NEIMAN MARCUS GROUP INC, 424B1, 1996-10-11

NEIMAN MARCUS GROUP INC
424B1, 1996-10-11
DEPARTMENT STORES

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<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-11721

PROSPECTUS [Neiman Marcus Logo]

8,000,000 Shares

The Neiman Marcus Group, Inc.

COMMON STOCK

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

OF THE 8,000,000 SHARES OF COMMON STOCK BEING OFFERED, 6,400,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 1,600,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE
THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE
BEING SOLD BY THE COMPANY. THE COMPANY'S COMMON STOCK IS LISTED ON
THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "NMG." ON OCTOBER 10,
1996, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE NEW
YORK STOCK EXCHANGE WAS $35 1/2 PER SHARE.

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

SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

PRICE $35 A SHARE

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

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------- --------------- -------------
<S> <C> <C> <C>
Per Share....................... $35.00 $1.40 $33.60
Total(3)........................ $280,000,000 $11,200,000 $268,800,000

<FN>
- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.

(2) Before deducting expenses payable by the Company estimated at
$1,520,000.

(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
1,200,000 additional Shares at the price to public less underwriting
discounts and commissions for the purpose of covering over-allotments,
if any. If the U.S. Underwriters exercise such option in full the total
price to public, underwriting discounts and commissions and proceeds to
Company will be $322,000,000, $12,880,000 and $309,120,000,
respectively. See "Underwriters."

</TABLE>
------------------------

The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about October 17, 1996 at the office
of Morgan Stanley & Co. Incorporated, New York, New York, against payment
therefor in immediately available funds.

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

MORGAN STANLEY & CO.
Incorporated
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC

October 10, 1996

<PAGE> 2

[PHOTOS OF SELECTED NEIMAN MARCUS AND BERGDORF GOODMAN STORES]

"5TH AVE. NEW YORK"
"UNION SQUARE SAN FRANCISCO"
"MICHIGAN AVE. CHICAGO"
"WILSHIRE BLVD. BEVERLY HILLS"

"PREMIER RETAIL LOCATIONS THROUGHOUT THE UNITED STATES"

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 3

"THREE CONSUMER FRANCHISES"
[LOGOS OF EACH OF THE COMPANY'S DIVISIONS]
"FEATURING HIGH FASHION DESIGNER MERCHANDISE"
[PHOTOS OF DESIGNER BOUTIQUES IN THE COMPANY'S STORES]
<PAGE> 4

"GEOGRAPHIC DIVERSITY"

[UNITED STATES MAP SHOWING STORE LOCATIONS]

"WEST "TEXAS "SOUTHEAST

NEWPORT BEACH, CA DALLAS (DOWNTOWN) BAL HARBOUR, FL
BEVERLY HILLS, CA DALLAS (NORTHPARK) ATLANTA, GA
LAS VEGAS, NV DALLAS (PRESTONWOOD) WASHINGTON, DC
SAN DIEGO, CA HOUSTON (GALLERIA) FORT LAUDERDALE, FL
SAN FRANCISCO, CA HOUSTON (TOWN & COUNTRY) MCLEAN, VA"
PALO ALTO, CA FORT WORTH"
DENVER, CO
SCOTTSDALE, AZ"

"NORTHEAST "MIDWEST

NEW YORK, NY ST. LOUIS, MO
BOSTON, MA NORTHBROOK, IL
WESTCHESTER, NY OAK BROOK, IL
KING OF PRUSSIA, PA CHICAGO (MICHIGAN AVE.), IL
PARAMUS, NJ MINNEAPOLIS, MN
SHORT HILLS, NJ" TROY, MI"

[PHOTOGRAPHS OF MODELS WEARING APPAREL OFFERED BY THE COMPANY]
<PAGE> 5

No person is authorized in connection with the offering made hereby to give
any information or to make any representation not contained or incorporated by
reference in this Prospectus, and if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or by any Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the Common Stock offered
hereby to any person in any jurisdiction in which it is unlawful to make such an
offer or solicitation to such person. Neither the delivery of this Prospectus
nor any sale made hereby shall under any circumstance imply that the information
contained herein is correct as of any date subsequent to the date hereof.

------------------------
<TABLE>

TABLE OF CONTENTS

<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference........................... 1

Available Information................. 2

Prospectus Summary.................... 3

Risk Factors.......................... 8

Description of Transactions; Use of
Proceeds............................ 10

Dividend Policy....................... 12

Price Range of Common Stock........... 12

Capitalization........................ 13

Selected Consolidated Financial
Data................................ 14

Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16

Business.............................. 22

Management............................ 31

Principal Stockholders................ 33

Description of Capital Stock.......... 35

Underwriters.......................... 38

Legal Matters......................... 41

Experts............................... 41

Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

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

Neiman Marcus[Registered Trademark] and Bergdorf Goodman[Registered
Trademark] are trademarks and servicemarks owned by the Company. This Prospectus
also makes reference to other trademarks and servicemarks owned by the Company
and by other persons.

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

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company's Annual Report on Form 10-K for the fiscal year ended August
3, 1996 filed by the Company with the Commission is incorporated herein by
reference.

All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the termination of the offering of the Common Stock shall be deemed to
be incorporated by reference into this Prospectus and to be a part hereof from
the date of filing such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

The Company will provide without charge to each person to whom this
Prospectus is delivered, upon a written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference into this
Prospectus (without exhibits to such documents other than exhibits specifically
incorporated by reference into such documents). Requests for such copies should
be directed to the Corporate Relations Department of the Company, 27 Boylston
Street, Chestnut Hill, Massachusetts 02167 (telephone: 617-232-0760).
<PAGE> 6

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such materials may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission maintains a World Wide Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as the Company, that submit
electronic filings to the Commission. The Company's Common Stock is listed on
the New York Stock Exchange, and reports, proxy and information statements and
other information concerning the Company may also be inspected at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.

The Company has filed with the Commission a Registration Statement under
the Securities Act of 1933, as amended, with respect to the Common Stock offered
hereby (the "Registration Statement"). This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
Reference is made to the Registration Statement and to the exhibits relating
thereto for further information with respect to the Company and the Common Stock
offered hereby. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete;
and with respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved and each such statement shall
be deemed qualified in its entirety by such reference.

2
<PAGE> 7

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements (including the notes thereto)
appearing elsewhere and incorporated by reference in this Prospectus. As used in
this Prospectus, the "Company" refers to The Neiman Marcus Group, Inc. and
"Harcourt General" refers to Harcourt General, Inc., the majority shareholder of
the Company. Except as otherwise indicated herein, the information contained in
this Prospectus assumes that the U.S. Underwriters' over-allotment option is not
exercised. The terms "fiscal year" and "fiscal" refer to the Company's fiscal
year, which is the 52- or 53-week period ending on the Saturday closest to July
31 of the calendar year (e.g., a reference to "fiscal 1996" is a reference to
the fiscal year ended August 3, 1996).

THE COMPANY

The Company, operating through Neiman Marcus Stores, Bergdorf Goodman and
NM Direct, is the preeminent high end specialty retailer in the United States.
The Neiman Marcus and Bergdorf Goodman names are renowned for style, quality and
service. The 30 Neiman Marcus stores are in premier retail locations in major
markets nationwide and the two Bergdorf Goodman stores, the main store and the
Bergdorf Goodman Men store, are located in Manhattan at 58th Street and Fifth
Avenue. Neiman Marcus Stores and Bergdorf Goodman have maintained a consistent
focus on offering high end fashion apparel and accessories primarily from
leading designers. NM Direct, the Company's direct marketing operation, offers a
mix of apparel and home furnishings which is complementary to the Neiman Marcus
Stores merchandise. NM Direct also publishes the Horchow catalogues and the
world famous Neiman Marcus Christmas Catalogue.

The Company offers its customers a carefully edited assortment of high end
traditional and contemporary designer merchandise which generally has limited
distribution. While the Company serves a wide range of customers, the Company
believes that its core customers are 45 years of age and older with household
incomes in excess of $100,000. The Company is committed to meeting the lifestyle
needs and exceeding the expectations of its customers for both merchandise
quality and selection and customer service and attention. The Company strives to
create a unique shopping experience for the most discerning and fashion
conscious individuals. This experience is created by building personal
relationships with its customers and working closely with its designer resources
to offer exciting and fashionable merchandise in an elegant retail environment.

The Company believes it is well positioned to increase productivity and
sales by continuing to capitalize on favorable trends affecting the market for
upscale merchandise. The size and purchasing power of the Company's core
customer base is expected to continue to grow over the next several years. In
addition, management believes that the demand for luxury goods and other high
end merchandise has grown substantially over the past several years and should
continue to grow for the foreseeable future. Also, in recent years the retail
industry has been characterized by consolidation, the withdrawal of certain
retailers from the marketplace and a de-emphasis by traditional department
stores on high end merchandise, leaving fewer large competitors focused
exclusively on the upscale specialty retail market.

The Company has pursued a consistent business strategy designed to increase
productivity, sales and operating earnings. Key elements of the strategy
include: (i) offering an extensive and carefully edited assortment of high end
fashion merchandise based on strong relationships with designer resources; (ii)
providing a high level of customer service and utilizing a variety of
clienteling tools; (iii) investing in the Company's store base and supporting
infrastructure; (iv) opening new stores and (v) expanding its customer base by
broadening the Company's reach through creative marketing techniques, as well as
through NM Direct.

The Company intends to continue its commitment to high end merchandise and
to remain the preferred choice among many prestige suppliers as well as a
showcase for introducing new and innovative designers to the high fashion
market. Neiman Marcus Stores recently implemented its Optimum Selling(SM)
program with the goal of increasing productivity and sales. The program
encourages the Company's sales associates, substantially all of whom are paid on
commission, to access merchandise on a storewide basis to serve more of their
customers' merchandise needs.

3
<PAGE> 8
- --------------------------------------------------------------------------------

The Company also expects to benefit from its investment over the past five
years of approximately $350 million in its store base and supporting
infrastructure and facilities, and has identified other remodeling opportunities
to increase store productivity. Since 1987, the Company has completed remodeling
projects in most of its stores. In fiscal 1997, major projects will include (i)
commencing a full remodeling and expansion of the Fashion Island store in
Newport Beach, California and continuing a partial remodeling and expansion of
the Beverly Hills store, (ii) completing a major renovation of the first floor
of Bergdorf Goodman Men and (iii) constructing a beauty salon and spa in the
newly acquired ninth floor of the Bergdorf Goodman main store. These and other
future projects will improve space allocation and departmental adjacencies and
increase selling space and, the Company believes, generate increased revenue.

The Company continues to seek ways to expand its business. Since August
1995, the Company has opened three new Neiman Marcus stores, adding 430,000
gross square feet, and plans to open a new Neiman Marcus store in Honolulu's Ala
Moana Center in August 1998, which will add approximately 160,000 gross square
feet. In addition, the Company continues to assess the feasibility of other
sites for Neiman Marcus stores and expects to open an additional two to three
stores over the next five years. The Company is considering the feasibility of
introducing a Bergdorf Goodman Men/Home format (combining men's apparel and
accessories with decorative home accessories) in selected markets outside New
York City. All proposed capital projects are thoroughly evaluated against the
Company's financial return requirements and strategic objectives.

To expand its customer base, the Company employs various creative marketing
techniques including The Neiman Marcus Christmas Catalogue, its proprietary
credit cards, The Book, in-store events and the NM Express Card. NM Direct
provides the Company with the opportunity, through selective direct marketing,
to introduce new customers to the quality merchandise and service for which the
Company is known, especially in those markets where the Company does not operate
any stores. The Company is exploring international growth opportunities for NM
Direct with the same disciplined approach used for other expansion
opportunities.

The success of the Company's strategy has resulted in strong sales and
earnings growth. The Company's revenues from continuing operations during fiscal
1996 were $2.08 billion, compared to $1.89 billion in 1995 and $1.79 billion in
1994. Comparable sales increased 5.4% in fiscal 1996, 5.5% in 1995 and 7.3% in
1994. Sales per gross square foot reached all time highs of $380 at Neiman
Marcus Stores and $786 at Bergdorf Goodman in fiscal 1996. Earnings from
continuing operations for fiscal 1996 were $131.2 million, compared to $116.1
million in 1995 and $113.2 million in 1994.

Harcourt General currently owns 59% of the common stock and all of the
preferred stock of the Company. Upon completion of the Transactions described
below, Harcourt General will continue to own a majority of the common stock of
the Company. Two of Harcourt General's directors and virtually all of its
officers and corporate staff, including its Chairman and its Chief Executive
Officer, occupy similar positions with the Company.

DESCRIPTION OF TRANSACTIONS

The offering in the United States and Canada (the "U.S. Offering") and the
offering outside the United States and Canada (the "International Offering" and,
together with the U.S. Offering, the "Offering") are part of a group of
transactions that are intended to improve the Company's cash flow and capital
structure by eliminating all of the Company's outstanding preferred stock, all
of which is held by Harcourt General. The Company's outstanding preferred stock
consists of 500,000 shares of 9 1/4% Cumulative Redeemable Preferred Stock which
has an aggregate stated value of $50 million ("9 1/4% Preferred Stock") and
1,000,000 shares of 6% Cumulative Convertible Preferred Stock which has an
aggregate stated value of approximately $375 million ("6% Preferred Stock" and,
together with the 9 1/4% Preferred Stock, the "Preferred Stock").

Subject to the terms of the Exchange and Repurchase Agreement (the
"Repurchase Agreement") between the Company and Harcourt General, the Preferred
Stock will be repurchased from Harcourt General (the "Repurchase") by the
Company at a total price (the "Total Purchase Price") of approximately $416
- -------------------------------------------------------------------------------

4
<PAGE> 9
- -------------------------------------------------------------------------------

million, representing 98% of the aggregate stated value of the Preferred Stock,
plus approximately $6 million, representing accrued and unpaid dividends on the
Preferred Stock through the date of the closing of the Offering. The Repurchase
is scheduled to close on November 12, 1996. The Total Purchase Price will be
paid with 3,857,142 shares of the Company's Common Stock (the "Stock Payment")
and approximately $287 million in cash (the "Cash Payment"). At the closing of
the Offering, the Company will make a deposit of $260 million towards the Cash
Payment. Pursuant to the terms of the Repurchase Agreement, at the closing of
the Repurchase, the Company will deliver the Stock Payment and the unpaid
balance of the Cash Payment with interest at the rate of 5% per annum. The Total
Purchase Price was determined by negotiations between Harcourt General and a
Special Committee of the Board of Directors of the Company formed for this
purpose, comprised entirely of directors independent of Harcourt General. The
Special Committee has received an opinion from Bear, Stearns & Co. Inc. as to
the fairness of the Transactions from a financial point of view to the public
shareholders of the Company.

The net proceeds to the Company from the sale of the 8,000,000 shares of
Common Stock in the Offering (after deducting the underwriting discounts and
commissions and estimated expenses of the Offering) are estimated to be $267
million. To fund the Cash Payment, the Company intends to use all of the net
proceeds from the Offering, together with borrowings (the "Borrowings"), to the
extent necessary, under its revolving credit facility. Assuming no exercise of
the U.S. Underwriters' over-allotment option, Borrowings would be approximately
$20 million. To the extent that the U.S. Underwriters exercise their
over-allotment option, the Borrowings will be decreased and, if the amount of
the net proceeds from the Offering exceeds the amount of the Cash Payment, the
excess proceeds will be used to pay down amounts outstanding under the revolving
credit facility. The Offering, the Borrowings, the application of the net
proceeds thereof as described above and the Stock Payment are collectively
referred to herein as the "Transactions." After the consummation of the
Transactions, Harcourt General will continue to be the majority shareholder of
the Company.

The Company believes that the Transactions will be beneficial primarily
because its cash flow will be improved by eliminating both the annual dividends
on the Preferred Stock, which are currently approximately $27 million, and the
sinking fund requirements associated with the 6% Preferred Stock. The
Transactions will also strengthen the Company's balance sheet, improving its
financial flexibility and enhancing its access to the capital markets. In
addition, the Offering will increase the number of shares of Common Stock held
by the public from 15.3 million to 23.3 million shares. In connection with the
repurchase of the Preferred Stock, the Company will incur a nonrecurring,
non-cash charge to earnings applicable to common shareholders of approximately
$22 million, or approximately $.45 per share, in the quarter in which the
Repurchase is consummated. See "Description of Transactions; Use of Proceeds."

<TABLE>
THE OFFERING

<S> <C>
Common Stock offered(1):

U.S. Offering.......................... 6,400,000 shares

International Offering................. 1,600,000 shares

Total.......................... 8,000,000 shares

Common Stock to be outstanding after the
Transactions(2)(3)..................... 49,860,256 shares

Use of proceeds.......................... To partially fund the Cash Payment.

NYSE symbol.............................. NMG

<FN>
- ------------
(1) Assumes that the U.S. Underwriters' over-allotment option is not exercised.

(2) Excludes 832,137 shares of Common Stock reserved for issuance upon exercise
of employee stock options, 653,077 of which shares were subject to options
outstanding as of August 3, 1996.

(3) Includes the 3,857,142 shares to be issued as the Stock Payment.

</TABLE>
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5
<PAGE> 10
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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>

The summary historical consolidated financial and other data presented
below have been derived from the audited Consolidated Financial Statements for
each of the five fiscal years in the period ended August 3, 1996, are qualified
by reference to, and should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements and Notes thereto and the other financial information
included elsewhere and incorporated by reference in this Prospectus. The summary
pro forma statement of operations and balance sheet data presented below give
effect to the Transactions as if they had occurred on July 30, 1995 and as of
August 3, 1996, respectively. The pro forma information does not purport to
represent what the Company's results of operations would have been if the
Transactions had occurred as of the date indicated or what such results will be
for any future periods. The summary pro forma financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
other financial information included elsewhere and incorporated by reference in
this Prospectus.

<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------------
AUGUST 1, JULY 31, JULY 30, JULY 29, AUGUST 3,
1992 1993 1994 1995 1996(1)
---------- ---------- ---------- ---------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $1,484,945 $1,667,825 $1,789,461 $1,888,249 $2,075,003
Cost of goods sold including buying
and occupancy costs............................ 1,025,670 1,120,561 1,210,262 1,276,776 1,416,296
Selling, general and administrative
expenses(2).................................... 366,873 412,044 420,667 448,956 485,533
Corporate expenses............................... 13,116 11,898 13,411 12,465 13,719
---------- ---------- ---------- ---------- ----------
Operating earnings(2)............................ 79,286 123,322 145,121 150,052 159,455
Interest expense(2).............................. (32,408) (29,589) (31,878) (33,958) (28,228)
Other income(3).................................. -- 21,741 -- -- --
---------- ---------- ---------- ---------- ----------
Earnings from continuing operations before
income taxes and accounting change............. 46,878 115,474 113,243 116,094 131,227
Income taxes..................................... 19,220 48,499 47,562 48,759 53,803
---------- ---------- ---------- ---------- ----------
Earnings from continuing operations
before accounting change....................... 27,658 66,975 65,681 67,335 77,424
Loss from discontinued operations
net of taxes (including loss on
disposal of $9,873 in 1995)(4)................. (5,806) (8,402) (49,755) (11,727) --
---------- ---------- ---------- ---------- ----------
Earnings before accounting change................ 21,852 58,573 15,926 55,608 77,424
Change in accounting for postretirement
health care benefits, net...................... -- (11,199) -- -- --
---------- ---------- ---------- ---------- ----------
Net earnings..................................... 21,852 47,374 15,926 55,608 77,424
Dividends and accretion on redeemable
preferred stocks(5)............................ (29,197) (29,068) (29,080) (29,092) (29,104)
---------- ---------- ---------- ---------- ----------
Net earnings (loss) applicable to
common shareholders............................ $ (7,345) $ 18,306 $ (13,154) $ 26,516 $ 48,320
========== ========== ========== ========== ==========
Weighted average shares outstanding.............. 35,551 37,577 37,946 37,999 38,218
========== ========== ========== ========== ==========
Amounts per share applicable to
common shareholders:
Earnings (loss) from continuing operations
before accounting change..................... $ (.05) $ 1.00 $ .96 $ 1.01 $ 1.26
Loss from discontinued operations.............. (.16) (.22) (1.31) (.31) --
Accounting change.............................. -- (.30) -- -- --
---------- ---------- ---------- ---------- ----------
Net earnings (loss)............................ $ (.21) $ .48 $ (.35) $ .70 $ 1.26
========== ========== ========== ========== ==========
PRO FORMA DATA:(6)
Net earnings per share applicable to common
shareholders................................... $ 1.55
==========
Weighted average shares outstanding.............. 50,075
==========
</TABLE>

(footnotes on next page)
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6
<PAGE> 11
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<TABLE>
<CAPTION>
AS OF AUGUST 3, 1996
-----------------------------
PRO FORMA
ACTUAL AS ADJUSTED(7)
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Inventories................................................................................ $ 443,948 $ 443,948
Property and equipment, net................................................................ 457,625 457,625
Total assets............................................................................... 1,252,350 1,252,350
Total debt(8).............................................................................. 325,197 345,138
Redeemable preferred stocks(5)............................................................. 407,426 --
Common shareholders' equity................................................................ 75,607 463,092

<S> <C> <C> <C> <C> <C>
OTHER DATA:
Increase in comparable sales:
Neiman Marcus Stores(9)........................ 1.7% 7.7% 7.6% 6.7% 6.5%
Total(10)...................................... 2.7% 8.9% 7.3% 5.5% 5.4%

Retail store sales per average square foot(11):
Neiman Marcus Stores........................... $ 292 $ 314 $ 338 $ 360 $ 380
Bergdorf Goodman............................... $ 630 $ 693 $ 726 $ 764 $ 786

Gross margin(12)................................. 30.9% 32.8% 32.4% 32.4% 31.7%
Selling, general and administrative expenses as a
percentage of revenues(2)...................... 24.7% 24.7% 23.5% 23.8% 23.4%
Operating profit margin(2)(13)................... 5.3% 7.4% 8.1% 7.9% 7.7%

Depreciation and amortization.................... $43,026 $45,088 $48,086 $48,397 $56,305
Capital expenditures............................. $58,600 $48,400 $65,074 $93,514 $85,736

Number of stores at year end:
Neiman Marcus Stores(14)....................... 26 27 27 27 29
Bergdorf Goodman............................... 2 2 2 2 2

<FN>
- ------------
(1) Fiscal 1996 was a 53-week year.

(2) In March 1995 the Company sold all of its Neiman Marcus credit card
receivables to a trust in exchange for certificates representing undivided
interests in such receivables. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Review of Financial
Condition." The securitization resulted in a decrease in finance charge
income (which is recorded as an offset to selling, general and
administrative expenses) and a resulting decrease in operating earnings in
fiscal 1995 and 1996. To provide a meaningful comparison of selling,
general and administrative expenses and operating earnings in fiscal 1995
and 1996 to such items in fiscal 1992 through 1994, the following chart
shows each item as if the securitization had not occurred:
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------
JULY 29, AUGUST 3,
1995 1996
-------- --------
<S> <C> <C>
Selling, general and administrative expenses................................... $441,856 $466,493
Selling, general and administrative expenses as a percentage of revenues....... 23.4% 22.5%
Operating earnings............................................................. $157,152 $178,495
Operating profit margin........................................................ 8.3% 8.6%
<FN>

(3) Represents settlement of several disputes with Carter Hawley Hale Stores,
Inc., which had operated the Neiman Marcus and Bergdorf Goodman businesses
prior to 1987.

(4) Reflects the operations of Contempo Casuals, which was sold by the Company
on June 30, 1995. See Note 2 to Consolidated Financial Statements.

(5) After the consummation of the Transactions, no shares of preferred stock
will be outstanding. See "Description of Transactions; Use of Proceeds."

(6) Excludes a nonrecurring, non-cash charge to earnings applicable to common
shareholders of approximately $22 million or approximately $.45 per share.
See "Description of Transactions; Use of Proceeds" for a description of the
pro forma adjustments.

(7) As adjusted to give effect to the Transactions. See "Description of
Transactions; Use of Proceeds."

(8) Includes obligations under capital leases. See Note 5 to Consolidated
Financial Statements.

(9) Comparable sales represents net sales of stores open in both reporting
periods for the portion of such period open. In fiscal 1996, comparable
sales exclude the impact of the 53rd week.

(10) Total comparable sales represents (i) net sales of stores open in both
reporting periods for the portion of such period open and (ii) NM Direct
net sales. In fiscal 1996, comparable sales exclude the impact of the 53rd
week.

(11) Sales per average square foot in each fiscal year represent net retail
store sales for such full fiscal year divided by the average of total gross
square feet of stores. In fiscal 1996, sales per average square foot
exclude sales for the 53rd week.

(12) Gross margin represents revenues less cost of goods sold including buying
and occupancy costs as a percentage of revenues.

(13) Operating profit margin represents operating earnings as a percentage of
revenues.

(14) On August 16, 1996, the Company opened its 30th Neiman Marcus store in
Paramus, New Jersey.
</TABLE>

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

7
<PAGE> 12

RISK FACTORS

Prospective purchasers of shares of Common Stock should consider carefully
the following risk factors relating to the Offering and the business of the
Company, together with the information and financial data set forth elsewhere or
incorporated by reference in this Prospectus, prior to making an investment
decision. This Prospectus contains certain statements of a forward looking
nature relating to future events or the future financial performance of the
Company. Prospective investors are cautioned that such statements are only
predictions and that actual events or results may differ materially. In
evaluating such statements, prospective investors should specifically consider
the various factors identified in this Prospectus, including the matters set
forth below, which could cause actual results to differ materially from those
indicated by such forward-looking statements.

SENSITIVITY TO ECONOMIC CONDITIONS AND CONSUMER CONFIDENCE

The specialty retail industry is highly dependent upon the level of
consumer spending, particularly among affluent customers, and may be adversely
affected by an economic downturn, increases in consumer debt levels,
uncertainties regarding future economic prospects, or a decline in consumer
confidence. An economic downturn in the areas in which the Company has stores,
particularly in Texas, California and the New York metropolitan area, from which
the Company derives a significant portion of its revenues, could have a material
adverse effect on the Company's business and results of operations.

CHANGING CONSUMER PREFERENCES

The Company's success depends in substantial part upon its ability to
anticipate and respond to changing consumer preferences and fashion trends in a
timely manner. Although the Company attempts to stay abreast of emerging
lifestyle and consumer preferences affecting its merchandise, any failure by the
Company to identify and respond to such trends could have a material adverse
effect on the Company's business and results of operations.

DEPENDENCE ON DESIGNER RESOURCES

Because the Company offers high end apparel, the Company's success is
dependent in part upon initiating and maintaining strong relationships with
designers. The Company has no guaranteed supply arrangements with its principal
merchandising sources. Accordingly, there can be no assurance that such sources
will continue to meet the Company's quality, style and volume requirements. The
inability of the Company to obtain quality and fashionable merchandise in a
timely fashion could have a material adverse effect on the Company's business
and results of operations. See "Business -- Business Strategy -- Merchandising"
and "Business -- Merchandising."

STORE LOCATIONS

The Company enters into long term leases for its store locations. The
Company's store locations have been carefully selected for the appropriate
demographics and retail environment. The term of the leases for its store
locations limits the Company's ability to respond in a timely manner to the
adverse consequences of the failure to correctly predict, or to changes in, the
demographic or retail environment at any location. Such failure or changes in
any areas in which the Company has stores could have a material adverse effect
on the Company's business and results of operations. See "Business -- Stores and
Other Facilities" and "Business -- Business Strategy -- Opening New Stores."

SEASONALITY; FLUCTUATION IN QUARTERLY RESULTS

The specialty retail industry is seasonal in nature, with a
disproportionately high level of sales and earnings typically generated in the
fall and holiday selling seasons. Working capital requirements and inventory
fluctuate during the year, increasing substantially in the first quarter in
anticipation of the holiday selling season. If actual sales for a quarter do not
meet or exceed projected sales for that quarter, expenditures and inventory
levels could be disproportionately high for such quarter and the Company's cash
flow and earnings for that quarter and future quarters could be adversely
affected. See Note 14 to Consolidated Financial Statements.

8
<PAGE> 13

COMPETITION

The specialty retail industry is highly competitive and fragmented. The
Company competes with large specialty retailers, traditional and better
department stores, national apparel chains, designer boutiques, individual
specialty apparel stores and direct marketing firms. The Company competes for
customers principally on the basis of quality, assortment and presentation of
merchandise, customer service, store ambience, sales and marketing programs and
value. The Company competes for quality merchandise and assortment principally
based on relationships with designer resources and purchasing power. The Company
competes for real estate opportunities principally on the basis of its ability
to attract customers. Many of the Company's competitors are larger and have
greater financial resources than the Company. Certain of the Company's
merchandise resources have established competing free-standing retail stores in
the same vicinity as the Company's stores. See "Business -- Competition."

CONTROL BY PRINCIPAL STOCKHOLDER

Upon consummation of the Transactions, Harcourt General will continue to be
the beneficial owner of a majority of the outstanding shares of Common Stock.
See "Description of Transactions; Use of Proceeds." Harcourt General is able,
and following the Transactions will continue to be able, to control the Company
through its ability to determine the outcome of votes of stockholders regarding
the election of directors and its ability to determine or significantly
influence the votes of stockholders regarding the approval of significant
transactions. Richard A. Smith, Chairman of the Board of the Company and of
Harcourt General, his sister, Nancy L. Marks, and certain members of their
families may be regarded as controlling persons of Harcourt General and,
therefore, of the Company. This concentration of ownership and voting power may
have the effect of delaying or preventing a change in control of the Company.
See "Principal Stockholders -- Stock Ownership of Certain Beneficial Owners and
Management -- Note 2."

While the Company has experienced executives and management in each of its
operating divisions, two of Harcourt General's directors and virtually all of
its officers and corporate staff, including its Chairman and its Chief Executive
Officer, occupy similar positions with the Company. The Company and Harcourt
General are parties to an agreement pursuant to which Harcourt General provides
certain management, accounting, financial, legal, tax and other corporate
services to the Company, including the services of the officers and corporate
staff mentioned above. This agreement may be terminated by either party on 180
days' notice. See "Management -- Relationship with Harcourt General." In the
event that Harcourt General were to sell its ownership stake in the Company or
terminate such agreement, the Company could experience a loss of important
members of its corporate management team, a loss of various corporate functions,
a potential increase in the cost of providing corporate services and a loss of
potential savings from certain consolidated purchasing agreements.

DIRECT MARKETING BUSINESS

In addition to being sensitive to economic conditions, consumer confidence,
seasonality and changing consumer preferences, NM Direct's business, which
accounted for approximately 12% of the Company's revenues in fiscal 1996, is
subject to other risk factors unique to the direct marketing business, such as
fluctuations in paper, printing and postage costs. In particular, NM Direct's
operating earnings were adversely affected in fiscal 1995 due, in part, to
significant increases in paper and postage costs.

NO DIVIDENDS ON COMMON STOCK

The Company currently does not intend to pay any cash dividends on the
Common Stock. The Company's revolving credit agreement contains restrictions on
its ability to pay dividends and make other distributions. See "Dividend
Policy."

9
<PAGE> 14

DESCRIPTION OF TRANSACTIONS; USE OF PROCEEDS

The Offering is part of a group of transactions that are intended to
improve the Company's cash flow and capital structure by eliminating all of the
Company's outstanding preferred stock, all of which is held by Harcourt General.
The Company's outstanding preferred stock consists of 1,000,000 shares of 6%
Preferred Stock and 500,000 shares of 9 1/4% Preferred Stock.

The 6% Preferred Stock is entitled (i) to receive cumulative dividends at
an annual rate of 6% on its aggregate $374.9 million stated value, (ii) to
convert on a per share basis into approximately 9.12 shares of Common Stock
subject to certain antidilution adjustments and (iii) upon liquidation of the
Company, to receive a liquidation distribution equal to its stated value,
together with any accrued and unpaid dividends, before any distribution to any
junior class of stock. The conversion price of the 6% Preferred Stock at August
3, 1996 was approximately $41.12 per share of Common Stock acquired upon such
conversion ($39.77 adjusted for the Offering). The 6% Preferred Stock may be
redeemed by the Company at a premium over its stated value under certain
conditions through September 1997. Commencing in September 1997 (when a sinking
fund for this purpose commences), the Company is required to redeem annually not
less than 5% of the 6% Preferred Stock at a redemption value of $374.92 per
share plus any accrued and unpaid dividends.

The 9 1/4% Preferred Stock is entitled to receive cumulative dividends at
an annual rate of 9 1/4% on its aggregate stated value of $50 million. The
9 1/4% Preferred Stock is not redeemable until July 31, 1998 except under
certain limited circumstances, is redeemable at a premium for a twelve month
period beginning July 31, 1998, and at par thereafter and must be redeemed in
full by July 31, 2001. The 9 1/4% Preferred Stock has a liquidation preference
equal to stated value plus accrued and unpaid dividends and ranks equal to the
6% Preferred Stock and is senior to the Common Stock of the Company with respect
to dividends and the distribution of assets upon liquidation or dissolution of
the Company.

Subject to the terms of the Repurchase Agreement, the Preferred Stock will
be repurchased from Harcourt General by the Company at the Total Purchase Price
of approximately $416 million, representing 98% of the aggregate stated value of
the Preferred Stock, plus approximately $6 million, representing accrued and
unpaid dividends on the Preferred Stock through the date of the closing of the
Offering. The Repurchase is scheduled to close on November 12, 1996. The Total
Purchase Price will be paid with 3,857,142 shares of the Company's Common Stock,
and approximately $287 million in cash. At the closing of the Offering, the
Company will make a deposit of $260 million towards the Cash Payment. Pursuant
to the terms of the Repurchase Agreement, at the closing of the Repurchase, the
Company will deliver the Stock Payment and the unpaid balance of the Cash
Payment with interest at the rate of 5% per annum. The Total Purchase Price was
determined by negotiations between Harcourt General and a Special Committee of
the Board of Directors of the Company formed for this purpose, comprised
entirely of directors independent of Harcourt General. The Special Committee was
advised by independent legal counsel and has received an opinion from Bear,
Stearns & Co. Inc. as to the fairness of the Transactions from a financial point
of view to the public shareholders of the Company.

The net proceeds to the Company from the sale of the 8,000,000 shares of
Common Stock in the Offering (after deducting the underwriting discounts and
commissions and estimated expenses of the Offering) are estimated to be $267
million. To fund the Cash Payment, the Company intends to use all of the net
proceeds from the Offering, together with Borrowings, to the extent necessary.
Assuming no exercise of the U.S. Underwriters over-allotment option, Borrowings
would be approximately $20 million. To the extent that the U.S. Underwriters
exercise their over-allotment option, the Borrowings will be decreased. To the
extent, if any, that the net proceeds of the Offering exceed the amount required
to fund the Cash Payment, such proceeds will be used to pay down amounts
outstanding under the Company's revolving credit facility, which provides
capital for general corporate purposes. The revolving credit facility, which
expires in April 2000, has an interest rate that varies according to one of four
pricing options (5.9% at August 3, 1996). After the consummation of the
Transactions, Harcourt General will continue to be the majority shareholder of
the Company.

10
<PAGE> 15

also strengthen the Company's balance sheet, improving its financial flexibility
and enhancing its access to the capital markets. In addition, the Offering will
increase the number of shares held by the public from 15.3 million to 23.3
million shares.

In connection with the repurchase of the Preferred Stock, the Company will
incur a nonrecurring, non-cash charge to earnings applicable to common
shareholders of approximately $22 million, or approximately $.45 per share. The
charge is comprised of two components: a charge of approximately $8 million,
representing the difference between the book value of the Preferred Stock and
98% of the aggregate stated value of the Preferred Stock and a charge of
approximately $14 million related to the Stock Payment. The $14 million charge
represents the value (at the price to public set forth on the cover of this
Prospectus) of the number of shares to be issued to Harcourt General in excess
of the number of shares that would have been issued in accordance with the
conversion terms of the 6% Preferred Stock to be acquired with the Stock
Payment. The $8 million charge will reduce common shareholders' equity. The $14
million charge will have no net effect on total common shareholders' equity.

<TABLE>
The following table sets forth certain summary consolidated pro forma
financial data for the Company for the fiscal year ended August 3, 1996 on a
historical basis and on a pro forma basis, giving effect to the Transactions as
if they occurred on July 30, 1995. The pro forma information does not purport to
represent what the Company's results of operations would have been if the
Transactions had occurred as of the date indicated or what such results will be
for any future periods. The summary pro forma financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
other financial information included elsewhere in this Prospectus.

<CAPTION>
FISCAL YEAR ENDED
AUGUST 3, 1996
-------------------------------
HISTORICAL PRO FORMA(1)
---------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................................... $2,075,003 $2,075,003
========== ==========
Operating earnings............................................... 159,455 159,455
Interest expense................................................. 28,228 27,798(2)
---------- ----------
Earnings from continuing operations before income taxes.......... 131,227 131,657
Income taxes..................................................... 53,803 53,979(3)
---------- ----------
Net earnings..................................................... 77,424 77,678
Dividends and accretion on redeemable preferred stocks........... (29,104) -- (4)
---------- ----------
Net earnings applicable to common shareholders................... $ 48,320 $ 77,678
========== ==========
Weighted average shares outstanding.............................. 38,218 50,075(5)
========== ==========
Amounts per share applicable to common shareholders:
Net earnings................................................... $ 1.26 $ 1.55
========== ==========

<FN>
- ---------------

(1) Excludes the effect of the nonrecurring, non-cash charge.

(2) As adjusted to reflect a reduction of $430 of interest expense. The
outstanding debt amount used to calculate the pro forma interest expense has
been reduced by the excess of the eliminated dividend payment over the
amount of the Borrowings.

(3) As adjusted to reflect the increase in taxes payable attributable to the
reduced interest expense, at the Company's effective tax rate.

(4) As adjusted to reflect the elimination of the dividends and accretion on the
redeemable preferred stocks.

(5) As adjusted to reflect 11,857 shares of Common Stock issued in the
Transactions.

</TABLE>

11
<PAGE> 16

DIVIDEND POLICY

PRICE RANGE OF COMMON STOCK
<TABLE>

The Company's Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "NMG." The following table sets forth for the periods
indicated the high and low closing sale prices of the Company's Common Stock as
reported on the NYSE.

<CAPTION>
COMMON
STOCK PRICE
-------------
HIGH LOW
---- ----
<S> <C> <C>
Year ended July 29, 1995
First Quarter................................................ $15 1/2 $13 1/2
Second Quarter............................................... 15 13
Third Quarter................................................ 15 1/2 13
Fourth Quarter............................................... 15 7/8 13 1/4
Year ended August 3, 1996
First Quarter................................................ 18 7/8 14 5/8
Second Quarter............................................... 23 1/2 17 1/8
Third Quarter................................................ 23 1/8 17 1/4
Fourth Quarter............................................... 30 1/8 23 5/8
Year ending August 2, 1997
First Quarter (through October 10, 1996)..................... 35 7/8 27 1/8
</TABLE>

The Company had approximately 12,116 stockholders of record at October 10,
1996. A recent reported last sale price of the Common Stock on the NYSE is set
forth on the cover of this Prospectus.

12
<PAGE> 17

CAPITALIZATION

<TABLE>

The following table sets forth the consolidated short-term debt and total
capitalization of the Company as of August 3, 1996 and as adjusted to give
effect to the Transactions. See "Description of Transactions; Use of Proceeds."
This table should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto included elsewhere and incorporated by
reference in this Prospectus.

<CAPTION>
AUGUST 3, 1996
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- --------------
(DOLLARS IN THOUSANDS)

<S> <C> <C>
Short-term debt............................................ $ 27,054 $ 27,054
======== ========
Long-term debt(1)
Revolving credit agreement(2)............................ $160,000 $179,941
Senior notes............................................. 132,000 132,000
Capital lease obligations................................ 6,143 6,143
-------- --------
Total long-term debt.................................. 298,143 318,084
-------- --------
Redeemable preferred stocks
6% Preferred Stock....................................... 357,426 --
9 1/4% Preferred Stock................................... 50,000 --
-------- --------
Total redeemable preferred stocks..................... 407,426 --
-------- --------
Common shareholders' equity(2)
Common stock, $.01 par value; 100 million shares
authorized, 38,003,702 shares issued and outstanding
(49,860,844 shares issued and outstanding as
adjusted)............................................. 380 499
Additional paid-in capital............................... 83,106 485,267
Accumulated deficit...................................... (7,879) (22,674)
-------- --------
Total common shareholders' equity..................... 75,607 463,092
-------- --------
Total capitalization............................. $781,176 $781,176
======== ========

<FN>
- ------------
(1) Excludes other long-term obligations of the Company. See Note 5 to
Consolidated Financial Statements.

(2) Assumes that the U.S. Underwriters' over-allotment option is not exercised.
If such option is exercised in full, pro forma, as adjusted common
shareholders' equity will be $503,412 and the outstanding balance under the
revolving credit agreement will be $139,621.

</TABLE>

13
<PAGE> 18

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below has been derived
from the audited Consolidated Financial Statements for each of the five years in
the period ended August 3, 1996, and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements and Notes thereto and the
other financial information included elsewhere and incorporated by reference in
this Prospectus.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------
AUGUST 1, JULY 31, JULY 30, JULY 29, AUGUST 3,
1992 1993 1994 1995 1996(1)
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $1,484,945 $1,667,825 $1,789,461 $1,888,249 $2,075,003
Cost of goods sold including buying and
occupancy costs.......................... 1,025,670 1,120,561 1,210,262 1,276,776 1,416,296
Selling, general and administrative
expenses(2).............................. 366,873 412,044 420,667 448,956 485,533
Corporate expenses......................... 13,116 11,898 13,411 12,465 13,719
---------- ---------- ---------- ---------- ----------
Operating earnings(2)...................... 79,286 123,322 145,121 150,052 159,455
Interest expense(2)........................ (32,408) (29,589) (31,878) (33,958) (28,228)
Other income(3)............................ -- 21,741 -- -- --
---------- ---------- ---------- ---------- ----------
Earnings from continuing operations before
income taxes and accounting change....... 46,878 115,474 113,243 116,094 131,227
Income taxes............................... 19,220 48,499 47,562 48,759 53,803
---------- ---------- ---------- ---------- ----------
Earnings from continuing operations before
accounting change........................ 27,658 66,975 65,681 67,335 77,424
Loss from discontinued operations net of
taxes (including loss on disposal of
$9,873 in 1995)(4)....................... (5,806) (8,402) (49,755) (11,727) --
---------- ---------- ---------- ---------- ----------
Earnings before accounting change.......... 21,852 58,573 15,926 55,608 77,424
Change in accounting for postretirement
health care benefits, net................ -- (11,199) -- -- --
---------- ---------- ---------- ---------- ----------
Net earnings............................... 21,852 47,374 15,926 55,608 77,424
Dividends and accretion on redeemable
preferred stocks(5)...................... (29,197) (29,068) (29,080) (29,092) (29,104)
---------- ---------- ---------- ---------- ----------
Net earnings (loss) applicable to common
shareholders............................. $ (7,345) $ 18,306 $ (13,154) $ 26,516 $ 48,320
========== ========== ========== ========== ==========
Weighted average shares outstanding........ 35,551 37,577 37,946 37,999 38,218
========== ========== ========== ========== ==========
Amounts per share applicable to common
shareholders:
Earnings (loss) from continuing
operations before accounting change.... $ (.05) $ 1.00 $ .96 $ 1.01 $ 1.26
Loss from discontinued operations........ (.16) (.22) (1.31) (.31) --
Accounting change........................ -- (.30) -- -- --
---------- ---------- ---------- ---------- ----------
Net earnings (loss)...................... $ (.21) $ .48 $ (.35) $ .70 $ 1.26
========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Accounts receivable(2)..................... $ 220,388 $ 309,572 $ 362,236 $ 150,110 $ 165,442
Inventories................................ 307,100 362,567 345,145 359,092 443,948
Property and equipment, net................ 422,243 416,519 410,913 423,583 457,625
Total assets............................... 1,141,438 1,278,574 1,323,128 1,108,437 1,252,350
Total debt(6).............................. 345,490 422,299 485,672 256,306 325,197
Redeemable preferred stocks(5)............. 399,562 401,510 403,470 405,442 407,426
Common shareholders' equity................ (2,919) 24,358 3,716 26,547 75,607
</TABLE>

(footnotes on next page)

14
<PAGE> 19

- ------------
(1) Fiscal 1996 was a 53-week year.

(2) In March 1995 the Company sold all of its Neiman Marcus credit card
receivables to a trust in exchange for certificates representing undivided
interests in such receivables. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The securitization resulted
in a decrease in finance charge income (which is recorded as an offset to
selling, general and administrative expenses) and a resulting decrease in
operating earnings in fiscal 1995 and 1996. To provide a meaningful
comparison of selling, general and administrative expenses and operating
earnings in fiscal 1995 and 1996 to such items in fiscal 1992 through 1994,
the following chart shows each item as if the securitization had not
occurred:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------
AUGUST
JULY 29, 3,
1995 1996
-------- --------
<S> <C> <C>
Selling, general and administrative expenses..................... $441,856 $466,493
Selling, general and administrative expenses as a percentage of
revenues....................................................... 23.4% 22.5%
Operating earnings............................................... $157,152 $178,495
Operating margin................................................. 8.3% 8.6%
</TABLE>

The securitization also had the effect of reducing accounts receivable in
fiscal 1995 by approximately $246 million.

(3) Represents settlement of several disputes with Carter Hawley Hale Stores,
Inc., which had operated the Neiman Marcus and Bergdorf Goodman businesses
prior to 1987.

(4) Reflects the operations of Contempo Casuals which was sold by the Company
on June 30, 1995. See Note 2 to Consolidated Financial Statements.

(5) After the consummation of the Transactions, no shares of preferred stock
will be outstanding. See "Description of Transactions; Use of Proceeds."

(6) Includes obligations under capital leases. See Note 5 to Consolidated
Financial Statements.

(7) Comparable sales represents net sales of stores open in both reporting
periods for the portion of such period open. In fiscal 1996, comparable
sales exclude the impact of the 53rd week.

(8) Total comparable sales represents (i) net sales of stores open in both
reporting periods for the portion of such period open and (ii) NM Direct
net sales. In fiscal 1996, comparable sales exclude the impact of the 53rd
week.

(9) Sales per average square foot in each fiscal year represent net retail
store sales for such full fiscal year divided by the average of total gross
square feet of stores. In fiscal 1996, sales per average square foot
exclude sales for the 53rd week.

(10) Gross margin represents revenues less cost of goods sold including buying
and occupancy costs as a percentage of revenues.

(11) Operating profit margin represents operating earnings as a percentage of
revenues.

(12) On August 16, 1996, the Company opened its 30th Neiman Marcus store in
Paramus, New Jersey.

15
<PAGE> 20

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company's financial performance reflects a favorable environment for
the sale of high end merchandise as well as the strong competitive position of
its three operating entities: Neiman Marcus Stores, Bergdorf Goodman and NM
Direct. Management believes that the Company's success can be attributed to its
business strategy, which is designed to increase productivity, sales and
operating earnings. Key elements of the strategy include: (i) offering an
extensive and carefully edited assortment of high end fashion merchandise based
on strong relationships with designer resources; (ii) providing a high level of
customer service and utilizing a variety of clienteling tools; (iii) investing
in the Company's store base and supporting infrastructure; (iv) opening new
stores and (v) expanding its customer base by broadening the Company's reach
through creative marketing techniques as well as through NM Direct. As a result
of the Company's strategy, revenues from continuing operations exceeded $2.0
billion for the first time in fiscal 1996, increasing 16.0% over revenues of
$1.8 billion in fiscal 1994. Earnings from continuing operations increased 17.9%
from $65.7 million to $77.4 million during the same period.

Approximately 75% of the Company's revenues are generated by Neiman Marcus
Stores with the balance split approximately equally between Bergdorf Goodman and
NM Direct. In fiscal 1995, the Company solidified its focus on the high end
specialty retail market with the sale of its Contempo Casuals operations, which
is reflected in the Company's financial statements as a discontinued operation.

Revenue growth over the last three fiscal years at Neiman Marcus Stores and
Bergdorf Goodman can be attributed primarily to increases in comparable store
sales during such periods and two new store openings in fiscal 1996. Since
August 1995, the Company has opened three new Neiman Marcus stores, adding
430,000 gross square feet in the Northeast market. The Company also plans to
open a new Neiman Marcus store in Honolulu's Ala Moana Center in August 1998,
which will add approximately 160,000 gross square feet. In fiscal 1996, average
sales per gross square foot reached an all-time high of $380 at Neiman Marcus
Stores and $786 at Bergdorf Goodman, representing a 12.4% and 8.3% increase,
respectively, over fiscal 1994 levels. The Company has consistently focused on
renovating and modernizing its stores to improve productivity, while
concurrently aiming to improve average transaction amounts and comparable sales
growth with programs which are designed to increase the customers' awareness of
other merchandise offerings in the store and serve more of their merchandise
needs. In addition, to meet the demand of their customers for fine merchandise,
over the past two fiscal years Neiman Marcus Stores and Bergdorf Goodman have
placed a greater emphasis on higher quality merchandise at higher opening price
point ranges.

In fiscal 1996, the Company's operating earnings rose to $159.5 million
from $150.1 million in fiscal 1995 and $145.1 million in fiscal 1994. The
comparability of these results, however, is affected by the Company's
securitization of its credit card receivables in fiscal 1995 as part of the
Company's overall financing strategy. The sale of these credit card receivables
resulted in a decrease in finance charge income (which is recorded as an offset
to selling, general and administrative expenses) and a resulting decrease in the
Company's operating earnings. This reduction amounted to $19.0 million in fiscal
1996 and $7.1 million in fiscal 1995. Management believes that the fiscal 1997
reduction will be comparable to the reduction experienced in fiscal 1996. The
securitization, however, also reduced interest expense during fiscal 1995 and
1996 as the proceeds were used to repay outstanding debt.

The Company utilizes the LIFO method of accounting for valuing its
inventories, which provides a better matching of revenues with expenses than the
FIFO method which is used by some specialty retail companies. The most important
factors contributing to differences between the LIFO and FIFO methods include
the rate of inflation, inventory levels and markdowns. As a result of these
factors, operating earnings were $0.7 million higher in fiscal 1996, $10.4
million higher in fiscal 1995, and $2.4 million lower in fiscal 1994 than they
would have been using the FIFO method.

Because a substantial portion of the Company's selling, general and
administrative expenses is made up of fixed charges, comparable sales increases
improve the Company's operating profit margin. Management

16
<PAGE> 21

believes that various programs designed to increase sales, coupled with improved
technologies in merchandising and selling information systems, have contributed
to the Company's increased operating earnings, and will continue to improve
productivity and profitability in the future.

In fiscal 1995, revenues at NM Direct were adversely affected by weak
demand for its apparel merchandise. As a result, NM Direct repositioned its
merchandise assortment, placing greater emphasis on hard goods and home
furnishings and less emphasis on its Horchow apparel offerings. NM Direct may
increase its revenues by selectively entering international markets. NM Direct
entered the catalogue market in Japan in fiscal 1995 with its Horchow catalogue
and is introducing the Neiman Marcus Christmas Catalogue in Japan this holiday
season. NM Direct's results are significantly affected by fluctuations in the
cost of paper and postage. In particular, in fiscal 1995, increased paper and
postage costs had a significant effect on the operating results of NM Direct. In
response, NM Direct reduced the page count and number of its catalogues and
repositioned its merchandise mix as discussed above. These initiatives resulted
in increased revenues and operating earnings in fiscal 1996 for NM Direct.

In addition to opening new stores, the Company continues to make
significant capital investments that it believes will result in increased
productivity. In particular, during fiscal 1994, 1995 and 1996, the Company
invested approximately $90.0 million in remodeling its existing store base. In
fiscal 1997, major projects will include (i) commencing a full remodeling and
expansion of the Fashion Island store in Newport Beach, California and
continuing a partial remodeling and expansion of the Beverly Hills store; (ii)
completing a major renovation of the first floor of Bergdorf Goodman Men, which
will add a new main entrance on Fifth Avenue and greatly improve the
departmental adjacencies and flow of the main floor and (iii) constructing a
beauty salon and spa in the newly acquired ninth floor of the Bergdorf Goodman
main store which will permit expansion of the decorative home business into the
approximately 4,000 square feet of space currently occupied by the existing
beauty salon.

In addition, in fiscal 1996, the Company began operating a new distribution
center for Neiman Marcus Stores, which consolidated the distribution function
previously provided by several older facilities in the Dallas area. In fiscal
1995, the Company completed the expansion of its direct marketing distribution
and fulfillment center for NM Direct and closed its other NM Direct distribution
centers. The Company expects that these facilities will provide future cost
savings and operational efficiencies.

In connection with the repurchase of the Preferred Stock, the Company will
incur a nonrecurring, non-cash charge to earnings applicable to common
shareholders of approximately $22 million, or approximately $.45 per share. The
charge is comprised of two components: a charge of approximately $8 million,
representing the difference between the book value of the Preferred Stock and
98% of the aggregate stated value of the Preferred Stock, and a charge of
approximately $14 million related to the Stock Payment. The $14 million charge
represents the value (at the price to public of the Common Stock set forth on
the cover of this Prospectus) of the number of shares to be issued to Harcourt
General in excess of the number of shares that would have been issued in
accordance with the conversion terms of the 6% Preferred Stock to be acquired
with the Stock Payment. The $8 million charge will reduce common shareholders'
equity. The $14 million charge will have no net effect on total common
shareholders' equity.

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<PAGE> 22

OPERATING RESULTS

In fiscal 1996, the reporting period included 53 weeks as compared to 52
weeks in each of fiscal years 1995 and 1994.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
AUGUST
JULY 30, JULY 29, 3,
1994 1995 1996
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Neiman Marcus Stores............................. $1,311.5 $1,398.8 $1,566.7
Bergdorf Goodman................................. 229.5 241.5 251.9
NM Direct........................................ 248.5 247.9 256.4
-------- -------- --------
Total............................................ $1,789.5 $1,888.2 $2,075.0
======== ======== ========
OPERATING EARNINGS(1)
Neiman Marcus Stores............................. $ 119.8 $ 132.3 $ 134.0
Bergdorf Goodman................................. 10.3 16.6 16.5
NM Direct........................................ 28.4 13.7 22.7
Corporate expenses............................... (13.4) (12.5) (13.7)
-------- -------- --------
Total............................................ $ 145.1 $ 150.1 $ 159.5
======== ======== ========
OPERATING PROFIT MARGINS(1)
Neiman Marcus Stores............................. 9.1% 9.5% 8.6%
Bergdorf Goodman................................. 4.5% 6.9% 6.6%
NM Direct........................................ 11.4% 5.5% 8.9%
Total(2)......................................... 8.1% 7.9% 7.7%
</TABLE>

- ---------------
(1) In fiscal 1995 and fiscal 1996 operating earnings and operating profit
margins include the impact of the Company's credit card receivables
securitization. For comparison purposes, excluding the impact of the
Company's credit card receivables securitization, operating earnings for
Neiman Marcus Stores and NM Direct would have been $138.3 and $14.8 in
fiscal 1995 and $150.4 and $25.4 in fiscal 1996, respectively and the
operating profit margins would have been 9.9% and 6.0% in fiscal 1995 and
9.6% and 9.9% in fiscal 1996, respectively. See "-- Review of Financial
Condition."

(2) After corporate expenses.

FISCAL 1996 VERSUS FISCAL 1995

Revenues in fiscal 1996 increased 9.9% to $2.08 billion from $1.89 billion
in fiscal 1995. The revenue growth was primarily attributable to a 5.4% increase
in comparable sales and, to a lesser extent, the opening of two new Neiman
Marcus stores during the year. Additionally, fiscal 1996 included 53 weeks,
while fiscal 1995 consisted of 52 weeks. The 53rd week is not included in
comparable sales.

Cost of goods sold increased 10.9% to $1.42 billion in fiscal 1996,
primarily due to higher sales volume. As a percentage of revenues, cost of goods
sold was 68.3% in fiscal 1996 compared to 67.6% in fiscal 1995. The higher
percentage is primarily due to higher markdowns during the holiday season.

Selling, general and administrative expenses increased 8.1% to $485.5
million in fiscal 1996 from $449.0 million in fiscal 1995, primarily due to new
store openings, higher selling costs and lower finance charge income. As a
percentage of revenues, selling, general and administrative expenses were 23.4%
in fiscal 1996 compared to 23.8% in fiscal 1995. The Company's securitization of
its credit card receivables, which was completed in March 1995, reduced finance
charge income, and thereby increased selling, general and administrative
expenses, by approximately $19.0 million in fiscal 1996 and $7.1 million in
fiscal 1995.

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<PAGE> 23

Corporate expenses, which consist primarily of charges for salaries,
benefits and overhead for the individuals who provide services under the
intercompany services agreement with Harcourt General, legal fees and
professional fees, increased $1.2 million in fiscal 1996 to $13.7 million,
compared to $12.5 million in the prior year. See "Management -- Relationship
with Harcourt General." The increase is primarily attributable to higher
compensation expense resulting from the Company's employees accepting the cash
value of certain stock options rather than exercising such options for shares of
Common Stock.

Operating earnings increased to $159.5 million in fiscal 1996 from $150.1
million in the prior year. The increase is attributable to higher sales volume
at each of the Company's operating entities, partially offset by the full year
impact of the credit card receivables securitization. Operating earnings at NM
Direct improved significantly in comparison to fiscal 1995, due to increased
revenues and lower paper and postage expenses.

Interest expense decreased 16.9% to $28.2 million in fiscal 1996, primarily
due to lower debt levels resulting from the use of the proceeds from the
Company's credit card receivables securitization in March 1995 to pay down
outstanding debt.

The Company's effective income tax rate decreased to 41% in fiscal 1996
from 42% in fiscal 1995. The decrease was attributable to lower state income
taxes.

FISCAL 1995 VERSUS FISCAL 1994

Revenues in fiscal 1995 increased to $1.89 billion from $1.79 billion in
fiscal 1994. The 5.5% increase was attributable to comparable sales growth
resulting from increased transaction volume and a higher average transaction
amount at both Neiman Marcus Stores and Bergdorf Goodman. Revenues at NM Direct
were essentially flat compared to fiscal 1994.

Cost of goods sold increased 5.5% to $1.28 billion in fiscal 1995,
primarily due to incremental merchandise sold. Neiman Marcus Stores and Bergdorf
Goodman both experienced improved gross profit through increased transaction
volume and higher average transaction amounts, partially offset by higher
markdowns. The improvements at Neiman Marcus Stores and Bergdorf Goodman were
offset by lower gross profit at NM Direct, primarily as a result of lower retail
markups and higher markdowns. As a percentage of revenues, cost of goods sold
was unchanged at 67.6% in fiscal 1995 compared to fiscal 1994.

Selling, general and administrative expenses increased 6.7% in fiscal 1995
to $449.0 million. The increase was a result of both higher sales volume and
higher sales promotion expenses. As a percentage of revenues, selling, general
and administrative expenses were 23.8% in fiscal 1995 compared to 23.5% in
fiscal 1994. The securitization of the Company's credit card receivables, which
was completed in March 1995, had the effect of reducing finance charge income by
$7.1 million in fiscal 1995.

Corporate expenses decreased 7.1% to $12.5 million in fiscal 1995 compared
to fiscal 1994. This decrease was primarily due to lower fees under the
intercompany services agreement with Harcourt General and lower professional
fees.

Operating earnings increased to $150.1 million from $145.1 million in the
prior year. Neiman Marcus Stores and Bergdorf Goodman operating earnings
improved primarily as a result of increased transaction volume. NM Direct
operating earnings decreased substantially primarily as a result of higher paper
and postage costs in fiscal 1995.

Interest expense increased 6.5% in fiscal 1995 to $34.0 million, reflecting
higher interest rates on bank borrowings and higher average outstanding
borrowings during the first half of fiscal 1995.

The Company's effective income tax rate was unchanged at 42% in fiscal
1995.

The loss from discontinued operations of $11.7 million in fiscal 1995
included $1.9 million of after-tax Contempo Casuals operating losses and an
after-tax loss on disposal of $9.9 million. In fiscal 1994, the after-

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<PAGE> 24

tax loss from discontinued Contempo Casuals operations was $49.8 million, which
included an after-tax restructuring charge of $28.1 million.

REVIEW OF FINANCIAL CONDITION

In fiscal 1996, the Company had sufficient cash flows from operations and
its revolving credit agreement to finance its working capital needs, capital
expenditures and preferred dividend requirements. Operating activities provided
net cash of $42.7 million in fiscal 1996 compared to $105.7 million in fiscal
1995. Despite the increase in net earnings from $55.6 million in fiscal 1995 to
$77.4 million in fiscal 1996, cash provided by operations decreased primarily
due to higher inventory levels and accounts receivable balances attributable to
new Neiman Marcus stores.

The Company's capital expenditures consisted principally of construction of
new stores and a new distribution and service center, and renovations of
existing stores. The Company opened new Neiman Marcus stores in Short Hills, New
Jersey in August 1995, in King of Prussia, Pennsylvania in February 1996 and in
Paramus, New Jersey in August 1996. Capital expenditures were $85.7 million in
fiscal 1996, $93.5 million in fiscal 1995 and $65.1 million in fiscal 1994.
Additional store renovation plans include the remodeling of certain Neiman
Marcus stores and the expansion and remodeling of both Bergdorf Goodman stores.
Capital expenditures are currently estimated to approximate $75.0 million in
fiscal 1997.

During fiscal 1996, the Company increased its bank borrowings by $109.9
million which included borrowings made in May 1996 to repay $40.0 million of
senior notes. At August 3, 1996, the Company had $340.0 million available under
its $500.0 million revolving credit facility, which expires in April 2000. In
August 1996, an additional $52.0 million of senior notes were paid on maturity
through borrowings under the revolving credit facility. The Company believes
that, following the consummation of the Offering, it will have sufficient
financial resources to fund its planned capital expenditures, operating
requirements, the Cash Payment and the retirement of the Company's remaining
$80.0 million of senior notes which become due in December 1996.

Beginning with the third quarter of fiscal 1995, the Company eliminated its
quarterly cash dividend on common stock (previously $.05 per share per quarter).
Elimination of this dividend conserves approximately $7.6 million of cash
annually for use in the Company's operations. In fiscal 1996, the Company paid
aggregate dividends of $27.1 million on the Preferred Stock. Consummation of the
Transactions will eliminate the required future dividend and sinking fund
payments on the Preferred Stock. See "Description of Transactions; Use of
Proceeds."

As discussed above, in March 1995, the Company sold all of its Neiman
Marcus credit card receivables through a subsidiary to a trust in exchange for
certificates representing undivided interests in such receivables. Certificates
representing an undivided interest in $246.0 million of these receivables were
sold to third parties in a public offering of $225.0 million 7.60% Class A
certificates and $21.0 million 7.75% Class B certificates. The Company's
subsidiary will retain the remaining undivided interest in the receivables not
represented by the Class A and Class B certificates. A portion of that interest
is subordinated to the Class A and Class B certificates. The Company will
continue to service all receivables for the trust. This sale had the effect of
decreasing accounts receivable and outstanding debt by $246.0 million.

IMPACT OF INFLATION

The Company has adjusted selling prices to maintain certain profit levels
and will continue to do so as competitive conditions permit. In general,
management believes that the impact of inflation or of changing prices has not
had a material effect on the Company's results of operations during the last
three fiscal years, except as discussed above in "Overview" with respect to the
LIFO method of inventory valuation.

RECENT ACCOUNTING PRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). The Statement

20
<PAGE> 25

establishes a fair value-based method of accounting for stock-based compensation
plans, which may be recognized or disclosed at the Company's option. The Company
will adopt the disclosure approach under SFAS 123 beginning in fiscal year 1997.

In June 1996, the FASB issued Statement of Financial Accounting Standard
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (SFAS 125), which is effective for transactions
entered into after December 31, 1996. The Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. The effect of adopting SFAS 125 is not expected
to be material to the Company's financial position or results of operations.

21
<PAGE> 26

BUSINESS

OVERVIEW

The Company offers its customers an extensive and carefully edited
assortment of high end traditional and contemporary designer merchandise which
generally has limited distribution. While the Company serves a wide range of
customers, the Company believes that its core customers are 45 years of age and
older with household incomes in excess of $100,000. The Company is committed to
meeting the lifestyle needs and exceeding the expectations of its customers for
both merchandise quality and selection and customer service and attention. The
Company strives to create a unique shopping experience for the most discerning
and fashion conscious individuals. This experience is created by building
personal relationships with its customers and working closely with its designer
resources to offer exciting and fashionable merchandise in an elegant retail
environment.

The Company's corporate headquarters are located at 27 Boylston Street,
Chestnut Hill, Massachusetts 02167 and its telephone number is (617) 232-0760.

HISTORY

The Company was formed in 1987 in connection with the restructuring of
Carter Hawley Hale Stores, Inc. ("CHH"). At that time, the Company acquired the
specialty store divisions of CHH, which included the operations of Neiman Marcus
Stores, Bergdorf Goodman and NM Direct. As part of the CHH restructuring in
1987, Harcourt General obtained a significant equity ownership in the Company.
Harcourt General has subsequently increased its equity ownership in the Company
and as of August 3, 1996 owned approximately 59% of the Company's Common Stock.

Neiman Marcus Stores is the successor to a business founded in 1907 by
Herbert Marcus, his sister Carrie Marcus Neiman, and her husband, Al Neiman.
From 1907 until 1965, the business operated a single store in downtown Dallas.
From that base, Neiman Marcus Stores has expanded to 30 stores nationwide.
Bergdorf Goodman is the successor to a business founded in New York City at the
turn of the century by Edwin Goodman and Herman Bergdorf. Bergdorf Goodman has
operated its main store in Manhattan at 58th Street and Fifth Avenue since that
time, and, in 1990, opened Bergdorf Goodman Men directly across from the main
store. NM Direct is the successor to the Neiman Marcus direct marketing business
which began in 1915 with the introduction of the Neiman Marcus Christmas
Catalogue. In 1960, Neiman Marcus began operating its mail order business as a
separate division and in 1988 NM Direct acquired the direct marketing business
known as the Horchow collection.

INDUSTRY

The Company operates in the high end specialty retail industry where it
competes with large specialty retailers, traditional and better department
stores, national apparel chains, designer boutiques, individual specialty
apparel stores and direct marketing firms. The Company believes that it is well
positioned to increase productivity and sales by continuing to capitalize on the
following favorable trends affecting the market for upscale merchandise.

22
<PAGE> 27

While the Company serves a wide range of customers, the Company believes
that its core customers are 45 years of age and older with household incomes in
excess of $100,000. The segment of the population aged 45 to 54, which has one
of the highest median household income among all demographic groups, is expected
to grow significantly over the next ten years. In addition, management believes
that the demand for luxury goods and high end designer apparel and accessories
has grown substantially in the past several years and evidences a renewed desire
by the Company's customer base to enjoy the quality, uniqueness and style
generally represented by such goods.

In recent years the retail industry has been characterized by
consolidation, the withdrawal of certain retailers from the marketplace and a
de-emphasis by traditional department stores on high end merchandise, leaving
fewer large competitors focused exclusively on the upscale specialty retail
market.

BUSINESS STRATEGY

Merchandising. Neiman Marcus Stores and Bergdorf Goodman are dedicated to
merchandise leadership, offering an extensive and carefully edited assortment of
the finest in quality merchandise and the latest in fashion. To meet the demand
of their customers for fine merchandise, over the last two years Neiman Marcus
Stores and Bergdorf Goodman have placed a greater emphasis on higher quality
merchandise at higher opening price point ranges. The Company believes this has
increased both productivity and sales and strengthened the Company's position as
the preeminent retailer of quality, upscale merchandise. The Company intends to
continue its commitment to high end merchandise and to remain the preferred
choice among many prestige suppliers as well as a showcase for introducing new
and innovative designers to the high fashion market.

Customer Service and Clienteling. The Company is committed to providing
the highest level of customer service to enhance the Neiman Marcus and Bergdorf
Goodman upscale shopping experience and to capture a greater share of
expenditures by its customers. The Company has made significant investments in
customer service, including intensified training, increases in the number of
sales associates in its stores and point-of-sale systems which help track
merchandise availability and customer preferences.

Clienteling consists of sales associates forming personal client
relationships by identifying customers' lifestyles and needs, maintaining
detailed client books and engaging in frequent personal and written
communication with their customers. Sales associates, substantially all of whom
are compensated on a commission basis, are supported in their clienteling
efforts by state-of-the-art point-of-sale systems that allow them to record and
readily access customer information including designer preferences, sizes,
important dates and upcoming events. In this way, the sales associate and
customer establish a true working relationship, allowing the associate to
provide merchandise appropriate to the customer's lifestyle. Also, Neiman Marcus
Stores recently implemented its Optimum Selling program to coordinate sales
efforts storewide to increase average transaction amounts. The Optimum Selling
program encourages sales associates to view the entire store as their
department, familiarizing customers with the entire store to help them better
satisfy their merchandise needs. The Company also utilizes other clienteling and
customer loyalty programs such as its InCircle(R) program, which provides
rewards to customers who make significant purchases with the Neiman Marcus
credit card.

Investing in Store Base and Supporting Infrastructure. The Company strives
to ensure that its retail space is conducive to selling high end merchandise,
further enhancing the stylish and fashionable image of its stores. In addition,
management believes that its supporting infrastructure is among the most modern
and

23
<PAGE> 28

efficient in the industry. Over the past five years, the Company has invested
approximately $350 million in its store base and supporting infrastructure and
facilities, and has identified other remodeling opportunities to increase store
productivity. Since 1987, the Company has completed remodeling projects in most
of its stores. In fiscal 1997, major projects will include (i) commencing a full
remodeling and expansion of the Fashion Island store in Newport Beach,
California and continuing a partial remodeling and expansion of the Beverly
Hills store, (ii) completing a major renovation of the first floor of Bergdorf
Goodman Men, and (iii) constructing a beauty salon and spa in the newly acquired
ninth floor of the Bergdorf Goodman main store. These and other future projects
will improve space allocation and departmental adjacencies and increase selling
space and, the Company believes, generate increased revenues.

The Company maintains internal rate of return requirements for invested
capital. All proposed capital projects are thoroughly evaluated against these
financial requirements and the Company's strategic objectives. After completion,
capital projects are monitored and executives are evaluated based on how actual
results compare to forecasts.

Opening New Stores. The Company will continue to evaluate opportunities to
expand its store base in a selective and financially disciplined manner. Since
August 1995, the Company has opened three new Neiman Marcus stores adding over
430,000 gross square feet, and plans to open a new Neiman Marcus store in the
Ala Moana Center in Honolulu in August 1998, which will add approximately
160,000 gross square feet. The Company continues to assess the feasibility of
other sites for Neiman Marcus stores and expects to open two to three additional
stores over the next five years. Although the Company has not yet committed to
any new locations other than Honolulu, it believes the Neiman Marcus store
concept can be expanded to a number of new markets in which it does not now
compete. The Company is also considering the feasibility of introducing a
Bergdorf Goodman Men/Home format (combining men's apparel and accessories with
decorative home accessories) in selected markets outside of New York City.

Expansion of Customer Base. To expand its customer base, the Company
employs various creative marketing techniques including The Neiman Marcus
Christmas Catalogue, its proprietary credit cards, The Book, in-store events and
the NM Express Card. NM Direct provides the Company with the opportunity,
through selective direct marketing, to introduce new customers to the quality
merchandise and service for which the Company is known, especially in those
markets where the Company does not operate any stores. NM Direct entered the
catalogue market in Japan in fiscal 1995 with its Horchow catalogue and is
introducing the world famous Neiman Marcus Christmas Catalogue in Japan this
holiday season. The Company is exploring other international growth
opportunities for NM Direct with the same disciplined approach used for other
expansion opportunities.

DESCRIPTION OF OPERATIONS

Neiman Marcus Stores. Neiman Marcus Stores offer women's and men's
apparel, fashion accessories, shoes, cosmetics, furs, precious jewelry,
decorative home accessories, fine china, crystal and silver, gourmet food
products and children's apparel and gift items. The 30 Neiman Marcus stores are
located in premier retail locations in major markets throughout the United
States. In fiscal 1996, 24% of Neiman Marcus Stores sales were generated from
Texas, 30% from the West, 16.5% from the Midwest, 16.5% from the Northeast and
11% from the Southeast and the remainder through its store catalogues and
clearance centers. The opening of three new stores in the Northeast since August
1995 is expected to enhance the geographic diversity of the Company's sales. All
but one of the Neiman Marcus stores that have been operating for more than 15
months are profitable. Three of the Neiman Marcus stores had revenues of over
$100 million in fiscal 1996 and ten additional stores had revenues over $50
million. No Neiman Marcus store accounted for more than 7.5% of Neiman Marcus
Stores revenues in fiscal 1996. The average size of the Neiman Marcus stores is

24
<PAGE> 29

approximately 142,000 gross square feet, and the stores range in size from
90,000 gross square feet to 269,000 gross square feet.

Bergdorf Goodman. The Company operates two Bergdorf Goodman stores in
Manhattan at 58th Street and Fifth Avenue, which is among the most prestigious
and well known retail locations in the world. The main Bergdorf Goodman store
consists of 250,000 gross square feet. The core of Bergdorf Goodman's offerings
includes high end women's apparel and unique fashion accessories from leading
designers. Bergdorf Goodman also features traditional and contemporary
decorative home accessories, precious jewelry, gifts and gourmet foods. Bergdorf
Goodman Men, which opened in August 1990, consists of 66,000 gross square feet
and is dedicated to men's apparel and accessories. Major renovations to the
first floor of the Bergdorf Goodman Men store are scheduled to be completed in
October 1996, in advance of the holiday selling season, increasing the store's
selling square footage from 44,000 to 46,000, greatly improving the departmental
adjacencies and flow of the first floor and adding a new main entrance on Fifth
Avenue. During fiscal 1997, Bergdorf Goodman will begin construction of a beauty
salon and spa in newly acquired space on the ninth floor of its main store,
which will allow the decorative home business on the store's seventh floor to
expand into the approximately 4,000 square feet occupied by the existing salon.

Bergdorf Goodman has emphasized a creative fashion-forward style, while
sustaining a residential feeling of understated elegance. The Company believes
that Bergdorf Goodman is a destination retail establishment for customers
seeking the finest merchandise and latest fashions.

NM Direct. NM Direct offers customers throughout the country the
opportunity to purchase upscale quality designed and crafted merchandise with
the convenience of at-home shopping. NM Direct mailed 71 different catalogues
during fiscal 1996, with an approximate average circulation of 1.25 million
households per catalogue. The total number of catalogues mailed during fiscal
1996 was approximately 89 million. NM Direct primarily offers women's apparel
under the Neiman Marcus name and, through its Horchow catalogue, offers hard
goods such as quality home furnishings, tabletop, linens and decorative
accessories. NM Direct also offers a broad range of more modestly priced items
through its Trifles and Grand Finale lines and continues to publish the world
famous Neiman Marcus Christmas Catalogue.

Clearance Centers. The Company also operates several small clearance
centers, which provide an efficient and controlled outlet for the sale of marked
down merchandise from Neiman Marcus Stores, Bergdorf Goodman and NM Direct.

MERCHANDISING

Neiman Marcus Stores and Bergdorf Goodman are major customers of, and offer
carefully edited designer and bridge apparel and accessories from, designers
such as Akris, Giorgio Armani, Luciano Barbera, Manolo Blahnik, Brioni, Chanel,
Charvet, Escada, Ferragamo, Gucci, Hermes, Donna Karan, Barry Kieselstein-Cord,
Calvin Klein, Rena Lange, Judith Leiber, Bruno Magli, Oxxford, Prada, Jil
Sander, St. John, Turnbull & Asser, Richard Tyler, Emmanuel Ungaro, Bottega
Veneta, Versace and Ermenegildo Zegna, and luxury products from suppliers such
as Baccarat, Christofle and Steuben. To enhance its exclusive image and to offer
its customers original and fashionable styles not available elsewhere, the
Company often enters into arrangements with the most fashion forward designers
for apparel and accessories to be distributed on a very limited basis or, in
some markets, only to the Company. The Company believes that it is uniquely
positioned as the principal choice for many well known designers, who believe
that both their prestige and profitability will be enhanced by having their
merchandise offered at Neiman Marcus Stores and Bergdorf Goodman, based on the
stores' ability to sell high percentages of merchandise at full retail prices.
As a result, many designers make available to the Company new product
introductions and enhance the Company's marketing and merchandising efforts with
personal appearances, trunk shows and cooperative marketing support. Neiman
Marcus Stores, and especially Bergdorf Goodman, seek out the most creative and
innovative designers and have introduced many of them to the high fashion
market.

Neiman Marcus Stores and Bergdorf Goodman present an extensive and
carefully edited selection of merchandise which emphasizes style, fashion and
quality. To meet the demand of their customers for fine merchandise, over the
last two fiscal years Neiman Marcus Stores and Bergdorf Goodman have placed a

25
<PAGE> 30

greater emphasis on higher quality merchandise at higher opening price point
ranges. Merchandise is selected, edited and presented in a way that reflects the
unique style of each of the Company's designer resources as well as the local
retail environment.

The Company carefully monitors its merchandise mix to maximize
profitability. The planning process involves the review of merchandise needs by
department and merchandise groups, as well as on a store-by-store basis. The
Company relies upon its buyers to identify the appropriate assortment of
merchandise, and to acquire such merchandise on a timely basis. Neiman Marcus
Stores, Bergdorf Goodman and NM Direct each maintain separate and distinct
buying organizations with a unique focus on their respective customers. The
Company's highly trained, knowledgable and experienced buyers acquire
merchandise from manufacturers and distributors both domestically and
internationally. The Company provides an intensive training program for its new
buyers, and offers on-going supervision, support and training to its experienced
buyers.

The Company's inventory management strategy is designed to maintain
inventory levels that provide optimum in-stock positions. The Company's strong
relationships with its designer resources allow it to incorporate automatic
replenishment systems for basic apparel and accessories, cosmetics and
fragrances and even such luxury items as cashmere sweaters and designer jewelry.
Having popular designer items in stock helps to avoid customer disappointment
and increases sales. The Company enhances its ability to offer a fresh
assortment of the most exclusive and fashion forward apparel and accessories by
promptly marking down goods which are not selling. This enables the Company to
minimize the amount of unsold merchandise at the end of each season and to keep
current fashionable merchandise available in the stores.

The Company's state-of-the-art merchandising information systems assist
management in promptly identifying sales trends, identifying merchandise to be
marked down and monitoring merchandise mix and inventory levels. The Company
believes that these systems provide a number of benefits, including improved
store inventory management, better in-stock availability and higher operating
efficiency.

CUSTOMER SERVICE AND CLIENTELING

An integral part of the Company's ability to maintain a store environment
conducive to selling high end merchandise is its ability to provide the highest
level of customer service. The Company's sales associates and direct marketing
representatives are trained to have a high level of product knowledge and to
devote the necessary personal service and attention to the Company's customers.

InCircle[Registered Trademark] Program. The Company believes that its
InCircle program is the leading customer loyalty program in the specialty
retail industry. The InCircle program, which is open to customers who purchase
in excess of $3,000 annually from Neiman Marcus Stores and NM Direct using the
Neiman Marcus credit card, provides incentives and rewards to those customers
and enhances their shopping experience. Each member receives one point per
dollar spent in the stores and catalogues which can be used to receive awards
of merchandise, services and travel. Additionally, Neiman Marcus stores often
stage exclusive thematic events known as "InCircle parties," during which
InCircle members can preview merchandise and receive double points for
purchases. To further enhance this program, last year the Company introduced
the "Platinum Card" which offers double points and other additional benefits to
selected customers.

Point-of-Sale Systems. The Neiman Marcus Stores sales associates' customer
service and clienteling are supported by state-of-the-art proprietary
point-of-sale systems, which will be implemented at Bergdorf Goodman in fiscal
1997. The Company's point-of-sale computer system has features that allow the
recording of customer information, merchandise scanning and on-line credit card
approval. It also enables a sales associate to quickly locate merchandise at any
other Neiman Marcus store and ship it directly to a customer. The use of the
Company's computer systems by sales associates to gather, record and later
utilize information about clients' merchandise preferences improves the
Company's ability to maximize sales to its customers. An associate could, for
example, use the computer system to record information about a customer's
favorite designer and later contact that customer with information about the
arrival of new merchandise from that designer. Furthermore, the computer
system's features improve transaction accuracy, efficiency and checkout time.

26
<PAGE> 31

Optimum Selling(SM) Program. The Company is in the process of implementing
its Optimum Selling program which will heighten the level of customer service at
the Neiman Marcus Stores. The Optimum Selling program encourages sales
associates to function like personal shoppers for their customers, helping a
customer satisfy all of his or her merchandise needs. Contact with a limited
number of sales associates who have a greater focus on a particular customer's
needs enables a customer to shop with greater fashion consistency and ease.
Sales associates in each department are able to access merchandise throughout
the store. Bergdorf Goodman and certain Neiman Marcus stores have long provided
the customer service represented by the Optimum Selling program through the use
of personal shoppers.

MARKETING

The Company's primary marketing strategy is direct communication with the
customer through personal contact and various techniques including The Neiman
Marcus Christmas Catalogue, its proprietary credit cards, The Book, in-store
events and the NM Express Card. The Company believes that these methods of
reaching its customer base are the most effective and cost efficient ways to
increase sales and to establish and maintain contact with potential and existing
customers. In addition, particularly during the holiday season, the Company
advertises in newspapers and high fashion magazines and on television and radio
in selected markets.

The Neiman Marcus Christmas Catalogue. The Christmas Catalogue, which
generates extensive publicity for Neiman Marcus, is the Company's most important
catalogue, with the largest circulation, page count and sales volume each year.
The Neiman Marcus Christmas Catalogue currently is distributed to over 2.5
million households annually in the United States. Through the Christmas
Catalogue, the Company offers a wide variety of apparel, hard goods, jewelry and
gift items, including the annual "His & Hers" extraordinary gift offering.

Proprietary Credit Card. One of the Company's most important marketing
tools is its proprietary Neiman Marcus and Bergdorf Goodman credit cards which
were established in the 1960s. As of July 31, 1996, 3.2 million persons were
Neiman Marcus credit card holders, of which 1.4 million had made a purchase
within the last 12 months. The proprietary credit cards allow the Company to
target merchandise information, special events and promotions to its customers.

The Book. In 1996 Neiman Marcus Stores introduced a marketing vehicle
called "The Book." The Book is a high quality, magazine-like, 10" X 12" glossy
catalogue that presents a selection of designer apparel and accessories offered
by Neiman Marcus Stores. The Book, which also allows customers to purchase the
merchandise presented by mail or by phone, ranges from 150 to 192 pages in
length and will be published and distributed eight times per year to between
500,000 and 1.2 million customers. The Company believes that The Book generates
enthusiasm among customers and designer resources and results in increased store
traffic.

In-Store Events. In-store events such as designer trunk shows, personal
appearances by key designers and other suppliers, fashion shows, charity events
and informational speakers are among other effective marketing methods, which
are often supported by the Company's designer resources. The Company believes
that these events generate sales and also help to maintain a sense of shopping
enthusiasm, increasing customer loyalty.

NM Express(R) Card. Neiman Marcus Stores recently introduced the NM
Express Card. Designed to replace traditional paper gift certificates, the NM
Express Card is a debit card similar in size to a standard credit card and is
festively decorated for various holidays and occasions such as Christmas,
Mother's Day, Valentine's Day and birthdays. The card can be purchased with any
initial credit balance and can be supplemented with additional credit. The
Company believes that this electronic gift card is unique in the specialty
retail industry and that the NM Express Card will be more effective at
generating sales than traditional paper gift certificates.

27
<PAGE> 32

DISTRIBUTION AND LOGISTICS

In January 1996, the Company commenced operations at its 465,000 square
foot National Service Center ("NSC") in Longview, Texas, consolidating
distribution operations for those Neiman Marcus stores which previously had been
handled by several separate facilities in the Dallas area. The Company also
contracts with a third party in Totowa, New Jersey for the provision of
distribution services to those stores not served by the NSC.

NM Direct distributes its goods from its warehouse and distribution center
in Las Colinas, Texas, near Dallas. By arranging for vendors to "drop-ship"
goods such as furniture, other hard goods and gourmet food directly to the
customer, NM Direct reduces the amount of inventory warehousing. NM Direct has
unused warehouse capacity which will permit it to expand its business. The
Company has contracted with third party carriers, including Federal Express, to
provide NM Direct with 2-day delivery service with no additional charge to the
customer, and it utilizes its carrier services to automate the process of
shipping and invoicing for drop-shipped merchandise.

The Company has implemented various programs designed to improve processing
productivity by speeding the flow of merchandise from vendors through the
Company's distribution facilities to the selling floor and customer. These
programs include size and color marking and tracking, increased vendor pre-
marking, central stocking, a variety of pre-distribution services, integrated
universal product code identification methods, radio frequency scanning and
electronic data interchange technologies. The Company generally transports
merchandise from its distribution centers to its stores by means of its leased
truck fleet. In addition, the Company uses contract carriers for a portion of
its merchandise and air cargo service for international and domestic shipments
for select designer resources. When appropriate, the Company arranges for
vendors to ship merchandise directly to its stores.

STORES AND OTHER FACILITIES

The Company's corporate headquarters are located at Harcourt General's
leased facility in Chestnut Hill, Massachusetts. The operating headquarters for
Neiman Marcus Stores, Bergdorf Goodman and NM Direct are located in Dallas, New
York City, and Las Colinas, Texas, respectively. The aggregate square footage
used in the Company's operations is approximately as follows:

<TABLE>
<CAPTION>
OWNED
SUBJECT TO
OWNED GROUND LEASE LEASED TOTAL
--------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Stores.............................. 348,000 1,931,000 2,297,000 4,576,000
Distribution, Support and
Office Facilities and Clearance
Centers........................... 1,170,000 0 634,000 1,804,000
</TABLE>

Leases for Neiman Marcus stores, including renewal options, range from 30
to 99 years. The lease on the Bergdorf Goodman main store expires in 2050, and
the lease on the Bergdorf Goodman Men store expires in 2010, with two 10-year
renewal options. Leases are generally at fixed rentals, and a majority of leases
provide for additional rentals based on sales in excess of predetermined levels.
The Company owns approximately 50 acres of land in Las Colinas, Texas where its
705,000 square foot NM Direct facility is located and also owns approximately 34
acres of land in Longview, Texas where the NSC is located. For further
information on the Company's properties, see "Operating Leases" in Note 11 of
the Notes to the Consolidated Financial Statements.

28
<PAGE> 33

The following table sets forth the location, year operations began and
gross square footage of each Neiman Marcus and Bergdorf Goodman store:

NEIMAN MARCUS STORES

<TABLE>
<CAPTION>
CALENDAR GROSS
YEAR SQUARE
LOCATIONS OPENED FEET
-------------------------------------------------------- -------- ---------
<S> <C> <C>
Dallas (Downtown)....................................... 1907 269,000
Dallas (NorthPark)...................................... 1965 218,000
Houston (Galleria)...................................... 1969 206,000
Bal Harbour, Florida.................................... 1971 94,000
Atlanta................................................. 1972 154,000
St. Louis............................................... 1974 143,000
Northbrook, Illinois.................................... 1976 143,000
Fort Worth.............................................. 1977 119,000
Washington, D.C......................................... 1977 130,000
Newport Beach, California............................... 1978 124,000
Beverly Hills........................................... 1979 170,000
Dallas (Prestonwood).................................... 1979 123,000
Westchester, New York................................... 1980 138,000
Las Vegas............................................... 1981 103,000
Oak Brook, Illinois..................................... 1981 119,000
San Diego............................................... 1981 106,000
Fort Lauderdale......................................... 1982 92,000
San Francisco........................................... 1982 195,000
Houston (Town & Country)................................ 1983 153,000
Chicago (Michigan Avenue)............................... 1983 188,000
Boston.................................................. 1984 108,000
Palo Alto, California................................... 1985 120,000
McLean, Virginia........................................ 1989 130,000
Denver.................................................. 1990 90,000
Minneapolis............................................. 1991 122,000
Scottsdale, Arizona..................................... 1991 116,000
Troy, Michigan.......................................... 1992 157,000
Short Hills, New Jersey................................. 1995 137,000
King of Prussia, Pennsylvania........................... 1996 145,000
Paramus, New Jersey..................................... 1996 148,000
---------
Total................................................... 4,260,000
========
</TABLE>

BERGDORF GOODMAN

<TABLE>
<S> <C> <C>
Bergdorf Goodman Main Store............................. 1901 250,000
Bergdorf Goodman Men.................................... 1990 66,000
---------
Total................................................... 316,000
========
</TABLE>

In addition, the Company plans to open a 160,000 square foot Neiman Marcus
store in Honolulu in August 1998.

29
<PAGE> 34

COMPETITION

The specialty retail industry is highly competitive and fragmented.
Moreover, the Company's apparel business is especially dependent upon its
designer resources. The Company believes that the principal competitive factors
for specialty retail operations are quality, assortment and presentation of
merchandise, customer service, store ambience, sales and marketing programs and
value, and that the principal competitive factors for direct marketing
operations are quality, assortment and presentation of merchandise, customer
service, price and speed of delivery. The Company believes that it is a strong
competitor in all of these areas. See "Risk Factors -- Competition."

Neiman Marcus Stores and Bergdorf Goodman compete with large specialty
retailers, traditional and better department stores, national apparel chains,
designer boutiques, individual specialty apparel stores and direct marketing
firms for customers, quality merchandise and real estate opportunities. NM
Direct faces competition from other direct marketing firms which may specialize
in one or two merchandise categories and from the direct marketing operations of
some of the Company's other competitors.

TRADEMARKS AND SERVICE MARKS

The Company owns its principal United States trademarks and service marks,
including the "Neiman Marcus" and "Bergdorf Goodman" marks. These marks,
together with various other marks used by the Company in connection with its
business, such as "Horchow(R)" and "Last Call(R)," are registered with the
United States Patent and Trademark Office. The term of these registrations is
generally ten years, and they generally are renewable indefinitely for
additional ten year periods so long as they are in use at the time of renewal.
The Company also has registered various of its important trademarks and service
marks internationally. The Company vigorously protects its trademarks and
service marks and initiates appropriate legal action whenever necessary.

EMPLOYEES

At August 3, 1996, Neiman Marcus Stores had 11,000 employees, of whom 3,100
were part-time, Bergdorf Goodman had 1,040 employees, of whom 40 were part-time,
and NM Direct had 1,100 employees, of whom 500 were part-time. All employee
numbers are approximate. None of the employees of Neiman Marcus Stores or NM
Direct are subject to collective bargaining agreements. Approximately 12.1% of
the Bergdorf Goodman employees are subject to collective bargaining agreements.
The Company believes that its relations with its employees are generally good.
The Company's staffing requirements fluctuate during the year as a result of the
seasonality of the retail apparel industry and, accordingly, the Company
generally adds 3,000 to 3,500 more seasonal employees in the second quarter.

LITIGATION

The Company presently is engaged in various legal actions which are
incidental to the ordinary conduct of its business. The Company believes that
any liability arising as a result of these actions and proceedings will not have
a material adverse effect on the Company's financial position or results of
operations.

30
<PAGE> 35

MANAGEMENT

RELATIONSHIP WITH HARCOURT GENERAL

Richard A. Smith, the Company's Chairman of the Board; Robert J. Tarr, Jr.,
the President, Chief Executive Officer and Chief Operating Officer; John R.
Cook, the Senior Vice President and Chief Financial Officer; and Eric P. Geller,
the Senior Vice President and General Counsel, as well as certain other
officers, serve in similar capacities with Harcourt General. Mr. Smith and Mr.
Tarr also serve as directors of both companies.

Under the terms of an Intercompany Services Agreement which has been in
place since 1987, Harcourt General provides certain management, accounting,
financial, legal, tax, personnel and other corporate services to the Company,
including the services of the senior officers mentioned above, in consideration
of a fee based on Harcourt General's direct and indirect costs of providing such
corporate services. The level of and fees for these services are subject to the
approval of a committee of directors of the Company who are independent of
Harcourt General. This agreement may be terminated by either party on 180 days'
notice. Charges to the Company under this agreement were $6.9 million in fiscal
1996, $6.5 million in fiscal 1995 and $6.9 million in fiscal 1994.

DIRECTORS AND EXECUTIVE OFFICERS

<TABLE>
The following table sets forth the name, age and position of each of the
directors and executive officers of the Company.

<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard A. Smith........ 71 Chairman of the Board
Robert J. Tarr, Jr. .... 52 President, Chief Executive Officer, Chief Operating
Officer and Director
Matina S. Horner........ 57 Director
Walter J. Salmon........ 65 Director
Jean Head Sisco......... 71 Director
John R. Cook............ 55 Senior Vice President and Chief Financial Officer
Stephen C. Elkin........ 53 Chairman and Chief Executive Officer of Bergdorf Goodman
Peter Farwell........... 53 Vice President -- Corporate Relations
Bernie Feiwus........... 48 President and Chief Executive Officer of NM Direct
Eric P. Geller.......... 49 Senior Vice President and General Counsel
Paul F. Gibbons......... 45 Vice President and Treasurer
Gerald T. Hughes........ 39 Vice President -- Human Resources
Dawn Mello.............. 65 President of Bergdorf Goodman
Michael F. Panutich..... 48 Vice President -- General Auditor
Stephen C. Richards..... 41 Vice President and Controller
Gerald A. Sampson....... 55 President and Chief Operating Officer of Neiman Marcus
Stores
Craig B. Sawin.......... 40 Vice President -- Planning and Analysis
Robert A. Smith......... 37 Group Vice President
Burton M. Tansky........ 58 Chairman and Chief Executive Officer of Neiman Marcus
Stores
</TABLE>

Below are the principal occupations for the last five years of each
director and principal executive officer of the Company.

Richard A. Smith. Director since 1987. Chairman of the Board of the
Company and of Harcourt General; Chairman of the Board, President (until
November 1, 1995) and Chief Executive Officer of GC Companies, Inc. since
December 1993; Chief Executive Officer of the Company and of Harcourt General
until December 1991; Director of Harcourt General, GC Companies, Inc., Liberty
Mutual Insurance

31
<PAGE> 36

Company, Liberty Mutual Fire Insurance Company, Liberty Financial Companies,
Inc., Bank of Boston Corporation and its principal subsidiary, The First
National Bank of Boston. Mr. Smith is the father of Robert A. Smith, Group Vice
President of the Company and a Director of Harcourt General.

Robert J. Tarr, Jr. Director since 1987. President, Chief Executive
Officer (since December 1991) and Chief Operating Officer of the Company and of
Harcourt General; Director of Harcourt General, Open Market, Inc. and John
Hancock Mutual Life Insurance Company.

Matina S. Horner. Director since 1993. Executive Vice President of the
Teachers Insurance and Annuity Association-College Retirement Equities Fund
(TIAA-CREF) and President Emerita of Radcliffe College since 1989; President of
Radcliffe College for 17 years prior thereto; Director of Boston Edison Company.

Walter J. Salmon. Director since 1987. Stanley Roth, Sr. Professor of
Retailing, Graduate School of Business Administration, Harvard University;
Director of Hannaford Bros. Co., The Quaker Oats Company, Circuit City Stores,
Inc., Luby's Cafeterias, Inc. and Harrah's Entertainment, Inc.

Jean Head Sisco. Director since 1987. Partner in Sisco Associates,
international management consultants; Director of Textron, Inc., Santa Fe
Pacific Gold Corp., Washington Mutual Investors Fund, Chiquita Brands
International, Inc., The American Funds Tax-Exempt Series I and K-Tron
International, Inc.

John R. Cook. Senior Vice President and Chief Financial Officer of the
Company and of Harcourt General since September 1992; Senior Vice
President -- Finance and Administration and Chief Financial Officer of NACCO
Industries, Inc. prior thereto.

Stephen C. Elkin. Chairman and Chief Executive Officer of Bergdorf Goodman
since May 1994; President and Chief Operating Officer of Bergdorf Goodman prior
thereto.

Bernie Feiwus. President and Chief Executive Officer of NM Direct since
October 1991; Executive Vice President of Neiman Marcus Stores -- Horchow Mail
Order Division from March 1991 to October 1991.

Eric P. Geller. Senior Vice President and General Counsel of the Company
and of Harcourt General since May 1992; Secretary of the Company since January
1992 and of Harcourt General since December 1991; Vice President, Associate
General Counsel and Assistant Secretary of the Company and of Harcourt General
prior thereto.

Dawn Mello. President of Bergdorf Goodman since May 1994 and from 1983 to
1989; Executive Vice President and Creative Director Worldwide of Guccio Gucci
Spa from October 1989 to May 1994.

Gerald A. Sampson. President and Chief Operating Officer of Neiman Marcus
Stores since April 1993; Chairman of May Company California, a division of May
Department Stores Company, from 1991 to January 1993.

Robert A. Smith. Group Vice President of the Company since January 1992
and of Harcourt General since December 1991; President and Chief Operating
Officer of GC Companies, Inc. since November 1, 1995; Vice
President -- Corporate Development of the Company from March 1989 to January
1992; Vice President -- Corporate Development of Harcourt General from December
1988 to December 1991; Director of Harcourt General. Mr. Smith is the son of
Richard A. Smith, the Chairman of the Company and Harcourt General.

Burton M. Tansky. Chairman and Chief Executive Officer of Neiman Marcus
Stores since May 1994; Chairman and Chief Executive Officer of Bergdorf Goodman
from February 1992 to May 1994; Vice Chairman of Bergdorf Goodman from February
1991 to February 1992.

32
<PAGE> 37

PRINCIPAL STOCKHOLDERS

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

<TABLE>

The following table sets forth information, as of August 3, 1996, with
respect to the beneficial ownership of the Common Stock of the Company prior to
giving effect to the Transactions by (i) each person known to the Company to own
beneficially more than 5% of the outstanding shares of Common Stock; (ii)
certain executive officers of the Company; (iii) each director of the Company;
and (iv) all directors and executive officers of the Company as a group. After
giving effect to the Transactions, Harcourt General would have owned 26,429,502
shares of Common Stock representing approximately 53% of the outstanding shares
of Common Stock.

<CAPTION>
SHARES OWNED
BENEFICIALLY
----------------------
NUMBER PERCENT
---------- -------
<S> <C> <C>
NAME AND ADDRESS OF
BENEFICIAL OWNER(1)
Harcourt General, Inc.(2)....................................... 22,572,360 59.4%
27 Boylston Street
Chestnut Hill, MA 02167
Gabelli Funds, Inc.(3).......................................... 5,391,800.. 14.2%
One Corporate Center
Rye, NY 10580
Neuberger & Berman, L.P.(4)..................................... 2,384,300.. 6.3%
605 Third Avenue
New York, NY 10158
Burton M. Tansky(5)............................................. 69,900 *
Gerald A. Sampson(6)............................................ 29,400 *
Stephen Elkin(7)................................................ 77,380 *
Dawn Mello(8)................................................... 8,000 *
Bernie Feiwus(9)................................................ 29,784 *
Matina S. Horner................................................ -- *
Walter J. Salmon................................................ 8,942 *
Jean Head Sisco................................................. 1,134 *
Richard A. Smith(10)............................................ -- *
Robert J. Tarr, Jr.(10)......................................... -- *
All current executive officers and directors as a group (19 224,540 *
persons)(11)..................................................
<FN>
- ------------
* Less than 1%.

(1) Unless otherwise indicated in the following footnotes, each stockholder
referred to above has sole voting and investment power with respect to the
shares listed.

(2) Harcourt General owns 500,000 shares of 9 1/4% Preferred Stock and
1,000,000 shares of 6% Preferred Stock, representing all of the Company's
issued and outstanding preferred stock. The Company will repurchase all of
its shares of Preferred Stock owned by Harcourt General in the
Transactions. See "Description of Transactions: Use of Proceeds." Richard
A. Smith, Chairman of the Board of the Company and of Harcourt General, his
sister, Nancy L. Marks, and certain members of their families may be
regarded as controlling persons of Harcourt General, and therefore of the
Company. The shares of Harcourt General Class B Stock and Harcourt General
Common Stock beneficially owned by or for the benefit of the Smith family
constitute approximately 28% of the aggregate number of outstanding equity
securities of Harcourt General. Each share of Harcourt General voting stock
is entitled to one vote on all matters submitted to Harcourt General's
stockholders, except that each share of the Harcourt General Class B Stock
(virtually all of which is owned by the Smith family) is entitled to ten
votes on the election of directors at any Harcourt General stockholders'
meeting under certain
</TABLE>

33
<PAGE> 38

circumstances. Accordingly, as to any elections in which the Harcourt
General Class B Stock would carry ten votes per share at a Harcourt General
stockholders' meeting, the Smith family would have approximately 80% of the
combined voting power of the Harcourt General voting securities. Under the
definition of "beneficial ownership" in Rule 13d-3 of the Rules and
Regulations promulgated under the Securities Exchange Act of 1934, as
amended, the Smith family and the members of Harcourt General's Board of
Directors may be deemed to be the beneficial owners of the securities of
the Company beneficially owned by Harcourt General in that they may be
deemed to share with Harcourt General the power to direct the voting and/or
disposition of such securities. However, this information should not be
deemed to constitute an admission that any such person or group of persons
is the beneficial owner of such securities. See "Risk Factors -- Control by
Principal Stockholder."

(3) The information reported is based on a Schedule 13D dated July 10, 1995
filed with the Commission by the Gabelli Funds, Inc. and its affiliates
(collectively, the "Gabelli Affiliates"). The Gabelli Affiliates have sole
voting power with respect to 5,115,900 shares and sole dispositive power
with respect to all of the shares shown in the table.

(4) The information reported is based on a Schedule 13G dated February 12, 1996
filed with the Commission by Neuberger & Berman, L.P. Neuberger & Berman
has sole voting power with respect to 215,700 shares shown in the table.

(5) Includes 59,900 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of August 3, 1996. Also includes 10,000
shares of restricted stock over which Mr. Tansky has voting but not
dispositive power.

(6) Includes 8,400 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of August 3, 1996. Also includes 4,000
shares of restricted stock over which Mr. Sampson has voting but not
dispositive power.

(7) Includes 54,350 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of August 3, 1996. Also includes 8,500
shares of restricted stock over which Mr. Elkin has voting but not
dispositive power.

(8) Includes 4,500 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of August 3, 1996. Also includes 3,500
shares of restricted stock over which Ms. Mello has voting but not
dispositive power.

(9) Includes 6,500 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of August 3, 1996. Also includes 5,400
shares of restricted stock over which Mr. Feiwus has voting but not
dispositive power.

(10) The members of the Board of Directors of Harcourt General, including
Messrs. Smith and Tarr, may be deemed to be the beneficial owners of the
securities of the Company owned by Harcourt General. However, this
information should not be deemed to be an admission that any such person or
group is the beneficial owner of such securities.

(11) Excludes the beneficial ownership of securities of the Company which may be
deemed to be attributed to Messrs. Smith and Tarr (see Notes 2 and 10
above). Includes 133,650 shares of Common Stock which are subject to
outstanding options exercisable within 60 days of August 3, 1996. Also
includes 31,400 shares of restricted stock over which individuals in the
group have voting but not dispositive power.

34
<PAGE> 39

DESCRIPTION OF CAPITAL STOCK

Upon completion of the Transactions, the Company's authorized capital stock
will consist of 50 million shares of preferred stock, $.01 par value, none of
which will be issued and outstanding, and 100 million shares of Common Stock,
$.01 par value per share, of which 49,860,256 shares will be issued and
outstanding (51,060,256 if the U.S. Underwriters over allotment option is
exercised). The following summary description of the Company's capital stock is
not intended to be complete and is subject to and qualified in its entirety by
reference to the provisions of applicable law and to the pertinent sections of
the Company's Restated Certificate of Incorporation (the "Charter") and by-laws
(the "By-Laws").

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share of
Common Stock on all matters voted on by stockholders, including the election of
directors. The holders of Common Stock are entitled to receive dividends when,
as and if declared by the Board of Directors out of assets legally available
therefor, provided that if any shares of any series of preferred stock which has
a preference with respect to the payment of dividends are at the time
outstanding, no dividends or distributions (other than dividends or
distributions payable in Common Stock) may be paid with respect to Common Stock
and no Common Stock shall be purchased by the Company, unless at the time of
declaration and payment or purchase, as the case may be, full cumulative
dividends have been paid, and no arrearage in any mandatory sinking fund exists,
on such outstanding shares of preferred stock. The Company does not anticipate
paying cash dividends on the Common Stock in the foreseeable future. See
"Dividend Policy." The holders of Common Stock do not have any cumulative
voting, conversion, redemption or preemptive rights. Upon the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive ratably the net assets of the Company available after the
payment of all debts and other liabilities of the Company, subject to the prior
rights of any outstanding preferred stock. The rights, powers, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock which the Company may designate and issue in the future.

PREFERRED STOCK

The Charter provides that the Company is authorized to issue up to
50,000,000 shares of preferred stock, par value $.01 per share. Upon completion
of the Transactions, no shares of preferred stock will be issued and
outstanding. See "Description of Transactions; Use of Proceeds." Shares of
preferred stock may be issued from time to time in one or more classes or
series, each of which class or series shall have such distinctive designation or
title as shall be fixed by the Board of Directors of the Company prior to the
issuance of any such shares. Each such series of preferred stock shall have such
number of shares, designations, preferences, voting powers, qualifications and
special or relative rights or privileges as shall be determined by the Board of
Directors, which may include, among others, dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, conversion
rights and preemptive rights.

The stockholders of the Company have granted the Board of Directors
authority to issue the preferred stock and to determine its rights and
preferences in order to eliminate delays associated with a stockholder vote on
specific issuances. The rights of the holders of Common Stock will be subject to
the rights of holders of any preferred stock issued in the future. The issuance
of preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could adversely affect the
voting power or other rights of the holders of Common Stock, and could make it
more difficult for a third party to acquire, or discourage a third party from
attempting to acquire, a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue any shares of preferred
stock.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS

The Company is incorporated under the Delaware General Corporation Law (the
"DGCL"). The Company is subject to Section 203 of the DGCL, which restricts
certain transactions and "business

35
<PAGE> 40

combinations" between a Delaware corporation and an "interested stockholder" (in
general, a stockholder owning 15% or more of the corporation's outstanding
voting stock) or an affiliate or associate of an interested stockholder, for a
period of three years from the date the stockholder becomes an interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, unless the transaction is approved by the Board
of Directors and the holders of at least 66 2/3% of the outstanding voting stock
of the corporation (excluding shares held by the interested stockholder),
Section 203 prohibits significant business transactions such as a merger with,
disposition of assets to or receipt of disproportionate financial benefits by
the interested stockholder, or any other transaction that would increase the
interested stockholder's proportionate ownership of any class or series of the
corporation's stock. The statutory ban does not apply if, upon consummation of
the transaction in which any person becomes an interested stockholder, the
interested stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain employee stock plans). Transactions between Harcourt
General and the Company are not subject to Section 203.

The Charter also provides that: (i) the Board of Directors of the Company
shall be classified into three classes, as nearly equal in number as possible,
each class to serve for three years, with one class elected each year (the
"Classified Board Provision"), (ii) holders of Common Stock may not act without
a meeting (the "Consent Provision"), (iii) stockholders of the Company may not
call a special meeting of stockholders (the "Stockholder Meeting Provision") and
(iv) the affirmative vote of the holders of at least 66 2/3% of the combined
voting power of all of the voting securities of the Company, voting together as
a single class, will be required to alter, amend or repeal the Consent
Provision, the Stockholder Meeting Provision, the Classified Board Provision or
the By-Laws Supermajority Provisions (as defined below) or to adopt any
provision inconsistent therewith (the "Certificate Supermajority Provision") and
further, such 66 2/3% approval is required to alter, amend or repeal the
Certificate Supermajority Provision or to adopt any provision inconsistent
therewith. As a result of the Certificate Supermajority Provision, the various
provisions discussed above may not be altered, amended or repealed without the
consent of Harcourt General by virtue of its voting interest in the Company,
which will represent in excess of fifty percent of the total voting power of all
voting shares of the Company following the completion of the Transactions.

The By-Laws provide, among other things, that except for the rights of the
holders of preferred stock issued by the Company to elect directors under
specified circumstances, nominations for the election of directors may be made
by the Board of Directors of the Company or a committee appointed by it or by
any stockholder entitled to vote in the election of directors generally.
However, any stockholder entitled to vote in the election of directors generally
may nominate one or more persons for election as director at a meeting only if
written notice of such stockholder's intent to make such nomination or
nominations has been given to the Secretary of the Company within specified
times and includes certain required information. The foregoing provision of the
By-Laws is hereinafter referred to as the "Nomination Provision." The purpose of
the Nomination Provision, by requiring advance notice of nominations by
stockholders, is to afford the Board of Directors of the Company a meaningful
opportunity to consider the qualifications of the proposed nominees and, to the
extent deemed necessary or desirable by the Board of Directors, to inform
stockholders about such qualifications. Although the Nomination Provision does
not give the Company's Board of Directors any power to approve or disapprove of
stockholder nominations for the election of directors, the Nomination Provision
may have the effect of precluding a nomination for the election of directors at
a particular annual meeting if the proper procedures are not followed.

The By-Laws may be amended, altered, rescinded or repealed at any meeting
of the Board of Directors of the Company or of the stockholders'; provided,
however, that the affirmative vote of the holders of at least 66 2/3% of the
combined voting power of all the then outstanding shares of the voting
securities of the Company, voting together as a single class, will be required
to amend, alter, rescind or repeal Section 3 of Article II, Sections 1, 2 and 10
of Article III, Article VIII or Article IX of the By-Laws (the "By-Laws
Supermajority Provisions"), each of which is described below.

Section 3 of Article II of the By-Laws identifies, among other things, the
persons who are authorized to call a special meeting of stockholders of the
Company, which does not include the stockholders of the

36
<PAGE> 41

Company. Except for the rights of the holders of preferred stock issued by the
Company to elect directors under specified circumstances, (i) Section 1 of
Article III of the By-Laws provides, among other things, that the Company's
Board of Directors shall consist of not less than three nor more than nine
persons, the exact number to be fixed from time to time exclusively by the Board
of Directors of the Company pursuant to a resolution adopted by a majority of
the entire Board of Directors and (ii) Section 2 of Article III of the By-Laws
provides, among other things, that newly created directorships resulting from
death, resignation, retirement, disqualification, removal from office or other
causes may be filled only by a majority vote of the directors then in office,
even though less than a quorum of the Board of Directors act at a regular or
special meeting. Section 10 of Article III of the By-Laws contains the
Nomination Provision. Article VIII of the By-Laws provides, among other things,
for the indemnification by the Company of officers and directors of the Company
under certain circumstances. Pursuant to Article IX of the Bylaws, Article IX
and the other By-Laws Supermajority Provisions may not be amended, altered,
rescinded or repealed without the consent of Harcourt General by virtue of its
voting interest in the Company, which will represent in excess of fifty percent
of the total voting power of all voting shares of the Company following the
consummation of the Transactions.

The Classified Board Provision, the Consent Provision, the Stockholder
Meeting Provision, the Nomination Provision, the Certificate Supermajority
Provision, the By-Laws Supermajority Provisions and Section 203 of the DGCL
described above may make more difficult or discourage the removal of Company
management, which some or a majority of holders of shares of the Company may
believe to be beneficial, and may make more difficult a proxy contest or certain
mergers involving the Company or a tender offer, open market purchase program or
other purchases of Common Stock in circumstances that would give stockholders
the opportunity to realize a premium on their Common Stock over the then
prevailing market prices, which some or a majority of such holders may deem to
be in their best interests.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is Boston EquiServe
Limited Partnership.

37
<PAGE> 42

UNDERWRITERS
<TABLE>

Under the terms and subject to the conditions in the Underwriting
Agreement, dated the date of this Prospectus (the "Underwriting Agreement"), the
Company has agreed to sell 8,000,000 shares of Common Stock, and the U.S.
Underwriters named below, for whom Morgan Stanley & Co. Incorporated, Goldman,
Sachs & Co. and Salomon Brothers Inc are serving as U.S. Representatives, have
severally agreed to purchase, and the International Underwriters named below,
for whom Morgan Stanley & Co. International Limited, Goldman Sachs International
and Salomon Brothers International Limited are serving as International
Representatives, have severally agreed to purchase, the respective number of
shares of Common Stock set forth opposite their names below:

<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated....................................... 1,213,334
Goldman, Sachs & Co..................................................... 1,213,333
Salomon Brothers Inc.................................................... 1,213,333
Sanford C. Bernstein & Co., Inc......................................... 60,000
Alex. Brown & Sons Incorporated......................................... 120,000
The Buckingham Research Group Incorporated.............................. 120,000
The Chicago Corporation................................................. 60,000
CS First Boston Corporation............................................. 120,000
Donaldson, Lufkin & Jenrette Securities Corporation..................... 120,000
Furman Selz LLC......................................................... 120,000
Gabelli & Company, Inc.................................................. 60,000
Hambrecht & Quist LLC................................................... 120,000
J.J.B. Hilliard, W.L. Lyons, Inc........................................ 60,000
Janney Montgomery Scott Inc............................................. 60,000
Lazard Freres & Co. LLC................................................. 120,000
Legg Mason Wood Walker, Incorporated.................................... 120,000
Lehman Brothers Inc..................................................... 120,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated...................... 120,000
J.P. Morgan Securities Inc.............................................. 120,000
NatWest Securities Limited.............................................. 120,000
Neuberger & Berman...................................................... 60,000
PaineWebber Incorporated................................................ 120,000
Prudential Securities Incorporated...................................... 120,000
Rauscher Pierce Refsnes, Inc............................................ 60,000
Raymond James & Associates, Inc......................................... 60,000
Robertson, Stephens & Company LLC....................................... 120,000
Schroder Wertheim & Co. Incorporated.................................... 120,000
Scotia McLeod Inc....................................................... 60,000
Smith Barney Inc........................................................ 120,000
Wasserstein Perella Securities, Inc..................................... 120,000
Wheat, First Securities, Inc............................................ 60,000
---------
Subtotal........................................................ 6,400,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited.............................. 443,334
Goldman Sachs International............................................. 443,333
Salomon Brothers International Limited.................................. 443,333
Bayerische Landesbank Girozentrale...................................... 45,000
Credit Commercial De France............................................. 45,000
Credit Lyonnais Securities.............................................. 45,000
HSBC Investment Bank Plc................................................ 45,000
NatWest Securities Limited.............................................. 45,000
Nikko Europe Plc........................................................ 45,000
---------
Subtotal........................................................ 1,600,000
---------
Total...................................................... 8,000,000
=========
</TABLE>

38
<PAGE> 43

The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by counsel and to certain other conditions. The Underwriters are
obligated to take and pay for all the shares of Common Stock offered hereby
(other than those covered by the over-allotment option described below) if any
such shares are taken.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions, (a)
it is not purchasing any U.S. Shares (as defined below) being sold by it for the
account of anyone other than a United States or Canadian Person (as defined
below); and (b) it has not offered or sold, and will not offer or sell, directly
or indirectly, any U.S. Shares or distribute any prospectus relating to the U.S.
Shares outside the United States or Canada or to anyone other than a United
States or Canadian Person. Pursuant to the Agreement Between U.S. and
International Underwriters, each International Underwriter has represented and
agreed that, with certain exceptions, (a) it is not purchasing any International
Shares (as defined below) being sold by it for the account of any United States
or Canadian Person; and (b) it has not offered or sold, and will not offer or
sell, directly or indirectly, any International Shares or distribute any
prospectus relating to the International Shares within the United States or
Canada or to any United States or Canadian Person. With respect to any
Underwriter that is a U.S. Underwriter and an International Underwriter, the
foregoing representations and agreements (i) made by it in its capacity as a
U.S. Underwriter shall apply only to shares purchased by it in its capacity as a
U.S. Underwriter, (ii) made by it in its capacity as an International
Underwriter shall apply only to shares purchased by it in its capacity as an
International Underwriter, and (iii) do not restrict its ability to distribute
any prospectus relating to the shares of Common Stock to any person. The
foregoing limitations do not apply to stabilization actions or to certain other
transactions specified in the Agreement Between U.S. and International
Underwriters. As used herein, "United States or Canadian Person" means any
national or resident of the United States or Canada or any corporation, pension,
profit-sharing or other trust or other entity organized under the laws of the
United States or Canada or of any political subdivision thereof (other than a
branch located outside the United States and Canada of any United States or
Canadian Person) and includes any United States or Canadian branch of a person
who is otherwise not a United States or Canadian Person. All shares of Common
Stock to be purchased by the U.S. Underwriters and the International
Underwriters under the Underwriting Agreement are referred to herein as the U.S.
Shares and the International Shares, respectively.

NatWest Securities Limited, a United Kingdom broker-dealer and a member of
the Securities and Futures Authority Limited ("NatWest"), has agreed that, as
part of the distribution of Common Stock offered hereby and subject to certain
exceptions, it will not offer or sell any shares of Common Stock within the
United States, its territories or possessions or to persons who are citizens
thereof or residents therein.

Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares so sold shall be the Price to Public set forth on the cover page hereof,
in United States dollars, less an amount not greater than the per share amount
of the concession to dealers set forth below.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in
Canada in contravention of the securities laws of Canada or any province or
territory thereof and has represented that any offer of shares of Common Stock
in Canada will be made only pursuant to an exemption from the requirement to
file a prospectus in the province or territory of Canada in which such offer is
made. Each U.S. Underwriter has further agreed to send to any dealer who
purchases from it any shares of Common Stock a notice stating in substance that,
by purchasing such shares of Common Stock, such dealer represents and agrees
that it has not offered or sold, and will not offer or sell, directly or
indirectly, any of such shares of Common Stock in Canada or to, or for the
benefit of, any resident of Canada in contravention of the securities laws of
Canada or any province or territory thereof and that any offer of shares of
Common Stock in Canada will be made only pursuant to an exemption from the
requirement to file a

39
<PAGE> 44

prospectus in the province of Canada in which such offer is made, and that such
dealer will deliver to any other dealer to whom it sells any of such shares of
Common Stock a notice to the foregoing effect.

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (a) it has not offered
or sold and will not, during the period of six months from the date of the
Offering, offer or sell any shares of Common Stock in the United Kingdom except
to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations (1995) (the "Regulations"); (b) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the Regulations with respect to anything done by it in
relation to the shares of Common Stock offered hereby in, from or otherwise
involving the United Kingdom; and (c) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issue of the shares of Common Stock if that person
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996, or to any person to whom
the document may lawfully be issued or passed on.

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that it has not offered or
sold, and agrees not to offer or sell, directly or indirectly, in Japan or to or
for the account of any resident thereof, any of the shares of Common Stock
acquired in connection with the distribution contemplated hereby, except for
offers or sales to Japanese International Underwriters or dealers and except
pursuant to an exemption from the registration requirements of the Securities
and Exchange Law of Japan. Each International Underwriter further agrees to send
to any dealer who purchases from it any of the shares of Common Stock a notice
stating in substance that, by purchasing such shares, such dealer represents and
agrees that it has not offered or sold and will not offer or sell any of such
shares, directly or indirectly in Japan or to or for the account of any resident
thereof except pursuant to an exemption from the registration requirements of
the Securities and Exchange Law of Japan, and that such dealer will send to any
other dealer to whom it sells any of such shares of Common Stock a notice
containing substantially the same statement as contained in the foregoing.

The Underwriters propose to offer part of the shares of Common Stock
directly to the public at the Price to Public set forth on the cover page hereof
and part to certain dealers at a price which represents a concession not in
excess of $.84 a share below the public offering price. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $.10 a share
to other Underwriters or to certain dealers. After the initial offering of the
shares of Common Stock, the offering price and other selling terms may from time
to time be varied by the Underwriters.

Pursuant to the Underwriting Agreement, the Company has granted the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 1,200,000 additional shares of Common Stock at the
Price to Public set forth on the cover page hereof, less underwriting discounts
and commissions. The U.S. Underwriters may exercise such option to purchase
solely for the purpose of covering over-allotments, if any, made in connection
with the offering of the shares of Common Stock offered hereby. To the extent
such option is exercised, each U.S. Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares of
Common Stock offered by the U.S. Underwriters hereby.

The Company, Harcourt General and all of the Company's executive officers
and directors have agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated, they will not (a) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
(whether such shares or any such securities are then owned by such person or are
thereafter acquired), or (b) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences

40
<PAGE> 45

of ownership of the Common Stock, whether any such transaction described in
clause (a) or (b) of this paragraph is to be settled by delivery of such Common
Stock or such other securities, in cash or otherwise, for a period of 90 days
after the date of this Prospectus, other than (i) the sale to the Underwriters
of the shares of Common Stock under the Underwriting Agreement; (ii) in
connection with the Stock Payment; (iii) the grant by the Company of options to
purchase shares of Common Stock pursuant to an existing employee benefit plan of
the Company; (iv) the issuance by the Company of shares of Common Stock upon the
exercise of an option granted pursuant to an existing employee benefit plan of
the Company; or (v) surrendering an option to purchase Common Stock in exchange
for a cash payment equal to the value of the option.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

The Common Stock is traded on the NYSE under the symbol "NMG."

The Underwriters have informed the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority.

From time to time in the ordinary course of their businesses, certain of
the Underwriters and their affiliates have provided and may in the future
provide investment banking services and have engaged and may in the future
engage in general financing and banking transactions with the Company and
Harcourt General, for which they have received or will receive customary fees
and commissions.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Ropes & Gray and for the Underwriters by Davis Polk & Wardwell.

EXPERTS

The consolidated balance sheets of the Company as of August 3, 1996 and
July 29, 1995 and the consolidated statements of operations, common
shareholders' equity and cash flows and schedule for each of the three years in
the period ended August 3, 1996 have been included herein and incorporated
herein by reference in reliance on the reports of Deloitte & Touche LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.

41
<PAGE> 46

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Cash Flows................................................. F-5
Consolidated Statements of Common Shareholders' Equity................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 47

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
The Neiman Marcus Group, Inc.
Chestnut Hill, Massachusetts

We have audited the accompanying consolidated balance sheets of The Neiman
Marcus Group, Inc. and subsidiaries as of August 3, 1996 and July 29, 1995, and
the related consolidated statements of operations, common shareholders' equity
and cash flows for each of the three fiscal years in the period ended August 3,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall 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 The Neiman
Marcus Group, Inc. and subsidiaries as of August 3, 1996 and July 29, 1995, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended August 3, 1996, in conformity with generally
accepted accounting principles.

Deloitte & Touche LLP

Boston, Massachusetts
August 29, 1996,
(September 10, 1996 as to Note 13)

F-2
<PAGE> 48

THE NEIMAN MARCUS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JULY 29, AUGUST 3,
1995 1996
---------- ----------
(DOLLAR AMOUNTS IN
THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents.............................................. $ 13,695 $ 12,659
Accounts receivable, less allowance for doubtful accounts of
$6,100 and $5,800.............................................. 150,110 165,442
Merchandise inventories........................................... 359,092 443,948
Deferred income taxes............................................. 17,102 21,666
Other current assets.............................................. 38,410 45,368
---------- ----------
TOTAL CURRENT ASSETS...................................... 578,409 689,083
---------- ----------
PROPERTY AND EQUIPMENT
Land, buildings and improvements.................................. 342,551 396,541
Fixtures and equipment............................................ 200,664 271,852
Construction in progress.......................................... 84,956 36,431
---------- ----------
628,171 704,824
Less accumulated depreciation and amortization.................... 204,588 247,199
---------- ----------
PROPERTY AND EQUIPMENT, NET....................................... 423,583 457,625
---------- ----------
OTHER ASSETS........................................................ 106,445 105,642
---------- ----------
$1,108,437 $1,252,350
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current maturities of long-term liabilities..... $ 11,859 $ 35,576
Accounts payable.................................................. 170,672 192,146
Accrued liabilities............................................... 152,049 146,326
---------- ----------
TOTAL CURRENT LIABILITIES................................. 334,580 374,048
---------- ----------
LONG-TERM LIABILITIES
Notes and debentures.............................................. 242,000 292,000
Other long-term liabilities....................................... 69,056 69,940
---------- ----------
TOTAL LONG-TERM LIABILITIES............................... 311,056 361,940
---------- ----------
DEFERRED INCOME TAXES............................................... 30,812 33,329
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCKS (redemption value $424,923)............. 405,442 407,426
COMMON STOCK
Common stock -- $.01 par value
Authorized -- 100,000,000 shares
Issued and outstanding -- 37,959,646 and 38,003,702 shares..... 380 380
ADDITIONAL PAID-IN CAPITAL.......................................... 82,366 83,106
ACCUMULATED DEFICIT................................................. (56,199) (7,879)
---------- ----------
$1,108,437 $1,252,350
========== ==========
</TABLE>

See Notes to Consolidated Financial Statements.

F-3
<PAGE> 49

THE NEIMAN MARCUS GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C>
Revenues............................................... $1,789,461 $1,888,249 $2,075,003
Cost of goods sold including buying and occupancy
costs................................................ 1,210,262 1,276,776 1,416,296
Selling, general and administrative expenses........... 420,667 448,956 485,533
Corporate expenses..................................... 13,411 12,465 13,719
---------- ---------- ----------
Operating earnings..................................... 145,121 150,052 159,455
Interest expense....................................... 31,878 33,958 28,228
---------- ---------- ----------
Earnings from continuing operations before income
taxes................................................ 113,243 116,094 131,227
Income taxes........................................... 47,562 48,759 53,803
---------- ---------- ----------
Earnings from continuing operations.................... 65,681 67,335 77,424
Loss from discontinued operations, net of taxes
(including loss on disposal of $9,873 in 1995)....... (49,755) (11,727) --
---------- ---------- ----------
Net earnings........................................... 15,926 55,608 77,424
Dividends and accretion on redeemable preferred
stocks............................................... (29,080) (29,092) (29,104)
---------- ---------- ----------
Net earnings (loss) applicable to common
shareholders......................................... ($ 13,154) $ 26,516 $ 48,320
========== ========== ==========
Weighted average shares outstanding.................... 37,946 37,999 38,218
========== ========== ==========
Amounts per share applicable to common shareholders:
Earnings from continuing operations.................. $ .96 $ 1.01 $ 1.26
Loss from discontinued operations.................... (1.31) (.31) --
---------- ---------- ----------
Net earnings (loss).................................. ($ .35) $ .70 $ 1.26
========== ========== ==========
</TABLE>

See Notes to Consolidated Financial Statements.

F-4
<PAGE> 50

THE NEIMAN MARCUS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------
JULY
30, JULY 29, AUGUST 3,
1994 1995 1996
------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings................................................... $15,926 $ 55,608 $77,424
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization................................ 48,086 48,397 56,305
Deferred income taxes........................................ (7,131) 259 (2,047)
Change in net assets of discontinued operations.............. 22,162 8,317 --
Other........................................................ 4,963 (3,479) 2,447
Changes in current assets and liabilities:
Accounts receivable.......................................... (52,664) (34,584) (15,332)
Merchandise inventories...................................... 17,422 (38,709) (84,856)
Accounts payable and accrued liabilities..................... (1,975) 63,005 15,751
Other........................................................ (13,203) 6,846 (6,958)
-------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................... 33,586 105,660 42,734
-------- --------- --------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Additions to property and equipment............................ (65,074) (93,514) (85,736)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings of debt............................................. 73,800 17,065 109,917
Repayment of debt.............................................. (11,307) (247,276) (41,571)
Proceeds from receivables securitization....................... -- 245,965 --
Common stock issued............................................ 100 112 740
Dividends paid................................................. (34,709) (30,917) (27,120)
-------- --------- --------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES........... 27,884 (15,051) 41,966
-------- --------- --------
CASH AND EQUIVALENTS
Decrease during the year....................................... (3,604) (2,905) (1,036)
Beginning balance.............................................. 20,204 16,600 13,695
-------- --------- --------
Ending balance................................................. $16,600 $ 13,695 $12,659
======== ========= ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest..................................................... $31,504 $ 34,466 $27,816
======== ========= ========
Income taxes................................................. $34,258 $ 17,614 $56,523
======== ========= ========
</TABLE>

See Notes to Consolidated Financial Statements.

F-5
<PAGE> 51

THE NEIMAN MARCUS GROUP, INC.

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
------ ------ ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance -- August 1, 1993............................ 37,938 $379 $ 82,154 ($ 58,175)
Net earnings......................................... -- -- -- 15,926
Accretion of redeemable preferred stock.............. -- -- -- (1,960)
Common dividends..................................... -- -- -- (7,589)
Preferred dividends.................................. -- -- -- (27,120)
Other equity transactions............................ 13 1 100 --
------ ---- ------- -------
Balance -- July 30, 1994............................. 37,951 380 82,254 (78,918)
Net earnings......................................... -- -- -- 55,608
Accretion of redeemable preferred stock.............. -- -- -- (1,972)
Common dividends..................................... -- -- -- (3,797)
Preferred dividends.................................. -- -- -- (27,120)
Other equity transactions............................ 9 -- 112 --
------ ---- ------- -------
Balance -- July 29, 1995............................. 37,960 380 82,366 (56,199)
Net earnings......................................... -- -- -- 77,424
Accretion of redeemable preferred stock.............. -- -- -- (1,984)
Preferred dividends.................................. -- -- -- (27,120)
Other equity transactions............................ 44 -- 740 --
------ ---- ------- -------
Balance -- August 3, 1996............................ 38,004 $380 $ 83,106 ($ 7,879)
====== ==== ======= =======
</TABLE>

See Notes to Consolidated Financial Statements.

F-6
<PAGE> 52

THE NEIMAN MARCUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF REPORTING

The Company's specialty retailing businesses include Neiman Marcus Stores,
NM Direct and Bergdorf Goodman. The consolidated financial statements include
the accounts of all of the Company's wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. The Company's
fiscal year ends on the Saturday closest to July 31. In fiscal 1996, the
reporting period included 53 weeks as compared to 52 weeks in each of fiscal
years 1995 and 1994.

CASH AND EQUIVALENTS

Cash and equivalents consist of cash and highly liquid investments with
maturities of three months or less from the date of purchase.

MERCHANDISE INVENTORIES

Inventories are stated at the lower of cost or market. Substantially all of
the Company's inventories are valued using the retail method on the last-in,
first-out (LIFO) basis. While the Company believes that the LIFO method provides
a better matching of costs and revenues, some specialty retailers use the
first-in, first-out (FIFO) method and, accordingly, the Company has provided the
following data for comparative purposes.

If the FIFO method of inventory valuation had been used to value all
inventories, merchandise inventories would have been $13.5 million and $14.2
million higher than reported at August 3, 1996 and July 29, 1995, respectively.
As a result of using the LIFO valuation method, net earnings were $0.4 million
higher in 1996, $6.0 million higher in 1995, and $1.4 million lower in 1994 than
they would have been using the FIFO method.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization are provided on a straight-line basis over
the shorter of the estimated useful lives of the related assets or the lease
term. Buildings and improvements are depreciated over 15 to 30 years while
fixtures and equipment are depreciated over 2 to 15 years.

When property and equipment are retired or have been fully depreciated, the
cost and the related accumulated depreciation are eliminated from the respective
accounts. Gains or losses arising from dispositions are reported as income or
expense.

Intangibles are amortized on a straight-line basis over their estimated
useful lives, not exceeding 40 years. Amortization expense was $3.7 million in
1996, $3.7 million in 1995 and $3.8 million in 1994.

In 1996 the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," and determined that no impairment loss need be
recognized. On an annual basis the Company compares the carrying value of its
long-lived assets against projected undiscounted cash flows to determine any
impairment and to evaluate the reasonableness of the depreciation or
amortization periods.

INCOME TAXES

Income taxes are calculated in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes." SFAS 109
requires the asset and liability method of accounting for income taxes.

F-7
<PAGE> 53

THE NEIMAN MARCUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RECEIVABLES AND FINANCE CHARGE INCOME

The Company's credit operations generate finance charge income, which is
recognized as income when earned and is recorded as a reduction of selling,
general and administrative expenses. Finance charge income amounted to $47.7
million in 1996, $55.9 million in 1995 and $54.3 million in 1994. The
securitization of the Company's credit card receivables, which was completed in
March 1995, had the effect of reducing finance charge income by $19.0 million in
1996 and $7.1 million in 1995.

Concentration of credit risk with respect to trade receivables is limited
due to the large number of customers to whom the Company extends credit. Ongoing
credit evaluation of customers' financial position is performed, and collateral
is not required as a condition of extending credit. The Company maintains
reserves for potential credit losses.

EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE

Earnings (loss) per share information reflects the earnings and losses of
the Company applicable to common shareholders. The dividend and accretion
requirements of the redeemable preferred stocks are deducted from earnings from
continuing operations of the Company to arrive at net earnings (loss) applicable
to common shareholders. Earnings (loss) per common share is based upon the
weighted average number of common and, when dilutive, common equivalent shares
outstanding during the year.

PREOPENING EXPENSES

Costs associated with the opening of new stores are expensed as incurred.

SIGNIFICANT ESTIMATES

In the process of preparing its consolidated financial statements, the
Company estimates the appropriate carrying value of certain assets and
liabilities which are not readily apparent from other sources. The primary
estimates underlying the Company's consolidated financial statements include
allowances for doubtful accounts, accruals for pension and postretirement
benefits and other matters. Actual results could differ from these estimates.
Management bases its estimates on historical experience and on various
assumptions which are believed to be reasonable under the circumstances.

RECLASSIFICATIONS

Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.

2. DISCONTINUED OPERATIONS

On June 30, 1995, the Company sold its Contempo Casuals operations to The
Wet Seal, Inc. for approximately $1.0 million of Wet Seal Class A Common Stock
and $100,000 in cash. The consolidated financial statements have been restated
to present Contempo Casuals as a discontinued operation.

The losses from discontinued operations recorded for the fiscal years ended
1995 and 1994 are net of applicable income tax benefits of $1.3 million and
$36.0 million, respectively. The loss on disposal in 1995 of $9.9 million is net
of $7.1 million of applicable income tax benefits.

Revenues related to the discontinued Contempo Casuals operations were
$207.2 million in 1995 and $303.4 million in 1994.

F-8
<PAGE> 54

THE NEIMAN MARCUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. OTHER ASSETS

Other assets consisted of the following:

<TABLE>
<CAPTION>
AUGUST
JULY 29, 3,
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Trademarks................................................... $ 73,000 $ 73,000
Goodwill..................................................... 22,729 22,729
Other assets................................................. 35,805 38,677
-------- --------
131,534 134,406
Accumulated amortization..................................... (25,089) (28,764)
-------- --------
$106,445 $105,642
======== ========
</TABLE>

4. ACCRUED LIABILITIES

Accrued liabilities consisted of the following:

<TABLE>
<CAPTION>
AUGUST
JULY 29, 3,
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accrued salaries and related charges......................... $ 29,878 $ 26,336
Self-insurance reserves...................................... 27,433 27,860
Income taxes payable......................................... 17,957 17,285
Other........................................................ 76,781 74,845
-------- --------
$152,049 $146,326
======== ========
</TABLE>

5. LONG-TERM LIABILITIES

Long-term liabilities consisted of the following:

<TABLE>
<CAPTION>
AUGUST
INTEREST JULY 29, 3,
RATE 1995 1996
---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving credit agreement (a).................... Variable $ 77,100 $186,500
Senior notes (b).................................. Various 172,000 132,000
Capital lease obligations (c)..................... 7.63-10.25% 7,206 6,697
Other long-term liabilities (d)................... Various 66,609 72,319
-------- --------
Total long-term liabilities....................... 322,915 397,516
Less current maturities........................... (11,859) (35,576)
-------- --------
$311,056 $361,940
======== ========
</TABLE>

(a) The Company has a five year, $500 million revolving credit facility which
expires in April, 2000. The Company may terminate this agreement at any
time on three business days' notice. The rate of interest payable (5.9% at
August 3, 1996) varies according to one of four pricing options selected by
the Company. The revolving credit facility contains, among other
restrictions, provisions limiting the issuance of additional debt, the
amount and type of investments and the payment of dividends.

In addition to its revolving credit facility, the Company borrows from
other banks on an uncommitted basis. Such borrowings are included in notes
payable and current maturities of long-term liabilities and amounted to
$26.5 million at August 3, 1996 and $7.1 million at July 29, 1995.

F-9
<PAGE> 55

THE NEIMAN MARCUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(b) Senior notes consisted of the following:

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
INTEREST RATE DUE ----------------
- ------------- -------------- (IN THOUSANDS)
<S> <C> <C>
9.59% August 1996 $ 52,000
9.24% December 1996 $ 40,000
Variable December 1996 $ 40,000
</TABLE>

The notes have no sinking fund requirements. All fixed rate senior notes
may be redeemed at any time at a premium plus accrued interest. The
variable rate note bears interest at LIBOR plus 0.7% (6.0% at August 3,
1996) and is adjusted semiannually. The notes are classified as long-term,
since the Company has the ability and intent to repay them upon maturity
through borrowings on the revolving credit facility.

(c) The amount of assets under capital leases included in property and
equipment net of amortization was $3.5 million at August 3, 1996 and $4.0
million at July 29, 1995.

(d) Other long-term liabilities consisted primarily of certain employee benefit
obligations, postretirement health care benefits and the liability for
certain scheduled rent increases.

The aggregate maturities of all long-term liabilities and capital lease
obligations are $35.6 million in 1997, $5.6 million in 1998, $5.8 million in
1999, $297.9 million in 2000, $6.1 million in 2001 and $46.5 million thereafter.

6. REDEEMABLE PREFERRED STOCKS

The Company is authorized to issue up to 50,000,000 shares of preferred
stock. The Company's issued and outstanding preferred stocks consist of
1,000,000 shares of 6% Cumulative Convertible Preferred Stock (6% Preferred
Stock) and 500,000 shares of 9 1/4% Cumulative Redeemable Preferred Stock
(9 1/4% Preferred Stock), all of which are owned by Harcourt General, Inc.
(Harcourt General).

The 6% Preferred Stock is entitled to receive cumulative dividends at an
annual rate of 6% on its $374.9 million stated value, to a class vote on certain
matters, to convert on a per share basis into approximately 9.12 shares of
Common Stock subject to certain antidilution adjustments and, upon liquidation
of the Company, is entitled to receive a liquidation distribution equal to its
stated value, together with any accrued and unpaid dividends, before any
distribution to any junior class of stock. The conversion price of the 6%
Preferred Stock at August 3, 1996 was approximately $41.12 per share of Common
Stock acquired upon such conversion; the market value per share of Common Stock
on August 3, 1996 was $27.38. The 6% Preferred Stock may be redeemed by the
Company at a premium over its stated value under certain conditions through
September 1997. Commencing in September 1997 (when a sinking fund for this
purpose commences), the Company is required to redeem annually not less than 5%
of the 6% Preferred Stock at a redemption value of $374.92 per share plus any
accrued dividends. The difference between the redemption value and the carrying
value is being accreted over a thirty-year period.

The 9 1/4% Preferred Stock has a stated value of $100 per share and is
entitled to receive cumulative dividends at an annual rate of 9 1/4% on its
aggregate stated value of $50 million. The 9 1/4% Preferred Stock is not
redeemable until July 31, 1998 except under certain limited circumstances, is
redeemable at a premium for a twelve month period beginning July 31, 1998, and
at par thereafter and must be redeemed in full by July 31, 2001. The 9 1/4%
Preferred Stock has a liquidation preference equal to its stated value plus
accrued and unpaid dividends. The 9 1/4% Preferred Stock ranks equal to the 6%
Preferred Stock and is senior to the Common Stock of the Company with respect to
dividends and the distribution of assets upon liquidation or dissolution of the
Company. If dividends payable on the 9 1/4% Preferred Stock are in arrears for
six full quarters or any mandatory redemption is in arrears, the holders of the
9 1/4% Preferred Stock, voting together as one class with other series of the
Company's preferred stock, shall be entitled to elect two members to the

F-10
<PAGE> 56

THE NEIMAN MARCUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company's Board of Directors. The 9 1/4% Preferred Stock also contains
restrictions regarding the issuance of senior securities and the consolidation
or merger of the Company and sales of assets.

7. COMMON SHAREHOLDERS' EQUITY

OWNERSHIP BY AND RELATIONSHIP WITH HARCOURT GENERAL

Harcourt General owns approximately 22.6 million shares of Common Stock and
all of the outstanding Redeemable Preferred Stocks. The shares presently owned
by Harcourt General represent approximately 67% of the voting power and fully
converted equity of the Company.

The Company and Harcourt General are parties to an agreement pursuant to
which Harcourt General provides certain management, accounting, financial,
legal, tax and other corporate services to the Company. The fees for these
services are based on Harcourt General's costs and are subject to the approval
of a committee of directors of the Company who are independent of Harcourt
General. This agreement may be terminated by either party on 180 days' notice.
Charges to the Company under this agreement were $6.9 million in 1996, $6.5
million in 1995 and $6.9 million in 1994.

The Company's Chairman of the Board; President, Chief Executive Officer and
Chief Operating Officer; Senior Vice President and Chief Financial Officer;
Senior Vice President and General Counsel; as well as certain other officers,
serve in similar capacities with Harcourt General. The first two named officers
also serve as directors of both companies.

COMMON STOCK

Common Stock is entitled to dividends as declared by the Board of
Directors, and each share carries one vote. Holders of Common Stock have no
cumulative voting, conversion, redemption or preemptive rights.

COMMON STOCK INCENTIVE PLAN

The Company has established a common stock incentive plan allowing for the
granting of stock options, stock appreciation rights (SARs) and stock-based
awards to its employees. The aggregate number of shares of Common Stock that may
be issued pursuant to the plan is 1.3 million shares. At August 3, 1996, there
were 179,060 shares of Common Stock available for grant under the plan.

Options outstanding at August 3, 1996 were granted at prices (not less than
100% of the fair market value on the date of the grant) varying from $11.63 to
$19.27 per share and expire between 1996 and 2005. There were 93 employees with
options outstanding at August 3, 1996. The weighted average exercise price for
all outstanding shares at August 3, 1996 was $14.41.

The Company has allowed SAR treatment in connection with the exercise of
certain options. Optionees allowed SAR treatment surrender an exercisable option
in exchange for an amount of cash equal to the excess of the market price of the
Common Stock at the time of surrender over the option exercise price.

F-11
<PAGE> 57

THE NEIMAN MARCUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Option activity was as follows:

<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------
JULY AUGUST
JULY 30, 29, 3,
1994 1995 1996
-------- ------- --------
<S> <C> <C> <C>
Options outstanding -- beginning of year............ 684,136 666,348 784,864
Granted........................................... 214,100 228,050 128,600
SAR surrenders.................................... (43,715) (13,470) (202,192)
Exercised......................................... (10,401) (1,644) (2,900)
Canceled.......................................... (177,772) (94,420) (55,295)
-------- ------- --------
Options outstanding -- end of year.................. 666,348 784,864 653,077
======== ======= ========
Exercisable options -- end of year.................. 294,800 356,064 239,247
======== ======= ========
</TABLE>

8. INCOME TAXES

Income tax expense was as follows:

<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------
JULY JULY
30, 29, AUGUST 3,
1994 1995 1996
------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................. $37,800 $39,965 $47,517
State............................................... 8,736 9,136 8,333
------- ------- -------
46,536 49,101 55,850
------- ------- -------
Deferred:
Federal............................................. 1,835 668 (1,588)
State............................................... (809) (1,010) (459)
------- ------- -------
1,026 (342) (2,047)
------- ------- -------
Income tax expense.................................... $47,562 $48,759 $53,803
======= ======= =======
</TABLE>

The Company's effective income tax rate was 41% in 1996 and 42% in 1995 and
1994. The difference between the statutory federal tax rate and the effective
tax rate is due primarily to state income taxes.

Significant components of the Company's net deferred income tax liability
stated on a gross basis were as follows:

<TABLE>
<CAPTION>
AUGUST
JULY 29, 3,
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred income tax assets:
Financial accruals and reserves.............................. $ 22,297 $ 19,468
Employee benefits............................................ 22,471 25,941
Inventories.................................................. 3,256 8,006
Deferred lease payments...................................... 3,735 3,481
Other........................................................ 3,960 3,566
-------- --------
Total deferred tax assets............................ 55,719 60,462
-------- --------
</TABLE>

F-12
<PAGE> 58

THE NEIMAN MARCUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
AUGUST
JULY 29, 3,
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred income tax liabilities:
Excess tax depreciation...................................... (57,257) (59,128)
Pension accrual.............................................. (5,933) (7,178)
Other assets previously deducted on tax return............... (6,239) (5,819)
-------- --------
Total deferred tax liabilities....................... (69,429) (72,125)
-------- --------
Net deferred tax liability..................................... ($13,710) ($11,663)
======== ========
</TABLE>

9. PENSION PLANS

The Company has a noncontributory defined benefit pension plan covering
substantially all full-time employees. The Company also sponsors an unfunded
supplemental executive retirement plan which provides certain employees
additional pension benefits. Benefits under the plans are based on the
employees' years of service and compensation over defined periods of employment.
The Company's general funding policy is to contribute amounts that are
deductible for federal income tax purposes. Pension plan assets consist
primarily of equity and fixed income securities.

Components of net pension expense were as follows:

<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------
JULY JULY AUGUST
30, 29, 3,
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost......................................... $ 4,800 $ 5,800 $ 5,700
Interest cost on projected benefit obligation........ 7,200 7,900 8,300
Actual return on assets.............................. (2,700) (7,500) (12,100)
Net amortization and deferral........................ (3,000) 1,200 5,700
------- ------- --------
Net pension expense.................................. $ 6,300 $ 7,400 $ 7,600
======= ======= ========
</TABLE>

The accounting assumptions used in the computation of pension expense were
as follows:

<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Discount rate........................................ 7.5% 7.5% 7.5%
Long-term rate of return on plan assets.............. 9.0% 9.0% 9.0%
Rate of increases in future compensation levels...... 5.0% 5.0% 5.0%
</TABLE>

F-13
<PAGE> 59

THE NEIMAN MARCUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The plans' funded status and amounts recognized in the consolidated balance
sheets were as follows:

<TABLE>
<CAPTION>
JULY 29, 1995 AUGUST 3, 1996
-------------------- ---------------------
FUNDED UNFUNDED FUNDED UNFUNDED
PLAN PLAN PLAN PLAN
------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Vested benefit obligation................ $73,600 $ 11,400 $ 90,500 $ 13,200
======= ======== ======== ========
Accumulated benefit obligation........... $77,200 $ 13,400 $ 94,000 $ 15,300
======= ======== ======== ========
Projected benefit obligation............. $91,700 $ 23,100 $108,000 $ 25,200
Pension plan assets at fair value........ 91,300 -- 106,600 --
------- -------- -------- --------
Underfunded projected obligation......... (400) (23,100) (1,400) (25,200)
Net amortization and deferral............ 12,600 2,600 16,200 3,100
Unrecognized net obligation at transition
and unrecognized prior service cost.... 2,200 3,900 1,900 3,500
------- -------- -------- --------
Pension asset (liability) recognized in
the consolidated balance sheets........ $14,400 ($16,600) $ 16,700 ($18,600)
======= ======== ======== ========
</TABLE>

The Company has a qualified defined contribution 401(k) plan, which covers
substantially all employees. Employees make contributions to the plan, and the
Company matches 25% of an employee's contribution up to a maximum of 6% of the
employee's compensation. Company contributions for the years ended August 3,
1996, July 29, 1995 and July 30, 1994 were $2.3 million, $2.2 million, and $1.9
million, respectively.

10. POSTRETIREMENT HEALTH CARE BENEFITS

Retirees and active employees hired prior to March 1, 1989 are eligible for
certain limited postretirement health care benefits if they have met certain
service and minimum age requirements. The cost of these benefits is accrued
during the years in which an employee provides services. The Company paid
postretirement health care benefit claims of $1.2 million during 1996, $1.4
million during 1995 and $1.8 million during 1994.

The actuarial present value of accumulated postretirement health care
benefit obligations and the amounts recognized in the consolidated balance
sheets were as follows:

<TABLE>
<CAPTION>
JULY
29, AUGUST 3,
1995 1996
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Retirees......................................................... $11,364 $11,692
Fully eligible active plan participants.......................... 1,470 3,488
Other active plan participants................................... 3,943 3,587
------- -------
Accumulated postretirement benefit obligation.................... 16,777 18,767
Unrecognized net gain............................................ 2,350 1,003
------- -------
Total.................................................. $19,127 $19,770
======= =======
</TABLE>

F-14
<PAGE> 60

THE NEIMAN MARCUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The periodic postretirement health care benefit cost was as follows:

<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net periodic cost:
Service cost.......................................... $ 286 $ 300 $ 222
Interest cost on accumulated benefit obligation....... 1,288 1,249 1,621
------ ------ ------
Total......................................... $ 1,574 $ 1,549 $ 1,843
====== ====== ======
</TABLE>

A health care cost trend rate of 10% was assumed in measuring the
accumulated postretirement health care benefit obligation at August 3, 1996,
gradually declining to 5% by the year 2002. Measurement of the accumulated
postretirement health care benefit obligation was based on an assumed 7.5%
discount rate in 1996, 1995 and 1994. An increase of 1% in the health care cost
trend rate would increase the accumulated postretirement health care benefit
obligation as of August 3, 1996 by $2.2 million. The effect of this change on
the annual net periodic postretirement health care benefit cost would be an
increase of approximately $262,000.

11. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company's operations are conducted primarily in leased properties which
include retail stores, distribution centers and other facilities. Substantially
all leases are for periods of up to thirty years with renewal options at fixed
rentals, except that certain leases provide for additional rent based on
revenues in excess of predetermined levels.

Rent expense under operating leases was as follows:

<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Minimum rent.......................................... $ 28,600 $ 29,300 $29,200
Rent based on revenues................................ 9,100 8,400 10,700
------- ------- -------
Total rent expense.......................... $ 37,700 $ 37,700 $39,900
======= ======= =======
</TABLE>

Future minimum lease payments, excluding renewal options, under operating
leases are as follows: 1997 -- $30.8 million; 1998 -- $29.4 million;
1999 -- $28.5 million; 2000 -- $28.4 million; 2001 -- $27.8 million; all years
thereafter -- $520.6 million.

LITIGATION

The Company is involved in various suits and claims in the ordinary course
of business. Management does not believe that the disposition of any such suits
and claims will have a material adverse effect upon the results of operations or
the financial position of the Company.

LETTERS OF CREDIT

The Company had approximately $5.0 million of outstanding irrevocable
letters of credit relating to purchase commitments at August 3, 1996.

F-15
<PAGE> 61

THE NEIMAN MARCUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Company's financial instruments are as
reported and disclosed in the consolidated financial statements, and as
discussed below.

SECURITIZATION OF CREDIT CARD RECEIVABLES

In March 1995 the Company sold all of its Neiman Marcus credit card
receivables through a subsidiary to a trust in exchange for certificates
representing undivided interests in such receivables. Certificates representing
an undivided interest in $246.0 million of these receivables were sold to third
parties in a public offering of $225.0 million of 7.60% Class A certificates and
$21.0 million of 7.75% Class B certificates. The Company used the proceeds from
this offering to pay down existing debt. The Company's subsidiary will retain
the remaining undivided interest in the receivables not represented by the Class
A and Class B certificates. A portion of that interest is subordinated to the
Class A and Class B certificates. The Company will continue to service all
receivables for the trust.

In anticipation of the securitization, the Company entered into several
forward interest rate lock agreements. The agreements allowed the Company to
establish a weighted average effective rate of approximately 8.0% on the
certificates issued as part of the securitization. During March 1995, the
Company paid $5.4 million to settle all of its interest rate lock agreements.

INTEREST RATE SWAP

During September 1991, the Company entered into an interest rate swap
agreement having a notional principal amount of $50.0 million that effectively
fixed the interest rate on $50.0 million of the Company's variable rate debt at
8.94%. The amount to be paid or received is accrued as interest rates change and
is recognized over the life of the agreement. The interest rate swap matures in
September 1996. The fair value of the interest rate swap is the amount at which
it could be settled, based on estimates obtained from dealers. The estimated
unrealized pre-tax loss on the interest rate swap was approximately $0.7 million
at August 3, 1996, $1.5 million at July 29, 1995 and $2.8 million at July 30,
1994. This amount changes during the life of the swap as a function of maturity,
interest rates and the credit standing of the parties to the swap agreement. The
incremental pre-tax interest expense incurred due to the interest rate swap
agreement was $1.2 million in 1996, $1.0 million in 1995 and $2.3 million in
1994.

13. COMPANY PUBLIC OFFERING

On September 10, 1996, the Company authorized the filing of a Registration
Statement with the Securities and Exchange Commission for a public offering of
8,000,000 shares of the Company's Common Stock (excluding 1,200,000 shares
subject to an over-allotment option). The Company will purchase all of its
outstanding preferred stock from Harcourt General at a total purchase price of
approximately $416.4 million, representing 98% of the aggregate stated value of
the preferred stock, plus accrued and unpaid dividends on the preferred stock
through the date of the closing of the offering. The total purchase price will
be paid with $135.0 million in shares of the Company's Common Stock valued at
the public offering price and the remainder payable in cash. Such cash payment
will be funded with the net proceeds of the public offering, together with
borrowings under the Company's revolving credit agreement. After the
consummation of the above transactions, Harcourt General will continue to be the
majority shareholder of the Company.

In connection with the repurchase of the preferred stock, the Company will
incur a charge to earnings applicable to common shareholders comprised of two
components: (i) an amount representing the difference between the book value of
the preferred stock and the total purchase price, and (ii) an amount related to
the conversion of the 6% Preferred Stock that is exchanged with Harcourt General
for Common Stock, representing the fair value of shares to be issued to Harcourt
General in excess of the number of shares that would have been issued in
accordance with the conversion terms of the 6% Preferred Stock.

F-16
<PAGE> 62

THE NEIMAN MARCUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 3, 1996
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
(IN MILLIONS EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $ 489.9 $ 625.4 $ 474.1 $ 485.6 $2,075.0
====== ====== ====== ====== ========
Gross profit................................. $ 171.8 $ 186.5 $ 153.3 $ 147.1 $ 658.7
====== ====== ====== ====== ========
Net earnings................................. 25.0 22.8 18.8 10.8 77.4
Preferred dividends and accretion............ (7.3) (7.3) (7.3) (7.2) (29.1)
------ ------ ------ ------ --------
Net earnings applicable to common
shareholders............................... $ 17.7 $ 15.5 $ 11.5 $ 3.6 $ 48.3
====== ====== ====== ====== ========
Amounts per share applicable to common
shareholders:
Net earnings............................... $ .47 $ .41 $ .30 $ .09 $ 1.26
====== ====== ====== ====== ========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED JULY 29, 1995
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues..................................... $ 462.3 $ 589.5 $ 415.7 $ 420.7 $1,888.2
====== ====== ====== ====== ========
Gross profit................................. $ 165.0 $ 184.2 $ 135.3 $ 127.0 $ 611.5
====== ====== ====== ====== ========
Earnings from continuing operations.......... $ 21.6 $ 25.0 $ 11.1 $ 9.6 $ 67.3
Earnings (loss) from discontinued operations,
net........................................ (1.8) 1.5 (11.4) -- (11.7)
------ ------ ------ ------ --------
Net earnings (loss).......................... 19.8 26.5 (.3) 9.6 55.6
Preferred dividends and accretion............ (7.3) (7.3) (7.3) (7.2) (29.1)
------ ------ ------ ------ --------
Net earnings (loss) applicable to common
shareholders............................... $ 12.5 $ 19.2 ($ 7.6) $ 2.4 $ 26.5
====== ====== ====== ====== ========
Amounts per share applicable to common
shareholders:
Continuing operations...................... $ .38 $ .47 $ .10 $ .06 $ 1.01
Discontinued operations, net............... (.05) .04 (.30) -- (.31)
------ ------ ------ ------ --------
Net earnings (loss)........................ $ .33 $ .51 ($ .20) $ .06 $ .70
====== ====== ====== ====== ========
Dividends.................................. $ .05 $ .05 $ -- $ -- $ .10
====== ====== ====== ====== ========
</TABLE>

In the fourth quarter, the effect of adjusting the LIFO reserve for
inventories to actual amounts increased net earnings by $3.9 million in 1996 and
$10.9 million in 1995.

F-17
<PAGE> 63

"CREATIVE MARKETING"

[PHOTOS OF NEIMAN MARCUS CATALOGUES, NM EXPRESS CARDS, INCIRCLE CARDS, INCIRCLE
BROCHURE AND NEIMAN MARCUS CREDIT CARD BROCHURE]
<PAGE> 64

LOGO
<PAGE> 65

PROSPECTUS [ Neiman Marcus Logo]

8,000,000 Shares

The Neiman Marcus Group, Inc.

COMMON STOCK

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

OF THE 8,000,000 SHARES OF COMMON STOCK BEING OFFERED, 1,600,000 SHARES ARE
BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 6,400,000 SHARES ARE BEING OFFERED INITIALLY IN
THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS."
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. THE COMPANY'S COMMON STOCK IS LISTED ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "NMG." ON OCTOBER 10, 1996, THE REPORTED LAST
SALE PRICE OF THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE WAS
$35 1/2 PER SHARE.

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

SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

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

PRICE $35 A SHARE

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

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------ -------------- ------------
<S> <C> <C> <C>
Per Share....................... $35.00 $1.40 $33.60
Total(3)........................ $280,000,000 $11,200,000 $268,800,000

<FN>
- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.

(2) Before deducting expenses payable by the Company estimated at
$1,520,000.

</TABLE>

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

MORGAN STANLEY & CO.
International
GOLDMAN SACHS INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED

October 10, 1996