SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
x SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to
_______________
Commission file number 1-9838
NS GROUP, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-0985936
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Ninth and Lowell Streets, Newport, Kentucky 41072
(Address of principal executive offices)
Registrant's telephone number, including area code (606)
292-6809
Securities registered pursuant to Section 12(b) of the
Act:
Name of each exchange
Title of each class on which registered
Common Stock, no par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and
(2) has been subject to such filing requirements for
the past 90 days. YES X NO ___
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
[Cover page 1 of 2 pages]
Based on the closing sales price of December 1, 1995, as
reported in The Wall Street Journal, the aggregate market
value of the voting stock held by non-affiliates of the
registrant was approximately $22.0 million.
The number of shares outstanding of the registrant's
Common Stock, no par value, was 13,809,413 at December
1, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and III incorporate certain information by
reference from the Annual Report to Shareholders for
the fiscal year ended September 30, 1995 ("1995 Annual
Report To Shareholders"). Part III also incorporates
certain information by reference from the Company's
Proxy Statement dated December 27, 1995 for the Annual
Meeting of Shareholders on February 15, 1996.
[Cover page 2 of 2 pages]
PART I
ITEM 1. BUSINESS
General
The Company was incorporated in Kentucky in 1980
as Newport Steel Corporation for the purpose of
purchasing the operating assets of the Newport Steel
Works from Interlake, Inc. (Interlake). The Company
changed its name to NS Group, Inc. in 1987 and
transferred its tubular manufacturing operations to a
subsidiary renamed Newport Steel Corporation. As used
herein, the terms "Company" and "NS Group" refer to NS
Group, Inc. and its subsidiaries, unless otherwise
required by the context.
In October 1990, the Company, through a newly-
formed wholly-owned subsidiary, acquired certain assets
now comprising Koppel Steel Corporation ("Koppel"), a
steel mini-mill located in western Pennsylvania.
Koppel manufactures seamless tubular products, special
bar quality (SBQ) products and semi-finished steel
products. Koppel operates melting and casting
facilities and a bar mill in Koppel, Pennsylvania as
well as a seamless tube-making facility approximately
20 miles from Koppel in Ambridge, Pennsylvania.
Koppel's seamless tubular products are used in oil and
natural gas drilling and production operations and in
the transmission of oil, natural gas and other fluids.
SBQ products are primarily used by forgers and original
equipment manufacturers of heavy equipment and off-road
vehicles.
In October, 1993, the Company sold its wholly-
owned subsidiary, Kentucky Electric Steel Corporation,
to a newly formed public company in exchange for $45.6
million in cash and 400,000 shares (approximately 8%)
of the new public company, then valued at $4.8 million.
Kentucky Electric Steel Corporation was sold in order
to enhance the Company's financial flexibility.
Incorporated herein by reference from the 1995 Annual
Report to Shareholders is "Note 2: Sale of
Subsidiary", which contains additional information
pertaining to this transaction.
NS Group conducts business in two industry
segments.
Specialty Steel -- includes three wholly-owned
subsidiaries: Newport Steel Corporation (Newport), a
mini-mill manufacturer of welded tubular steel products
and hot rolled coils, located near Newport, Kentucky;
Erlanger Tubular Corporation (Erlanger), a tubular
steel finishing operation acquired in late fiscal 1986,
located near Tulsa, Oklahoma; and Koppel Steel
Corporation (Koppel), a mini-mill manufacturer of
seamless tubular steel products, special bar quality
products and semi-finished steel products, acquired in
October, 1990, located in western Pennsylvania.
Adhesives -- includes the wholly-owned
subsidiary, Imperial Adhesives, Inc. (Imperial), a
manufacturer of industrial adhesives products, located
in Cincinnati, Ohio.
Incorporated herein by reference from the 1995
Annual Report to Shareholders is "Note 13: Business
Segment Information", for additional information
pertaining to industry segment data.
Specialty Steel Segment
The Company's specialty steel products consist of:
(i) seamless and welded tubular goods primarily used in
oil and natural gas drilling and production operations
(oil country tubular goods, or OCTG); (ii) line pipe
used in the transmission of oil, natural gas and other
fluids; (iii) SBQ products primarily used in the
manufacture of heavy industrial equipment, trucks and
off-road vehicles; and (iv) hot rolled coils which are
sold to service centers and other manufacturers for
further processing. The Company manufactures these
specialty steel products at its two mini-mills, located
in Koppel, Pennsylvania and near Newport, Kentucky.
The term mini-mill connotes a smaller, relatively low-
cost mill that typically uses scrap steel as its basic
raw material and offers a relatively limited range of
products.
Products
Seamless OCTG Products. The Company's seamless
OCTG products are used as drill pipe, casing and
production tubing. Drill pipe is used and may be
reused to drill several wells. Casing forms the
structural wall of oil and natural gas wells to provide
support and prevent caving during drilling operations
and is generally not removed after it has been
installed in a well. Production tubing is placed
within the casing and is used to convey oil and natural
gas to the surface. The Company's seamless OCTG
products are sold as a finished threaded and coupled
product in both carbon and alloy grades. Compared to
similar welded products, seamless production tubing and
casing are better suited for use in hostile drilling
environments such as off-shore drilling or deeper wells
because of their greater strength and durability. The
production of seamless tubular products with these
properties requires a more costly and specialized
manufacturing process than does the production of
welded tubular products.
Welded OCTG Products. The Company's welded OCTG
products are used primarily as casing in oil and
natural gas wells during drilling operations. Welded
OCTG products are generally used when higher strength
is not required, typically in wells less than 10,000
feet in depth. The Company sells its welded OCTG
products as both a plain end and as a finished tubular
product in both carbon and alloy grades.
Line Pipe Products. The Company's line pipe
products are primarily used in gathering lines for the
transportation of oil and natural gas at the drilling
site and in transmission lines by both gas utility and
transmission companies. The Company's seamless and
welded line pipe products are shipped as a plain end
product and welded together on site. The majority of
the Company's line pipe sales are welded products.
Special Bar Quality Products. The Company
manufactures SBQ products in a specialized market niche
of products ranging in size from 2.875 to 6.0 inches.
The Company produces its SBQ products from continuous
cast blooms that enables substantial size reduction in
the bloom during processing and provides heavier
strength-to-weight ratios. These SBQ products are
primarily used in critical weight-bearing applications
such as suspension systems, gear blanks, drive axles
for tractors and off-road vehicles, heavy machinery
components and hydraulic and pneumatic cylinders.
Hot Rolled Coils. The Company produces commercial
quality grade hot rolled coils, from 28 to 50 inches in
width, between 0.125 and 0.500 inches in gauge, and in
15 ton coil weights. These products are sold to
service centers and to others for use in high-strength
applications.
Other Products. The Company's OCTG products are
inspected and tested to ensure that they meet API
specifications. Products that do not meet
specification are classified as secondary or limited
service products and are sold at substantially reduced
prices.
Finishing Facilities. The Company processes and
finishes a portion of its own welded and seamless
tubular products, and to a lesser extent, those of
other tubular producers, at Erlanger and at its Koppel-
owned facility in Baytown, Texas (Baytown). The
finishing processes at Erlanger include upsetting,
which is a forging process that thickens tube ends;
heat treating, which is a furnace operation designed to
strengthen the steel; straightening; coating for rust
prevention; and threading. Currently, Baytown is
capable of upsetting, coating and threading. After
finishing, products are either immediately reshipped to
customers or stored as inventory to enable the Company
to respond quickly to customer needs.
The demand for the Company's OCTG products is
cyclical in nature, being dependent on the number and
depth of oil and natural gas wells being drilled in the
United States. The level of drilling activity is
largely a function of the current prices of oil and
natural gas and the industry's future price
expectations. Demand for OCTG products is also
influenced by the levels of inventory held by
producers, distributors and end users. In addition,
the demand for OCTG products produced domestically is
also significantly impacted by the level of foreign
imports of OCTG products. The level of OCTG imports is
affected by: (i) the value of the U.S. dollar versus
other key currencies; (ii) overall world demand for
OCTG products; (iii) the production cost
competitiveness of domestic producers; (iv) trade
practices of, and government subsidies to, foreign
producers; and (v) the presence or absence of
governmentally imposed trade restrictions in the United
States. The demand for line pipe is only partially
dependent on oil and gas drilling activities. Line
pipe demand is also dependent on factors such as the
level of pipeline construction activity, line pipe
replacement requirements, new residential construction
and gas utility purchasing programs. The demand for
the Company's SBQ and hot rolled coil products is also
cyclical in nature and is sensitive to general economic
conditions. The demand for and the pricing of the
Company's SBQ and hot rolled coil products is also
affected by economic trends in areas such as commercial
and residential construction, automobile production and
industrial investment in new plants and facilities.
Markets and Distribution
The Company sells its specialty steel products to
its customers through an in-house sales force which is
supplemented by a number of independent sales
representatives. The primary end markets for the
Company's seamless tubular products has been the
southwest United States and certain foreign markets.
Nearly all of the Company's OCTG products are sold to
domestic distributors, some of whom subsequently sell
the Company's products into the international
marketplace. The Company has historically marketed its
welded tubular products in the east, central and
southwest regions of the United States, in areas where
shallow oil and gas drilling and exploration activity
utilize welded tubular products. The Company sells its
SBQ products to customers located generally within 400
miles of the Koppel facilities.
All of the Company's steel-making and finishing
facilities are located on or near major rivers or
waterways, enabling the Company to transport its
tubular products into the southwest by barge. The
Company ships substantially all of its seamless and
welded OCTG products destined for the southwest region
by barge.
Customers
The Company has approximately 300 specialty steel
product customers. The Company's OCTG and line pipe
products are used by major and independent oil and
natural gas exploration and production companies in
drilling and production applications in the United
States, Canada, Mexico and overseas. Line pipe
products are also used by gas utility and transmission
companies. The majority of the Company's OCTG and line
pipe products are sold to domestic distributors and
directly to end users. The Company sells its SBQ
products to service centers, cold finishers, forgers
and original equipment manufacturers, and primarily
sells its hot rolled coils to service centers and other
manufacturers for further processing. The Company has
long-standing relationships with many of its larger
customers; however, the Company believes that it is not
dependent on any customer and that it could, over time,
replace lost sales attributable to any one customer.
Competition
The markets for the Company's specialty steel
products are highly competitive and cyclical. The
Company's principal competitors in its primary markets
include integrated producers, mini-mills, welded
tubular product processing companies as well as foreign
steel producers. The Company believes that the
principal competitive factors affecting its business
are price, quality and customer service.
The Company competes with a number of domestic as
well as foreign producers in the welded tubular market,
which includes both OCTG and line pipe products. In
the seamless OCTG market, the Company competes
principally with one domestic producer as well as a
number of foreign producers. With respect to its SBQ
products, the Company competes with numerous other
domestic steel manufacturers.
Trade Cases. In response to the rising level of
foreign imports of OCTG products, on June 30, 1994, the
Company and six other U.S. steel companies filed
antidumping petitions against imports of OCTG products
from seven foreign nations (the Trade Cases). The
Trade Cases asked the United States government to take
action to offset injury to the domestic OCTG industry
from unfairly traded imports. The antidumping
petitions were filed against OCTG imports from
Argentina, Austria, Italy, Japan, Korea, Mexico and
Spain. The Company also joined in filing
countervailing duty cases charging subsidization of
OCTG imports from Austria and Italy. In July 1995,
following evaluation of determinations made by the
International Trade Administration of the United States
Department of Commerce, the International Trade
Commission (ITC) announced final affirmative
determinations, resulting in the collection of duties
by the Customs Service on imports of OCTG and drill
pipe products from Argentina, Japan and Mexico, and
OCTG products (other than drill pipe) from Italy and
Korea. No duties were imposed on OCTG and drill pipe
imports from Austria and Spain because the ITC issued
negative determinations. Several foreign OCTG
producers, as well as certain U.S. producers, have
appealed the determinations to international courts or
panels. The Company cannot predict the outcome or
timing of these appeals at this time.
Raw Materials and Supplies
The Company's major raw material is steel scrap,
which is generated principally from industrial,
automotive, demolition, railroad and other steel scrap
sources. Steel scrap is purchased by the Company
either through scrap brokers or directly in the open
market. The long-term demand for steel scrap and its
importance to the domestic steel industry may be
expected to increase as steel-makers continue to expand
steel scrap-based electric arc furnace and thin slab
casting capacities. For the foreseeable future,
however, the Company believes that supplies of steel
scrap will continue to be available in sufficient
quantities at competitive prices. In addition, a
number of technologies exist for the processing of iron
ore into forms which may be substituted for steel scrap
in electric arc furnace-based steel-making operations.
Such forms include direct-reduced iron, iron carbide
and hot-briquette iron. While such forms may not be
cost competitive with steel scrap at present, a
sustained increase in the price of steel scrap could
result in increased implementation of these alternative
technologies.
The Company's steel manufacturing facilities
consume large amounts of electricity. The Company
purchases its electricity from utilities near its
steel-making facilities pursuant to contracts that
expire in 1996 for Koppel and 2001 for Newport. The
contracts contain provisions that provide for lower
priced demand charges during off-peak hours and known
maximums in higher cost firm demand power. Also, the
Company receives discounted demand rates in return for
the utilities' right to periodically curtail service
during periods of peak demand. These curtailments are
generally limited to a few hours and historically have
had a negligible impact on the Company's operations.
The Company also consumes smaller quantities of
additives, alloys and flux which are purchased from a
number of suppliers.
Adhesives Segment
Imperial is a manufacturer of industrial adhesives
products. Imperial maintains over 1,000 active
formulas for the manufacture of water-borne, solvent-
borne, and hot-melt adhesives, which are used in
product assembly applications, including footwear, foam
bonding, marine and recreational vehicles, and consumer
packaging. Raw materials are available from multiple
sources and consist primarily of petrochemical-based
materials. Pricing generally follows trends in the
petrochemical markets.
Imperial produces adhesives products at
manufacturing plants located in Ohio, Tennessee and
Virginia. Imperial markets its adhesives products
throughout the United States and Caribbean basin
through an in-house sales force as well as numerous
independent sales representatives. Products are
distributed from three manufacturing sites and a number
of public warehouses across the United States and in
Puerto Rico.
Competition in the industrial adhesives products
market is highly-fragmented. The Company believes that
it competes in this market on the basis of price,
product performance and customer service. Imperial
competes with numerous small or comparably-sized
companies, as well as major adhesives producers.
Environmental Matters
The Company is subject to federal, state and local
environmental laws and regulations, including, among
others, the Resource Conservation and Recovery Act
(RCRA), the Clean Air Act, the 1990 Amendments to the
Clean Air Act (the 1990 Amendments), the Clean Water
Act and all regulations promulgated in connection
therewith, including, among others, those concerning
the discharge of contaminants as air emissions or waste
water effluents and the disposal of solid and/or
hazardous wastes such as electric arc furnace dust. As
such, the Company is from time to time involved in
administrative and judicial proceedings and
administrative inquiries related to environmental
matters.
As with other similar mills in the industry, the
Company's steel mini-mills produce dust which contains
lead, cadmium and chromium, and is classified as a
hazardous waste. The Company currently collects the
dust resulting from its electric arc furnace operations
through emission control systems and contracts with a
company for treatment and disposal of the dust at an
EPA-approved facility. The Company also has on its
property at Newport a permitted hazardous waste
disposal facility.
In March 1995, Koppel and the EPA signed a Consent
Order relating to an April 1990 RCRA facility
assessment (the Assessment) completed by the EPA and
the Pennsylvania Department of Environmental Resources.
The Assessment was performed in connection with a
permit application pertaining to a landfill that is
adjacent to the Koppel facilities. The Assessment
identified potential releases of hazardous constituents
at or adjacent to the Koppel facilities prior to the
Company's acquisition of the Koppel facilities. The
Consent Order establishes a schedule for investigating,
monitoring, testing and analyzing the potential
releases. Contamination documented as a result of the
investigation will require cleanup measures and certain
remediation has begun. Pursuant to various indemnity
provisions in agreements entered into at the time of
the Company s acquisition of the Koppel facilities,
certain parties have agreed to indemnify the Company
against various known and unknown environmental
matters. While such parties have not at this time
acknowledged full responsibility for potential costs
under the Consent Order, the Company believes that the
indemnity provisions provide for it to be fully
indemnified against all matters covered by the Consent
Order, including all associated costs, claims and
liabilities.
In two separate incidents occurring in fiscal 1993
and 1992, radioactive substances were accidentally
melted at Newport, resulting in the contamination of
the melt shop s electric arc furnace emission control
facility, or baghouse facility . The occurrences of
the accidental melting of radioactive materials have
not resulted in any notice of violations from federal
or state environmental regulatory agencies. The losses
and costs incurred in 1993, net of insurance claims,
resulted in an extraordinary charge of $1.1 million,
net of applicable income tax benefit of $0.7 million,
or an $.08 loss per share. The Company is
investigating and evaluating various issues concerning
storage, treatment and disposal of the radiation
contaminated baghouse dust; however a final
determination as to method of treatment and disposal,
cost and further regulatory requirements cannot be made
at this time. Depending on the ultimate timing and
method of treatment and disposal, which will require
appropriate federal and state regulatory approval, the
actual cost of disposal could substantially exceed
current estimates and the Company s insurance coverage.
The Company expects to recover and has recorded a $2.3
million receivable relating to insurance claims for the
recovery of disposal costs which will be filed with the
Company s insurance company at the time such disposal
costs are incurred. As of September 30, 1995, claims
recorded in connection with disposal costs exhaust
available insurance coverage. Based on current
knowledge, management believes the recorded gross
reserves of $4.4 million for disposal costs pertaining
to these incidents are adequate.
Subject to the uncertainties concerning the
Consent Order and the storage and disposal of the
radiation contaminated dust, the Company believes that
it is currently in compliance in all material respects
with all applicable environmental regulations.
Regulations under the 1990 Amendments to the Clean
Air Act that will pertain to the Company s operations
are currently not expected to be promulgated until 1997
or later. The Company cannot predict the level of
required capital expenditures or operating costs
resulting from future environmental regulations such as
those forthcoming as a result of the 1990 Amendments.
However, the Company believes that while the 1990
Amendments may require additional expenditures, such
expenditures will not have a material impact on the
Company s business or consolidated financial position
for the foreseeable future.
Capital expenditures for the next twelve months
relating to environmental control facilities are not
expected to be material, however, such expenditures
could be influenced by new or revised environmental
regulations and laws.
As of September 30, 1995, the Company had
environmental remediation reserves of $4.5 million, of
which $4.4 million pertain to accrued disposal costs
for radiation contaminated baghouse dust. As of
September 30, 1995, the possible range of estimated
losses related to the environmental contingency matters
discussed above in excess of those accrued by the
Company is $0 to $3.0 million; however, with respect to
the Consent Order, the Company cannot estimate the
possible range of losses should the Company ultimately
not be indemnified. Based upon its evaluation of
available information, management does not believe that
any of the environmental contingency matters discussed
above are likely, individually or in the aggregate, to
have a material adverse effect upon the Company s
consolidated financial position, results of operations
or cash flows. However, the Company cannot predict
with certainty that new information or developments
with respect to the Consent Order or its other
environmental contingency matters, individually or in
the aggregate, will not have a material adverse effect
on the Company's consolidated financial position,
results of operations or cash flows.
Employees
As of September 30, 1995, the Company had 1,728
employees, of whom 405 were salaried and 1,323 were
hourly. Substantially all of the Company's hourly
employees are represented by the United Steelworkers of
America under contracts expiring in 1997 for Erlanger;
1999 for Newport and Koppel; and 1998 for Imperial.
ITEM 2. PROPERTIES
The Company's principal operating properties are
listed in the table below. The Company believes its
facilities are adequate and suitable for its present
level of operations.
Location and Properties
Specialty Steel Segment:
Newport, Kentucky - The Company owns approximately 250
acres of real estate upon which are located a melt
shop, hot strip mill, two welded pipe mills, machine
and fabricating shops and storage and repair facilities
aggregating approximately 636,000 square feet, as well
as the Company's administrative offices.
Koppel, Pennsylvania - The Company owns approximately
227 acres of real estate upon which are located a melt
shop, bar mill, blooming mill, pickling facility,
machine and fabricating shops, storage and repair
facilities and administrative offices aggregating
approximately 900,000 square feet.
Ambridge, Pennsylvania - The Company owns approximately
45 acres of real estate upon which are located a
seamless tube making facility and seamless tube
finishing facilities aggregating approximately 659,000
square feet.
Tulsa, Oklahoma - The Company leases approximately 36
acres of real estate upon which are located a tubular
processing facility. The facility is located at the
Tulsa Port of Catoosa where barge facilities are in
close proximity. Located on this property are six
buildings aggregating approximately 119,000 square feet
which house the various finishing operations.
Baytown, Texas - The Company owns approximately 55
acres of real estate upon which is located a tubular
processing facility and barge facilities. Located on
the property are eight buildings aggregating
approximately 65,000 square feet which house the
various finishing operations.
Adhesives Segment:
Cincinnati, Ohio; Lynchburg, Virginia; Nashville,
Tennessee - The Company owns approximately seven acres
of property in Cincinnati, Ohio, and 1.5 acres of
property in Lynchburg, Virginia for use in its
adhesives operations. The Cincinnati properties
contain five buildings aggregating approximately
150,000 square feet and the Lynchburg property consists
of one 10,000 square foot building. The Company also
leases approximately 3.1 acres in Nashville, Tennessee
for use in its adhesives operations, including one
building aggregating approximately 60,000 square feet.
Other:
Newport, Kentucky - The Company owns approximately 37
acres of partially developed land near Newport,
Kentucky, acquired in fiscal 1989, which is held as
investment property and is listed for sale. The
Company also owns approximately 85 acres of additional
real estate which is currently not used in operations.
Information regarding encumbrances on the
Company's properties, included in Note 5 to the
Consolidated Financial Statements of the 1995 Annual
Report to Shareholders, is incorporated herein by
reference.
Capacity Utilization
The Company's capacity utilization for fiscal 1995 was
as follows:
Rated Capacity
Facility (in tons) Capacity
Utilization
Koppel facilities
Melt shop ............... 400,000 88.4%
Bar mill ................ 200,000 98.5%
Seamless tube mill ...... 200,000 69.0%
Newport facilities
Melt shop ............... 700,000 59.4%
Hot strip rolling mill .. 750,000 51.1%
Welded pipe mills ....... 580,000 55.8%
ITEM 3. LEGAL PROCEEDINGS
See "Environmental Matters" regarding the Consent
Order entered into by Koppel and the EPA.
The Company is subject to various claims, lawsuits
and administrative proceedings arising in the ordinary
course of business with respect to commercial, product
liability and other matters which seek remedies or
damages. Based upon its evaluation of available
information, management does not believe that any such
matters are likely, individually or in the aggregate,
to have a material adverse effect upon the Company's
consolidated financial position, results of operations
or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Incorporated herein by reference from the 1995
Annual Report to Shareholders, "Stock Market
Information" and "Stock Price" and Note 5 to the
Consolidated Financial Statements.
As of December 1, 1995, there were approximately
338 record holders of Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference from the 1995
Annual Report to Shareholders, "Consolidated Historical
Summary" and Note 2 to the Consolidated Financial
Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Incorporated herein by reference from the 1995
Annual Report to Shareholders, "Management's Discussion
and Analysis of Financial Condition and Results of
Operations".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference from the 1995
Annual Report to Shareholders, "Consolidated Statements
of Operations"; "Consolidated Balance Sheets";
"Consolidated Statements of Cash Flows"; Consolidated
Statements of Common Shareholders' Equity"; "Notes to
Consolidated Financial Statements"; "Report of
Management"; and "Report of Independent Public
Accountants".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
Incorporated herein by reference from the
Company's Proxy Statement dated December 27, 1995 for
the Annual Meeting of Shareholders on February 15,
1996, under the caption "Election of Directors -
Nominees for Election as Directors"; "Information
Regarding Meetings and Committees of the Board of
Directors - Committees of the Board"; "Executive
Compensation"; and "Compliance With Section of 16(a) of
the Exchange Act".
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the
Company's Proxy Statement dated December 27, 1995 for
the Annual Meeting of Shareholders on February 15,
1996, under the caption "Information Regarding Meetings
and Committees of the Board of Directors - Director
Compensation"; "Executive Compensation"; and
"Compensation Committee Interlocks and Insider
Participation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Incorporated herein by reference from the
Company's Proxy Statement dated December 27, 1995 for
the Annual Meeting of Shareholders on February 15,
1996, "Share Ownership of Certain Beneficial Owners and
Management".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Incorporated herein by reference from the
Company's Proxy Statement dated December 27, 1995 for
the Annual Meeting of Shareholders on February 15,
1996, under the caption "Compensation Committee
Interlocks and Insider Participation" and "Certain
Transactions".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements - The
following Consolidated Financial Statements
included in the 1995 Annual Report to Shareholders
for the fiscal year ended September 30, 1995, are
incorporated by reference in Item 8:
- Consolidated Statements of Operations
- Consolidated Balance Sheets
- Consolidated Statements of Cash Flows
- Consolidated Statements of Common Shareholders'
Equity
- Notes to Consolidated Financial Statements
- Report of Independent Public Accountants
(a) 2. Consolidated Financial Statement Schedule -
The following schedule is included herein:
- Report of Independent Public Accountants on
Financial Statement Schedule
- Schedule II - Valuation and Qualifying
Accounts
(a) 3. Exhibits
Reference is made to the Index to Exhibits, which is
incorporated herein by reference.
(b) Reports on Form 8-K
Current Report on Form 8-K dated September 29, 1995 and
filed October 10, 1995, reporting under Item 5 the
Company's earnings expectations for the fourth fiscal
quarter ending September 30, 1995; and under Item 7(c),
the Company's press release dated September 29, 1995.
Current Report on Form 8-K dated October 24, 1995 and
filed November 3, 1995, reporting under Item 5 the
Company's estimate for earnings for the fourth fiscal
quarter ending September 30, 1995; and under Item 7(c),
the Company's press release dated October 24, 1995.
Current Report on Form 8-K dated November 10, 1995 and
filed November 15, 1995, reporting under Item 5 the
Company's results for its fiscal year and fourth
quarter ending September 30, 1995; and under Item 7(c),
the Company's press release dated November 10, 1995
Current Report on Form 8-K dated December 4, 1995 and
filed December 7, 1995, reporting under Item 5 certain
management changes; and under Item 7(c), the Company's
press release dated December 5, 1995.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To NS Group, Inc.:
We have audited in accordance with generally
accepted auditing standards the consolidated financial
statements included in NS Group, Inc. and subsidiaries
annual report to shareholders incorporated by reference
in this Form 10-K, and have issued our report thereon
dated November 6, 1995. Our audit was made for the
purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in
Item 14(a) 2 is the responsibility of the Company's
management and is presented for purposes of complying
with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material
respects the financial data required to be set forth
therein in relation to the basic financial statements
taken as a whole.
Cincinnati, Ohio ARTHUR ANDERSEN LLP
November 6, 1995
SCHEDULE II
NS GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Reserves Deducted from
Assets in Balance Sheets
Allowance
for Allowance
Doubtful for Cash
Accounts(1) Discounts(1)
<TABLE>
<S> <C> <C>
BALANCE,
September 26, 1992.. $ 1,307 $ 208
Additions:
Charged to costs
and expenses.. 572 2,338
Deductions:
Net charges of nature
for which reserves
were created... (1,060) (2,293)
BALANCE,
September 25,
1993....... $ 819 $ 253
Additions:
Charged to
costs and
expenses.. 343 2,298
Deductions:
Sale of
subsidiary.. (305) -
Net charges
of nature
for which
reserves were
created... (220) (2,245)
BALANCE,
September 24,
1994....... $ 637 $ 306
Additions:
Charged to
costs and
expenses.. 586 4,005
Deductions:
Net charges of
nature for which
reserves were
created.... (202) (3,330)
BALANCE,
September 30,
1995....... $ 1,021 $ 981
</TABLE>
(1) Deducted from accounts receivable
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly
authorized.
NS GROUP, INC.
Date: December 15, 1995 By: /s/John R. Parker
John R. Parker,
Vice President,
Treasurer and Chief
Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints
Clifford R. Borland and John R. Parker, and each of
them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all
capacities to sign any and all amendments to this
Annual Report on Form 10-K and any other documents and
instruments incidental thereto, and to file the same,
with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to
do and perform each and every act and thing requisite
or necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents and/or any of them,
or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Date: December 15, 1995 By: /s/Clifford R.Borland
Clifford R. Borland,
Chief Executive
Officer and Director
Date: December 15, 1995 By: /s/Paul C. Borland
Paul C. Borland,
President and Chief
Operating Officer
Date: December 15, 1995 /s/John R. Parker
John R. Parker, Vice
President,
Treasurer and Chief
Financial Officer
(Principal Financial
Officer)
Date: December 15, 1995 /s/Thomas J. Depenbrock
Thomas J. Depenbrock
Vice President and
Corporate Controller
Date: December 15, 1995 /s/Ronald R. Noel
Ronald R. Noel,
Director
Date: December 15, 1995 /s/John B. Lally
John B. Lally,
Director
Date: December 15, 1995 /s/Patrick J. B. Donnelly
Patrick J. B. Donnelly,
Director
Date: December 15, 1995 /s/R. Glen Mayfield
R. Glen Mayfield,
Director
INDEX TO EXHIBITS
Number Description
3.1 Amended and Restated Articles of
Incorporation of Registrant, filed as Exhibit
3.1 to Amendment No. 1 to Registrants' Form
S-1 dated January 17, 1995, File No. 33-
56637, and incorporated herein by this
reference
3.2 Amended and restated By-Laws of Registrant,
dated December 4, 1995, filed herewith
Exhibits 4.1 through 4.22 were filed under their
respective Exhibit numbers to Registrant's Form 10-Q
for the quarterly period ended July 1, 1995, File No.
1-9838, and are incorporated herein by this reference
4.1 Indenture (including form of Senior Secured
Note) between the Company and The Huntington
National Bank, as trustee (the "Trustee")
4.2 Leasehold and Fee Mortgage, Assignment of
Rents and Leases and Security Agreement from
Newport to the Trustee (Kentucky)
4.3 Mortgage, Assignment of Rents and leases and
Security Agreement from Koppel to the Trustee
(Pennsylvania)
4.4 Deed of Trust, Assignment of Rents and Leases
and Security Agreement from Koppel to the
Trustee (Texas)
4.5 Leasehold Mortgage, Assignment of Rents and
Leases and Security Agreement from Erlanger
to the Trustee (Oklahoma)
4.6 Junior Leasehold and Fee Mortgage, Assignment
of Rents and Leases and Security Agreement
from Newport to the Company (Kentucky)
4.7 Junior Mortgage, Assignment of Rents and
Leases and Security Agreement from Koppel to
the Company (Pennsylvania)
4.8 Junior Deed of Trust, Assignment of Rents and
Leases and Security Agreement from Koppel to
the Company (Texas)
4.9 Junior Leasehold Mortgage, Assignment of
Rents and Leases and Security Agreement from
Erlanger to the Company (Oklahoma)
4.10 Subsidiary Security Agreement between Newport
and the Trustee
4.11 Subsidiary Security Agreement between Koppel
and the Trustee
4.12 Subsidiary Security Agreement between
Erlanger and the Trustee
4.13 ICN Security Agreement between Newport and
the Company
4.14 ICN Security Agreement between Koppel and the
Company
4.15 ICN Security Agreement between Erlanger and
the Company
4.16 Pledge and Security Agreement between the
Company and the Trustee
4.17 Subsidiary Guarantee
4.18 Intercreditor Agreement between the Trustee
and the Bank of New York Commercial
Corporation, as agent under the Credit
Facility
4.19 Agreement between the Trustee, Koppel and the
Commonwealth of Pennsylvania, Department of
Commerce
4.20 Subordination Agreement between the Trustee
and the City of Dayton, Kentucky
4.21 Revolving Credit, Guaranty and Security
Agreement among Bank of New York Commercial
Corporation, PNC Bank Ohio, N.A., Newport,
Koppel, Imperial, the Company, Erlanger,
Northern Kentucky Air, Inc. and Northern
Kentucky Management, Inc.
4.22 Warrant Agreement between the Company and The
Huntington National Bank, as warrant agent
10.1 Company's Amended Employee Incentive Stock
Option Plan, filed as Exhibit 10(a) to
Company's Form 10-K for the fiscal year ended
September 30, 1989, File No. 1-9838, and
incorporated herein by this reference
10.2 Company's Executive Bonus Plan, filed as
Schedule B to Exhibit 10.4 to Company's
Registration Statement on Form S-18, File No.
2-90643, and incorporated herein by this
reference
10.3 Company's Non-Qualified Stock Option and
Stock Appreciation Rights Plan of 1988, filed
as Exhibit 1 to Company's Proxy Statement
dated January 13, 1989, File No. 1-9838, and
incorporated herein by this reference
10.4 Rights Agreement dated as of November 17,
1988 between Company and Pittsburgh National
Bank, filed as Exhibit 1 to Company's Form 8-
K dated November 17, 1988, File No. 1-9838,
and incorporated herein by this reference,
and Appointment and Amendment Agreement dated
July 29, 1994 between Registrant and
Registrar and Transfer Company, filed as
Exhibit 10(d) to Company's Form 10-Q dated
May 29, 1994, File No. 1-9838, and
incorporated herein by this reference
10.5 Company's 1993 Incentive Stock Option Plan,
filed as Exhibit 1 to Company's Proxy
Statement dated December 22, 1992, File No.
1-9838, and incorporated herein by this
reference
10.6 Transfer Agreement, dated September 29, 1993,
filed on September 28, 1993 as Exhibit 10.2
to the Amendment No. 2 to the Registration
Statement on Form S-1 of Kentucky Electric
Steel, Inc., File No. 33-67140, and
incorporated herein by this reference
10.7 Tax Agreement, dated October 6, 1993, by and
among NS Group,Inc., Kentucky Electric Steel,
Inc. and NSub I, Inc. (formerly Kentucky
Electric Steel Corporation), filed as Exhibit
10(h) to Company's Form 10-K for the fiscal
year ended September 25, 1993, File No. 1-
9383, and incorporated herein by this
reference
10.8 Registration Rights Agreement dated October
6, 1993 among Kentucky Electric Steel, Inc.,
NS Group, Inc. and NSub I, Inc. (formerly
Kentucky Electric Steel Corporation), filed
as Exhibit 10(i) to Company's Form 10-K for
fiscal year ended September 25, 1993, File
No. 1-9383, and incorporated herein by this
reference
10.9 Form of 11% Subordinated Convertible
Debenture due 2005, filed as Exhibit 4.1 to
Company's Form 8-K dated October 18, 1990,
File No. 1-9838, and incorporated herein by
this reference
10.10 Form of Warrant dated October 4, 1990, filed
as Exhibit 4.2 to Company's Form 8-K dated
October 18, 1990, File No. 1-9838, and
incorporated herein by reference; and First
Amendment to Warrant dated September 26,
1992, filed as Exhibit 4(c) to Company's Form
10-K for the fiscal year ended September 26,
1992, File No. 1-9838, and incorporated
herein by this reference
13 1995 Annual Report to Shareholders (not
deemed "filed" except for portions which are
expressly incorporated by reference), filed
herewith
21 Subsidiaries of Registrant
23 Consent of Independent Public Accountants
24 Power of Attorney (contained on Signature
Page)
27 Financial Data Schedule
EXHIBIT 3.2
AMENDED ON DECEMBER 4, 1995,
BY THE BOARD OF DIRECTORS OF THE
COMPANY, AND IN FULL FORCE
AND EFFECT AS OF THIS 4TH
DAY OF DECEMBER, 1995
BY-LAWS
OF
NS GROUP, INC.
ARTICLE I. OFFICES
The principal office of the Corporation in the
Commonwealth of Kentucky shall be located in the City
of Newport, County of Campbell. The Corporation may
have such other offices, either within or without the
Commonwealth of Kentucky, as the Board of Directors
may designate or as the business of the corporation
may require from time to time.
ARTICLE II. SHAREHOLDERS
SECTION 1. Annual Meeting.
The annual meeting of the shareholders shall be held
not later than the last Thursday in the month of May
in each year, at 10:00 a.m., as determined by the
Board of Directors. The purpose of such meetings
shall be the election of Directors and the
transaction of such other business as may come before
the meeting. If the election of Directors shall not
be held an the date designated herein for any annual
meeting of the shareholders, or at any adjournment
thereof, the Board of Directors shall cause the
election to be held at a special meeting of the
shareholders as soon thereafter as is practicable.
SECTION 2. Special Meetings.
Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by
statute, may be called by the Chairman or President
or by the Board of Directors, and shall be called by
the Chairman or President if the holders of at least
fifty (50%) percent of all the votes entitled to be
cast on any issue proposed to be considered at the
proposed special meeting sign, date and deliver to
the Corporation's secretary one (1) or more written
demands for the meeting describing the purpose or
purposes for which it will be held.
SECTION 3. Place of Meeting.
The Board of Directors may designate any place,
either within or without the Commonwealth of Kentucky
unless otherwise prescribed by statute, as the place
of meeting for any annual meeting or for any special
meeting called by the Board of Directors. A waiver of
notice signed by all shareholders entitled to vote at
a meeting may designate any place, either within or
without the Commonwealth of Kentucky, unless
otherwise prescribed by statute, as the place for the
holding of such meeting. If no designation is made,
or if a special meeting be otherwise called, the
place of meeting shall be the principal office of the
Corporation in the Commonwealth of Kentucky.
SECTION 4. Notice of Meeting.
Written notice stating the place, day, and hour
of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called,
shall, unless otherwise prescribed by statute, be
delivered not less than ten (10) nor more than sixty
(60) days before the date of the meeting, either
personally or by mail, by or at the direction of the
Chairman or President or the Secretary, or the
persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed,
such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the
shareholder at his address as it appears on the stock
transfer books of the Corporation, with postage
thereon prepaid.
If an annual or a special shareholders', meeting
is adjourned to a different date, time, or place,
notice shall not be required to be given of the new
date, time, or place if the new date, time, or place
is announced at the meeting before adjournment. A
determination of shareholders entitled to notice of
or to vote at a shareholders' meeting shall be
effective for any adjournment of the meeting unless
the Board of Directors fixes a new record date, which
it shall do if the meeting is adjourned to a date more
than one hundred twenty (120) days after the date
fixed for the original meeting. If a new record date
for the adjourned meeting is or must be fixed
pursuant to the Kentucky Business Corporation Act,
notice of the adjourned meeting shall be given to
persons who are shareholders as of the new record
date.
SECTION 5. Closing of Transfer Books and Fixing of
Record.
For the purpose of determining shareholders entitled
to notice of or to vote at any meeting of shareholders
or any adjournment thereof, or shareholders entitled
to receive payment of any distribution, or in order
to make a determination of shareholders for any other
proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books
shall be closed for a stated period, but not to exceed
in any case seventy (70) days before the meeting or
action requiring a determination of shareholders. In
lieu of closing the stock transfer books, the Board
of Directors may fix in advance a date as the record
date for any such determination of shareholders, such
date in any case to be not more than seventy (70) days
prior to such determination. If the stock transfer
books are not closed and no record date is fixed for
the determination of shareholders entitled to notice
of or to vote at a meeting of shareholders, or
shareholders entitled to receive payment of a
distribution, the date on which notice of the meeting
is mailed or the date on which the resolution of the
Board of Directors declaring such distribution is
adopted, as the case may be, shall be the record date
for such determination of shareholders.
SECTION 6. Voting List.
The officer or agent having charge of the stock
transfer books for shares of the Corporation shall
make a complete list of the shareholders entitled to
vote at each meeting of shareholders or any
adjournment thereof, arranged in alphabetical order,
with the address of and the number of shares held by
each. Such list shall be produced and kept open at
the time and place of the meeting and shall be subject
to the inspection of any shareholder beginning five
(5) business days before the meeting for which the
list was prepared and continuing through the meeting.
SECTION 7. Quorum.
A majority of the outstanding shares of the
Corporation entitled to vote, represented in person
or by proxy, shall constitute a quorum at a meeting of
shareholders. If a quorum of shareholders is
present, the affirmative vote of a majority of the
shares represented at the meeting and entitled to
vote on the subject matter shall be the act of the
shareholders, unless the vote of a greater number is
required by the Kentucky Business Corporation Act or
by the Articles of Incorporation or these By-Laws.
If less than-a majority of the outstanding shares is
represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time
without further notice. The shareholders present at
a duly organized meeting may continue to transact
business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than
a quorum.
SECTION 8. Proxies.
At all meetings of shareholders, a shareholder may
vote in person or by proxy executed in writing by such
shareholder or by his duly authorized attorney in
fact. A telegram or cablegram appearing to have been
transmitted by the proper person or a photographic,
photostatic, telefaxed or equivalent reproduction of
a writing appointing a proxy shall be deemed a
sufficient, signed appointment form. Such
appointment of proxy shall be filed with the
Secretary of the Corporation before or at the time of
the meeting. No appointment of proxy shall be valid
after eleven (11) months from the date of its
execution, unless a longer period is expressly
provided for. An appointment of proxy shall be
revocable by the shareholder unless the appointment
form conspicuously states that is irrevocable and the
appointment is coupled with an interest. In the
latter case, the appointment of proxy shall be
revocable when the interest with which it is coupled
is extinguished and the Secretary of the Corporation
receives the written notice of revocation.
SECTION 9. Voting of Shares.
Subject to the provisions of Section 12 of this
Article II, each outstanding share of common stock
authorized by the Corporation's Articles of
Incorporation to have voting power, shall be entitled
to one vote upon each matter submitted to a vote at a
meeting of shareholders. The voting rights, if any,
of classes of shares other than voting common stocks
shall be as set forth in the Corporation's Articles
of Incorporation or by appropriate legal action of
the Board of Directors.
SECTION 10. Voting of Shares of Certain Holders.
Shares standing in the name of another
corporation may be voted by such officer, agent, or
proxy as the By-Laws of such corporation may
prescribe, or, in the absence of such provision, as
the Board of Directors of such corporation may
determine.
Shares held by an administrator, executor,
guardian, or conservator may be voted by him, either
in person or by proxy, without a transfer of such
shares into his name. Shares standing in the name of
a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote
shares held by him without a transfer of such shares
into his name.
Shares standing in the name of a receiver may be
voted by such receiver, and shares held by or under
the control of a receiver may be voted by such
receiver without the transfer thereto into his name
if authority so to do be contained in an appropriate
order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have
been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the
shares so transferred.
Shares of its own stock belonging to the
Corporation shall not be voted, directly or
indirectly, at any meeting, and shall not be counted
in determining the total number of outstanding shares
at any given time.
SECTION 11. Informal Action by Shareholders.
Unless otherwise provided by law, any action required
to be taken at a meeting of the shareholders, or any
other action which may be taken at a meeting of the
shareholders, may be taken without a meeting if a
consent in writing, setting forth the action so
taken, shall be signed by all of the shareholders
entitled to vote with respect to the subject matter
thereof and delivered to the Corporation.
SECTION 12. Cumulative Voting.
Unless otherwise provided by law, at each
election for Directors every shareholder entitled to
vote at such election shall have the right to vote, in
person or by proxy, the number of shares owned by him
for as many persons as there are Directors to be
elected and for whose election he has a right to vote,
or to cumulate his votes by giving one candidate as
many votes as the number of such Directors multiplied
by the number of his shares shall equal, or by
distributing such votes on the same principle among
any number of candidates.
SECTION 13. Notice of Shareholder Business at
Meetings.
At any meeting of shareholders, only such
business shall be conducted as shall have been
properly brought before the meeting. In addition to
any other requirements imposed by or pursuant to law,
the Articles or these By-Laws, each item of business
to be properly brought before a meeting must:
(a) be specified in the notice of meeting (or any
supplement thereto) given by or at the direction of
the Board of Directors or the persons calling the
meeting pursuant to these By-Laws;
(b) be otherwise properly brought before the
meeting by or at the direction of the Board of
Directors; or
(c) be otherwise properly brought before the
meeting by a shareholder.
For business to be brought properly before a meeting
by a shareholder, the shareholder must have given
timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at
the principal executive offices of the Corporation
not less than sixty (60) days nor more than ninety
(90) days prior to the meeting; provided, however,
that in the event less than seventy (70) days notice
or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the
shareholder to be timely must be so received not
later than the close of business on the tenth day
following the day on which such notice of the date of
the meeting was mailed or such public disclosure was
made. A shareholder's notice to the Secretary shall
set forth as to each matter he proposes to bring
before the meeting:
(a) a brief description of the business desired to
be brought before the meeting and the reasons for
conducting such business at the meeting;
(b) the name and address, as they appear on the
Corporation's books, of the shareholder(s) proposing
such business;
(c) the class and number of shares of the
Corporation which are beneficially owned by the
proposing shareholder(s); and
(d) any material interest of the proposing
shareholder(s) in such business.
Notwithstanding anything in these By-Laws to the
contrary, no business shall be conducted at a meeting
except in accordance with the procedures set forth in
this Section 13. The Chairman of a meeting shall, if
the facts warrant, determine and declare to the
meeting that business was not properly brought before
the meeting in accordance with the provisions of this
Section 13; if he should so determine, he shall so
declare to the meeting and any such business not
properly brought before the meeting shall not be
transacted. The Chairman of a meeting shall have
absolute authority to decide questions of compliance
with the foregoing procedures, and his ruling thereon
shall be final and conclusive.
ARTICLE III. BOARD OF DIRECTORS
SECTION 1. General Powers.
The business and affairs of the Corporation shall be
managed by its Board of Director.
SECTION 2. Number, Tenure.
The number of Directors of the Corporation shall be
fixed by resolution of the Board of Directors in
accordance with the Kentucky Business Corporation
Act and the Articles of Incorporation of the
Corporation. The Board of Directors is specifically
authorized to divide the Board into classes as
authorized by the laws of the Commonwealth of
Kentucky and the Articles of Incorporation of the
Corporation.
SECTION 3. Nomination of Directors.
To be qualified for election as a Director, persons
must be nominated in accordance with the following
procedure.
Nomination of persons for election to the Board of
Directors of the Corporation may be made at a meeting
of shareholders by or at the direction of the Board of
Directors or by any shareholder of the Corporation
entitled to vote for the election of Directors at the
meeting who complies with the procedures set forth in
this Section 3. In order for persons nominated to the
Board of Directors, other than those persons
nominated by or at the direction of the Board of
Directors, to be qualified to serve on the Board of
Directors, such nominations shall be made pursuant to
timely notice in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice
shall be delivered to or mailed and received by the
Secretary of the Corporation not less than sixty (60)
days nor more than ninety (90) days prior to the
meeting; provided, however, that in the event less
than seventy (70) days notice or prior public
disclosure of the date of the meeting is given or made
to shareholders, notice by the shareholder to be
timely must be so received not later than the close of
business on the tenth day following the day on which
such notice of the date of the meeting was mailed or
such public disclosure was made. Such shareholder's
notice shall set forth:
(a) as to each person whom the shareholder proposed
to nominate for election or re-election as a
Director;
(i) the name, age, business address and residence
address of such person;
(ii) the principal occupation or employment of such
person; (C) the class and number of shares of the
Corporation which are beneficially owned by such
person;
(iii) any other information relating to such person
that is required to be disclosed in solicitations of
proxies for election of Directors, or is otherwise
required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended
(including without limitation such person's written
consent to being named in the proxy statement as a
nominee and to serving as a Director if elected); and
(iv) if the shareholder(s) making the nomination is a
person, other than the Corporation or any of its
subsidiaries, who is the beneficial owner, directly
or indirectly, of ten percent (10%) or more of the
voting power of the outstanding voting took of the
Corporation, or is an affiliate of the Corporation
and at any time within the two-year period
immediately prior to the date in question was the
beneficial owner, directly or indirectly, of ten
percent (10%) or more of the voting power of the then
outstanding voting stock of the Corporation, details
of any relationship, agreement or understanding
between the shareholder(s) and the nominee; and
(v) as to the shareholder(s) making the nomina-tion;
(A) the name and address, as they appear on the
Corporation's books, of such share-holder(s); and
(B) the class and number of shares of the Corporation
which are beneficially owned by such shareholder(s).
At the request of the Board of Directors, any
person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary
of the Corporation that information required to be
set forth in a shareholder's notice of nomination
which pertains to the nominee. No person shall be
qualified for election as a Director of the
Corporation unless nominated in accordance with the
procedures set forth in this Section 3. The Chairman
of a meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not
made in accordance with the procedures prescribed by
the By-Laws, and if he should so determine, he shall
so declare to the meeting, and the defective
nomination shall be disregarded. The Chairman of a
meeting shall have absolute authority to decide
questions of compliance with the foregoing
procedures, and his ruling thereon shall be final and
conclusive.
SECTION 4. Regular Meetings.
A regular meeting of the Board of Directors shall be
held without other notice than this By-Law
immediately after, and at the same place as the
annual meeting of shareholders. The Board of
Directors may provide, by resolution, the time and
place for the holding of additional regular meetings
without other notice than such resolution.
SECTION 5. Special Meetings.
Special meetings of the Board of Directors may be
called by or at the request of the Chairman or
President or any two Directors. The person or
persons authorized to call special meetings of the
Board of Directors may fix the place for holding any
special meeting of the Board of Directors called by
them.
SECTION 6. Notice.
Notice of any special meeting shall be given at least
five (5) days previously thereto by written notice
delivered by person or sent by telefax, by mail or by
telegram to each Director at his business address.
If sent by telefax, such notice shall he deemed to be
delivered on the day it was transmitted. If mailed,
such notice shall be deemed to be delivered when
deposited in the United States mail so addressed,
with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered
when the telegram is delivered to the telegraph
company. Any Director may waive notice of any
meeting. The attendance of a Director at a meeting
shall constitute a waiver of notice of such meeting,
except when a Director attends a meeting for the
express purpose of objecting to the transaction of
any business because the meeting is not lawfully
called or convened.
SECTION 7. Quorum.
A majority of the number of Directors fixed by
Section 2 of this Article III shall constitute a
quorum for the transaction of business at any meeting
of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the
Directors present may adjourn the meeting from time
to time without further notice.
SECTION 8. Manner of Acting.
The act of the majority of the Directors present at a
meeting at which a quorum is present shall be the act
of the Board of Directors.
SECTION 9. Action Without a Meeting.
Any action that may be taken by the Board of Directors
at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so to be
taken, shall be signed before such action by all of
the Directors.
Members of the Board of Directors and its
committees may participate in meetings by means of
conference telephone or similar communications
equipment whereby all persons participating in the
meeting can hear each other, and such participation
shall constitute presence at the meeting.
SECTION 10. Vacancies.
Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the
remaining Directors though less than a quorum of the
Board of Directors, unless otherwise provided by law.
A Director elected to fill a vacancy shall be elected
for the unexpired term of his predecessor in office.
Any Directorship to be filled by reason of an
increase in the number of Directors may be filled by
election by the Board of Directors for a term of
office continuing only until the next election of
Directors by the shareholders.
SECTION 11. Compensation.
By resolution of the Board of Directors, each
Director may be paid his expenses, if any, of
attendance at each meeting of the Board of Directors
and may be paid a stated salary as Director or a fixed
sum for attendance at each meeting of the Board of
Directors or both. No such payment shall preclude
any Director from serving the Corporation in any
other capacity and receiving compensation therefor.
SECTION 12. Presumption of Assent.
A Director of the Corporation who is present at
a meeting of the Board of Directors at which action on
any corporate matter is taken shall be presumed to
have assented to the action taken unless his dissent
or abstention from the action taken shall be entered
in the minutes of the meeting or unless he shall file
his written dissent to such action with the person
acting as the presiding officer of the meeting before
the adjournment thereof or shall forward such dissent
by registered mail to the Secretary of the
Corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a
Director who voted in favor of such action.
SECTION 13. Committees.
The Board of Directors may, from time to time,
appoint certain members to act in the intervals
between meetings of the Board of Directors as a
committee and may delegate to such committee powers
and/or duties of the Board of Directors. In
particular, the Board of Directors may create from
its membership and define the powers and duties of an
Executive Committee of not less than two (2) members.
The Executive Committee, to the extent provided by
resolution of the Board of Directors and the Kentucky
Business Corporation Act, shall possess and may
exercise all the powers of the Board of Directors. In
every case, the affirmative vote of the majority or
written consent of all the members of the Executive
Committee shall be necessary for the approval of any
action, but action may be taken by the Executive
Committee without a formal meeting. The Executive
Committee shall meet at the call of any members
thereof and shall keep a written record of all
actions taken by it.
ARTICLE IV. OFFICERS
SECTION 1. Number.
The officers of the Corporation shall be a
Chairman, President, as many vice Presidents as the
Board of Directors deems appropriate, a Secretary and
a Treasurer, each of whom shall be elected by the
Board of Directors. Such other officers and
assistant officers, as may be deemed necessary, may
be elected or appointed by the Board of Directors. No
person shall be designated as an officer of the
Corporation nor be entitled to hold himself or
herself out to third parties as an officer of the
Corporation unless such person has been elected by
the Board of Directors to an office which, pursuant
to the By-Laws or a resolution of the Board of
Directors, is to be held only by an officer of the
Corporation.
SECTION 2. Election and Term of Office.
The officers of the Corporation to be elected by
the Board of Directors shall be elected annually by
the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of
the shareholders. If the election of officers shall
not be held at such meeting, such election shall be
held as soon thereafter as is practicable. Each
officer shall hold office until his successor shall
have been duly elected and shall have qualified or
until his death or until he shall resign or shall have
been removed in the manner hereinafter provided.
SECTION 3. Removal.
Any officer or agent may be removed by the Board
of Directors whenever, in its judgment, the best
interests of the Corporation will be served thereby,
but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall
not of itself create contract rights.
SECTION 4. Vacancies.
A vacancy in any office because of death,
resignation, removal, disqualification or otherwise
may be filled by the Board of Directors for the
unexpired portion of the term.
SECTION 5. Chairman of the Board of Directors
("Chairman").
The Chairman shall preside at all meetings of
the Shareholders and Board of Directors and shall
have responsibility for the preparation of all
minutes of Directors and Shareholders meetings.
Unless the Board of Directors determines otherwise,
he shall perform the duties of Chief Executive
Officer and, subject to the control of the Board of
Directors, shall generally supervise and control all
the business and affairs of the Corporation. He
shall, when present, preside at all meetings of the
shareholders and of the Board of Directors. He may
sign, with the Secretary or any other proper officer
of the Corporation thereunto authorized by the Board
of Directors, certificates for shares of the
Corporation, any deeds, mortgages, bonds, contracts
or other instruments which the Board of Directors has
authorized to be executed, except in cases where the
signing and execution thereof shall be expressly
delegated by the Board of Directors or by these
By-Laws to some other officer or agent of the
Corporation, or shall be required by law to be
otherwise signed or executed, and in general shall
perform all duties incident to the office of Chairman
and such other duties as may be prescribed by the
Board of Directors from time to time.
SECTION 6. President.
In the absence of the Chairman, or if no
Chairman is elected, or in the event of his death,
inability or refusal to act, the President shall
perform all the duties of the Chairman and, when so
acting, shall have all the powers and be subject to
all the restrictions placed upon the Chairman, except
that if the President is not also a Director, he shall
not preside at meetings of the shareholders and
Directors, nor be responsible for the preparation of
all minutes of such meetings unless specifically
directed to do so by the Board of Directors. Unless
the Board of Directors determines otherwise, he shall
perform, subject to the general supervision of the
Chairman, the duties of Chief Operating Officer,
including the general supervision and control of all
day-to-day business and affairs of the Corporation.
SECTION 7. Vice President.
Each Vice President shall perform such duties as,
from time to time, may be assigned to him by the
Chairman, the President, or by the Board of
Directors.
SECTION 8. Secretary.
The Secretary shall:
(a) keep the minutes of the proceedings of the
shareholders and of the Board of Directors in one or
more books provided for that purpose;
(b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as
required by law;
(c) be custodian of the corporate records and of the
seal of the Corporation and see that the seal of the
Corporation is affixed to all documents, the
execution of which on behalf of the Corporation under
its seal is duly authorized;
(d) keep a register of the post office address of
each shareholder which shall be furnished to the
Secretary by such shareholder;
(e) sign with the Chairman or President
certificates for shares of the Corporation, the
issuance of which shall have been authorized by
resolution of the Board of Directors;
(f) have general charge cm the stock transfer book
of the Corporation; and
(g) in general perform all duties incident to the
office of Secretary and such other duties as from
time to time may be assigned to him by the Chairman or
President or by the Board of Directors.
SECTION 9. Treasurer.
The Treasurer shall:
(a) have charge and custody of and be responsible
for all funds and securities of the Corporation;
(b) receive and give receipts for moneys due and
payable to the Corporation from any source whatsoever
and deposit all such moneys in the name of the
Corporation in such banks, trust companies or other
depositories as shall be selected in accordance with
the provisions of Article V of these By-Laws; and
(c) in general perform all of the duties incident to
the office of Treasurer and such other duties as from
time to time may be assigned to him by the Chairman or
President or by the Board of Directors.
If required by the Board of Directors, the
Treasurer shall give a bond for the faithful
discharge of his duties in such sum and with such
surety or sureties as the Board of Directors shall
determine.
SECTION 10. Assistant Treasurers and Assistant
Secretaries.
(a) The Assistant Treasurer, if that office be
created and filled, shall, if required by the Board
of Directors, give bond for the faithful discharge of
his duty in such sum and with such surety as the Board
of Directors shall determine;
(b) The Assistant Secretary, if that office be
created and filled, and if authorized by the Board of
Directors, may sign, with the Chairman or President
or Vice President, certificates for shares of the
Corporation; and
(c) The Assistant Treasurers and Assistant
Secretaries, in general, shall perform such
additional duties as shall be assigned to them by the
Treasurer or the Secretary, respectively, or by the
Chairman of the Board, the President or the Board of
Directors.
SECTION 11. Salaries.
The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer
shall be prevented from receiving such salary by
reason of the fact that he is also a Director of the
corporation.
SECTION 12. Chief Executive Officer ("C.E.O."),
Chief Operating Officer ("C.O.O."),
Chief Financial Officer ("C.F.O."),
Chief Accounting Officer ("C.A.O."),
and Chief Compliance Officer
("C.C.O.").
The duties of C.E.O., C.O.O., C.F.O., C.A.O., and
C.C.O. may be assigned at the discretion of the Board
of Directors to appropriate Officers of the
Corporation; however the terms C.E.O., C.O.O.,
C.F.O., C.A.O., and C.C.O. shall constitute a
description of duties and shall not constitute a
corporate office.
ARTICLE V. CONTRACT, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts.
The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any
contract or execute and deliver any instrument in the
name of and on behalf of the Corporation, and such
authority may be general or confined to specific
instances.
SECTION 2. Loans.
No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be
issued in its name unless authorized by a resolution
of the Board of Directors. Such authority may be
general or confined to specific instances.
SECTION 3. Checks, drafts, etc.
All checks, drafts or other orders for the
payment of money, notes or other evidence of
indebtedness issued in the name of the Corporation
shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall
from time to time be determined by resolution of the
Board of Directors.
SECTION 4. Deposits.
All funds of the Corporation not otherwise
employed shall be deposited from time to time to the
credit of the Corporation in such banks, trust
companies, or other depositaries as the Board of
Directors may select.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR
TRANSFER
SECTION 1. Certificates for Shares.
Certificates representing shares of the
Corporation shall be in such form as shall be
determined by the Board of Directors. Such
certificates shall be signed by the Chairman or
President and by the Secretary or by such other
officers authorized by law and by the Board of
Directors so to do, and sealed with the corporate
seal or its facsimile. All certificates for shares
shall be consecutively numbered or otherwise
identified, shall state, the name of the person to
whom the certificate is issued and shall identify the
class of shares and the designation of the series, if
any, the certificate represents. The signatures of
such officers upon such certificate may be facsimiles
if the certificate is manually signed on behalf of a
transfer agent or registrar for the Corporation. The
name and address of the person to whom the shares
represented thereby are issued with the number of
shares and date of issue, shall be entered on the
stock transfer books of the Corporation. All
certificates surrendered to the Corporation for
transfer shall be canceled, and no new certificate
shall be issued until the former certificate for a
like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or
mutilated certificate, a new one may be issued
therefor upon such terms and indemnity to the
Corporation as the Board of Directors may prescribe.
SECTION 2. Transfer of Shares.
Transfer of shares of the Corporation shall be
made only on the stock transfer books of the
Corporation by the holder of record thereof or by his
legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney
thereunto authorized by Power of Attorney duly
executed and filed with the Secretary of the
Corporation, and on surrender for cancellation of the
certificate for such shares. The person in whose
name shares stand on the books of the Corporation
shall be deemed by the Corporation to be the owner
thereof for all purposes.
SECTION 3. Shares without Certificates.
The Board of Directors may, in accordance with
the Kentucky Business Corporation Act, authorize the
issuance of some of all of the shares of any or all of
the Corporation's classes or series of stock without
certificates.
ARTICLE VII. INDEMNIFICATION OF DIRECTORS AND
OFFICERS
The Corporation shall, to the fullest extent
permitted by, and in accordance with the provisions
of, the Kentucky Business Corporation Act, indemnify
each director or officer of the Corporation against
expenses (including attorneys fees), judgments,
taxes, fines and amounts paid in settlement, incurred
by him in connection with, and shall advance expenses
(including attorneys' fees) incurred by him in
defending, any threatened, pending or completed
action, suit or proceeding (whether civil, criminal,
administrative, or investigative) to which he is, or
is threatened to be made, a party by reason of the
fact that he is or was a director or officer of the
Corporation, or is or was serving at the request of
the Corporation as a director, officer, partner,
employee or agent of another domestic or foreign
corporation, partnership, joint venture, trust or
other enterprise. After a determination that the
facts then known to those making such determination
would not reclude indemnification, and upon receipt
of a written affirmation by the person seeking
indemnification of his good faith belief that he has
met the applicable standard of conduct, under the
Kentucky Business Corporation Act, advancement of
expenses shall be made upon receipt of a written
undertaking, with such security, if any, as the Board
of Directors or shareholders may reasonably require,
by or on behalf of such person, to repay amounts
advanced if it shall ultimately be determined that he
is not entitled to be indemnified by the Corporation
as authorized herein.
The indemnification provided for by this
Article VII shall not be deemed exclusive of any
other rights to which directors or officers of the
Corporation may be entitled under any statute,
agreement, by-law or action of the Board of Directors
or shareholders of the Corporation, or otherwise, and
shall continue as to a person who has ceased to be a
director or officer of the corporation, and shall
inure to the benefit of the heirs, executors and
administrators of such a person.
The Corporation may purchase and maintain
insurance on behalf of any
person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer,
partner, employee, or agent of another domestic or
foreign corporation, partnership, joint venture,
trust or other enterprise, against any liability
asserted against him and incurred by him in such
capacity or arising out of his status as such,
whether or not the Corporation would have the power
or be obligated to indemnify him against such
liability under the provisions of this Article VII or
the Kentucky Business corporation Act.
ARTICLE VIII. INDEMNIFICATION OF EMPLOYEE BENEFIT
PLAN FIDUCIARIES
The Corporation shall indemnify each director,
officer, or employee of the Corporation who is, or is
threatened to be made, a party to any threatened,
pending or completed action, suit or proceeding,
whether civil, criminal, administrative or
investigative, including actions by or in the right
of the Corporation, by reason of the fact that such
director, officer or employee is or was serving at
the request of the Corporation as a "fiduciary" (as
defined by Section 3 (21) (A) of the Employee
Retirement Income Security Act of 1974 ("ERISA"))
with regard to any employee benefit plan adopted by
the Corporation, against expenses (including
attorneys' fees), claims, fines, judgments, taxes,
causes of action or liability and amounts paid in
settlement, actually and reasonably incurred by him
in connection with such action, or proceeding, unless
such expense, claim, fine, judgment, taxes, cause of
action, liability, or amount arose from his gross
negligence, fraud or willful breach of his fiduciary
responsibilities under ERISA, except, that with
respect to any action by or in the right of the
Corporation, indemnification shall be made only
against expenses (including attorneys' fees).
The Corporation shall advance all expenses
(including attorneys' fees) incurred by any
director, officer or employee in defending any such
civil, criminal, administrative or investigative
action, suit or proceeding pending the final
disposition of such action, suit or proceeding,
unless (a) the Board of Directors, by a majority vote
of a quorum consisting of directors who were not or
are not parties to the action, suit or proceeding
concerned or (b) the shareholders determine that
under the circumstances the person, by his conduct,
is not entitled to indemnification because of his
gross negligence, fraud or willful breach of his
fiduciary responsibilities under ERISA. Advancement
of expenses shall be made upon receipt of an
undertaking, with such security, if any, as the Board
of Directors or shareholders may reasonably require,
by or on behalf of the director, officer or employee
to repay such amounts unless it shall ultimately be
determined that he is entitled to be indemnified by
the Corporation as authorized herein.
To the extent that any director, officer or
employee has been successful on the merits or
otherwise in the defense of any action, suit or
proceeding, or in defense of any claim, issue or
matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith
and if he was advanced expenses by the Corporation,
his undertaking shall be cancelled by the
Corporation. If any action, suit or proceeding shall
terminate by judgment or order adverse to the
director, officer or employee, or settlement,
conviction or upon a plea of nolo contendere or its
equivalent, the Board of Directors, by a majority
vote of a quorum consisting of directors who were not
or are not parties to such action, suit or
proceeding, or the shareholders, shall (unless
ordered by a court to make indemnification) make a
determination whether indemnification of the
director, officer or employee is not proper in the
circumstances because he has been guilty of gross
negligence, fraud, or willful breach of his fiduciary
responsibilities under ERISA. If the Board of
Directors or shareholders shall determine that the
person is entitled to indemnification, then he shall
be indemnified against expenses (including
attorneys' fees), claims, fines, judgments, taxes,
causes of action or liability and amounts paid in
settlement, actually and reasonably incurred by him
in connection with such action, suit or proceeding
and, if he was advanced expenses by the Corporation,
his undertaking shall be cancelled. The termination
of any action or proceeding by adverse judgment or
order, conviction, settlement or plea of nolo
contendere or the equivalent, shall not, of itself,
create a presumption that the director, officer or
employee was guilty of gross negligence, fraud or
willful breach of his fiduciary responsibilities
under ERISA.
ARTICLE IX. FISCAL YEAR
The fiscal year of the Corporation shall be
determined by the Board of Directors.
ARTICLE X. DISTRIBUTION
The Board of Directors may from time to time
declare, and the Corporation may pay, distributions
on its outstanding shares in the manner and upon the
terms and conditions provided by law and its Articles
of Incorporation.
ARTICLE XI. CORPORATE SEAL
The Board of Directors shall provide a corporate
seal which shall be circular in form and shall have
inscribed thereon the name of the Corporation and the
state of incorporation and the words "Corporate
Seal."
ARTICLE XII. WAIVER OF NOTICE
Unless otherwise provided by law, whenever any
notice is required to be given to any shareholder or
Director of the Corporation under the provisions of
these By-Laws, or under the provisions of the
Articles of Incorporation or under the provisions of
the Kentucky Business Corporation Act, a waiver
thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the
time stated therein, shall be deemed equivalent to
the giving of such notice.
ARTICLE XIII. AMENDMENTS
The Board of Directors shall have the power and
authority to alter, amend or repeal these By-Laws and
to adopt new By-Laws, subject always to repeal or
change by a two-thirds majority vote of all the
shareholders entitled to vote thereon.
EXHIBIT 13
The following are the excerpted portions of the NS
Group, Inc. Annual Report to Shareholders for the
fiscal year ended September 30, 1995 which are
expressly incorporated by reference into Form 10-K.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company operates in two separate business segments:
specialty steel and industrial adhesives. Within the
specialty steel segment are the operations of Newport
Steel Corporation (Newport), a manufacturer of welded
tubular steel products and hot rolled coils; Koppel
Steel Corporation (Koppel), a manufacturer of seamless
tubular steel products, special bar quality (SBQ)
products and semi-finished steel products; and Erlanger
Tubular Corporation (Erlanger), a tubular steel product
finishing operation. The Company's specialty steel
products consist of: (i) seamless and welded tubular
goods primarily used in oil and natural gas drilling
and production operations, (oil country tubular goods,
or OCTG); (ii) line pipe used in the transmission of
oil, gas and other fluids; (iii) SBQ products primarily
used in the manufacture of heavy industrial equipment;
and (iv) hot rolled coils which are sold to service
centers and other manufacturers for further processing.
Within the adhesives segment are the operations of
Imperial Adhesives, Inc. (Imperial), a manufacturer of
industrial adhesives products. See Note 13 to the
Consolidated Financial Statements included herein for
selected financial information by business segment for
the fiscal years 1995, 1994 and 1993.
In October 1993, the Company sold Kentucky Electric
Steel Corporation (KES), a manufacturer of SBQ
products, to a newly formed public company in exchange
for $45.6 million in cash and 400,000 shares
(approximately 8%) of the newly formed public company.
Reference is made to Note 2 to the Consolidated
Financial Statements concerning the Company's sale of
KES and its pro forma effect on the Company's fiscal
1994 financial position and results of operations. The
impact of KES on the Companys operating results for
fiscal 1993 is reflected in the tables below and the
following discussion.
Recent Results
During the fiscal 1995 fourth quarter ending September
30, 1995, the Company experienced numerous unexpected
operational problems, principally at the Companys
welded tubular facilities at Newport. Newports melt
shop incurred an unusual number of unplanned outages
during the quarter related to equipment breakdowns,
lightning strikes and power curtailments due to weather
conditions. As a result, steel production volume was
significantly affected, limiting availability of steel
to Newports hot strip mill and pipe mills. The
excessive downtime throughout all of Newports
operations resulted in low operating efficiencies,
increased maintenance costs and lost sales
opportunities during the quarter. Also impacting the
quarter at Newport was a write-down of scrap inventory
resulting from year end physical inventory counts.
Shipments of Newports tubular products totaled 74,400
tons in the fourth quarter of fiscal 1995 compared to
78,700 tons in the third quarter of fiscal 1995 and
83,800 tons in the fourth quarter of fiscal 1994. For
the same periods, average selling prices for all of
Newports welded tubular products were $440, $457 and
$429 per ton, respectively.
The Company believes that the majority of the
operational issues were limited to the fourth quarter;
however, the Company expects certain additional costs
will be incurred in the first quarter of fiscal 1996.
The fiscal 1995 fourth quarter was also impacted by a
decline in shipments of SBQ products from the Companys
Koppel facilities, due to softening in market demand.
SBQ shipments totaled 33,800 tons in the fourth quarter
of fiscal 1995 compared to 45,100 tons in the third
quarter of fiscal 1995 and 36,000 tons in the fourth
quarter of fiscal 1994. For the same periods, average
selling prices for SBQ products were $503, $503, and
$441 per ton, respectively.
Primarily as a result of the above factors, the Company
recorded gross profit of $1.9 million on sales of $86.0
million for the fourth quarter, for a gross profit
margin of 2.2%. The Company incurred a loss before
extraordinary charge of $6.1 million, or a $.44 loss
per share for the quarter. Reference is made to Note
14 of the Consolidated Financial Statements for
information pertaining to quarterly financial data.
Results of Operations
The Company's net sales, cost of products sold and
operating results by industry segment for each of the
three fiscal years in the period ended September 30,
1995 are summarized below. Fiscal 1995 contains
fifty-three weeks and fiscal years 1994 and 1993
contain fifty-two weeks. As such, the increases and
decreases in operating results for the comparative
periods, as discussed below, were partially
attributable to the additional week of operations in
fiscal 1995.
<TABLE>
<S> <C> <C> <C>
(In thousands) 1995 1994 1993
Net sales
Specialty steel,
excluding KES $335,883 $270,441 $234,460
KES - - 90,547
Total specialty
steel segment 335,883 270,441 325,007
Adhesives segment 35,469 32,939 28,075
$371,352 $303,380 $353,082
Cost of products
sold
Specialty steel,
excluding KES $309,446 $252,880 $217,215
KES - - 71,468
Total specialty
steel segment $309,446 252,880 288,683
Adhesives segment 27,824 25,281 21,903
$337,270 $278,161 $310,586
Operating income
Specialty steel,
excluding KES $ 10,428 $ 2,909 $ 4,094
KES - - 9,285
Total specialty
steel segment 10,428 2,909 13,379
Adhesives segment 1,248 1,150 1,059
Corporate allocations
and income (3,870) (3,370) (2,766)
$ 7,806 $ 689 $ 11,672
</TABLE>
Sales data for the Company's specialty steel segment
for each of the three fiscal years in the period ended
September 30, 1995 were as follows:
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
Tons shipped
Welded tubular 322,900 277,600 308,000
Seamless tubular $116,600 92,300 76,900
SBQ, excluding
KES $169,000 147,900 102,500
Other 47,600 43,200 16,400
KES - - 244,400
656,100 561,000 748,200
Net sales ($000's)
Welded tubular $145,330 $117,214 $125,132
Seamless tubular 90,926 72,675 62,535
SBQ, excluding KES 82,954 64,858 40,561
Other 16,673 15,694 6,232
KES - - 90,547
$335,883 $270,441 $325,007
</TABLE>
Fiscal Year Ended September 30, 1995 Compared with
Fiscal Year Ended September 24, 1994
Net sales in fiscal 1995 increased $68.0 million, or
22.4%, from fiscal 1994, to $371.4 million. Specialty
steel net sales increased $65.4 million, or 24.2%, and
the adhesive segment net sales increased $2.5 million,
or 7.7%, from fiscal 1994. The overall increase in
specialty steel segment net sales was the result of
both higher average selling prices and increased
shipment levels as more fully discussed below.
Welded tubular net sales increased $28.1 million, or
24.0%, on a volume increase of 16.3%. The increase in
welded tubular net sales was partially attributable to
improved average selling prices for both welded OCTG
and line pipe products as well as an increase in
shipments. Fiscal 1995 average selling price for all
welded tubular products increased 6.6% over fiscal
1994. The Companys fiscal 1995 average selling price
for its welded tubular products was positively affected
by stronger pricing for hot rolled coils in the steel
industry in general.
Seamless tubular net sales increased $18.3 million, or
25.1%, on a volume increase of 26.3%. The increase in
seamless tubular net sales was partially attributable
to an increase in shipments, which resulted in part
from product line expansion in fiscal 1995 as well as
from the favorable final rulings in the Trade Cases
discussed below. Fiscal 1995 average selling price for
all seamless tubular products declined less than 1%
from fiscal 1994, due almost entirely to changes in
product mix, including the introduction of new seamless
OCTG products with lower average selling prices.
Fiscal 1995 average selling price for seamless OCTG
products decreased 1.9%, while seamless line pipe
average selling price increased 6.9% from fiscal 1994.
The demand for the Companys OCTG products is cyclical
in nature, being dependent on the number and depth of
oil and natural gas wells being drilled in the United
States. The level of drilling activity is largely a
function of the current prices of oil and natural gas
and the industrys future price expectations. Demand
for OCTG products is also influenced by the levels of
inventory held by producers, distributors and end
users. In addition, the demand for OCTG products
produced domestically is also significantly impacted by
the level of foreign imports of OCTG products. The
level of OCTG imports is affected by: (i) the value of
the U.S. dollar versus other key currencies; (ii)
overall world demand for OCTG products; (iii) the
production cost competitiveness of domestic producers;
(iv) trade practices of, and government subsidies to,
foreign producers; and (v) the presence or absence of
governmentally imposed trade restrictions in the United
States.
The average number of oil and natural gas drilling rigs
in operation in the United States (rig count) decreased
5.7% from 783 in fiscal 1994 to 738 in fiscal 1995. In
response to the rising level of foreign imports of OCTG
products, on June 30, 1994, the Company and six other
U.S. steel companies filed antidumping petitions
against imports of OCTG products from seven foreign
nations (the Trade Cases). The Trade Cases asked the
U.S. government to take action to offset injury to the
domestic OCTG industry from unfairly traded imports.
The antidumping petitions were filed against OCTG
imports from Argentina, Austria, Italy, Japan, Korea,
Mexico and Spain. The Company also joined in filing
countervailing duty cases charging subsidization of
OCTG imports from Austria and Italy. In July 1995,
following evaluation of determinations made by the
International Trade Administration of the United States
Department of Commerce, the International Trade
Commission (ITC) announced final affirmative
determinations, resulting in the collection of duties
by the Customs Service on imports of OCTG and drill
pipe products from Argentina, Japan and Mexico, and
OCTG products (other than drill pipe) from Italy and
Korea. No duties were imposed on OCTG and drill pipe
imports from Austria and Spain because the ITC issued
negative determinations. Several foreign OCTG
producers, as well as certain U.S. producers, have
appealed the determinations to international courts or
panels. The Company cannot predict the outcome or
timing of these appeals at this time.
SBQ product net sales increased $18.1 million, or
27.9%, on a volume increase of 14.3%. Fiscal 1995
average selling price for SBQ products increased 11.8%.
SBQ product volume and prices increased as a result of
stronger market demand in fiscal 1995 than in fiscal
1994. Selling prices were also favorably impacted in
fiscal 1995 as a result of the implementation of
surcharges to recover increases in certain raw material
costs. Other product shipments and sales for fiscal
1995 were primarily attributable to shipments of hot
rolled coils. The demand for the Companys SBQ and hot
rolled coil products is cyclical in nature and is
sensitive to general economic conditions. The demand
for and the pricing of the Companys SBQ and hot rolled
coil products is also affected by economic trends in
areas such as commercial and residential construction,
automobile production and industrial investment in new
plants and facilities.
The adhesives segment net sales increased $2.5 million,
or 7.7%, primarily as a result of improved pricing.
Gross profit for fiscal 1995 increased $8.9 million
from fiscal 1994 for a gross profit margin of 9.2%
compared to 8.3% in fiscal 1994. The specialty steel
segment accounted for nearly all of the increase in
gross profit and had a gross margin of 7.9% in fiscal
1995 versus 6.5% in fiscal 1994. The increase in
specialty steel segment gross profit and margin was a
result of improved operating efficiencies for the full
fiscal year comparative periods resulting from
increased production volume, as well as increases in
average selling prices, as discussed above.
The adhesives segment gross profit was unchanged from
fiscal 1994 and gross profit margin declined from 23.2%
in fiscal 1994 to 21.6% in fiscal 1995, primarily as a
result of higher raw material costs.
Selling and administrative expenses increased $1.7
million from fiscal 1994 but declined as a percentage
of sales from 8.1% in fiscal 1994 to 7.1% in fiscal
1995. The overall increase in selling and
administrative expenses was primarily attributable to
increased production and sales volumes as well as costs
incurred in connection with litigation settled in
fiscal 1995.
As a result of the above factors, operating income
increased $7.1 million, from $0.7 million in fiscal
1994 to $7.8 million in fiscal 1995. The specialty
steel segment earned an operating profit of $10.4
million for fiscal 1995 compared to $2.9 million for
fiscal 1994. The improvement in operating results from
the prior year was primarily due to an overall increase
in shipments as well as increased selling prices and
improved operating efficiencies resulting from
increased production volume. The Companys fiscal 1995
specialty steel segment operating results were
negatively impacted by a number of operational problems
experienced in the fourth fiscal quarter. See Recent
Results. The adhesives segment earned an operating
profit of $1.2 million, unchanged from fiscal 1994.
Interest expense increased $0.8 million over fiscal
1994 as a result of higher interest costs associated
with the Companys Senior Secured Notes issued in the
fourth quarter of fiscal 1995.
Other income, net increased $1.9 million over fiscal
1994, primarily due to the recording of property claims
filed with the Companys insurance carrier in connection
with a motor failure at Newport in the fiscal 1995
second quarter.
As a result of the above factors, the fiscal 1995 loss
before extraordinary item was $5.1 million, or a $.36
loss per share, compared to net income of $13.2 million
in fiscal 1994, or $.96 per share. Fiscal 1994 net
income includes a one-time, after-tax gain on the sale
of KES of $21.5 million, or $1.56 per share, and income
of $1.7 million, or $.12 per share, relating to the
adoption of a new accounting standard. Excluding these
items, the Company incurred a $10.0 million loss, or a
$.72 loss per share, for fiscal 1994.
In connection with a fiscal 1995 fourth quarter
refinancing, the Company incurred prepayment costs and
wrote off unamortized debt issuance costs, which
resulted in an extraordinary charge of $5.2 million,
net of applicable income tax benefit of $2.8 million,
or $.38 per share. See Note 5 to the Consolidated
Financial Statements.
Fiscal Year Ended September 24, 1994 Compared with
Fiscal Year Ended September 25, 1993
Fiscal 1994 specialty steel net sales, excluding KES,
increased $36.0 million, or 15.3% from fiscal 1993.
Total specialty steel net sales declined $54.6 million,
or 16.8% from fiscal 1993, primarily due to the sale of
KES, which had fiscal 1993 net sales of $90.5 million.
Welded tubular net sales declined $7.9 million, or 6.3%
on a volume decline of 9.9%. Fiscal 1994 welded
tubular net sales were negatively impacted by a decline
in second quarter shipments that resulted primarily
from customers' resistance to announced price
increases. Second quarter welded tubular net sales
declined $7.9 million on a volume decline of 29.8% from
the second quarter of fiscal 1993. The Company
adjusted its selling prices in response to the decline
and volume increased in the third quarter. Fiscal 1994
average selling prices for all welded tubular products
increased 3.9% from 1993.
Seamless tubular net sales increased $10.1 million, or
16.2% on a volume increase of 20.0%. The increase in
seamless tubular net sales resulted primarily from an
increase in shipments of seamless OCTG due in part to
Koppel's increased recognition in the marketplace.
Fiscal 1994 average selling prices for all seamless
tubular products declined 3.2% due in part to an
increased level of foreign imports of seamless OCTG in
fiscal 1994.
The average rig count increased 3.4%, from 757 for
fiscal 1993 to 783 for fiscal 1994. The effects of
this increase were offset by an increased level of
imported tubular products resulting in downward
pressure on tubular product prices for most of fiscal
1994.
SBQ product net sales, excluding KES, increased $24.3
million, or 59.9% on a volume increase of 44.3%. SBQ
product average selling prices increased 10.9% from
fiscal 1993. SBQ product volume and prices increased
as a result of stronger market demand over the prior
year, combined with Koppel's increased recognition in
the marketplace. The increase in net sales of "other"
products was primarily attributable to an increase in
shipments of hot rolled coils, which was a result of
stronger market demand for this product over the prior
year.
Adhesives segment net sales increased $4.9 million, or
17.3%. The increase in adhesives segment net sales
over the prior year was primarily the result of
expansion of product lines acquired in fiscal 1993.
Consolidated gross profit decreased $17.3 million from
fiscal 1993 for a gross profit margin of 8.3% compared
to 12.0% in fiscal 1993. The decline in gross profit
and margin was primarily due to the sale of KES. KES
had gross profit in fiscal 1993 of $19.1 million.
Gross profit for the specialty steel segment, excluding
KES, increased $0.3 million from fiscal 1993 for a
gross profit margin of 6.5% compared to 7.4% in fiscal
1993. The decline in gross profit margin was partially
attributable to a 20.6% increase in the Company's
average steel scrap costs over fiscal 1993. The Company
recovered a portion of the increase through higher
selling prices for its SBQ products and hot rolled
coils; however, it was generally unsuccessful in
passing the increases in scrap costs through to tubular
product customers. Newport and Erlanger's gross profit
declined $5.3 million primarily as a result of
increased steel scrap costs and the decline in welded
tubular shipments as previously discussed as well as
increased maintenance costs due to severe winter
weather in the second fiscal quarter. Koppel's gross
profit increased $5.4 million which was primarily
attributable to improved operating efficiencies due to
greater production and sales volume of SBQ and seamless
tubular products, as previously discussed. These
improvements were partially offset by increased steel
scrap costs, lower seamless tubular average selling
prices and the effects of severe winter weather
conditions in the second fiscal quarter.
The adhesives segment gross profit increased $1.5
million from fiscal 1993 for a gross profit margin of
23.2%, compared to 22.0% in fiscal 1993. The increase
in gross profit and margin was primarily due to
increased volume and improved selling prices.
Selling and administrative expenses declined primarily
as a result of the sale of KES and declined as a
percentage of net sales from 8.7% in fiscal 1993 to
8.1% in fiscal 1994.
As a result of the above factors, total specialty steel
segment operating income declined $11.0 million,
primarily due to the sale of KES, which had fiscal 1993
operating income of $9.3 million. The specialty steel
segment, excluding KES, earned an operating profit of
$2.9 million in fiscal 1994 compared to $4.1 million in
fiscal 1993. Of the $2.9 million specialty steel
operating profit, Newport and Erlanger incurred a $6.1
million operating loss, compared to a $0.8 million loss
in fiscal 1993; and Koppel earned a $9.0 million
operating profit, compared to a $4.8 million operating
profit in fiscal 1993. The adhesives segment earned an
operating profit of $1.2 million, virtually unchanged
from fiscal 1993.
Interest income increased $1.5 million primarily due to
an increase in average cash and short-term investment
balances that resulted primarily from the sale of KES.
Interest expense decreased $1.1 million, primarily as a
result of a decrease in long-term debt obligations,
partially offset by an increase in the average
borrowings and interest rates under the Company's lines
of credit. Other income increased $1.3 million
primarily due to income on the sale of equipment.
The sale of KES in the first quarter of fiscal 1994
resulted in a pre-tax gain of $35.3 million and
increased net income and earnings per common share by
$21.5 million and $1.56, respectively. See Note 2 to
the Consolidated Financial Statements included herein.
As a result of the above factors, income before
extraordinary item and cumulative effect of a change in
accounting principle was $11.5 million, or $.84 per
share, for fiscal 1994, compared to a loss of $5.9
million, or a $.44 loss per share, for fiscal 1993.
Excluding the effect of the after-tax gain on the sale
of KES, the Company incurred a $10.0 million loss
before cumulative effect of a change in accounting
principle, or a $.72 loss per share, for fiscal 1994.
The increase in the fiscal 1994 loss over fiscal 1993
was primarily attributable to the decline in sales in
second quarter as well as the absence of operating
earnings from KES in fiscal 1994, as discussed above.
See Liquidity and Capital Resources - Other Matters -
Environmental Matters for a discussion of the fiscal
1993 extraordinary charge.
In the first quarter of fiscal 1994, the Company
recorded an increase to net income of $1.7 million, or
$.12 per share, for the cumulative effect of the
adoption of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (Statement 109).
The adoption of Statement 109 had no impact on cash
flow for fiscal 1994. A valuation allowance has not
been recorded against deferred tax assets as it is
estimated that such deferred tax assets will be
realized through a reduction of taxes otherwise payable
upon the reversal of existing taxable temporary
differences. See Note 11 to the Consolidated Financial
Statements included herein.
During the first quarter of fiscal 1994, the Company
also adopted the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (Statement
115). Statement 115 requires the Company to mark
certain of its investments to market either through the
income statement or directly to common shareholders'
equity, depending on the nature of the investment. The
impact on the Company's financial statements from the
adoption of Statement 115 was not material.
Liquidity and Capital Resources
In July 1995, the Company completed a public offering
(Offering) for the sale of $131.1 million principal
amount of 13.5% Senior Secured Notes due 2003 (Notes)
together with warrants (Warrants) to purchase
approximately 1.5 million shares of the Companys common
stock at $4.00 per share. The Notes, together with the
Warrants, were priced at 95.35%. Interest on the Notes
is payable semi-annually. The Warrants are exercisable
beginning in January 1996 and, unless exercised, will
automatically expire in July 2003. Proceeds from the
sale of the Notes and Warrants of approximately $120.8
million, after underwriting discount and before
expenses, together with available cash on hand, were
used to retire a substantial portion of the Companys
outstanding indebtedness, including borrowings under
its lines of credit.
The Notes are guaranteed in full by each subsidiary of
NS Group, Inc. and are secured by the property, plant
and equipment of the Companys steel-making operations.
The Indenture relating to the Notes contains a number
of restrictive covenants including, among other things,
limitations on the ability of the Company to incur
additional indebtedness; create liens; make certain
restricted payments, including dividends; engage in
certain transactions with affiliates; engage in sale
and leaseback transactions; dispose of assets; issue or
sell stock of its subsidiaries; enter into agreements
that restrict the ability of its subsidiaries to pay
dividends and make distributions; engage in mergers,
consolidations and transfers of substantially all of
the Companys assets; and make certain investments,
loans and advances.
Contemporaneously with the Offering, the Company
entered into a new $45.0 million revolving credit
facility (Credit Facility) and terminated its previous
revolving credit agreements. Borrowings are secured by
inventory and accounts receivable and interest accrues
at a rate per annum of (a) the sum of the alternate
base rate (which is the higher of prime rate or 0.5%
over the federal funds rate) plus 1% with respect to
domestic rate loans or (b) the sum of the Eurodollar
rate (based on LIBOR) plus 2.75% with respect to
Eurodollar rate loans. Borrowings are due on demand
and are limited to defined percentages of eligible
inventory and accounts receivable. The Credit Facility
contains financial covenants including maintenance of
minimum net worth, minimum interest coverage ratios,
maximum ratios of indebtedness to net worth, and
minimum current ratio and working capital requirements.
The Credit Facility also includes restrictions upon
dividends, investments, capital expenditures,
indebtedness and the sale of certain assets. At
September 30, 1995, approximately $5.0 million of the
Credit Facility was utilized to collateralize various
letters of credit and $40.0 million was available for
borrowing. The Credit Facility expires in fiscal 1998.
The Companys annual long-term debt maturities are $1.9
million in fiscal 1996, $2.5 million in fiscal 1997,
$3.6 million in fiscal 1998, $2.3 million in fiscal
1999 and $0.7 million in fiscal 2000.
Reference is made to Note 5 to the Consolidated
Financial Statements for further information concerning
the Companys long-term debt and Credit Facility.
Pursuant to the Companys debt agreements, it is
currently prohibited from paying dividends to its
shareholders.
Working capital at September 30, 1995 was $65.9 million
compared to $45.2 million at September 24, 1994. The
current ratio at September 30, 1995 was 2.15 to 1
compared to 1.50 to 1 at September 24, 1994. At
September 30, 1995, the Company had cash and short-term
investments totaling $11.3 million, $2.8 million of
which was restricted in an environmental trust account
related to a permitted hazardous waste disposal
facility located on the Companys property at Newport.
The increase in working capital and the current ratio
was due in large part to the repayment of its lines of
credit with proceeds from the Offering.
Net cash flow used in operating activities totaled $4.2
million in fiscal 1995. The Company incurred a loss
before extraordinary charge in fiscal 1995 of $5.1
million compared to a net loss before the effect of the
gain on the sale of KES and a change in accounting
principle of $10.0 million in fiscal 1994. Major uses
of cash in operating activities for fiscal 1995
included a $3.2 million increase in trade accounts
receivable and a $12.4 million increase in inventories
resulting from an increase in business activity and,
for the increase in inventories, unusually low levels
at fiscal 1994 year end due to scheduled maintenance at
Newport. Other major uses include a decrease in
long-term deferred taxes and an increase in refundable
income taxes, both resulting from the fiscal 1995 net
loss, including the extraordinary charge for prepayment
costs and a non-cash cost for the write-off of
unamortized debt issuance costs. Offsetting these uses
were $21.3 million in non-cash depreciation and
amortization charges and increases in accounts payable
and accrued liabilities of $5.6 million and $2.9
million, respectively.
Net cash flow used in operating activities totaled $4.3
million in fiscal 1994. Major components include a
$10.0 million net loss before the effect of the gain on
the sale of KES and the adoption of Statement 109, a
$7.9 million increase in accounts receivable, a $1.2
million decrease in long-term deferred taxes and a $3.2
million increase in inventories. Partially offsetting
these uses of operating cash flow were non-cash
depreciation and amortization charges of $18.8 million,
a decrease in refundable income taxes and other current
assets of $2.6 million and $2.7 million, respectively,
and an increase in accounts payable of $5.8 million.
The increases in accounts receivable, inventories and
accounts payable were primarily attributable to the
increase in business activity in the specialty steel
segment. Other current assets decreased primarily due
to the receipt of insurance claims recorded in fiscal
1993. Cash flows from operating activities were also
reduced by $4.9 million for income taxes paid, which
resulted from the sale of KES.
Net cash flows from operating activities were $2.4
million in fiscal 1993. Major uses of cash in
operating activities in fiscal 1993 included a net loss
of $7.0 million, an increase in accounts receivable of
$11.5 million, resulting primarily from an increase in
business activity in the specialty steel segment, and
an increase in other current assets of $7.2 million,
resulting primarily from the recording of insurance
claims. Increases in operating cash flows resulted
from increases in accounts payable and accrued
liabilities of $1.0 million and $6.8 million,
respectively, which were primarily attributable to the
increase in business activity in the specialty steel
segment and the recording of environmental remediation
liabilities.
The Company incurred $13.7 million, $11.8 million and
$6.1 million in capital expenditures during fiscal
1995, 1994 and 1993, respectively. Such capital
expenditures were primarily related to improvements to
and acquisitions of machinery and equipment in the
specialty steel segment. Included in total capital
spending for fiscal 1995, 1994 and 1993 was $0.2
million, $0.8 million and $0.3 million, respectively,
related to the Companys environmental control
facilities. The Company currently estimates that
fiscal 1996 capital spending will approximate fiscal
1995 spending. It is anticipated that capital spending
will be funded through cash flow from operations and
available borrowing sources as well as available cash
and short-term investments. Short-term investments
decreased $33.7 million in fiscal 1995, due in large
part to operating losses, an increase in net working
capital, as well as approximately $10.7 million used in
connection with the fiscal 1995 fourth quarter
refinancing.
As a result of the sale of KES in the first quarter of
fiscal 1994, the Company received $45.6 million in cash
and $4.8 million in common stock of the new entity. In
addition, the Company received $6.8 million in cash
from the new entity in satisfaction of a dividend
declared by KES prior to the sale. The Company intends
to hold as an available-for-sale investment the common
stock acquired in the sale of KES. As of September 30,
1995 and September 24, 1994, such common stock was
recorded at $3.6 million and $4.6 million,
respectively, and resulted in a direct after-tax charge
to common shareholders equity of $0.6 million in fiscal
1995.
Net cash flow used by financing activities in fiscal
1995 of $17.6 million includes the net effect of the
fiscal 1995 fourth quarter refinancing, including $6.3
million in debt issuance costs, as well as $14.2
million in scheduled payments on long-term debt
obligations made prior to the refinancing.
Net cash flows used by financing activities were $4.4
million in fiscal 1994. During fiscal 1994, the
Company made payments on long-term debt obligations of
$7.2 million and increased its borrowings under its
lines of credit by $1.9 million.
Cash flows from financing activities in fiscal 1993
included net repayments on long-term debt obligations
of $7.9 million and increased borrowings under the
Companys lines of credit of $6.3 million.
Earnings before interest, taxes, depreciation and
amortization (EBITDA) was $31.1 million for fiscal
1995, $21.6 million for fiscal 1994 (excluding the gain
on the sale of KES) and $30.4 million for fiscal 1993.
EBITDA is calculated as income before extraordinary
items and the cumulative effect of a change in
accounting principle plus interest expense, taxes,
depreciation and amortization.
The Company believes that its current available cash
and short-term investments, its cash flow from
operations and borrowing sources will be sufficient to
meet its anticipated operating cash requirements,
including capital expenditures, for at least the next
twelve months.
Inflation
The Company believes that inflation has not had a
material effect on its results of operations to date.
Generally, the Company experiences inflationary
increases in its costs of raw materials, energy,
supplies, salaries and benefits and selling and
administrative expenses. Except with respect to
significant increases in steel scrap prices as
discussed herein, the Company has generally been able
to pass these inflationary increases through to its
customers.
Other Matters
Legal Matters
The Company is subject to various claims, lawsuits and
administrative proceedings arising in the ordinary
course of business with respect to commercial, product
liability and other matters, which seek remedies or
damages. Based upon its evaluation of available
information, management does not believe that any such
matters are likely, individually or in the aggregate,
to have a material adverse effect upon the Company's
consolidated financial position, results of operations
or cash flows.
Environmental Matters
The Company is subject to federal, state and local
environmental laws and regulations, including, among
others, the Resource Conservation and Recovery Act
(RCRA), the Clean Air Act, the 1990 Amendments to the
Clean Air Act (the 1990 Amendments), the Clean Water
Act and all regulations promulgated in connection
therewith, including, among others, those concerning
the discharge of contaminants as air emissions or waste
water effluents and the disposal of solid and/or
hazardous wastes such as electric arc furnace dust. As
such, the Company is from time to time involved in
administrative and judicial proceedings and
administrative inquiries related to environmental
matters.
As with other similar mills in the industry, the
Company's steel mini-mills produce dust which contains
lead, cadmium and chromium, and is classified as a
hazardous waste. The Company currently collects the
dust resulting from its electric arc furnace operations
through emission control systems and contracts with a
company for treatment and disposal of the dust at an
EPA-approved facility. The Company also has on its
property at Newport a permitted hazardous waste
disposal facility.
In March 1995, Koppel and the EPA signed a Consent
Order relating to an April 1990 RCRA facility
assessment (the Assessment) completed by the EPA and
the Pennsylvania Department of Environmental Resources.
The Assessment was performed in connection with a
permit application pertaining to a landfill that is
adjacent to the Koppel facilities. The Assessment
identified potential releases of hazardous constituents
at or adjacent to the Koppel facilities prior to the
Companys acquisition of the Koppel facilities. The
Consent Order establishes a schedule for investigating,
monitoring, testing and analyzing the potential
releases. Contamination documented as a result of the
investigation will require cleanup measures and certain
remediation has begun. Pursuant to various indemnity
provisions in agreements entered into at the time of
the Companys acquisition of the Koppel facilities,
certain parties have agreed to indemnify the Company
against various known and unknown environmental
matters. While such parties have not at this time
acknowledged full responsibility for potential costs
under the Consent Order, the Company believes that the
indemnity provisions provide for it to be fully
indemnified against all matters covered by the Consent
Order, including all associated costs, claims and
liabilities.
In two separate incidents occurring in fiscal 1993 and
1992, radioactive substances were accidentally melted
at Newport, resulting in the contamination of the melt
shops electric arc furnace emission control facility,
or baghouse facility. The occurrences of the
accidental melting of radioactive materials have not
resulted in any notice of violations from federal or
state environmental regulatory agencies. The losses
and costs incurred in 1993, net of insurance claims,
resulted in an extraordinary charge of $1.1 million,
net of applicable income tax benefit of $0.7 million,
or an $.08 loss per share. The Company is
investigating and evaluating various issues concerning
storage, treatment and disposal of the radiation
contaminated baghouse dust; however a final
determination as to method of treatment and disposal,
cost and further regulatory requirements cannot be made
at this time. Depending on the ultimate timing and
method of treatment and disposal, which will require
appropriate federal and state regulatory approval, the
actual cost of disposal could substantially exceed
current estimates and the Companys insurance coverage.
The Company expects to recover and has recorded a $2.3
million receivable relating to insurance claims for the
recovery of disposal costs which will be filed with the
Companys insurance company at the time such disposal
costs are incurred. As of September 30, 1995, claims
recorded in connection with disposal costs exhaust
available insurance coverage. Based on current
knowledge, management believes the recorded gross
reserves of $4.4 million for disposal costs pertaining
to these incidents are adequate.
Subject to the uncertainties concerning the Consent
Order and the storage and disposal of the radiation
contaminated dust, the Company believes that it is
currently in compliance with all known material and
applicable environmental regulations.
Regulations under the 1990 Amendments to the Clean Air
Act that will pertain to the Companys operations are
currently not expected to be promulgated until 1997 or
later. The Company cannot predict the level of
required capital expenditures or operating costs
resulting from future environmental regulations such as
those forthcoming as a result of the 1990 Amendments.
However, the Company believes that while the 1990
Amendments may require additional expenditures, such
expenditures will not have a material impact on the
Companys business or consolidated financial position
for the foreseeable future.
Capital expenditures for the next twelve months
relating to environmental control facilities are not
expected to be material, however, such expenditures
could be influenced by new and revised environmental
regulations and laws.
As of September 30, 1995, the Company had environmental
remediation reserves of $4.5 million, of which $4.4
million pertain to accrued disposal costs for radiation
contaminated baghouse dust. As of September 30, 1995,
the possible range of estimated losses related to the
environmental contingency matters discussed above in
excess of those accrued by the Company is $0 to $3.0
million; however, with respect to the Consent Order,
the Company cannot estimate the possible range of
losses should the Company ultimately not be
indemnified. Based upon its evaluation of available
information, management does not believe that any of
the environmental contingency matters discussed above
are likely, individually or in the aggregate, to have a
material adverse effect upon the Companys consolidated
financial position, results of operations or cash
flows. However, the Company cannot predict with
certainty that new information or developments with
respect to the Consent Order or its other environmental
contingency matters, individually or in the aggregate,
will not have a material adverse effect on the Companys
consolidated financial position, results of operations
or cash flows.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board
(FASB) issued Statement No. 121 (Statement 121) on
accounting for the impairment of long-lived assets to
be held and used. Statement 121 also establishes
accounting standards for long-lived assets that are to
be disposed. Statement 121 is required to be applied
prospectively for assets to be held and used. The
initial application of Statement 121 to assets held for
disposal is required to be reported as the cumulative
effect of a change in accounting principle. The
Company is required to adopt Statement 121 no later
than fiscal 1997. The Company has not yet determined
when it will adopt Statement 121 and the impact, if
any, that the adoption will have on its financial
position or results of operations.
In October 1995, the FASB issued Statement No. 123
(Statement 123) establishing financial accounting and
reporting standards for stock-based employee
compensation plans. Statement 123 encourages the use
of the fair value based method to measure compensation
cost for stock-based employee compensation plans,
however, it also continues to allow the intrinsic value
based method of accounting as prescribed by APB Opinion
No. 25, which is currently used by the Company. If the
intrinsic value based method continues to be used,
Statement 123 requires pro forma disclosures of net
income and earnings per share, as if the fair value
based method of accounting had been applied. The fair
value based method requires compensation cost be
measured at the grant date based upon the value of the
award and recognized over the service period, which is
normally the vesting period. The Company is required
to adopt Statement 123 no later than fiscal 1997. The
Company has not yet determined when it will adopt
Statement 123 or the valuation method it will use.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended September 30, 1995, September 24,
1994 and September 25, 1993
(Dollars in thousands, except per share amounts)
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
Net sales $371,352 $303,380 $353,082
Cost of products sold 337,270 278,161 310,586
Selling and
administrative expenses 26,276 24,530 30,824
Operating income 7,806 689 11,672
Interest income 1,341 1,733 277
Interest expense (20,796) (20,030) (21,096)
Other income (expense) 3,053 1,191 (131)
Gain on sale of
subsidiary - 35,292 -
Income (loss) before
income taxes,
extraordinary items
and cumulative effect
of a change in
accounting principle (8,596) 18,875 (9,278)
Provision (credit)
for income taxes (3,540) 7,382 (3,382)
Income (loss) before
extraordinary items and
cumulative effect of a
change in accounting
principle (5,056) 11,493 (5,896)
Extraordinary items, net
of income taxes (5,200) - (1,095)
Cumulative effect of a
change in accounting
principle - 1,715 -
Net income (loss) $(10,256)$ 13,208 $ (6,991)
Per common share
Income (loss) before
extraordinary items
and cumulative effect
of a change in
accounting principle $(.36) $.84 $(.44)
Extraordinary items (.38) - (.08)
Cumulative effect of
a change in accounting
principle $ - .12 -
Net income (loss) $(.74) $.96 $(.52)
Weighted average shares
outstanding (000s) 13,809 13,789 13,553
</TABLE>
See notes to consolidated financial statements
CONSOLIDATED BALANCE SHEETS September 30, 1995 and
September 24, 1994
(Dollars in thousands)
<TABLE>
<S> <C> <C>
ASSETS 1995 1994
Current assets
Cash and cash equivalents $ 4,838 $ 4,405
Short-term investments 6,413 40,071
Accounts receivable,
less allowance for
doubtful accounts of
$1,021 and $637,
respectively 45,858 42,651
Refundable income
taxes 3,130 195
Inventories 44,716 32,290
Operating supplies
and other current
assets 13,525 11,721
Deferred tax assets 4,842 4,877
Total current assets 123,322 136,210
Property, plant and
equipment -- at cost
Land and buildings 30,110 27,841
Machinery and equipment 242,530 231,383
Construction in progress 3,622 3,497
Less -- accumulated
depreciation (120,887) (102,182)
Net property, plant
and equipment 155,375 160,539
Other assets 19,800 18,578
Total assets $298,497 $315,327
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 509 $ 28,872
Accounts payable 32,897 27,312
Accrued liabilities 22,167 19,281
Current portion of
long-term debt 1,872 15,543
Total current
liabilities 57,445 91,008
Long-term debt 166,528 138,110
Deferred taxes 6,414 9,745
Common shareholders'
equity
Common stock,
no par value,
40,000,000 shares
authorized, 13,809,413
shares issued and
outstanding for each
period 49,004 48,988
Common stock
options and warrants 2,737 262
Unrealized loss on
available for sale
securities (713) (124)
Retained earnings 17,082 27,338
Common shareholders'
equity 68,110 76,464
Total liabilities
and shareholders'
equity $298,497 $315,327
</TABLE>
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30, 1995, September 24,
1994 and September 25, 1993
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
Cash flows from
operating activities:
Net income (loss) $(10,256) $13,208 $ (6,991)
Adjustments to
reconcile net income
(loss) to net cash
flows from operating
activities:
Depreciation and
amortization 18,941 18,154 18,537
Amortization of debt
discount and finance
costs 2,370 635 556
Decrease in long-term
deferred taxes (2,970) (1,157) (1,998)
Gain on sale of
subsidiary - (35,292) -
(Gain) loss on
disposal of equipment (470) (230) 323
Increase in accounts
receivable, net (3,207) (7,921) (11,461)
(Increase) decrease in
inventories (12,426) (3,168) 906
(Increase) decrease
in refundable income
taxes (2,935) 2,618 2,012
(Increase) decrease
in other current assets (1,753) 2,691 (7,203)
Increase in accounts
payable 5,585 5,782 958
Increase in accrued
liabilities 2,886 351 6,753
Net cash flows from
operating activities (4,235) (4,329) 2,392
Cash flows from investing
activities:
(Increase) decrease in
short-term investments 33,658 (36,614) 208
Purchases of property,
plant and equipment (13,730) (11,760) (6,080)
Proceeds from sale of
equipment 494 631 619
(Increase) decrease in
other assets 1,892 (2,122) 999
Proceeds from sale of
subsidiary - 50,426 -
Cash dividend from sold
subsidiary - 6,818 -
Net cash flows from
investing activities 22,314 7,379 (4,254)
Cash flows from
financing activities:
Increase (decrease) in
notes payable (28,363) 1,905 6,286
Proceeds from issuance
of long-term debt 122,587 431 2,012
Proceeds from issuance
of warrants 2,411 - -
Repayments on long-term
debt (107,950) (7,246) (9,896)
Increase in debt
issuance costs (6,331) (236) (388)
Proceeds from issuance
of common stock - 704 931
Net cash flows from
financing activities (17,646) (4,442) (1,055)
Net increase
(decrease)in cash
and cash equivalents 433 (1,392) (2,917)
Cash and cash equivalents
at beginning of year 4,405 5,797 8,714
Cash and cash
equivalents at end
of year $ 4,838 $ 4,405 $ 5,797
Cash paid during
the year for:
Interest $20,385 $18,964 $18,434
Income taxes,
net of refunds $ 209 $ 2,297 $ (3,847)
</TABLE>
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
For the years ended September 30, 1995, September 24,
1994 and September 25, 1993
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C>
Unrealized
Gain (Loss)
Options on Available
Common Stock and for
Shares Amount Warrants Sale Securities
Balance,
September
26,
1992 13,504,557 $47,353 $ 100
Stock
option
plans 48,750 181 108
Common
stock
issuance 142,797 750
Net loss
Balance,
September
25,
1993 13,696,104 $48,284 $ 208 $ -
Stock
option
plans 56,145 290 54
Common
stock
issuance 57,164 414
Unrealized
losses on
investments (124)
Net income
Balance,
September
24,
1994 13,809,413 $48,988 $262 $(124)
Stock
option
plans 64
Issuance
of common
stock
warrants 2,411
Unrealized
losses on
investments (589)
Other 16
Net loss
Balance,
September
30,
1995 13,809,413 $49,004 $2,737 $(713)
</TABLE>
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
For the years ended September 30, 1995, September 24,
1994 and September 25, 1993
(Dollars in thousands)
<TABLE>
<S> <C> <C>
Retained
Earnings Total
Balance,
September
26, $21,121 $68,574
Stock
option
plans 289
Common
stock
issuance 750
Net loss (6,991) (6,991)
Balance,
September
25,
1993 $14,130 $62,622
Stock
option
plans 344
Common
stock
issuance 414
Unrealized
losses on
investments (124)
Net income 13,208 13,208
September
24,
1994 $27,338 $76,464
Stock
option
plans 64
Issuance
of common
stock
warrants 2,411
Unrealized
losses on
investments (589)
Other 16
Net loss (10,256) (10,256)
Balance,
September
30,
1995 $17,082 $68,110
</TABLE>
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the
accounts of NS Group, Inc. and its wholly-owned
subsidiaries (the Company): Newport Steel Corporation
(Newport), Koppel Steel Corporation (Koppel), Erlanger
Tubular Corporation (Erlanger), Imperial Adhesives,
Inc. (Imperial), Northern Kentucky Management, Inc.
and Northern Kentucky Air, Inc. See Note 2 regarding
the sale of Kentucky Electric Steel Corporation in
fiscal 1994. All significant intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents
Cash includes currency on hand and demand deposits with
financial institutions. Cash equivalents consist of
investments with original maturities of three months or
less. Amounts are stated at cost, which approximates
market value.
Short-Term and Other Investments
Short-term investments consist primarily of money
market mutual funds and U.S. treasury securities, for
which market value approximates cost. At September 30,
1995, approximately $2.8 million in short-term
investments were restricted in an environmental trust
account related to a permitted hazardous waste disposal
facility located on the Companys property at Newport.
Certain of the Companys investments are classified as
available for sale and are recorded at current market
value with an offsetting adjustment to common
shareholders equity.
Inventories
At September 30, 1995 and September 24, 1994,
inventories stated at the lower of LIFO (last-in,
first-out) cost or market represent approximately 31%
and 27% of total inventories before the LIFO reserve,
respectively. All other inventories are stated at the
lower of average cost or market, or the lower of FIFO
cost or market. Inventory costs include labor,
material and manufacturing overhead. Inventories
consist of the following components:
<TABLE>
<S> <C> <C>
(In thousands) 1995 1994
Raw materials $ 6,591 $ 6,699
Semi-finished and
finished goods 40,570 27,695
47,161 34,394
LIFO reserve $(2,445) (2,104)
Total inventories $44,716 $32,290
</TABLE>
Property, Plant and Equipment and Depreciation
For financial reporting purposes, plant and equipment
are depreciated on a straight-line method over the
estimated useful lives of the assets. Depreciation
claimed for income tax purposes is computed by use of
accelerated methods. Expenditures for maintenance and
repairs are charged to expense as incurred.
Expenditures for equipment renewals which extend the
life of an asset are capitalized. Included in
property, plant and equipment at September 30, 1995,
are assets with a net book value of approximately $5.3
million which are not currently being used in the
business. In managements opinion, the carrying values
of such assets are realizable.
Income Taxes
At September 30, 1995 and September 24, 1994, deferred
income tax balances represent the estimated future tax
effects of temporary differences between the financial
reporting basis and the tax basis of certain assets and
liabilities. In fiscal 1993, the provision for
deferred income taxes represents the tax effect of
income and expense items reported in one period for
financial statement purposes and in another period for
tax reporting purposes. See Note 11.
Environmental Remediation and Compliance
Environmental remediation costs are accrued, except to
the extent capitalizable, when incurrence of such costs
is probable and the costs can be reasonably estimated.
Environmental compliance costs include maintenance and
operating costs associated with pollution control
facilities, costs of ongoing monitoring programs,
permit costs and other similar costs. Such costs are
expensed as incurred.
Postemployment Benefits
In the first quarter of fiscal 1995, the Company
adopted the provisions of Statement of Financial
Accounting Standards No. 112, Employers Accounting for
Postemployment Benefits (Statement 112). The impact on
the Companys financial statements from the adoption of
Statement 112 was not material.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board
(FASB) issued Statement No. 121 (Statement 121) on
accounting for the impairment of long-lived assets to
be held and used. Statement 121 also establishes
accounting standards for long-lived assets that are to
be disposed. Statement 121 is required to be applied
prospectively for assets to be held and used. The
initial application of Statement 121 to assets held for
disposal is required to be reported as the cumulative
effect of a change in accounting principle. The
Company is required to adopt Statement 121 no later
than fiscal 1997. The Company has not yet determined
when it will adopt Statement 121 and the impact, if
any, that the adoption will have on its financial
position or results of operations.
In October 1995, the FASB issued Statement No. 123
(Statement 123) establishing financial accounting and
reporting standards for stock-based employee
compensation plans. Statement 123 encourages the use
of the fair value based method to measure compensation
cost for stock-based employee compensation plans,
however, it also continues to allow the intrinsic value
based method of accounting as prescribed by APB Opinion
No. 25, which is currently used by the Company. If the
intrinsic value based method continues to be used,
Statement 123 requires pro forma disclosures of net
income and earnings per share, as if the fair value
based method of accounting had been applied. The fair
value based method requires compensation cost be
measured at the grant date based upon the value of the
award and recognized over the service period, which is
normally the vesting period. The Company is required
to adopt Statement 123 no later than fiscal 1997. The
Company has not yet determined when it will adopt
Statement 123 or the valuation method it will use.
Fiscal Year-End
The Companys fiscal year ends on the last Saturday of
September. Fiscal year 1995 contains fifty-three weeks
and fiscal years 1994 and 1993 contain fifty-two weeks.
Earnings Per Share
Earnings per share are calculated using the weighted
average number of shares outstanding during the period.
The effect of common stock equivalents arising from
stock options and warrants on the computation of
earnings per share is not significant.
Note 2: Sale of Subsidiary
On October 6, 1993, the Company sold all of the assets
and liabilities of its wholly-owned subsidiary,
Kentucky Electric Steel Corporation (KES), to a newly
formed public company in exchange for $45.6 million in
cash and 400,000 shares (approximately 8%) of the newly
formed public company. In addition, the Company
received $6.8 million in cash from the new entity in
satisfaction of a dividend declared by KES prior to the
sale. The sale of KES resulted in a pre-tax gain of
$35.3 million. After giving effect to the elimination
of the pre-tax gain of $35.3 million, the related tax
effect of $13.8 million and $0.1 million of net income
of KES for the eleven days of fiscal 1994 prior to
sale, the Companys pro forma net loss before cumulative
effect of a change in accounting principle for the
fiscal year ended September 24, 1994 was $10.2 million,
or a $.74 loss per share.
Note 3: Other Assets
Other assets at September 30, 1995 and September 24,
1994 includes approximately $8.6 million and $10.5
million, respectively, in costs associated with land
near Newport, Kentucky, for use as development property
which is listed for sale and marketable equity
securities totaling $3.6 million and $4.6 million,
respectively. Other assets at September 30, 1995 and
September 24, 1994 also includes approximately $6.5
million and $2.4 million, respectively, in deferred
financing costs.
Note 4: Accrued Liabilities
<TABLE>
<S> <C> <C>
Accrued liabilities consist of the following:
(In thousands) 1995 1994
Accrued payroll and payroll taxes $ 7,113 $ 5,032
Accrued interest 4,084 4,072
Accrued environmental remediation 4,514 4,563
Accrued income taxes 32 711
Other 6,424 4,903
$22,167 $ 19,281
</TABLE>
Note 5: Long-term Debt and Credit Facility
Long-term debt of the Company consists of the
following:
<TABLE>
<S> <C> <C>
(In thousands) 1995 1994
13.5% Senior Secured Notes due
July 15, 2003, interest due semi-
annually, secured by property,
plant and equipment (net of
unamortized discount of $8,398) $122,698 $ -
Term loans due a non-bank
financial institution,
interest ranging from 7.99% to
12.54%, repaid in fiscal 1995 - 73,751
Senior Secured Notes due various
insurance companies, interest
at 10.65%, repaid in fiscal 1995 - 32,729
11% Subordinated Convertible
Debentures, due in annual
installments from October,
2000 through 2005 29,000 29,000
Term loans due various states
and municipalities,
interest ranging from 3% to
11%, due in varying quarterly
installments through 2010,
secured by junior mortgages on
property, plant and equipment 10,166 11,613
Other 6,536 6,560
168,400 153,653
Less - Current portion (1,872) (15,543)
$166,528 $138,110
</TABLE>
In July, 1995 the Company completed a public offering
(Offering) for the sale of $131.1 million aggregate
principal amount of 13.5% Senior Secured Notes due 2003
(Notes) together with warrants (Warrants) to purchase
an aggregate of approximately 1,534,000 shares of the
Companys common stock at $4.00 per share. Proceeds
from the sale of the Notes and Warrants of
approximately $120.8 million, after underwriting
discount and before expenses, together with available
cash on hand, were used to retire a substantial portion
of the Companys outstanding indebtedness, including
borrowings under its lines of credit.
Through July 1998, the Company may redeem up to 40% of
the principal amount of the Notes with the net proceeds
of a public offering of common stock at a price of
113.5% of par, provided that at least $75.0 million
principal amount of the Notes remain outstanding after
redemption. The Notes may be redeemed at the option of
the Company, at any time, in whole or in part,
beginning in 2000, at declining premiums plus accrued
interest.
The Indenture relating to the Notes contains a number
of restrictive covenants including, among other things,
limitations on the ability of the Company to incur
additional indebtedness; create liens; make certain
restricted payments, including dividends; engage in
certain transactions with affiliates; engage in sale
and leaseback transactions; dispose of assets; issue or
sell stock of its subsidiaries; enter into agreements
that restrict the ability of its subsidiaries to pay
dividends and make distributions; engage in mergers,
consolidations and transfers of substantially all of
the Companys assets; and make certain investments,
loans and advances.
Contemporaneously with the Offering, the Company
entered into a new $45.0 million revolving credit
facility (Credit Facility) and terminated its previous
revolving credit agreements. Borrowings are secured by
inventory and accounts receivable and interest accrues
at a rate per annum of (a) the sum of the alternate
base rate (which is the higher of prime rate or 0.5%
over the federal funds rate) plus 1% with respect to
domestic rate loans or (b) the sum of the Eurodollar
rate (based on LIBOR) plus 2.75% with respect to
Eurodollar rate loans. Borrowings are due on demand
and are limited to defined percentages of eligible
inventory and accounts receivable. The Credit Facility
contains financial covenants including maintenance of
minimum net worth, minimum interest coverage ratios,
maximum ratios of indebtedness to net worth, and
minimum current ratio and working capital requirements.
The Credit Facility also includes restrictions upon
dividends, investments, capital expenditures,
indebtedness and the sale of certain assets. At
September 30, 1995, approximately $5.0 million of the
Credit Facility was utilized to collateralize various
letters of credit and $40.0 million was available for
borrowing. The Credit Facility expires in fiscal 1998.
Pursuant to the Companys debt agreements, it is
currently prohibited from paying dividends to its
shareholders.
In connection with the retirement of long-term
indebtedness in the fourth quarter of fiscal 1995, the
Company incurred prepayment costs and wrote off
unamortized debt issuance costs, which resulted in an
extraordinary charge of $5.2 million, net of applicable
income tax benefit of $2.8 million, or $.38 per share.
The Company also has outstanding 11% Subordinated
Convertible Debentures, which are unsecured obligations
of the Company and are convertible into common shares
of the Company at a price of $17.00 per share, or
approximately 1,706,000 shares. Interest is payable
quarterly. The Debentures are redeemable by the
Company at 110% of par.
Annual long-term debt maturities are $1.9 million in
fiscal 1996, $2.5 million in fiscal 1997, $3.6 million
in fiscal 1998, $2.3 in fiscal 1999 and $0.7 million in
fiscal 2000.
As of September 30, 1995 and September 24, 1994, the
weighted average interest rate on outstanding notes
payable was 6.0% and 9.0%, respectively.
Note 6: Fair Value of Financial Instruments
The following methods and assumptions were used to
estimate the fair value of financial instruments:
Cash, cash equivalents and short-term investments -
The carrying amount approximates fair value because of
the short maturity of those instruments.
Other investments - Other investments, consisting of
marketable equity securities totaling $3.6 million, are
reported in other assets and are carried at market
value.
Notes payable - The carrying amount approximates
fair value because of the short maturity.
Long-term debt - The fair value of the Companys
Senior Secured Notes is based upon their trading price
as of September 30, 1995. All other long-term debt was
estimated by calculating the present value of the
remaining interest and principal payments on the debt
to maturity. The present value computation uses a
discount rate equal to Treasury rates with similar
terms at the end of the reporting period plus or minus
the spread between the Treasury rates and the rate
negotiated on the debt at the inception of the loan.
The carrying amount and fair value of the Companys
financial instruments are as follows.
<TABLE>
<S> <C> <C> <C> <C>
1995 1994
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
Cash, cash
equivalents and
short-term
investments $ 11,251 $ 11,251 $ 44,476 $44,476
Other investments 3,650 3,650 4,600 4,600
Notes payable 509 509 28,872 28,872
Long-term debt 168,400 172,021 153,653 154,649
</TABLE>
Note 7: Preferred Stock
The Companys authorized stock includes 2,000,000 shares
of Class A Preferred Stock, issuable in one or more
series. The rights, preferences, privileges and
restrictions of any series of Class A Preferred Stock,
the number of shares constituting any such series and
the designation thereof, are subject to determination
by the Board of Directors.
Four hundred thousand shares of the Class A Preferred
Stock has been designated as Series A Junior
Participating Preferred Stock, par value $10 per share,
in connection with the Shareholders Protection Rights
Plan (Plan) adopted in fiscal 1989. Pursuant to the
Plan, one Preferred Stock Purchase Right (Right) is
attached to each outstanding share of common stock of
the Company.
The Plan includes provisions which are intended to
protect shareholders against certain unfair and abusive
takeover attempts by anyone acquiring or tendering for
30% or more of the Companys common stock. The Company
may redeem the Rights for one cent per Right at any
time before a 30% position has been acquired. The
Rights will expire in November 1998.
Note 8: Stock Options and Warrants
The Company has Employee Incentive Stock Option Plans
which provide for the issuance of shares of common
stock of the Company upon exercise of options granted
to certain employees. Under the terms of these plans,
options have been granted at fair market value at the
grant date and are exercisable on a pro rata basis over
a period of nine years beginning one year after the
date of grant. At September 30, 1995, options
outstanding are priced in a range from $3.25 to $14.125
per share. Of the options expired in fiscal 1994,
295,030 options expired in connection with the sale of
KES.
A summary of transactions in the plans for fiscal 1995
and 1994 follows:
<TABLE>
<S> <C> <C>
1995 1994
Options outstanding,
beginning of year 1,048,705 1,185,525
Options granted 10,000 289,050
Options expired (69,675) (369,725)
Options exercised - (56,145)
Options outstanding,
end of year 989,030 1,048,705
Options exercisable,
end of year 607,955 509,525
Available for grant 514,535 488,580
</TABLE>
In May 1995, the Board of Directors adopted the NS
Group, Inc. 1995 Stock Option and Stock Appreciation
Rights Plan (1995 Plan) as a successor plan to a
similar plan adopted in 1988. Under the 1995 Plan, the
Company may grant to key employees options to purchase
(or stock appreciation awards corresponding to) an
aggregate of 750,000 shares of the Companys common
stock. Terms of the grants made under the 1995 Plan
are determined by the Stock Option Committee of the
Board of Directors. A total of 202,400 options were
granted in fiscal 1995 under the 1995 Plan at an
exercise price of $4.375, the market price on the date
of the grant. The 1995 Plan is subject to shareholder
approval. At September 30, 1995, options outstanding
under both of the Companys non-qualified plans are
priced in a range from $3.75 to $13.43 per share.
Grant prices have ranged from 64% to 110% of the market
price at the date of grant.
A summary of transactions in the plans for fiscal 1995
and 1994 follows:
<TABLE>
<S> <C> <C>
1995 1994
Options outstanding
beginning of year 475,625 366,760
Options granted 202,400 135,085
Options expired - (26,220)
Options exercised - -
Options outstanding,
end of year 678,025 475,625
Options exercisable,
end of year 153,400 106,700
Available for grant 571,975 24,375
</TABLE>
The Company has common stock warrants outstanding,
issued in connection with the sale of the Companys
Senior Secured Notes. The warrants are exercisable for
approximately 1,534,000 shares of the Companys common
stock at a price of $4.00 per share and expire July 15,
2003. The Company also has common stock warrants
outstanding which were issued in connection with the
financing of the Koppel acquisition. These warrants
are exercisable for approximately 772,000 shares of the
Companys common stock, at a price of $8.00 per share
and expire October 4, 2000.
Note 9: Commitments and Contingencies
The Company has various commitments for the purchase of
materials, supplies and energy arising in the ordinary
course of business.
The Company is subject to various claims, lawsuits and
administrative proceedings arising in the ordinary
course of business with respect to commercial, product
liability and other matters, which seek remedies or
damages. Based upon its evaluation of available
information, management does not believe that any such
matters are likely, individually or in the aggregate,
to have a material adverse effect upon the Companys
consolidated financial position, results of operations
or cash flows.
The Company is subject to federal, state and local
environmental laws and regulations, including, among
others, the Resource Conservation and Recovery Act
(RCRA), the Clean Air Act, the 1990 Amendments to the
Clean Air Act (the 1990 Amendments), the Clean Water
Act and all regulations promulgated in connection
therewith, including, among others, those concerning
the discharge of contaminants as air emissions or waste
water effluents and the disposal of solid and/or
hazardous wastes such as electric arc furnace dust. As
such, the Company is from time to time involved in
administrative and judicial proceedings and
administrative inquiries related to environmental
matters.
As with other similar mills in the industry, the
Company's steel mini-mills produce dust which contains
lead, cadmium and chromium, and is classified as a
hazardous waste. The Company currently collects the
dust resulting from its electric arc furnace operations
through emission control systems and contracts with a
company for treatment and disposal of the dust at an
EPA-approved facility. The Company also has on its
property at Newport a permitted hazardous waste
disposal facility.
In March 1995, Koppel and the EPA signed a Consent
Order relating to an April 1990 RCRA facility
assessment (the Assessment) completed by the EPA and
the Pennsylvania Department of Environmental Resources.
The Assessment was performed in connection with a
permit application pertaining to a landfill that is
adjacent to the Koppel facilities. The Assessment
identified potential releases of hazardous constituents
at or adjacent to the Koppel facilities prior to the
Companys acquisition of the Koppel facilities. The
Consent Order establishes a schedule for investigating,
monitoring, testing and analyzing the potential
releases. Contamination documented as a result of the
investigation will require cleanup measures and certain
remediation has begun. Pursuant to various indemnity
provisions in agreements entered into at the time of
the Companys acquisition of the Koppel facilities,
certain parties have agreed to indemnify the Company
against various known and unknown environmental
matters. While such parties have not at this time
acknowledged full responsibility for potential costs
under the Consent Order, the Company believes that the
indemnity provisions provide for it to be fully
indemnified against all matters covered by the Consent
Order, including all associated costs, claims and
liabilities.
In two separate incidents occurring in fiscal 1993 and
1992, radioactive substances were accidentally melted
at Newport, resulting in the contamination of the melt
shops electric arc furnace emission control facility,
or baghouse facility. The occurrences of the
accidental melting of radioactive materials have not
resulted in any notice of violations from federal or
state environmental regulatory agencies. The losses
and costs incurred in 1993, net of insurance claims,
resulted in an extraordinary charge of $1.1 million,
net of applicable income tax benefit of $0.7 million,
or an $.08 loss per share. The Company is
investigating and evaluating various issues concerning
storage, treatment and disposal of the radiation
contaminated baghouse dust; however a final
determination as to method of treatment and disposal,
cost and further regulatory requirements cannot be made
at this time. Depending on the ultimate timing and
method of treatment and disposal, which will require
appropriate federal and state regulatory approval, the
actual cost of disposal could substantially exceed
current estimates and the Companys insurance coverage.
The Company expects to recover and has recorded a $2.3
million receivable relating to insurance claims for the
recovery of disposal costs which will be filed with the
Companys insurance company at the time such disposal
costs are incurred. As of September 30, 1995, claims
recorded in connection with disposal costs exhaust
available insurance coverage. Based on current
knowledge, management believes the recorded gross
reserves of $4.4 million for disposal costs pertaining
to these incidents are adequate.
Subject to the uncertainties concerning the Consent
Order and the storage and disposal of the radiation
contaminated dust, the Company believes that it is
currently in compliance in all material respects with
all applicable environmental regulations.
Regulations under the 1990 Amendments to the Clean Air
Act that will pertain to the Companys operations are
currently not expected to be promulgated until 1997 or
later. The Company cannot predict the level of
required capital expenditures or operating costs
resulting from future environmental regulations such as
those forthcoming as a result of the 1990 Amendments.
However, the Company believes that while the 1990
Amendments may require additional expenditures, such
expenditures will not have a material impact on the
Companys business or consolidated financial position
for the foreseeable future.
Capital expenditures for the next twelve months
relating to environmental control facilities are not
expected to be material, however, such expenditures
could be influenced by new or revised environmental
regulations and laws.
As of September 30, 1995, the Company had environmental
remediation reserves of $4.5 million, of which $4.4
million pertain to accrued disposal costs for radiation
contaminated baghouse dust. As of September 30, 1995,
the possible range of estimated losses related to the
environmental contingency matters discussed above in
excess of those accrued by the Company is $0 to $3.0
million; however, with respect to the Consent Order,
the Company cannot estimate the possible range of
losses should the Company ultimately not be
indemnified. Based upon its evaluation of available
information, management does not believe that any of
the environmental contingency matters discussed above
are likely, individually or in the aggregate, to have a
material adverse effect upon the Companys consolidated
financial position, results of operations or cash
flows. However, the Company cannot predict with
certainty that new information or developments with
respect to the Consent Order or its other environmental
contingency matters, individually or in the aggregate,
will not have a material adverse effect on the Companys
consolidated financial position, results of operations
or cash flows.
Note 10: Profit Sharing Plans
The Company has established various profit sharing
plans at the operating companies which are based on the
earnings of the respective companies. Generally, the
plans require mandatory contributions at a specified
percentage of pretax profits (with a guaranteed minimum
based on hours worked) for the bargaining unit
employees, and allow for a discretionary contribution
set by the Board of Directors for salaried employees.
Expense for contributions was approximately $0.9
million, $0.5 million and $1.2 million in fiscal years
1995, 1994 and 1993, respectively.
Note 11: Income Taxes
Effective September 26, 1993, the Company adopted the
provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes
(Statement 109). Prior to adoption of Statement 109,
deferred tax expense was based on items of income and
expense that were reported in different years in the
financial statements and tax returns and were measured
at the tax rate in effect in the year the difference
originated. Under Statement 109, deferred tax
liabilities and assets are based upon differences in
the basis of assets and liabilities for financial
statements and tax returns and are determined based on
the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. The
cumulative effect of the change in accounting increased
fiscal 1994 net income by $1.7 million, or $.12 per
share.
The provision (credit) for income taxes, including $2.8
million and $0.7 million allocated to extraordinary
items in fiscal 1995 and 1993, respectively, consists
of the following:
<TABLE>
<S> <C> <C> <C>
(In thousands) 1995 1994 1993
Current:
Federal $(3,044) $5,100 $(2,000)
State - 323 (851)
$(3,044) $5,423 (2,851)
Deferred:
Federal (3,066) 739 (1,526)
State (230) 1,220 333
(3,296) $1,959 (1,193)
Provision (credit)
for income taxes $(6,340) $7,382 $(4,044)
</TABLE>
The income tax provision (credit) differs from the
amount computed by applying the statutory federal
income tax rate to income (loss), including
extraordinary items, before income taxes for the
following reasons:
<TABLE>
<S> <C> <C> <C>
(In thousands) 1995 1994 1993
Income tax provision
(credit) at statutory tax
rate of 35% in fiscal 1995
and 1994 and 34% in fiscal
1993 $(5,808) $6,606 $(3,752)
Change in taxes resulting
from:
State income taxes, net
of federal effect (150) 1,003 (342)
Dividend income exclusion (61) (200) (6)
Other, net (321) (27) 56
Provision (credit) for
income taxes $(6,340) $7,382 $(4,044)
</TABLE>
The following represents the components of deferred tax
liabilities and assets at September 30, 1995 and
September 24, 1994. A valuation allowance has not been
recorded against deferred tax assets as it is estimated
that such deferred tax assets will be realized through
a reduction of taxes otherwise payable upon the
reversal of existing taxable temporary differences.
<TABLE>
<S> <C> <C>
(In thousands) 1995 1994
Deferred tax liabilities:
Property, plant and equipment $27,646 $27,774
Other items 2,196 2,222
29,842 29,996
Deferred tax assets:
Reserves and accruals 3,880 3,904
Net operating tax loss
carryforward 18,003 11,690
Alternative minimum tax
and other tax credit
carryforwards 4,480 7,629
Other items 1,907 1,905
28,270 25,128
Net deferred tax liability $ 1,572 $ 4,868
</TABLE>
For federal income tax purposes, the Company has
alternative minimum tax credit carryforwards of
approximately $4.1 million, which are not limited by
expiration dates, and other tax credit carryforwards of
approximately $0.4 million, which expire beginning in
2000. The Company also has net operating tax loss
carryforwards of approximately $51.4 million, which
expire beginning in 2007.
The components of the credit for deferred income taxes
for fiscal 1993 are as follows:
<TABLE>
<S> <C>
(In thousands) 1993
Excess of tax over book depreciation $ 4,097
Koppel start-up costs deferred for
income tax purposes 177
Reserves and accruals not currently
deductible (299)
Alternative minimum tax and other
tax credit carryforwards $1,684
Net operating tax loss carryforward $(7,034)
Other, net 182
Total $(1,193)
</TABLE>
Note 12: Related Party Transactions
One of the Companys directors/shareholders has a
controlling interest in a company which purchases
certain reject and limited service tubular products
from Newport. Sales to this customer were
approximately $16.0 million, $11.0 million and $10.9
million for fiscal years 1995, 1994, and 1993,
respectively. Trade receivables from this customer
were $0.7 million and $1.0 million at the end of fiscal
1995 and 1994, respectively.
Note 13: Business Segment Information
The Company operates primarily in two separate business
segments:
Specialty Steel Products - Includes welded tubular
steel products and hot rolled coils manufactured at a
mini-mill located near Newport, Kentucky; seamless
tubular steel products, special bar quality products
and semi-finished steel products manufactured at a
mini-mill located in western Pennsylvania and pipe
finishing operations located in Baytown, Texas and near
Tulsa, Oklahoma.
Adhesive Products - Includes industrial adhesives
manufactured principally at plants in Cincinnati, Ohio
and Nashville, Tennessee.
The operations of both segments are conducted
principally in the United States. The Company grants
trade credit to customers, the most significant of
which are distributors serving the oil and natural gas
exploration and production industries which purchase
tubular steel products from the Specialty Steel
Products segment. The following table sets forth
selected financial information by business segment for
fiscal 1995, 1994 and 1993.
<TABLE>
<S> <C> <C> <C> <C> <C>
Depreci-
Opera- ation
ting Identi- and Capital
Net Income fiable Amorti- Expen-
1995 Sales (Loss) Assets zation ditures
(In
thousands)
Specialty
steel
products $335,883 $10,428 $250,711 $20,862 $13,245
Adhesives
products 35,469 1,248 13,011 449 485
Corporate
assets
and allo-
cations - (3,870) 34,775 - -
Total
consoli-
dated $371,352 $ 7,806 $298,497 $21,311 $13,730
1994
Specialty
steel
products $270,441 $ 2,909 $246,295 $18,373 $11,380
Adhesives
products 32,939 1,150 12,486 416 380
Corporate
assets
and
allocations - (3,370) 56,546 - -
Total
consoli-
dated $303,380 $ 689 $315,327 $18,789 $11,760
1993
Specialty
steel
products $325,007 $13,379 $271,968 $18,691 $ 5,798
Adhesives
products 28,075 1,059 12,228 402 282
Corporate
assets and
allocations - (2,766) 33,046 - -
Total consoli-
dated $353,082 $11,672 $317,242 $19,093 $ 6,080
</TABLE>
Note 14: Quarterly Financial Data (Unaudited)
Quarterly results of operations for 1995 and 1994 are
as follows:
<TABLE>
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
Net sales $93,489 $97,055 $94,804 $86,004
Gross profit 11,490 10,145 10,592 1,855
Income (loss)
before extra-
ordinary item 75 447 529 (6,107)
Net income (loss) 75 447 529 (11,307)
Income (loss) per
common share before
extraordinary item .01 .03 .04 (.44)
Net income (loss)
per common share .01 .03 .04 (.82)
1994 Net sales $71,959 $66,012 $80,807 $84,602
Gross profit 7,791 1,831 7,203 8,394
Income (loss)
before cumulative
effect of a change
in accounting
principle 20,026 (5,583) (1,990) (960)
Net income (loss) 21,741 (5,583) (1,990) (960)
Income (loss) per
common share before
cumulative effect
of a change in
accounting
principle 1.46 (.40) (.14) (.07)
Net income (loss)
per common share 1.58 (.40) (.14) (.07)
</TABLE>
During the fiscal 1995 fourth quarter, the Company
experienced numerous unexpected operational problems,
principally at the Companys welded tubular facilities
at Newport. Newports melt shop incurred an unusual
number of unplanned outages during the quarter related
to equipment breakdowns, lightning strikes and power
curtailments due to weather conditions. As a result,
steel production volume was significantly affected,
limiting availability of steel to Newports hot strip
mill and pipe mills. The excessive downtime throughout
all of Newports operations resulted in low operating
efficiencies, increased maintenance costs and lost
sales opportunities during the quarter. Also impacting
the quarter at Newport was a write-down of scrap
inventory resulting from year end physical inventory
counts. Shipments of Newports tubular products totaled
74,400 tons in the fourth quarter of fiscal 1995
compared to 78,700 tons in the third quarter of fiscal
1995 and 83,800 tons in the fourth quarter of fiscal
1994. For the same periods, average selling prices for
all of Newports welded tubular products were $440, $457
and $429 per ton, respectively.
The fiscal 1995 fourth quarter was also impacted by a
decline in shipments of SBQ products from the Companys
Koppel facilities, due to softening in market demand.
SBQ shipments totaled 33,800 tons in the fourth quarter
of fiscal 1995 compared to 45,100 tons in the third
quarter of fiscal 1995 and 36,000 tons in the fourth
quarter of fiscal 1994. For the same periods, average
selling prices for SBQ products were $503, $503, and
$441 per ton, respectively.
In connection with a fiscal 1995 fourth quarter
refinancing, the Company incurred prepayment costs and
wrote off unamortized debt issuance costs, which
resulted in an extraordinary charge of $5.2 million,
net of applicable income tax benefit of $2.8 million,
or $.38 per share.
Fiscal 1994 second quarter results were negatively
affected by a decline in welded tubular shipments that
resulted primarily from customers resistance to
announced price increases. The Company adjusted its
welded tubular selling prices in response to the
decline and volume recovered in the third quarter of
fiscal 1994. In addition, fiscal 1994 second quarter
results were negatively impacted by severe winter
weather conditions.
The sale of KES increased fiscal 1994 first quarter net
income by $21.5 million. In addition, in the fiscal
1994 first quarter, the Company recorded the cumulative
effect of the adoption of FAS No. 109, "Accounting for
Income Taxes", which increased net income by $1.7
million.
Note 15: Summarized Financial Information
The Companys Senior Secured Notes are unconditionally
guaranteed in full, jointly and severally, by each of
the Companys subsidiaries (Subsidiary Guarantors), each
of which is wholly-owned. Separate financial
statements of the Subsidiary Guarantors are not
presented because they are not deemed material to
investors. The following is summarized financial
information of the Subsidiary Guarantors as of
September 30, 1995 and September 24, 1994 and for each
of the three years in the period ended September 30,
1995. All significant intercompany accounts and
transactions between the Subsidiary Guarantors have
been eliminated.
<TABLE>
<S> <C> <C>
September 30, September 24,
(In thousands) 1995 1994
Current assets $111,371 $125,108
Noncurrent assets 167,863 176,895
Current liabilities 50,933 88,230
Payable to parent $169,079 $031,327
Other noncurrent
liabilities 9,779 102,893
Total noncurrent
liabilities $178,858 $134,220
Fiscal Year Ended
(In thousands) 1995 1994 1993
Net sales $371,352 $303,380 $353,082
Gross profit 34,082 25,219 42,496
Income (loss) before
extraordinary items and
cumulative effect of a
change in accounting
principle (2,040) 14,689 (1,363)
Net income (loss) (2,040) 14,689 (2,458)
</TABLE>
REPORT OF MANAGEMENT
The accompanying financial statements have been
prepared by the management of NS Group, Inc., in
conformity with generally accepted accounting
principles and, in the judgment of management, present
fairly and consistently the Companys consolidated
financial position and results of operations. These
statements necessarily include amounts that are based
on managements best estimates and judgments. The
financial information contained elsewhere in this
annual report is consistent with that contained in the
consolidated financial statements.
In fulfilling its responsibilities for the integrity of
financial information, management maintains accounting
systems and related controls. These controls provide
reasonable assurance, at appropriate costs, that assets
are safeguarded against losses and that financial
records are reliable for use in preparing financial
statements. These systems are enhanced by written
policies, an organizational structure that provides
division of responsibilities and careful selection and
training of qualified people.
In connection with their annual audit, independent
public accountants perform an examination in accordance
with generally accepted auditing standards, which
includes a review of the system of internal accounting
control and an expression of an opinion that the
consolidated financial statements are fairly presented.
The Board of Directors, through its Audit Committee
composed solely of non-employee directors, reviews the
Companys financial reporting and accounting practices.
The independent public accountants meet regularly with
and have access to this Committee with or without
management present to discuss the results of their
audit work.
Clifford R. Borland
Chairman of the Board and
Chief Executive Officer
John R. Parker
Vice President, Treasurer and
Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NS Group, Inc.
We have audited the accompanying consolidated balance
sheets of NS Group, Inc. (a Kentucky corporation) and
subsidiaries as of September 24, 1994 and September 25,
1993, and the related consolidated statements of
income, common shareholders equity and cash flows for
each of the three years in the period ended September
24, 1994. These financial statements are the
responsibility of the Companys 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 financial statements referred to
above present fairly, in all material respects, the
financial position of NS Group, Inc. and subsidiaries
as of September 24, 1994 and September 25, 1993, and
the results of their operations and their cash flows
for each of the three years in the period ended
September 24, 1994 in conformity with generally
accepted accounting principles.
As explained in Note 12 to the consolidated financial
statements, the Company changed its method of
accounting for income taxes effective September 26,
1993.
Cincinnati, Ohio
October 31, 1994 ARTHUR ANDERSEN LLP
CONSOLIDATED HISTORICAL SUMMARY
(Dollars in thousands, except per share amounts)
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
1992 1991 1990
1989 1988* 1987
1886 1985 1984
1983 1982 1981*
Summary of Operations
Net sales $371,352 $303,380 $353,082
$281,242 $212,471 $249,871
$219,414 $239,175 $157,201
$ 66,320 $ 70,221 $ 73,426
$ 44,592 $ 61,982 $ 41,644
Operating income
(loss) 7,806 689 11,672
1,401 (18,177) 19,370
18,469 36,668 14,252
(2,879) 3,649 11,140
3,797 14,441 13,429
Operating income
margin 2.1% .2% 3.3%
.5% (8.6)% 7.8%
8.4% 15.3% 9.1%
(4.3)% 5.2% 15.2%
8.5% 23.3% 32.2%
Net income (loss)
before extraordi-
nary items (5,056) 13,208 (5,896)
(13,358) (20,603) 13,047
12,773 20,238 3,673
(5,939) (302) 6,651
1,247 6,334 5,844
Net income (loss) (10,256) 13,208 (6,991)
(15,900) (20,603) 13,047
12,773 17,493 6,665
(5,939) (2,317) 7,269
1,247 6,334 5,844
Income (loss) per
share before extra-
ordinary items (.36) .96 (.44)
(.99) (1.53) .97
.95 1.73 .38
(.61) (.03) .69
.13 .65 .63
Net income (loss)
per share (.74) .96 (.52)
(1.18) (1.53) .97
.95 1.49 .69
(.61) (.24) .75
.13 .65 .63
Dividends per
common share - - -
.06 .12 .11
.05 - -
- - -
- - -
Weighted average
shares outstanding
(000's) 13,809 13,789 13,553
13,483 13,449 13,419
13,387 11,690 9,621
9,688 9,687 9,686
9,685 9,685 9,685
Shareholders of
record 323 313 332
327 315 233
179 115 -
- - -
- - -
Other Financial
and Statistical Data
Working capital $ 65,877 $ 45,202 $ 39,060
$ 40,676 $ 48,411 $ 64,858
$ 55,714 $ 76,683 $ 26,993
$ 12,978 $ 24,173 $ 16,020
$ 7,065 $ 15,199 $ 14,664
Capital expenditures 13,730 11,760 6,080
4,148 112,573 45,011
28,081 3,340 2,838
13,297 7,222 12,642
10,751 7,302 252
Depreciation and
amortization 21,311 18,789 19,093
18,711 15,725 6,879
6,080 6,585 6,614
6,103 5,395 2,756
2,493 2,286 779
Total assets 298,497 315,327 317,242
319,079 329,889 220,856
177,292 153,525 105,094
86,184 87,020 77,874
54,569 50,379 55,247
Long-term debt 168,400 153,653 165,188
173,072 179,653 70,165
29,192 24,489 49,163
57,392 45,737 37,000
27,467 29,667 30,017
Common shareholders'
equity 68,110 76,464 62,622
68,574 85,149 107,226
95,490 83,327 19,628
13,126 19,068 21,389
14,117 12,870 6,536
Book value per share 4.93 5.54 4.57
5.08 6.33 7.98
7.13 6.23 2.06
1.35 1.97 2.21
1.46 1.33 .67
Current ratio 2.15 1.50 1.45
1.55 1.79 2.90
2.30 3.47 1.97
1.82 2.96 1.99
1.60 3.04 1.82
Debt-to-equity ratio 2.47 2.01 2.64
2.52 2.11 .65
.31 .29 2.50
4.37 2.40 1.73
1.95 2.31 4.59
Steel mill shipments (tons)
Tubular products 440,000 370,000 385,000
292,000 215,000 285,000
209,000 262,000 235,000
133,000 165,000 178,000
111,000 123,000 74,000
Special bar quality
products and other 216,000 191,000 363,000
299,000 212,000 239,000
262,000 255,000 138,000
- - -
- - -
Employees 1,728 1,568 1,995
1,770 1,705 1,479
1,457 1,336 1,192
719 536 514
448 523 561
</TABLE>
*Represents a 5 1/2 month period, the Company's
start-up year.
**The Company's stock began trading following an
initial public offering on March 4, 1988.
Stock Market Information NS Group, Inc. is listed on
the New York Stock Exchange, trading symbol, NSS. At
the end of fiscal 1995, the number of NS Group
shareholders of record totaled 323.
<TABLE>
<S> <C> <C>
Stock Price
Fiscal 1995 High Low
1st Quarter $ 6 3/4 $ 4
2nd Quarter 5 1/4 3 3/4
3rd Quarter 4 5/8 3 3/8
4th Quarter 4 1/2 2 7/8
Fiscal 1994 High Low
1st Quarter $ 9 1//2 $ 5 7/8
2nd Quarter 7 3/4 6 1/4
3rd Quarter 7 7/8 4 7/8
4th Quarter 7 5 7/8
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF NS GROUP, INC.
(all are wholly-owned)
State of
Name Incorporation
Erlanger Tubular Corporation . . . . Oklahoma
Imperial Adhesives, Inc. . . . . . . Ohio
Koppel Steel Corporation . . . . . . Pennsylvania
Newport Steel Corporation . . . . . Kentucky
Northern Kentucky Management, Inc. . Kentucky
Northern Kentucky Air, Inc. . . . . Kentucky
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to
the incorporation of our reports included or
incorporated by reference in this Form 10-K, into the
Company's previously filed Registration Statements,
Files Nos. 33-24182, 33-24183, 33-51899, 33-28995, 33-
37454, 33-39695 and 33-64675.
Cincinnati, Ohio ARTHUR ANDERSEN LLP
December 15, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM NS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE
FISCAL YEAR ENDED SEPTEMBER 30, 1995, INCLUDED IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> SEP-25-1994
<PERIOD-END> SEP-30-1995
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<CASH> 4,838
<SECURITIES> 6,413
<RECEIVABLES> 46,428
<ALLOWANCES> 1,021
<INVENTORY> 44,716
<CURRENT-ASSETS> 123,322
<PP&E> 276,262
<DEPRECIATION> 120,887
<TOTAL-ASSETS> 298,497
<CURRENT-LIABILITIES> 57,445
<BONDS> 166,528
<COMMON> 51,741
0
0
<OTHER-SE> 16,369
<TOTAL-LIABILITY-AND-EQUITY> 298,497
<SALES> 371,352
<TOTAL-REVENUES> 371,352
<CGS> 337,270
<TOTAL-COSTS> 337,270
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,796
<INCOME-PRETAX> (8,596)
<INCOME-TAX> (3,540)
<INCOME-CONTINUING> (5,056)
<DISCONTINUED> 0
<EXTRAORDINARY> (5,200)
<CHANGES> 0
<NET-INCOME> (10,256)
<EPS-PRIMARY> (.74)
<EPS-DILUTED> (.74)
</TABLE>
