, Montgomery Ward 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.

                                       9
<PAGE>
 
                          MONTGOMERY WARD HOLDING CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Millions of dollars, except per share amounts)


7. Customer Credit Agreement

   A. Effective April 1, 1996, Montgomery Ward entered into interim agreements
      with GE Capital and its wholly-owned subsidiaries Montgomery Ward Credit
      Corporation ("Montgomery Ward Credit") and Monogram Credit Card Bank of
      Georgia ("Monogram") reflecting a prior memorandum of understanding with
      GE Capital pursuant to which Monogram is extending credit to retail
      customers of Montgomery Ward under open-ended revolving credit plans on a
      non recourse basis.

      In the Montgomery Ward memorandum of understanding, interim agreements
      provide for the sharing of certain additional revenues generated by
      increases in interest rates and late fee charges to customers with the
      extension of credit to the customers made directly by Monogram.  Certain
      of these additional revenues will be applied to reduce the obligations of
      Montgomery Ward for prior losses incurred under the original Account
      Purchase Agreement with Montgomery Ward Credit and Montgomery Ward's
      obligation to pay Credit losses in excess of 3.9% of the average
      receivable balance up to 5%, and 50% of the losses in excess of 5% up to
      8%, incurred by Monogram and Montgomery Ward Credit under the new
      agreements.  Except as noted above, the new agreements together generally
      impose obligations upon and provide benefits to Montgomery Ward and GE
      Capital and its subsidiaries, Montgomery Ward Credit and Monogram similar
      to the prior arrangements under the Account Purchase Agreement.

      The interim agreement provided that if definitive agreements are not
      entered into by July 31, 1996 by Montgomery Ward, Monogram, Montgomery
      Ward Credit and GE Capital permanently implementing the changes
      contemplated by the memorandum of understanding and interim agreements for
      the Montgomery Ward credit customers, Montgomery Ward credit transactions
      will revert to the original Account Purchase Agreement.  The date for
      entering into the definitive agreements was amended to November 30, 1996
      by the parties.

   B. Effective March 13, 1996, Lechmere, Inc., a subsidiary of Montgomery Ward,
      entered into interim agreements with GE Capital and its wholly-owned
      subsidiaries Montgomery Ward Credit and Monogram reflecting a prior
      memorandum of understanding with GE Capital pursuant to which Monogram is
      extending credit to retail customers of Lechmere under open-end revolving
      credit plans on a non-recourse basis.

                                       10
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Millions of dollars, except per share amounts)


7. Customer Credit Agreement (continued)

      The Lechmere memorandum of understanding and interim agreements provide
      for a guaranteed Monogram Bank/GE Capital annual return on its equity of
      17.50%.  For any shortfalls, an annual payment would be made by Lechmere.
      Any return above 17.50% will be shared equally by Lechmere and Monogram/GE
      Capital.  For any annual credit losses over 4.25% and less than 8% of the
      average receivable balance, Lechmere is responsible for 50% of said
      losses.  It is envisioned that a similar relationship will be established
      for Montgomery Ward's "Electric Ave. & More" credit card customer
      receivables.  The original agreement provided that if definitive
      agreements were not executed by August 31, 1996, the Lechmere interim
      agreements would expire.  The date for entering into the definitive
      agreements has been amended to December 31, 1996 by the parties.

   C. Pursuant to an agreement dated April 3, 1996, Montgomery Ward and Lechmere
      agreed to sell to Montgomery Ward Credit receivables from certain
      commercial customers of Montgomery Ward and Lechmere.
 
8. Related Party Transactions

   A. Montgomery Ward Direct L.P. (MW Direct)

      The Company was a partner in a joint venture, MW Direct, formed through a
      partnership in 1991 between subsidiaries of Montgomery Ward and
      subsidiaries of Fingerhut Companies, Inc., a Minneapolis, Minnesota
      specialty-based catalog merchandiser.  In June of 1996, the subsidiaries
      of Fingerhut Companies withdrew from the partnership.  Immediately prior
      to the withdrawal, the Fingerhut Partners contributed to the capital of MW
      Direct cash and all claims that the Fingerhut subsidiaries had against MW
      Direct.
 
      In July of 1996, the Company and ValueVision International, Inc.
      (ValueVision) a Minneapolis, Minnesota based television home shopping
      enterprise entered into an agreement where ValueVision acquired the assets
      and assumed certain liabilities of MW Direct concurrent with the
      restructuring of the marketing agreement between Montgomery Ward and
      ValueVision as discussed below
 
   B. ValueVision International, Inc. (ValueVision)

      In July of 1996, ValueVision and Montgomery Ward & Co., entered into an
      agreement for the expansion and restructuring of their ongoing marketing
      agreement as well as ValueVision's acquisition of the assets and
      assumption of substantially all liabilities of Montgomery Ward Direct,
      L.P.

                                        11
<PAGE>
 
                          MONTGOMERY WARD HOLDING CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Millions of dollars, except per share amounts)


8. Related Party Transactions (continued)

   B. ValueVision International, Inc. (ValueVision) (continued)

      ValueVision's sales promotion rights will be expanded beyond the current
      television home shopping arena to include the full use of the Montgomery
      Ward name, servicemark, and 10 million-plus active credit card file for
      direct mail catalogs and ancillary promotions.  The new agreement also
      extends to the use of the Lechmere servicemark and customer file, acquired
      by Montgomery Ward in 1994 when it purchased the New England-based
      electronics and appliance retailer.

      ValueVision issued to Montgomery Ward vested warrants (Class P Warrants)
      to purchase 2.97 million shares of ValueVision common stock at an exercise
      price of $0.01 per share. The new warrants replaced 18.0 million unvested
      warrants (Class C-O Warrants) from an earlier grant of 25.0 million
      ValueVision warrants exercisable at prices ranging from $7.00-$17.00 per
      share. Concurrent with this agreement, ValueVision issued to Merchant
      Partners L.P. (Merchant Partners) vested Class P warrants to purchase
      199,100 shares of ValueVision common stock at an exercise price of $0.01
      per share. Montgomery Ward is a limited partner in Merchant Partners.
      Montgomery Ward recognized a pretax gain of $8 from the exchange
      of the Class C-O invested warrants and the exchange of Montgomery Ward
      Direct assets and liabilities. The gain was included in Operating,
      selling, general and administrative expense.

      In September of 1996, Montgomery Ward and ValueVision exchanged warrants
      to purchase ValueVision common stock.  Montgomery Ward exchanged 6.0
      million of vested warrants (Class A-B Warrants) from the earlier grant of
      25.0 million warrants which were exercisable at prices ranging from $6.50
      to $6.75.  In return for these warrants, ValueVision exchanged vested
      warrants (Class P Warrants) to purchase 2.2 million shares of ValueVision
      common stock at an exercisable price of $0.01 per share.  Montgomery Ward
      recognized a pretax gain of $7 from this transaction which is
      included in Operating, selling, general and administrative expense.

 
      The earlier warrant program had been subject to certain vesting conditions
      and termination rights which do not apply to the replacement grant.  Under
      the new agreements, Montgomery Ward's potential ownership of ValueVision,
      on a fully diluted basis, following the exercise of all warrants would be
      12.95%.  Montgomery Ward will account for ValueVision on the Equity Method
      effective with the agreement commencing on July 28, 1996.  No material
      gains or losses were recognized in the third quarter from this equity
      investment.

                                       12
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Millions of dollars, except per share amounts)


8. Related Party Transactions (continued)

   B. ValueVision International, Inc. (continued)

      Effective with the agreement, consolidation of the Montgomery Ward Direct
      business in ValueVision's operations commenced on July 28, 1996.

   C. Merchant Partners L.P.

      In September of 1996, Montgomery Ward made a capital contribution to
      Merchant Partners which consisted of vested warrants (Class P Warrants) to
      purchase 1.33 million of ValueVision common stock at an exercise price of
      $.01 per share.  These Class P warrants were from those acquired pursuant
      to the agreement above which exchanged the unvested Class C-O warrants for
      vested Class P warrants.  The value of the capital contribution recorded
      as an investment in Merchant Partners was $10. Montgomery Ward
      is a limited partner in Merchant Partners.

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

   The following discussion and analysis of results of operations for MW Holding
   compares the third quarter of 1996 to the third quarter of 1995, as well as
   the first nine months of 1996 to the first nine months of 1995.  All dollar
   amounts referred to in this discussion are in millions, and all income and
   expense items are shown before income taxes, unless specifically stated
   otherwise.

   MW Holding's business is seasonal, with one-third of the sales traditionally
   occurring in the fourth quarter; accordingly, the results of operations for
   the quarter and the first nine months are not necessarily indicative of the
   results for the entire year.

                                       13
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Millions of dollars, except per share amounts)


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations (continued)

Results of Operations (continued)

Third Quarter 1996 Compared with Third Quarter 1995

   Consolidated total revenues (net sales and direct response marketing
   revenues, including insurance) were $1,567 in 1996 compared with $1,704 in
   1995, a decrease of $137 or 8%.

   Net sales were $1,376 in 1996 compared with $1,562 in 1995, a decrease of
   $186 or 12%. Montgomery Ward store sales for the quarter decreased 12% in
   softlines (Apparel, Jewelry and Domestics), and 13% in hardlines
   (Electronics, Appliances, Furniture and Automotive). Comparable sales for
   Montgomery Ward and Lechmere decreased 14% for the quarter and comparable
   store sales decreased 17%.

   Sales were negatively impacted by competitive conditions and the Company's
   decision to reduce and redeploy inventory in concert with its strategic
   direction. The Company plans to grow its retail business with narrowed and
   lower inventory levels in merchandise lines that provide sale and gross
   margin opportunities. The current transition period is negatively impacted by
   significant liquidation sales that result in lower retail prices and
   reduction of new merchandise receipts during the transition period. In
   Hardlines, the Company is working with its major brand relationships
   (including Sony, Bose, GE, Maytag, La-Z-Boy, Goodyear and Sealy) to emphasize
   "Exclusive Values" which are offered at pre-emptive prices by leveraging the
   Company's volume buying in key categories and items. In Apparel, the
   assortment is shifting to a focus on casual, lifestyle categories with
   universal appeal -- denim, active wear, team sports wear (college and
   professional) and topical (featuring Disney and Warner Bros. characters).
   These focus categories will competitively position the company in the niche
   between discounters and department stores and expand the Company's customer
   base due to their appeal across consumer demographics. The brand assortment
   in apparel is being strengthened with the addition of Bum, Champion, and
   Converse to supplement the Company's dominant market share in Lee, Bugle Boy
   and BIKE.

   To make way for the new strategies in Hardlines and Apparel, the Company is
   reducing certain lines of merchandise such as exiting suit separates in
   Apparel and narrowing the number of computers to be carried in Hardlines at
   Montgomery Ward. These efforts are estimated to have resulted in $36 of
   incremental markdowns in the Third Quarter. Similar efforts are planned
   during the Fourth Quarter when the Company has the most customer traffic in
   its stores. The Company has also planned for additional staffing to
   accommodate customers and replenish the sales floor during this peak selling
   period.
 

                                      14
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Millions of dollars, except per share amounts)


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations (continued)

Results of Operations (continued)

   Third Quarter 1996 Compared with Third Quarter 1995 (continued)
 
   Credit sales during the Third Quarter in 1996 were 59% of total sales
   compared to 62% in 1995. The Company's New Account Acquisition program
   resulted in new card holder additions exceeding the prior year during
   September and reversed the decline in new accounts experienced since the
   fourth quarter of 1995. The Third Quarter increase in new accounts is on plan
   with management's goal of achieving a 15% increase in new accounts for full
   year 1996.

   The Company invested $26 in capital expenditures in the Third Quarter,
   including the opening of six new "Home Image" by Lechmere stores and one new
   full-line store by Montgomery Ward. "Home Image" is the Company's new
   retailing concept which leverages its market share and brand dominance in
   home oriented goods. Home Image has lifestyle merchandising presentations
   which integrate home furnishings, electronics, home office products and
   appliances in room settings to provide ease of shopping and generate add-on
   purchases and higher overall margin. The stores combine the strongest
   competitive elements of the Company's Electric Avenue & More, Home Ideas and
   Lechmere concepts to maximize sales potential, and they are located in middle
   markets where the Company can capitalize on its buying and expense leverage
   versus smaller regional competitors.

   Direct response marketing revenues were $191 in 1996 compared with $142 in
   1995, an increase of $49 or 35%; $28 of the increase was primarily due to the
   Amoco Motor Club acquisition (see Note 5 to Consolidated Financial
   Statements) with the remaining increase of $21 due to increases in club
   membership levels combined with price increases especially in credit card
   registration, home protection, dental and dining.

   Gross margin (net sales, less cost of goods sold) dollars were $280, 20% of
   net sales, a decrease of $42 or 13%. The decrease was due to a decrease in
   gross margin rate of $20 and sales volume of $50 offset by a decrease in
   other expense of $28. The decrease in gross margin rate was due to
   competitive pressures and liquidation efforts designed to narrow merchandise
   assortments and dispose of inactive inventory in concert with its strategic
   direction.

                                      15
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Millions of dollars, except per share amounts)


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations (continued)

Results of Operations (continued)

   Third Quarter 1996 Compared with Third Quarter 1995 (continued)

   Operating, selling, general and administrative expenses increased $66, due to
   increased operating and other administrative expenses of Montgomery Ward and
   Lechmere of $22, and by the increased payroll and other administrative
   expenses of Signature of $44, with $22 due to the Amoco acquisition and $22
   due to Signature's continued growth of business.

   As was discussed in Note 8 of the financial statements, "Related Party
   Transactions," a gain of $15 was included in selling, general and
   administrative expense as a result of the exchange of unvested warrants
   (Class C-O) pursuant to the restructuring of the agreement between Montgomery
   Ward and ValueVision International, Inc. and the exchange of vested warrants
   (Class A-B) for new warrants (Class P).

   The net loss for the Third Quarter 1996 was $35 compared to net income of $3
   for the Third Quarter 1995.

 

                                      16
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Millions of dollars, except per share amounts)


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations (continued)

Results of Operations (continued)

First Nine Months of 1996 Compared with First Nine Months of 1995

   Consolidated total revenues were $4,537 compared with $4,846 in 1995, a
   decrease of $309 or 6%.

   Net sales decreased $455 or 10%. Comparable store sales decreased 12%.
   Montgomery Ward store sales for the nine months decreased 10% in apparel,
   jewelry and domestics and 8% in hardlines.

   Direct response marketing revenues increased $146 or 36%; $81 of the increase
   was primarily due to the Amoco acquisition and $65 was due to increases in
   club, insurance and other revenues.

   Gross margin dollars (net sales, less cost of goods sold) were $751, 19% of
   net sales, a decrease of $160 due to decreases in gross margin rate of $74
   and sales volume of $119 offset by a decrease in other expense of $33.
   Continued competitive pressures and inventory liquidation efforts contributed
   to the decrease in gross margin rate for the nine months.

   Operating, selling, general and administrative expenses increased $112 from
   the prior year. Signature's expense increased $138, primarily due to an
   increase of $67 in 1996 benefits and expenses of the Amoco Motor Club and due
   to Signature's continued growth of business. Montgomery Ward and Lechmere's
   expenses decreased $26 from the prior year which included the impact from new
   store openings.

   As was discussed in Note 8 of the financial statements, "Related Parties
   Transactions," a gain of $15 was included in selling, general and
   administrative expense as a result of the exchange of unvested (Class C-O)
   warrants pursuant to the restructuring of the agreement between Montgomery
   Ward and ValueVision International, Inc. and the exchange of vested warrants
   (Class A-B) for new warrants (Class P).

   Net interest expense increased $8 from the prior year due to increased
   borrowings (as more fully discussed in the Discussion of Financial
   Condition), and higher average borrowing rates related to long-term
   borrowings placed in 1995 to extend the maturity and fix the interest rate on
   a significant portion of the Company's debt.

   Net loss for the nine months was $72 versus net income of $10 in 1995.

                                      17
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Millions of dollars, except per share amounts)


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations (continued)

Discussion of Financial Condition

   Montgomery Ward is the only direct subsidiary of MW Holding and, therefore,
   Montgomery Ward and its subsidiaries are MW Holding's sole source of funds.

   Montgomery Ward entered into a Long Term Credit Agreement (Long Term
   Agreement) dated as of September 15, 1994 with various banks and agents named
   therein, which expires September 6, 2000, providing a revolving facility in
   the principal amount of $603. As of September 28, 1996, $603 was outstanding
   under the Long Term Agreement.

   On September 6, 1996, the Short Term Credit Agreement (Short Term Agreement)
   dated as of September 15, 1994 among Montgomery Ward and various banks and
   agents named therein, which was extended to August 29, 1997 and was further
   amended to increase the principal amount of this revolving loan facility from
   $297 million to $436. On October 24, 1996, this facility was further
   increased from $436 to $456. As of September 28, 1996, $145 was outstanding
   under the Short Term Agreement.

   Montgomery Ward also entered into a Credit Agreement (Seasonal Credit
   Agreement) dated as of October 4, 1996 with various lenders, including GE
   Capital. The Seasonal Credit Agreement expires March 1, 1997 and provides a
   revolving loan facility in the principal amount of $165. The purpose of this
   facility is to provide back-up liquidity as the Company reduces its inventory
   levels during the Fourth Quarter. Unless the lenders otherwise agree, Loans
   may be made under this facility only after the commitments under the Short
   Term Agreement and the Long Term Agreement are fully used. Under the Seasonal
   Credit Agreement, Montgomery Ward may select among several interest rate
   options which are based on market rates. A commitment fee is payable based
   upon the unused commitment.

   The recent amendments to the Long Term Agreement and the Short Term Agreement
   and the Seasonal Credit Agreement have added an earnings to fixed charges
   test to the debt to total capitalization, minimum equity and dividend and
   distributions financial tests contained in these Agreements.

   On September 28, 1996, Montgomery Ward borrowed $45 under short-term
   uncommitted lines of credit, which the company periodically uses at seasonal
   working capital peaks to diversify its borrowings.

   Montgomery Ward has 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 Agreement. The
   aggregate notional principal amounts under the interest rate exchange
   agreement is $175 in 1996. Under the terms of the interest rate exchange
   agreements, Montgomery Ward pays the banks a weighted average fixed rate of
   7.4% multiplied by the notional principal amount in 1996 and will receive the
   one-month daily average London Interbank Offered (LIBO) rate multiplied by
   the notional principal amount.

                                      18
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Millions of dollars, except per share amounts)


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations  (continued)

Discussion of Financial Condition (continued)

   The average aggregate notional principal amount under the various cap
   agreements is $158 in 1996.  Under the terms of the cap agreements,
   Montgomery Ward receives payments from the banks when the one-month daily
   average LIBO rate exceeds the 6.0% cap strike rate in 1996.  Such payments
   will equal the amount determined by multiplying the notional principal amount
   by the excess of the percentage rate, if any, of the one-month daily average
   LIBO rate over the cap strike rate.  The interest rate exchange and cap
   agreements increased the effective borrowing rate under the Agreements by
   .80% for the 39-week period ended September 28, 1996.  Montgomery Ward is
   exposed to credit risk in the event of nonperformance by the other parties to
   the interest rate exchange and cap agreements; however, Montgomery Ward
   anticipates full performance by the counterparties.

   Signature Financial/Marketing, Inc. (Signature), a wholly owned subsidiary of
   Montgomery Ward, borrowed $102 under a Credit Agreement (Signature Credit
   Agreement) dated as of September 27, 1996 between Signature and various
   lenders.  The proceeds were used to repay the inter-company loan from
   Montgomery Ward to Signature arising from Signature's acquisition of the
   Amoco Motor Club on December 31, 1995.  The Signature Credit Agreement
   expires on March 1, 1997 and is expected to be refinanced on a long-term
   basis at that time.

   On October 24, 1996, Montgomery Ward prepaid a $25 term loan which had been
   outstanding under the Term Loan Agreement dated September 29, 1995.
 
   Net cash used in the Company's operating activities totaled $592 for the
   first nine months of 1996 compared to $608 for the same period in 1995.

   Net cash provided by financing activities totaled $709 for the first nine
   months of 1996, compared to $714 for the same period in 1995.

   Capital expenditures during the first nine months of 1996 of $55 were
   primarily related to expenditures for the opening of one full-line store and
   six Home Image stores in August.  Capital expenditures for the comparable
   1995 period were $90.  The decrease in capital expenditures from the prior
   year was due to a reduction in new stores of $13, major remodels and
   conversions of  $15, and corporate and store capital programs of $7.

 

                                       19
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (Millions of dollars, except per share amounts)


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations  (continued)

Discussion of Financial Condition (continued)

   Future cash needs are expected to be provided by ongoing operations, the
   arrangements with Monogram Bank/GE Capital and Montgomery Ward Credit
   pertaining to the extension of credit to the Company's customers, the
   disposition of capital assets and borrowings under the revolving loan
   facilities and uncommitted lines. While cash flow remains positive, the
   liquidation of inventories has a negative earnings impact. The Company is
   currently evaluating the impact of the numerous activities of its financing
   facilities, including the various financial tests, and the related future
   financing needs.

                                       20
<PAGE>
 
                          PART II - OTHER INFORMATION


Item 1.  Legal Proceedings.

   None.

Item 2.  Changes in Securities.

   None.

Item 3.  Defaults Upon Senior Securities.

   None.

Item 4.  Submission of Matters to a Vote of Security Holders.

   None.

Item 5.  Other Information.

   Information included in this Report on Form 10-Q relating to sales and
   earnings expectations constitutes 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:  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.

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

   (a)   Exhibits.

         10.(i)(H)(3)  Amendment 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, which became
                       effective September 6, 1996.

                                       21
<PAGE>
 
                          PART II - OTHER INFORMATION


Item 6. Exhibits and Reports on Form 8-K. (continued)

    (a)  Exhibits. (continued)

         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.

         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.

         10.(i)(K)(2)  Amendment dated September 27, 1996 to the Term Loan
                       Agreement dated as of September 29, 1995 between
                       Montgomery Ward & Co., Incorporated and The Industrial
                       Bank of Japan, Limited, Chicago Branch.

         10.(i)(L)     Credit Agreement dated as of September 27, 1996 among
                       Signature Financial/Marketing, Inc., The Bank of New York
                       and The Bank of Nova Scotia.

         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.

         27.           Financial Data Schedule.

    (b)  Reports on Form 8-K.

         None.

                                      22
<PAGE>
 
                                   SIGNATURE


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


REGISTRANT                          MONTGOMERY WARD HOLDING CORP.

 
BY                                  JOHN L. WORKMAN
NAME AND TITLE                      John L. Workman, Executive Vice President
                                    and Chief Financial Officer
DATE:                               November 12, 1996

 

                                      23