SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 10-K/A
AMENDMENT NO. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
x SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 24, 1994
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 [X]
Based on the closing sales price of February 3, 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 $40.4 million.
[Cover page 1 of 2 pages]
The number of shares outstanding of the registrant's Common
Stock, no par value, was 13,809,413 at February 3, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II, III and IV incorporate certain information by
reference from the Annual Report to Shareholders for the
fiscal year ended September 24, 1994 ("1994 Annual Report To
Shareholders") and from Amendment No. 1 to the Company's
Form S-1 Registration Statement dated January 17, 1995,
Filed No. 33-56637 ("Amendment No. 1 to the Registration
Statement") and from the Company's Annual Report on Form 10-
K for the fiscal year ended September 24, 1994, File No. 1-
9838 ("1994 Form 10-K"). Part III also incorporates certain
information by reference from the Company's Proxy Statement
dated December 20, 1994 for the Annual Meeting of
Shareholders on February 16, 1995.
[Cover page 2 of 2 pages]
PART I
ITEM 1. BUSINESS
Incorporated herein by reference from the Company's
1994 Form 10-K under the caption "Part I, Item 1. Business -
General," "-Specialty Steel Segment," "- Adhesives Segment,"
and "- Employees".
Environmental Matters
The Company's specialty steel and adhesives operations
are subject to various federal, state and local
environmental laws and regulations, including, among others,
the Clean Air Act, the 1990 Amendments to the Clean Air Act
(the 1990 Amendments), the Clean Water Act and the Resource
Conservation and Recovery Act (RCRA) 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. 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 recycles it through a waste recycling
firm using EPA-approved processes. The Company also has on
its property at Newport a permitted hazardous waste disposal
facility. In the event of a release of a hazardous
substance generated by the Company, the Company could be
responsible for the remediation of contamination associated
with such release.
During the fourth quarter of fiscal 1993, Newport shut
down its melt shop operations for 19 days when it was
discovered that a radioactive substance was accidentally
melted, resulting in the contamination of the melt shop's
electric arc furnace emission control facility, or "baghouse
facility". A similar incident, having occurred in the third
quarter of fiscal 1992, shut down Newport's melt shop
facilities for 23 days. The source of the radiation in these
incidents was contained in incoming shipments of steel
scrap, and was not detected by monitors that check incoming
steel scrap. In response, the Company incurred capital
expenditures to install additional state-of-the-art
radiation detection systems in various locations throughout
the Newport plant.
The Company incurred estimated losses as a result of
the extended outages and costs to restore the melt shop and
related facilities back to operation, including estimated
costs to dispose of the radiation contaminated baghouse
dust, of $7.2 million and $4.1 million in fiscal 1993 and
1992, respectively. The Company has recovered $3.5 million
through insurance and expects to recover and has recorded,
with respect to the 1993 incident, 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. No
recovery has been made nor recorded for the fiscal 1992
incident and the Company is assessing the possibility of
legal remedies against certain parties. The losses and
costs attributable to these incidents, 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, in fiscal 1993 and an extraordinary
charge of $2.5 million, net of applicable income tax benefit
of $1.6 million, or a $.19 loss per share, in fiscal 1992.
To date, 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 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. As of September 24, 1994,
claims recorded in connection with disposal costs
substantially 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.
In September 1994, the Company received a proposed
Consent Agreement from the Environmental Protection Agency
(EPA) 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 RCRA Part B permit pertaining
to a landfill that is adjacent to the Koppel facilities and
owned by Babcock & Wilcox Company (B&W), the former owner of
the Koppel facilities. The Assessment identified potential
releases of hazardous constituents into the environment from
numerous Solid Waste Management Units (SWMU's) and Areas of
Concern (AOC's). The SWMU's and AOC's identified during the
Assessment and the EPA's follow-up investigations are
located at and adjacent to the Company's Koppel facilities.
The proposed Consent Agreement establishes a schedule for
investigating, monitoring, testing and analyzing the
potential releases. Contamination documented as a result of
the investigation may require cleanup measures. Pursuant to
various agreements entered into among the Company, B&W and
PMAC, Ltd. (PMAC) at the time of the Company's acquisition
of the Koppel facilities, B&W and PMAC agreed to indemnify
the Company against various known and unknown environmental
matters. While reserving its rights against B&W, PMAC has
accepted full financial responsibility for the matters
covered by the proposed Consent Agreement other than with
respect to a 1987 release of hazardous constituents (the
1987 Release) that the Company believes could represent the
most significant component of any potential cleanup, and
other than with respect to hazardous constituents generated
by Koppel after its acquisition by the Company, if any.
B&W, PMAC and Koppel are in dispute as to whether the
indemnification provisions related to the 1987 Release
expire in October 1995. Although B&W has not acknowledged
responsibility for any cleanup measures that may be required
as a result of any investigation (other than with respect to
the 1987 Release, in the event certain actions are taken by
the EPA prior to October 1995), B&W and PMAC have agreed to
jointly retain an environmental consultant to assist in
negotiating the Consent Agreement and to conduct the
required investigation. Prior to the completion of the site
analysis to be performed in connection with any Consent
Agreement, the Company cannot predict the expected cleanup
cost for the SWMU's and AOC's covered by the proposed
Consent Agreement. The Company believes that it is entitled
to full indemnity for all of the matters covered by the
proposed Consent Agreement from B&W and/or PMAC. Pursuant
to its contractual arrangements with PMAC, the Company has a
right of offset against $15 million principal amount of
Subordinated Convertible Debentures due October 2000 through
2005 issued to PMAC which are held in escrow to secure
PMAC's indemnification obligations to the Company.
Subject to the uncertainties concerning the proposed
Consent Agreement and the storage and disposal of the
radiation contaminated baghouse dust, the Company believes
it is in compliance in all material respects with all
applicable environmental regulations. Regulations resulting
from the 1990 Amendments that will pertain to the Company's
electric arc furnace operations are currently not expected
to be promulgated until 1997 or later. The Company cannot
predict the level of required capital expenditures 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 Company's environmental control
facilities are anticipated to total approximately $1.0
million through fiscal 1997, however such expenditures could
be influenced by new and revised environmental laws and
regulations.
As of September 24, 1994, the Company had environmental
remediation reserves of $4.6 million, of which $4.4 million
pertain to accrued disposal costs for radiation contaminated
baghouse dust. As of September 24, 1994, 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
proposed Consent Agreement matter, 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 proposed Consent
Agreement 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.
ITEM 3. LEGAL PROCEEDINGS
In September 1994, the Company received a proposed
Consent Agreement from the EPA. See "Environmental
Matters."
Newport is a co-defendant in a claim for breach of
implied warranty in the United States District Court for the
Southern District of Texas arising from the failure of two
joints of welded pipe during testing of an off-shore
pipeline. The plaintiff is seeking damages in excess of $5
million for costs associated with replacing the entire
pipeline and lost production revenues. The Company believes
that it has meritorious defenses to this claim, although no
assurances can be given as to the outcome of this case.
Insurance may be available for a portion, but not all, of
any award for damages.
In addition, the Company is subject to various other
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. The Company believes it has meritorious defenses
with respect to these claims and litigation and that the
ultimate disposition of any of the proceedings, individually
or in the aggregate, to which the Company is currently a
party will not have a material adverse effect on its
consolidated financial position, results of operations or
cash flows. The ultimate effect of these matters, however,
individually or in the aggregate, on the Company's
consolidated results of operations and cash flows may be
materially impacted by the amount and timing of charges to
operations as well as the amount and timing of cash flow
requirements resulting from new information as it becomes
available.
ITEM 7. 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) special
bar quality 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 14
to the Consolidated Financial Statements included herein for
selected financial information by business segment for the
fiscal years 1994, 1993 and 1992.
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 $45,626,000 in
cash and 400,000 shares (approximately 8%) of the newly
formed public company, then valued at $4,800,000. Reference
is made to Note 2 to the Consolidated Financial Statements
included herein concerning the Company's sale of KES and its
pro forma effect on the Company's financial position and
results of operations. The impact of KES on the Company's
operating results for fiscal 1993 and 1992 is reflected in
the tables below and the following discussion.
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 24, 1994 were as
follows:
(In thousands) 1994 1993 1992
Net sales
Specialty steel,
excluding KES $270,441 $234,460 $175,921
KES - 90,547 80,439
Total specialty
steel segment 270,441 325,007 256,360
Adhesives segment 32,939 28,075 24,882
$303,380 $353,082 $281,242
Cost of products sold
Specialty steel,
excluding KES $252,880 $217,215 $168,371
KES - 71,468 62,248
Total specialty
steel segment 252,880 288,683 230,619
Adhesives segment 25,281 21,903 19,570
$278,161 $310,586 $250,189
Operating income (loss)
Specialty steel,
excluding KES $ 2,909 $ 4,094 $ (5,074)
KES - 9,285 8,425
Total specialty
steel segment 2,909 13,379 3,351
Adhesives segment 1,150 1,059 533
Corporate allocations
and income (3,370) (2,766) (2,483)
$ 689 $ 11,672 $ 1,401
Sales data for the Company's specialty steel segment
for each of the three fiscal years in the period ended
September 24, 1994 were as follows:
1994 1993 1992
Tons shipped
Welded tubular 277,600 308,000 246,500
Seamless tubular 92,300 76,900 45,400
SBQ, excluding KES 147,900 102,500 72,000
Other 43,200 16,400 9,400
KES - 244,400 217,900
561,000 748,200 591,200
Net sales ($000's)
Welded tubular $117,214 $125,132 $103,479
Seamless tubular 72,675 62,535 37,819
SBQ, excluding KES 64,858 40,561 28,756
Other 15,694 6,232 5,867
KES - 90,547 80,439
$270,441 $325,007 $256,360
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.
Price and volume levels in the domestic tubular market
are primarily dependent on the level of drilling activity in
the United States and abroad, the level of foreign imports
as well as general economic conditions. The average number
of oil and natural gas drilling rigs in operation in the
United States (rig count) increased 3.4%, from 757 for
fiscal 1993 to 783 for fiscal 1994, according to Baker
Hughes Inc. 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.
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 cases ask 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. The cases are being handled by the International
Trade Administration of the U.S. Department of Commerce,
which is investigating the existence and extent of dumping
and subsidization, and by the U.S. International Trade
Commission, which is assessing whether dumping and
subsidization have caused material injury to the U.S.
industry. In August 1994, the International Trade
Commissioners voted unanimously that there was reasonable
indication of material injury which warrants further
investigation of the petitions. The existence and extent of
unfair trade practices could be determined as early as late
January 1995, and preliminary tariffs could be imposed at
that time. Final determinations regarding unfair practices
and any injury caused thereby are expected in the Summer of
1995. While the Company cannot predict the outcome of the
cases at this time, the Company believes that a favorable
ITC ruling could decrease foreign shipments of OCTG
products and increase the volume and average selling prices
of the Company's shipments.
Price increases and improvements in tubular product
shipments will continue to also be highly dependent on the
level of drilling activity in the United States and abroad
as well as the level of activity in the steel industry and
the general state of the economy.
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 have 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. Continued
improvements in shipments and net sales of SBQ products and
hot rolled coils will be largely dependent on the general
state of the economy and the overall strength of the steel
industry.
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
$316,000 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 has 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 $751,000 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 items 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 the second quarter as well as the absence of
operating earnings from KES in fiscal 1994, as discussed
above.
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 12 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.
Fiscal Year Ended September 25, 1993 Compared with Fiscal
Year Ended September 26, 1992
Net sales in fiscal 1993 increased $71.8 million, or
25.5% from fiscal 1992, to $353.1 million. The specialty
steel segment net sales increased $68.6 million and the
adhesives segment net sales increased $3.2 million.
Welded tubular net sales increased $21.7 million, or
20.9% on a volume increase of 24.9%. The increase in welded
tubular shipments resulted generally from an increase in
market share as well as an increase in market activity, as
evidenced by a modest increase in the number of oil and
natural gas drilling rigs in operation in the United States.
The rig count, which on average was 701 for fiscal 1992,
increased approximately 8% to an average of 757 for fiscal
1993, according to Baker Hughes Inc. Overall average
selling prices of welded tubular products declined 3.3% from
fiscal 1992; however, prices generally improved quarter to
quarter during fiscal 1993.
Seamless tubular net sales increased $24.7 million, or
65.4% on a volume increase of 69.4%. Seamless tubular
product shipments increased for reasons similar to those for
the increase in welded tubular shipments. Average selling
prices for seamless tubular products declined approximately
2.4%.
SBQ product net sales, excluding KES, increased $11.8
million, or 41.1% on a volume increase of 42.4%. SBQ product
shipments improved as a result of stronger market demand
over the prior year. Average selling prices, however,
remained virtually unchanged.
KES's net sales increased $10.1 million, or 12.6% on a
12.2% increase in volume. Average selling prices remained
virtually unchanged from fiscal 1992. The increase in
shipments resulted from continued improvement in the various
markets served by KES.
Imperial's net sales increased $3.2 million, or 12.8%,
primarily the result of the acquisition of new product lines
as well as price increases.
Consolidated gross profit increased $11.4 million from
fiscal 1992 to $42.5 million, or a 12.0% gross profit margin
compared to 11.0% in fiscal 1992. Specialty steel gross
profit, excluding KES, increased $9.7 million from fiscal
1992 for a gross profit margin of 7.4% compared to 4.3% in
fiscal 1992.
Newport and Erlanger's gross profit increased $2.1
million from fiscal 1992. The increase was primarily due to
improved operating efficiencies resulting from increased
production volumes, offset by increased steel scrap costs
and lower overall selling prices. Gross profit at Koppel
increased $7.6 million as a result of significant
improvements in production efficiencies due to increased
production volume for seamless tubular and SBQ products over
fiscal 1992. Gross profit at Koppel was also negatively
impacted by lower average selling prices and higher steel
scrap costs compared to fiscal 1992. KES's gross profit
increased $888,000, primarily as a result of increased
volume as previously discussed, partially offset by
increases in the cost of steel scrap.
The adhesives segment gross profit increased $860,000
for a gross profit margin of 22.0% compared to 21.3% in
fiscal 1992. The increase in gross profit and margin was
primarily due to increased sales volume and operating
efficiencies.
Selling and administrative expenses increased $1.2
million, or 4.0% and declined as a percentage of sales from
10.5% in fiscal 1992 to 8.7% in fiscal 1993. The overall
increase in selling and administrative expenses was
primarily attributable to increased production and sales
volumes.
As a result of the above factors, the specialty steel
segment earned an operating profit of $13.4 million in
fiscal 1993 compared to $3.4 million in fiscal 1992. Of the
$13.4 million specialty steel segment operating profit,
Newport and Erlanger incurred a $751,000 loss, compared to a
$2.0 million loss in fiscal 1992; Koppel earned a $4.8
million profit, compared to a $3.0 million loss in fiscal
1992 and KES earned a $9.3 million profit, compared to an
$8.4 million profit in fiscal 1992. The adhesives segment
earned an operating profit of $1.1 million in fiscal 1993
compared to $533,000 in fiscal 1992.
Interest expense decreased $701,000 primarily as a
result of a reduction in long-term debt obligations.
During the fourth quarter of fiscal 1993, Newport shut
down its melt shop operations for nineteen days when it was
discovered that a radioactive substance was accidentally
melted, resulting in the contamination of the melt shop's
electric arc furnace emission control facility, or
"baghouse" facility. A similar incident, having occurred in
the third quarter of fiscal 1992, shut down Newport's melt
shop facilities for twenty-three days. The source of the
radiation in these incidents was contained in incoming
shipments of scrap metal and was not detected by monitors
that check incoming steel scrap. In response, the Company
incurred capital expenditures to install additional
state-of-the-art radiation detection systems in various
locations throughout the Newport plant.
The Company incurred estimated losses as a result of
the extended outages and costs to restore the melt shop and
related facilities back to operations, including estimated
costs to dispose of the radiation contaminated baghouse
dust, of $7.2 million and $4.1 million, in fiscal 1993 and
1992, respectively. The Company has recovered $3.5 million
through insurance, and expects to recover and has recorded,
with respect to the 1993 incident, 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. No
recovery has been made nor recorded for the fiscal 1992
incident and the Company is assessing the possibility of
legal remedies against certain parties. The losses and
costs attributable to these incidents, 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, in fiscal 1993 and an extraordinary
charge of $2.5 million, net of applicable income tax benefit
of $1.6 million, or a $.19 loss per share, in fiscal 1992.
See "Other Matters" for a further discussions related to
these incidents.
As a result of the above factors, the Company incurred
a loss before extraordinary item of $5.9 million, or a $.44
loss per share, for fiscal 1993, compared to a loss before
extraordinary item of $13.4 million, or a $.99 loss per
share, for fiscal 1992. The decline in losses was
primarily attributable to increased specialty steel segment
sales and operating income, particularly at Koppel, as
discussed above.
Liquidity and Capital Resources
Working capital at September 24, 1994 was $45.2 million
compared to $39.1 million at September 25, 1993. The
current ratio at September 24, 1994 was 1.50 to 1 compared
to 1.45 to 1 at September 25, 1993. At September 24, 1994,
the Company had cash and short-term investments totaling
$44.5 million compared to $9.3 million at September 25,
1993. At December 31, 1994, the Company had aggregate lines
of credit available for borrowing of $34.9 million,
including a $16.2 million line of credit restricted for use
at Koppel, of which a total of $31.2 was outstanding. These
lines have interest rates ranging from 1/2% to 1 1/2% over
prime and expire in fiscal 1995 and 1996. At September 24,
1994, approximately $8.3 million in cash and short-term
investments were restricted, primarily in connection with
cash collateralized letters of credit. The Company is
negotiating a new three year, $45.0 million working capital
facility which would replace its existing credit line
agreements. There can be no assurance that the new facility
will be entered into, however; the Company believes that it
will have sufficient credit facilities to meet its working
capital needs for the next twelve months.
Cash flow used in operating activities totaled $4.3
million. Major components include a net loss before the
effect of the gain on the sale of KES and the adoption of
Statement 109 of $10.0 million, 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.
Cash flows from operating activities were $2.4 million
in fiscal 1993 compared to $8.5 million in fiscal 1992.
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.
Major uses of cash in operating activities in fiscal
1992 included a net loss of $15.9 million and an increase in
accounts receivable of $11.5 million that was primarily
attributable to the increase in business activity in the
specialty steel segment, offset by a decrease in refundable
income taxes of $7.1 million. In addition, increases in net
cash flows of $10.0 million resulted from increases in
accounts payable and accrued liabilities, primarily
attributable to the increase in business activity in the
specialty steel segment.
As a result of the sale of KES, 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. A portion of
the cash proceeds have been utilized to fund the current
year's operating loss. The remaining cash proceeds are
invested in short-term investments and will be utilized for
general corporate purposes, including capital expenditures,
as necessary. The Company intends to hold as an available-
for-sale investment the common stock acquired in the sale of
KES.
The Company incurred $11.8 million, $6.1 and $4.1
million in capital expenditures during fiscal 1994, 1993 and
1992, respectively. Such capital expenditures were
primarily related to the acquisition of machinery and
equipment in the specialty steel segment. For fiscal 1994,
the most significant expenditures was the $2.2 million
acquisition of a tubular processing facility located near
Houston, Texas. Included in total capital spending for
fiscal 1994, 1993 and 1992 was $0.8 million, $0.3 million
and $0.2 million, respectively, related to the Company's
environmental control facilities. The Company currently
estimates that capital spending in fiscal 1995 will
approximate $14.0 million. It is anticipated that capital
spending will be funded through cash flow from operations,
available borrowing sources, as well as available cash and
short-term investments.
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. Scheduled long-term debt maturities are $15.5
million, $19.0 million and $18.6 million for fiscal 1995,
1996 and 1997, respectively. However, the Company is
pursuing a refinancing of a significant portion of its
long-term debt. See "Other Matters".
Cash flows from financing activities in fiscal 1993 and
1992 included net repayments on long-term debt obligations
of $7.9 million and $6.6 million, respectively, and
increased borrowings under the Company's lines of credit of
$6.3 million and $4.0 million, respectively.
Certain of the Company's loan agreements contain
covenants restricting the payment of dividends to its
shareholders. Under the most restrictive of these
covenants, retained earnings available for dividends is
computed under a formula which is based in part on the
earnings and losses of the Company after fiscal 1988. Under
this covenant, the Company is currently prohibited from
paying dividends to its shareholders.
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.
Impact of Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits"
(Statement 112) was issued in November, 1992 and requires
companies to accrue, during the period an employee renders
service, the expense of providing certain postemployment
benefits. Currently, the Company recognizes the expense of
such benefits, to the extent provided, at the time payment
is deemed probable. Adoption of Statement 112 is required
in fiscal 1995. Management does not expect adoption of
Statement 112 to have a material impact on the Company's
financial condition or results of operations.
Other Matters
Legal Matters
Newport is a co-defendant in a claim for breach of
implied warranty arising from the failure of two joints of
welded pipe during testing of an off-shore pipeline. The
plaintiff is seeking damages in excess of $5 million for
costs associated with replacing the entire pipeline and lost
production revenues. The Company believes that it has
meritorious defenses to this claim, although no assurances
can be given as to the outcome of this case. Insurance may
be available for a portion, but not all, of any award for
damages. The Company is subject to various other 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. The ultimate effect of these matters, however,
individually or in the aggregate, on the Company's
consolidated results of operations and cash flows may be
materially impacted by the amount and timing of charges to
operations as well as the amount and timing of cash flow
requirements resulting from new information as it becomes
available.
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, 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 recycles it through a waste recycling
firm using EPA-approved processes. The Company also has on
its property at Newport a permitted hazardous waste disposal
facility.
The occurrences of accidental melting of radioactive
materials previously discussed have not resulted in any
notice of violations from federal or state environmental
regulatory agencies. 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. As of
September 24, 1994, claims recorded in connection with
disposal costs substantially 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.
In September 1994, the Company received a proposed
Consent Agreement from the EPA 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 proposed Consent
Agreement establishes a schedule for investigating,
monitoring, testing and analyzing the potential releases.
Any contamination documented as a result of the
investigation may require remediation. Pursuant to various
indemnity provisions in agreements entered into at the time
of the Company's acquisition of the Koppel facilities in
1991, certain parties 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 proposed
Consent Agreement, the Company believes that the indemnity
provisions provide for it to be fully indemnified against
all matters covered by the proposed Consent Agreement,
including all associated costs, claims and liabilities.
Subject to the uncertainties concerning the proposed
Consent Agreement and the storage and disposal of the
radiation contaminated baghouse dust, the Company believes
it is in compliance in all material respects with all
applicable environmental regulations.
Regulations resulting from the 1990 Amendments that
will pertain to the Company's electric arc furnace
operations are currently not expected to be promulgated
until 1997 or later. The Company cannot predict the level
of required capital expenditures 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 during fiscal 1995 for the Company's
environmental control facilities are not expected to be
material; however, such expenditures could be influenced by
new and revised environmental laws and regulations.
As of September 24, 1994, the Company had environmental
remediation reserves of $4.6 million, of which $4.4 million
pertain to accrued disposal costs for radiation contaminated
baghouse dust. As of September 24, 1994, 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
proposed Consent Agreement matter, 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 proposed Consent
Agreement 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.
Other
The Company is currently pursuing a refinancing of a
significant portion of its long-term debt through a proposed
sale of $125 million senior secured notes due 2003 (the
Offering). Completion of the Offering would substantially
reduce principal amortization requirements until the
maturity of the senior secured notes. Completion of the
Offering is subject to the Securities and Exchange
Commission allowing the registration of the senior secured
notes to become effective, the entering into a firm
commitment with the underwriters and the existence of market
conditions acceptable to the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference from Amendment No. 1
to the Registration Statement, pages F-1 through F-17; and
page 41 from the 1994 Annual Report to Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's
Proxy Statement dated December 20, 1994 for the Annual
Meeting of Shareholders on February 16, 1995, under the
caption "I. Election of Directors" - "Director
Compensation"; on page 7; and "Compensation Committee
Interlocks and Insider Participation" on page 12; and from
Amendment No. 1 to the Registration Statement under the
caption "Executive Compensation - Summary Compensation
Table" on pages 53 and 54.
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
Amendment No. 1 to the Registration Statement for
the fiscal year ended September 24, 1994, are
incorporated by reference in Item 8:
- Consolidated Statements of Income
- 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 Schedules - The
following schedules are incorporated herein by
reference from the Company's 1994 Form 10-K:
- Report of Independent Public Accountants on
Financial
Statement Schedules
- Schedule I - Marketable Securities - Other
Investments
- Schedule V - Property, Plant and Equipment
- Schedule VI - Accumulated Depreciation and
Amortization
of Property, Plant and
Equipment
- Schedule VIII - Valuation and Qualifying
Accounts
- Schedule IX - Short-Term Borrowings
- Schedule X - Supplementary Income Statement
Information
(a) 3. Exhibits
Reference is made to the Index to Exhibits,
which is incorporated herein by
reference.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during
the quarter ended September 24, 1994.
SIGNATURES
Pursuant to the requirements of the Securities and
Exchange Act of 1934, the registrant has duly caused this
amendment to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: February 13, 1995 /s/John R. Parker
John R. Parker, Vice
President
and Treasurer, Principal
Financial Officer
INDEX TO EXHIBITS
Number Description
3(a) Amended and Restated Articles of Incorporation of
Registrant, filed as Exhibit 3.1 to Amendment No. 1 to
Registrant's Form S-1 dated January 17, 1995, File No. 33-
56637, and incorporated herein by this reference
3(b) Amended and Restated By-Laws of Registrant, dated
November 14, 1991, filed as Exhibit 3(b) to Registrant's
Form 10-K for the fiscal year ended September 28, 1991, File
No. 1-9838, and incorporated herein by this reference
4(a) Note Agreement dated as of November 15, 1989 and
amended as of October 3, 1990, between Newport Steel
Corporation and the Purchasers named therein and related
agreements, filed as Exhibit 4(a) to Registrant's Form 10-K
for the fiscal year ended September 30, 1989, File No. 1-
9838, and incorporated herein by this reference; Second and
Third Amendment Agreements, dated May 11, 1992 and November
24, 1992, respectively, filed as Exhibit 4(a) to
Registrant's Form 10-K for the fiscal year ended September
26, 1992, File No. 1-9838, and incorporated herein by this
reference; Fourth Amendment Agreement dated February 8,
1993, filed as Exhibit 4(a) to Registrant's Form 10-Q for
the quarterly period ended March 27, 1993, File No. 1-9838,
and incorporated herein by this reference; Fifth Amendment
Agreement dated August 17, 1994, filed as Exhibit 4(a) to
Registrant's Form 10-K for the fiscal year ended September
24, 1994, File No. 1-9838, and incorporated herein by this
reference; and Sixth Amendment Agreement dated January 17,
1995, filed as Exhibit 4(a) to Registrant's Form 10-Q for
the quarterly period ended December 31, 1994, File No. 1-
9838, and incorporated herein by this reference.
4(b) Form of 11% Subordinated Convertible Debenture due
2005, filed as Exhibit 4.1 to Registrant's Current Report on
Form 8-K dated October 18, 1990, File No. 1-9838, and
incorporated herein by this reference
4(c) Form of Warrant dated October 4, 1990, filed as
Exhibit 4.2 to Registrant's Current Report on Form 8-K dated
October 18, 1990, File No. 1-9838, and incorporated herein
by this reference; and First Amendment to Warrant dated
September 26, 1992, filed as Exhibit 4(c) to Registrant's
Form 10-K for the fiscal year ended September 26, 1992, File
No. 1-9838, and incorporated herein by this reference
4(d) Loan Agreement dated as of October 4, 1990 between
Koppel Steel Corporation and General Electric Capital
Corporation, filed as Exhibit 4.3 to Registrant's Current
Report on Form 8-K dated October 18, 1990, File No. 1-9838,
and incorporated herein by this reference; amendment dated
September 27, 1991, filed as Exhibit 4(d) to Registrant's
Form 10-K for the fiscal year ended September 28, 1991, File
No. 1-9838, and incorporated herein by this reference;
Second Amendment to Loan Agreement dated September 26, 1992,
filed as Exhibit 4(d) to Registrant's Form 10-K for the
fiscal year ended September 26, 1992, File No. 1-9838, and
incorporated herein by this reference; Third Amendment to
Loan Agreement, dated September 24, 1993, filed as Exhibit
4(d) to Registrant's Form 10-K for the fiscal year ended
September 24, 1994, File No. 1-9838, and incorporated herein
by this reference; and Fourth Amendment to Loan Agreement,
dated January 18, 1995, filed as Exhibit 4(d) to
Registrant's Form 10-Q for the quarterly period ended
December 31, 1994, File No. 1-9838, and incorporated herein
by this reference.
No other long-term debt instrument issued by the Registrant
exceeds 10% of the consolidated total assets of the
Registrant and its subsidiaries. The Registrant will
furnish to the Commission upon request copies of such
instruments and related agreements.
10(a) Registrant's Amended Employee Incentive Stock Option
Plan, filed as Exhibit 10(a) to Registrant's Form 10-K for
the fiscal year ended September 30, 1989, File No. 1-9838,
and incorporated herein by this reference
10(b) Registrant's Executive Bonus Plan, filed as Schedule B
to Exhibit 10.4 to Registrant's Registration Statement on
Form S-18, File No. 2-90643, and incorporated herein by this
reference
10(c) Registrant's Non-Qualified Stock Option and Stock
Appreciation Rights Plan of 1988, filed as Exhibit 1 to
Registrant's Proxy Statement dated January 13, 1989, File
No. 1-9838, and incorporated herein by this reference
10(d) Rights Agreement dated as of November 17, 1988 between
Registrant and Pittsburgh National Bank, filed as Exhibit 1
to Registrant'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 Registrant's Form 10-Q dated May 29,
1994, File No. 1-9838, and incorporated herein by this
reference.
10(e) Registrant's 1993 Incentive Stock Option Plan, filed
as Exhibit 1 to Registrant's Proxy Statement dated December
22, 1992, File No. 1-9838, and incorporated herein by this
reference
10(f) 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(g) 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 the Registrant's Form 10-K for the fiscal
year ended September 25, 1993, File No. 1-9838, and
incorporated herein by this reference
10(h) Registration Rights Agreement dated October 6, 1993
among Kentucky Electric Steel, Inc., NS Group, Inc. and NSub
I, Inc. filed as Exhibit 10(i) to the Registrant's Form 10-
K for the fiscal year ended September 25, 1993, File No. 1-
9838, and incorporated herein by this reference
13 1994 Annual Report to Shareholders (not deemed "filed"
except for portions which are expressly incorporated by
reference as Exhibit 13 to Registrant's Form 10-K for the
fiscal year ended September 24, 1994, File No. 1-9838, and
incorporated herein by this reference)
21 Subsidiaries of Registrant, filed as Exhibit 21 to
Registrant's Form 10-K for the fiscal year ended September
24, 1994, File No. 1-9838, and incorporated herein by this
reference
23 Consent of Independent Public Accountants
24 Power of Attorney (contained on Signature Page of
Registrant's Form 10-K for the fiscal year ended September
24, 1994, File No. 1-9838, and incorporated herein by this
reference)
99 (a) Registrant's consolidated financial statements on
pages F-1 through F-17 and "Executive Compensation" on pages
53 and 54 of Registrant's Amendment No. 1 to Form S-1
Registration Statement dated January 17, 1995, File No. 33-
56637, and filed herewith
99 (b) Registrant's Form 10-K for the fiscal year ended
September 24, 1994, File No. 1-9838, and filed herewith
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/A, Amendment No.1, into the Company's
previously filed Registration Statements, Files Nos. 33-24182,
33-24183, 33-51899, 33-28995, 33-37454 and 33-39695.
Cincinnati, Ohio ARTHUR ANDERSEN LLP
February 22, 1995
EXHIBIT 99(a)
NS GROUP, INC.
The following are the excerpted portions of the NS Group, Inc.
Amendment No. 1 to Form S-1 Registration Statement dated
January 17, 1995, File No. 33-56637, which are expressly
incorporated by reference into this Amendment No. 1 to Form
10-K/A.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS NS GROUP, INC.
AND SUBSIDIARIES
Page
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of September
24, 1994 and September 25, 1993 F-3
Consolidated Statements of Operations for
the years ended September 24, 1994,
September 25, 1993, and September 26, 1992 F-4
Consolidated Statements of Cash Flows for
the years ended September 24, 1994,
September 25, 1993, and September 26, 1992 F-5
Consolidated Statements of Common
Shareholders' Equity F-6
Notes to Consolidated Financial Statements F-7
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 operations,
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 Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the 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.
Arthur Andersen LLP
Cincinnati, Ohio
October 31, 1994
NS GROUP, Inc. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 24, 1994 and September 25, 1993
(Dollars in thousands)
1994 1993
ASSETS
Current assets
Cash and cash equivalents $ 4,405 $ 5,797
Short-term investments 40,071 3,457
Accounts receivable, less
allowance for doubtful
accounts of $637 and $819,
respectively 42,651 48,602
Refundable income taxes 195 2,813
Inventories 32,290 41,691
Operating supplies and other
current assets 11,721 18,358
Deferred tax assets 4,877 6,004
Total current assets 136,210 126,722
Property, plant and equipment
--at cost
Land and buildings 27,841 27,559
Machinery and equipment 231,383 234,172
Construction in progress 3,497 3,362
Less--accumulated
depreciation (102,182) (91,627)
Net property, plant and
equipment 160,539 173,466
Other assets 18,578 17,054
Total assets $315,327 $317,242
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Notes payable $ 28,872 $ 26,967
Accounts payable 27,312 28,300
Accrued liabilities 19,281 23,263
Current portion of long-
term debt 15,543 9,132
Total current liabilities 91,008 87,662
Long-term debt 138,110 156,056
Deferred taxes 9,745 10,902
Common shareholders' equity
Common stock, no par value,
40,000,000 shares authorized,
13,809,413 and 13,696,104
shares issued and outstanding,
respectively 48,988 48,284
Common stock options and
warrants 262 208
Unrealized gain (loss) on
available for sale securities 124) --
Retained earnings 27,338 14,130
Common shareholders' equity 76,464 62,622
Total liabilities and
shareholders' equity $315,327 $317,242
See notes to consolidated financial statements
NS GROUP, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended September 24, 1994, September 25, 1993
and September 26, 1992
(Dollars in thousands, except per share amounts)
1994 1993 1992
Net sales $303,380 $353,082 $281,242
Cost of products 278,161 310,586 250,189
Selling and admini-
strative expenses 24,530 30,824 29,652
Operating income 689 11,672 1,401
Interest income 1,733 277 722
Interest expense (20,030) (21,096) (21,797)
Other income (expense) 1,191 (131) 258
Gain on sale of
subsidiary 35,292 -- --
Income (loss) before
income taxes, extra-
ordinary items and
cumulative effect of
a change in accounting
principle 18,875 (9,278) (19,416)
Provision (credit) for
income taxes 7,382 (3,382) (6,058)
Income (loss) before
extraordinary items
and cumulative effect
of a change in
accounting principle 11,493 (5,896) (13,358)
Extraordinary items,
net of income taxes -- (1,095) (2,542)
Cumulative effect of a
change in accounting
principle 1,715 -- --
Net income (loss) $ 13,208 $ (6,991) $(15,900)
Per common share
Income (loss)
before extra-
ordinary items
and cumulative
effect of a
change in
accounting
principle $ .84 $(.44) $ (.99)
Extraordinary items -- (.08) (.19)
Cumulative effect of
a change in accounting
principle .12 -- --
Net income (loss) $ .96 $(.52) $(1.18)
Weighted average shares
outstanding 13,789,265 13,552,838 13,483,247
See notes to consolidated financial statements
NS GROUP, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 24, 1994, September 25, 1993
and September 26, 1992
(Dollars in thousands)
1994 1993 1992
Cash flows from operating
activities:
Net income (loss) $ 13,208 $(6,991) $(15,900)
Adjustments to recon-
cile net income (loss)
to net cash flows from
operating activities:
Depreciation and
amortization 18,789 19,093 18,711
Decrease in long-term
deferred taxes (1,157) (1,998) (1,675)
Gain on sale of
subsidiary (35,292) -- --
(Gain) loss on disposal
of equipment (230) 323 381
Increase in accounts
receivable, net (7,921) (11,461) (11,498)
(Increase) decrease in
inventories (3,168) 906 1,430
Decrease in refundable
income taxes 2,618 2,012 7,067
(Increase) decrease in
other current assets 2,691 (7,203) (33)
Increase in accounts
payable 5,782 958 6,442
Increase in accrued
liabilities 351 6,753 3,590
Net cash flows from
operating activities (4,329) 2,392 8,515
Cash flows from investing
activities:
Proceeds from sale of
subsidiary 50,426 -- --
Cash dividend from
sold subsidiary 6,818 -- --
Purchases of property,
plant and equipment (11,760) (6,080) (4,148)
Proceeds from sale of
equipment 631 619 1,246
(Increase) decrease
in other assets (2,122) 999 (774)
(Increase) decrease in
short-term investments (36,614) 208 2,303
Net cash flows from
investing activities 7,379 (4,254) (1,373)
Cash flows from financing
activities:
Increase in notes
payable 1,905 6,286 3,989
Proceeds from issuance
of long-term debt 431 2,012 6,379
Repayments on long-term
debt (7,246) (9,896) (12,960)
Increase in debt
issuance costs (236) (388) (259)
Proceeds from issuance
of common stock 704 931 133
Dividends paid on
common stock -- -- (808)
Net cash flows from
financing activities (4,442) (1,055) (3,526)
Net increase (decrease)
in cash and cash
equivalents (1,392) (2,917) 3,616
Cash and cash equivalents
at beginning of year 5,797 8,714 5,098
Cash and cash equivalents
at end of year $ 4,405 $ 5,797 $ 8,714
Cash paid during the
year for:
Interest $ 18,964 $18,434 $ 18,448
Income taxes $ 4,868 $ 291 $ 177
See notes to consolidated financial statements
NS GROUP, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
For the years ended September 24, 1994, September 25, 1993
and September 26, 1992
(Dollars in thousands)
Unrealized
Gain
(Loss) on
Options Available
Common Stock and for Sale Retained
Shares Amount Warrants Securities Earnings Total
Balance,
Sept
ember
28,
1991 13,454,982 $47,220 $100 $37,829 $85,149
Stock
option
plans 49,575 133 133
Net
loss (15,900)(15,900)
Common
stock
dividends
($.06
per
share) (808) (808)
Balance,
Sept-
ember
26,
1992 13,504,557 $47,353 $100 $ 21,121 $68,574
Stock
option
plans 48,750 181 108 289
Common
stock
issuance 142,797 750 750
Net loss (6,991) (6,991)
Balance,
Sept
ember
25,
1993 13,696,104 $48,284 $208 $ -- $ 14,130$ 62,622
Stock
option
plans 56,145 290 54 344
Common
stock
issuance 57,164 414 414
Unrealized
losses on
invest
ments (124) (124)
Net income 13,208 13,208
Balance,
September
24,
1994 13,809,413 $48,988 $262 $(124) $ 27,338$ 76,464
See notes to consolidated financial statements
NS GROUP, Inc. AND SUBSIDIARIES
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., Northern Kentucky Air, Inc and
NSub I, Inc., formerly known as Kentucky Electric Steel
Corporation. See Note 2. 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 auction
rate preferred stocks and money market mutual funds for
which market value approximates cost. At September 24, 1994,
approximately $8,309,000 in short-term investments were
restricted, primarily in connection with cash collateralized
letters of credit. Other investments consist of marketable
equity securities and are classified as "Other Assets" in
the accompanying consolidated balance sheets. During the
first quarter of fiscal 1994, the Company adopted Statement
of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities"
(Statement 115). Under Statement 115, the Company's
investment in a marketable equity security is classified as
"available for sale" and is recorded at current market value
with an offsetting adjustment to common shareholders'
equity; all short-term investments are classified as
"trading securities" and are recorded at current market
value, with unrealized gains and losses included in results
of operations. The impact on the Company's consolidated
financial statements from the adoption of Statement 115 was
not material.
Inventories
At September 24, 1994 and September 25, 1993,
inventories stated at the lower of LIFO (last-in, first-out)
cost or market represent approximately 27% and 23% 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 (in thousands of dollars):
1994 1993
Raw materials $ 6,699 $ 5,736
Semi-finished and
finished goods 27,695 37,830
34,394 43,566
LIFO reserve (2,104) (1,875)
Total inventories $32,290 $41,691
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 24, 1994, are
assets with a net book value of approximately $5,910,000
which are not currently being used in the business. In
management's opinion, the values assigned to such assets are
realizable.
Income Taxes
At September 24, 1994, deferred income tax balances
represent the tax effect of temporary differences between
the financial reporting basis and the tax basis of certain
assets and liabilities. In fiscal 1993 and 1992, 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 12.
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.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits"
(Statement 112) was issued in November, 1992 and requires
companies to accrue, during the period an employee renders
service, the expense of providing certain postemployment
benefits. Currently, the Company recognizes the expense of
such benefits, to the extent provided, at the time payment
is deemed probable. Adoption of Statement 112 is required in
fiscal 1995. Management does not expect adoption of
Statement 112 to have a material impact on the Company's
consolidated financial condition or results of operations.
Fiscal Year-End
The Company's fiscal year ends on the last Saturday of
September.
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 $45,626,000 in cash and 400,000
shares (approximately 8%) of the new entity, valued at
$4,800,000. In addition, the Company received $6,818,000 in
cash from the new entity in satisfaction of a dividend
declared by KES prior to the sale.
Subsequent to the sale, the Company changed the name of
KES to NSub I, Inc., which currently holds a portion of the
proceeds from the sale. The accompanying consolidated
financial statements include the financial position, results
of operations and changes in cash flows of KES for the
periods prior to the sale.
The sale of KES resulted in a pre-tax gain of
$35,292,000. After giving effect to the elimination of the
pre-tax gain of $35,292,000, the related tax effect of
$13,764,000 and $123,000 of net income of KES for the eleven
days of fiscal 1994 prior to sale, the Company's pro forma
net loss before cumulative effect of a change in accounting
principle for the fiscal year ended September 24, 1994 is
$10,158,000, or a $.74 loss per share.
Note 3: Other Assets
Other assets at September 24, 1994 and September 25,
1993 includes approximately $10,528,000 and $13,274,000,
respectively, in costs associated with land near Newport,
Kentucky, held as investment property and listed for sale.
At September 24, 1994, other assets also include a
marketable equity security with a carrying value of
$4,600,000 and a cost basis of $4,800,000.
Note 4: Accrued Liabilities
Accrued liabilities consist of the following (in
thousands of dollars):
1994 1993
Accrued payroll and
payroll taxes $ 5,032 $ 6,339
Accrued interest 4,072 4,131
Accrued environmental
remediation 4,563 5,766
Accrued income taxes 711 --
Other 4,903 7,027
$19,281 $23,263
Note 5: Long-term Debt and Lines of Credit
Long-term debt of the Company consists of the following
(in thousands of dollars):
1994 1993
Term loans due a non-bank
financial institution, interest
ranging from 11.54% to 12.54%,
due in varying quarterly
installments through 2001,
secured by property, plant
and equipment $ 59,125 $ 61,125
Senior Secured Notes due various
insurance companies, interest at
10.65%, due in equal quarterly
installments through 1999,
secured by property, plant and
equipment 32,729 37,200
11% Subordinated Convertible
Debentures, due in annual
installments from October,
2000 through 2005 29,000 29,000
Capital Expenditure Loans due a
non-bank financial institution,
interest ranging from 7.99% to
11.54%, due in equal quarterly
installments beginning December,
1994 through 2001, secured by
property, plant and equipment 14,626 14,626
Term loans due various states
and municipalities, interest
ranging from 3% to 11%, due
in varying monthly or quarterly
installments through 2010,
secured by junior mortgages on
property, plant and equipment 11,613 16,470
Other 6,560 6,767
153,653 165,188
Less -- Current portion (15,543) (9,132)
$138,110 $156,056
Certain of the loan agreements contain a number of
restrictive covenants including, among other things,
maintenance of minimum net worth, minimum fixed charge
coverage ratios, maximum ratios of indebtedness to total
capitalization, minimum current ratio and working capital
requirements and restrictions on transferring assets between
affiliated companies. Certain term loans also require
mandatory prepayments in the event Koppel's cash flow
exceeds certain defined levels. In addition, certain of the
loan agreements allow for redemption prior to maturity, at
the option of the Company, at amounts in excess of par.
Certain of the loan agreements contain covenants
restricting the payment of dividends. Under the most
restrictive of these covenants, retained earnings available
for dividends is computed under a formula which is based in
part on the earnings and losses of the Company after fiscal
1988. Under this covenant, the Company is currently
prohibited from paying dividends.
The Subordinated Convertible Debentures are unsecured
obligations of the Company and are convertible into common
shares of the Company at a price of $17 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 $15,543,000 in
fiscal 1995, $18,952,000 in fiscal 1996, $18,644,000 in
fiscal 1997, $21,792,000 in fiscal 1998 and $21,747,000 in
fiscal 1999.
The Company has consolidated line of credit agreements
with various lenders totaling $34,915,000, including a
$16,165,000 line of credit agreement restricted for use at
Koppel. The lines are secured by inventory and accounts
receivable, with interest rates ranging from 1/2% to 1 1/2%
over prime. Borrowings are due on demand and are limited
under the agreements to defined percentages of eligible
inventory and receivable balances, as well as by certain
restrictive covenants. At September 24, 1994, $34,915,000
of the Company's consolidated lines of credit were available
for borrowing, of which $28,197,000 was outstanding. These
credit lines expire in fiscal 1995 and 1996.
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 $4,600,000, are
reported in other assets and are carried at market value.
Notes payable -- The carrying amount approximates fair
value because of the short maturity and because such
instruments contain interest rates that vary with the prime
rate.
Long-term debt -- The fair value of the Company's
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 amounts and
fair values of the Company's long-term debt at September 24,
1994 were $153,653,000 and $154,649,000, respectively.
Note 7: Preferred Stock
The Company's 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 Company's 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
24, 1994, 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 1994
and 1993 follows:
1994 1993
Options outstanding,
beginning of year 1,185,525 960,020
Options granted 289,050 332,550
Options expired (369,725) (58,295)
Options exercised (56,145) (48,750)
Options outstanding,
end of year 1,048,705 1,185,525
Options exercisable,
end of year 509,525 644,500
Available for grant 488,580 674,250
Under the NS Group, Inc. Non-Qualified Stock Option and
Stock Appreciation Rights Plan of 1988 the Company may grant
to key employees options to purchase (or stock appreciation
awards corresponding to) an aggregate of 500,000 shares of
the Company's common stock. Options are to be issued at no
less than 50% of market value on the date of grant, are
exercisable in yearly increments as determined by the Stock
Option Committee and expire ten years from the date of
grant. At September 24, 1994, options outstanding 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. Compensation expense is recorded by the
Company for grants of options with an exercise price less
than the market price of the common stock at the date of
grant.
A summary of transactions in the plan for fiscal 1994
and 1993 follows:
1994 1993
Options outstanding
beginning of year 366,760 262,000
Options granted 135,085 125,760
Options expired (26,220) (21,000)
Options exercised -- --
Options outstanding,
end of year 475,625 366,760
Options exercisable,
end of year 106,700 61,200
Available for grant 24,375 133,240
The Company has common stock warrants outstanding,
issued in connection with the financing of the Koppel
acquisition. The warrants are exercisable for approximately
772,000 shares of the Company's 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.
Newport is a co-defendant in a claim for breach of
implied warranty in the United States District Court for the
Southern District of Texas arising from the failure of two
joints of welded pipe during testing of an off-shore
pipeline. The plaintiff is seeking damages in excess of $5
million for costs associated with replacing the entire
pipeline and lost production revenues. The Company believes
that it has meritorious defenses to this claim. Insurance
may be available for a portion, but not all, of any award
for damages. In addition, the Company is subject to various
other 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. The ultimate effect of those matters, however,
individually or in the aggregate, on the Company's
consolidated results of operations and cash flows may be
materially impacted by the amount and timing of charges to
operations as well as the amount and timing of cash flow
requirements resulting from new information as it becomes
available.
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 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, which is classified as a hazardous
waste. The Company currently collects the dust resulting
from its electric arc furnace operations through emission
control systems and recycles it through a waste recycling
firm using EPA-approved processes. The Company also has on
its property at Newport a permitted hazardous waste disposal
facility.
The occurrences of the accidental melting of
radioactive materials, as discussed in Note 10, have not
resulted in any notice of violations from federal or state
environmental regulatory agencies. 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. As of September 24, 1994, claims
recorded in connection with disposal costs substantially
exhaust available insurance coverage. Based on current
knowledge, management believes the recorded gross reserves
of $4,354,000 for disposal costs pertaining to these
incidents are adequate.
In September 1994, the Company received a proposed
Consent Agreement from the EPA 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 proposed Consent
Agreement establishes a schedule for investigating,
monitoring, testing and analyzing the potential releases.
Contamination documented as a result of the investigation
may require cleanup measures. 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 proposed
Consent Agreement, the Company believes that the indemnity
provisions provide for it to be fully indemnified against
all matters covered by the proposed Consent Agreement,
including all associated costs, claims and liabilities.
Subject to the uncertainties concerning the proposed
Consent Agreement 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 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 succeeding fiscal year
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 24, 1994, the Company had environmental
remediation reserves of $4,563,000, of which $4,354,000
pertain to accrued disposal costs for radiation contaminated
baghouse dust. As of September 24, 1994, 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 $3,000,000; however, with respect to the
proposed Consent Agreement matter, 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 proposed Consent
Agreement 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.
Note 10: Extraordinary Items
During the fourth quarter of fiscal 1993, Newport shut
down its melt shop operations for nineteen days when it was
discovered that a radioactive substance was accidentally
melted, resulting in the contamination of the melt shop's
electric arc furnace emission control facility, or "baghouse
facility". A similar incident, having occurred in the third
quarter of fiscal 1992, shut down Newport's melt shop
facilities for twenty-three days. The source of the
radiation in these incidents was contained in incoming
shipments of scrap steel and was not detected by monitors
that check incoming steel scrap. In response, the Company
incurred capital expenditures to install additional
state-of-the-art radiation detection systems in various
locations throughout the Newport plant.
The Company incurred estimated losses as a result of
the extended outages and costs to restore the melt shop and
related facilities back to operation, including estimated
costs to dispose of the radiation contaminated baghouse
dust, of $7,156,000 and $4,100,000, in fiscal 1993 and 1992,
respectively. The Company has recovered $3,460,000 through
insurance, and expects to recover and has recorded, with
respect to the 1993 incident, a $2,302,000 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. No
recovery has been made nor recorded for the fiscal 1992
incident and the Company is assessing the possibility of
legal remedies against certain parties. The losses and costs
attributable to these incidents, net of insurance claims,
resulted in an extraordinary charge of $1,095,000, net of
applicable income tax benefit of $662,000, or an $.08 loss
per share, in fiscal 1993 and an extraordinary charge of
$2,542,000, net of applicable income tax benefit of
$1,558,000, or a $.19 loss per share, in fiscal 1992.
Note 11: 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 at Newport) 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 $497,000, $1,244,000 and $1,119,000 in
fiscal years 1994, 1993 and 1992, respectively.
Note 12: 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 net income by
$1,715,000, or $.12 per share.
The provision (credit) for income taxes, including
$662,000 and $1,558,000 allocated to extraordinary items in
fiscal 1993 and 1992, respectively, consists of the
following (in thousands of dollars):
1994 1993 1992
Current:
Federal $5,100 $(2,000) $(4,000)
State 323 (851) (287)
5,423 (2,851) (4,287)
Deferred:
Federal 739 (1,526) (3,470)
State 1,220 333 141
1,959 (1,193) (3,329)
Provision (credit) for
income taxes $7,382 $(4,044) $(7,616)
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 (in thousands of
dollars):
1994 1993 1992
Income tax provision
(credit) at statutory tax
rate of 35% in fiscal
1994 and 34% in fiscal
1993 and 1992 $6,606 $(3,752) $(7,995)
Change in taxes
resulting from:
State income taxes,
net of federal effect 1,003 (342) (96)
Dividend income exclusion (200) (6) (14)
Other, net (27) 56 489
Total provision (credit)
for income taxes $7,382 $(4,044) $(7,616)
The following represents the components of deferred tax
liabilities and assets at 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.
1994
(in thousands
of dollars)
Deferred tax liabilities:
Property, plant and equipment $27,774
Other items 2,222
29,996
Deferred tax assets:
Reserves and accruals 3,904
Net operating tax loss carryforward 11,690
Alternative minimum tax and other
tax credit carryforward 7,629
Other items 1,905
25,128
Net deferred tax liability $ 4,868
For federal income tax purposes, the Company has
alternative minimum tax credit carryforwards of approximately
$7,237,000, which are not limited by expiration dates, and
other tax credit carryforwards of approximately $392,000,
which expire beginning in 2000. The Company also has net
operating tax loss carryforwards of approximately
$33,399,000, which expire beginning in 2007.
The components of the credit for deferred income taxes
for fiscal 1993 and 1992 are as follows (in thousands of
dollars):
1993 1992
Excess of tax over book
depreciation $ 4,097 $ 7,778
Koppel start-up costs deferred
for income tax purposes 177 533
Reserves and accruals not
currently deductible (299) (1,439)
Alternative minimum tax and
other tax credit carryforwards 1,684 (780)
Net operating tax loss
carryforward (7,034) (8,134)
Other, net 182 (1,287)
Total $(1,193) $(3,329)
Note 13: Related Party Transactions
One of the Company's 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 $10,984,000,
$10,914,000 and $10,356,000 for fiscal years 1994, 1993, and
1992, respectively. Trade receivables from this customer
were $958,000 and $582,000 at the end of fiscal 1994 and
1993, respectively.
Note 14: 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 a pipe finishing
operation located 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 1994, 1993 and 1992 (in thousands of
dollars):
Depre-
Oper ciation
ating Identi- and Capital
Net Income fiable Amorti- Expen-
Sales (Loss) Assets zation ditures
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 con-
solidated $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
1992
Specialty
steel
products $256,360 $ 3,351 $271,477 $18,296 $ 3,948
Adhesives
products 24,882 533 10,845 415 200
Corporate
assets and
allocations -- (2,483) 36,757 -- --
Total consol-
idated $281,242 $1,401 $319,079 $18,711 $ 4,148
Note 15: Quarterly Financial Data (Unaudited)
Quarterly results of operations for 1994 and 1993 are
as follows (in thousands of dollars, except per share
amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
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)
1993
Net sales $77,779 $86,735 $95,363 $93,205
Gross profit 7,366 10,282 12,686 12,162
Income (loss)
before extra-
ordinary item (3,355) (2,115) 11 (437)
Net income
(loss) (3,355) (2,115) 11 (1,532)
Income (loss)
per common
share before
extraordinary
item (.25) (.16) -- (.03)
Net income
(loss) per
common share (.25) (.16) -- (.11)
The sale of KES increased fiscal 1994 first quarter net
income by $21,528,000. In addition, in the fiscal 1994
first quarter, the Company recorded the cumulative effect of
the adoption of Statement No. 109, which increased net
income by $1,715,000.
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. Fiscal 1994 second quarter welded tubular
sales declined by approximately $7.9 million from the
comparable fiscal 1993 quarter. 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.
Note 16: Proposed Offering of Debt Securities
The Company is currently pursuing a refinancing of a
significant portion of its long-term debt through the
registration and sale of $125 million Senior Secured Notes
due 2003 (the Offering), which would substantially reduce
principal amortization requirements on term debt until the
maturity of the Senior Secured Notes. Completion of the
Offering is subject to the Securities and Exchange
Commission allowing the registration of the Senior Secured
Notes to become effective, the entering into a firm
commitment with the underwriters and the existence of
market conditions satisfactory to the Company.
Executive Compensation
The following table presents summary information
concerning compensation for each of the last three fiscal
years awarded or paid to, or earned by, the Chief Executive
Officer and each of the other executive officers for the
fiscal year ended September 24, 1994 for services rendered
to the Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Principal Other Annual
Position Year Salary Bonus Compensation(1)
Clifford R. Borland 1994 $361,692 $0 (2)
President and Chief 1993 315,921 0 (2)
Executive Officer 1992 310,000 0
Ronald R. Noel 1994 $188,951 $0 (2)
Vice President, 1993 181,328 0 (2)
Secretary and Chief 1992 178,000 0
Administrative
Officer; President
of Newport
John R. Parker(4) 1994 $173,863 $0 (2)
Vice President, 1993 166,022 0 (2)
Treasurer and Chief 1992 163,000 0
Financial Officer
Long-Term
Compensation
Name and Principal Number of All Other
Position Options/SARs Compensation(1)
Clifford R. Borland 41,333 31,750 (3)
President and Chief 15,000 16,648 (3)
Executive Officer 0
Ronald R. Noel
Vice President,
Secretary and Chief 13,420 8,643 (3)
Administrative 9,750 14,537 (3)
Officer; President 0
of Newport
John R. Parker(4)
Vice President, 13,420 15,647 (3)
Treasurer and Chief 9,750 7,131 (3)
Financial Officer 0
(1) In accordance with the transitional provisions of the
rules on executive officer compensation adopted by the
Securities and Exchange Commission, amounts under "Other
Annual Compensation" and "All Other Compensation" are
excluded for the Company's 1992 fiscal year.
(2) The named executive officers received certain
perquisites in fiscal 1994 and 1993, the amount of which did
not exceed the lesser of $50,000 or 10% of any such
officer's salary and bonus.
(3) Amounts included as "All Other Compensation" consist of
insurance premiums made pursuant to the Company's salary
continuation program and in connection with certain
disability insurance policies. Under the Company's salary
continuation program, which the Company funds with insurance
policies, the Company will pay certain employees, including
the executive officers, upon retirement at or after age 62
an amount ranging from 27% to 42% of his current base
salary for life, with payments for a minimum of 10 years
either to each participant or his descendants. During
fiscal 1994 and 1993, respectively, the Company paid
aggregate premiums as follows: $18,933 and $4,733 for Mr.
Borland; $3,143 and $9,430 for Mr. Noel; and $10,991 and
$2,748 for Mr. Parker. The Company has purchased disability
insurance policies for the benefit of certain employees of
the Company, including the named executive officers. In the
event an insured is disabled for more than 60 days, he will
be paid 70% of his base salary during the term of such
disability up to age 65. During fiscal 1994 and 1993,
respectively, the Company paid aggregate premiums as
follows: $12,817 and $11,915 for Mr. Borland; $5,500 and
$5,107 for Mr. Noel; and $4,736 and $4,383 for Mr. Parker.
(4) Mr. Parker is 50 years old and has held the same or
similar positions with the Company for more than five years.
The following tables present certain information
concerning stock options/SARs granted to and exercised by
the executive officers of the Company during fiscal 1994.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Percent
of Total
Options/
SARs
Granted
to Market
Options/ Employ- Per Price
SARs ees in Share on Date Expir-
Granted Fiscal Exercise of ation
Name (1) Year(2) Price Grant Date
Clifford R.
Borland 41,333 9.7% $7.25 $7.25 12/01/03
Ronald R.
Noel 13,420 3.2 7.25 7.25 12/01/03
John R.
Parker 13,420 3.2 7.25 7.25 12/01/03
Potential Realizable Value at Assumed
Annual Rates of Stock Price
Appreciation for Option Term(3)
Name 5% 10%
Clifford R. Borland $188,457 $477,588
Ronald R. Noel 61,188 155,063
John R. Parker 61,188 155,063
(1) Options/SARs were granted pursuant to the NS Group,
Inc. Non-Qualified Stock Option and Stock Appreciation
Rights Plan of 1988 (NSO Plan). The options become
exercisable over a five year period in increments of 20% per
year beginning with the third anniversary of the date of
grant.
(2 The Company granted options representing 424,135 shares
to employees in fiscal 1994 (135,085 under the NSO Plan and
289,050 under the Company's Employee Incentive Stock Option
Plan).
(3 The amounts shown under these columns are the result of
calculations at 5% and 10% rates as required by the
Securities and Exchange Commission and are not intended to
forecast future appreciation of the stock price of the
Company's common stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
Number Total Number of
of Shares Shares for which
Acquired Unexercised Options/
on Exer- Value SARs held at Sept.
Name cise realized 24, 1994
Exerci- Unexerci-
sable sable
Clifford
R. Borland 0 $0 18,200 73,133
Ronald
R. Noel 0 0 13,900 36,770
John R.
Parker 0 0 14,700 36,970
Total Value of Unexercised,
In-the-Money
Options/SARS held
at September 24, 1994(1)
Name Exercisable Unexercisable
Clifford R. Borland $0 $41,250
Ronald R. Noel 0 26,813
John R. Parker 0 26,813
(1) In-the-Money Options/SARs are those where the fair
market value of the underlying securities at fiscal year-end
exceed the exercise price of the option or SAR.
EXHIBIT 99(b)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
x SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 24, 1994
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
ommon 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 [X]
Based on the closing sales price of November 28, 1994, as
reported in The Wall Street Journal, the aggregate market
value of the voting stock held by non-affiliates of the
registrant was approximately $42.5 million.
[Cover page 1 of 2 pages]
The number of shares outstanding of the registrant's Common
Stock, no par value, was 13,809,413 at November 28, 1994.
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 24, 1994 ("1994 Annual Report To
Shareholders"). Part III also incorporates certain
information by reference from the Company's Proxy Statement
dated December 20, 1994 for the Annual Meeting of
Shareholders on February 16, 1995.
[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. Additional information pertaining to
this transaction is incorporated herein by reference from
Note 2 to the Consolidated Financial Statements included in
the 1994 Annual Report to Shareholders, such relevant
portion filed herewith under Exhibit 13, under the caption
"Consolidated Financial Statements."
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 is Note 14 to the
Consolidated Financial Statements included in the 1994
Annual Report to Shareholders such relevant portion filed
herewith under Exhibit 13, under the caption "Consolidated
Financial Statements" 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 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.
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.
The demand for domestic OCTG products is primarily
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.
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. 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.
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 a 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. In the past, the Company typically
limited its production of hot rolled coils to the amount
required to supply its welded pipe mills for conversion into
welded tubular products. However, as a result of recent
strong demand for hot rolled coils, the Company has begun to
utilize its excess melting and rolling capacity to produce
hot rolled coils for direct sale to third parties. 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.
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 welded OCTG products destined for the southwest
region by barge, and with the addition of Baytown, the
Company will be shipping substantially all of its seamless
OCTG product destined for the southwest by barge as well.
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 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 cases ask 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. The
cases are being handled by the International Trade
Administration of the United States Department of Commerce,
which is investigating the existence and extent of dumping
and subsidization, and by the United States International
Trade Commission which is assessing whether dumping and
subsidization have caused material injury to the United
States OCTG industry. In August 1994, the International
Trade Commissioners voted unanimously that there was
reasonable indication of material injury which warrants
further investigation of the petitions. The existence and
extent of unfair trade practices could be determined as
early as late January 1995, and preliminary tariffs could be
imposed at that time. Final determinations regarding unfair
trade practices and any injury caused thereby are expected
in the summer of 1995. While the Company cannot predict the
outcome of the cases at this time, the Company believes that
a favorable ruling could decrease foreign shipments of OCTG
products and increase the volume and selling price of the
Company's shipments.
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 1995 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
has no reason to believe that the utility contract expiring
at Koppel in 1995 will not be renewed upon substantially
similar terms.
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 900 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 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 four manufacturing sites, a
warehouse in Puerto Rico, and a number of public warehouses
across the United States.
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's specialty steel and adhesives operations
are subject to various federal, state and local
environmental laws and regulations, including, among others,
the Clean Air Act, the 1990 Amendments to the Clean Air Act
(the 1990 Amendments), the Clean Water Act and the Resource
Conservation and Recovery Act (RCRA) 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. 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 recycles it through a waste recycling
firm using EPA-approved processes. The Company also has on
its property at Newport a permitted hazardous waste disposal
facility. In the event of a release of a hazardous
substance generated by the Company, the Company could be
responsible for the remediation of contamination associated
with such release.
During the fourth quarter of fiscal 1993, Newport shut
down its melt shop operations for 19 days when it was
discovered that a radioactive substance was accidentally
melted, resulting in the contamination of the melt shop's
electric arc furnace emission control facility, or "baghouse
facility". A similar incident, having occurred in the third
quarter of fiscal 1992, shut down Newport's melt shop
facilities for 23 days. The source of the radiation in these
incidents was contained in incoming shipments of steel
scrap, and was not detected by monitors that check incoming
steel scrap. In response, the Company has installed
additional state-of-the-art radiation detection systems in
various locations throughout the Newport plant.
The Company incurred estimated losses as a result of
the extended outages and costs to restore the melt shop and
related facilities back to operation, including estimated
costs to dispose of the radiation contaminated baghouse
dust, of $7.2 million and $4.1 million in fiscal 1993 and
1992, respectively. The Company has recovered $3.5 million
through insurance and expects to recover and has recorded as
a receivable an additional $2.3 million in insurance claims
for the fiscal 1993 incident. No recovery has been made nor
recorded for the fiscal 1992 incident and the Company is
assessing the possibility of legal remedies against certain
parties. The losses and costs attributable to these
incidents, 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, in fiscal 1993 and an extraordinary charge of $2.5
million, net of applicable income tax benefit of $1.6
million, or a $.19 loss per share, in fiscal 1992. To date,
the occurrence of the accidental melting of radioactive
materials has not resulted in any notice of violations from
federal or state environmental regulatory agencies.
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. As of September 24, 1994,
claims recorded in connection with disposal costs
substantially exhaust available insurance coverage. Based
on current knowledge, management believes the recorded
reserves of $4.4 million for disposal costs pertaining to
these incidents are adequate and the ultimate outcome will
not have a material adverse effect on the Company's
consolidated financial position. The ultimate effect of
these matters on the Company's consolidated results of
operations cannot be predicted because any such effect
depends on the amount and timing of charges to operations
resulting from new information as it becomes available.
In September 1994, the Company received a proposed
Consent Agreement from the Environmental Protection Agency
(EPA) 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 RCRA Part B permit pertaining
to a landfill that is adjacent to the Koppel facilities and
owned by Babcock & Wilcox Company (B&W), the former owner of
the Koppel facilities. The Assessment identified potential
releases of hazardous constituents into the environment from
numerous Solid Waste Management Units (SWMU's) and Areas of
Concern (AOC's). The SWMU's and AOC's identified during the
Assessment and the EPA's follow-up investigations are
located at and adjacent to the Company's Koppel facilities.
The proposed Consent Agreement establishes a schedule for
investigating, monitoring, testing and analyzing the
potential releases. Contamination documented as a result of
the investigation may require cleanup measures. Pursuant to
various agreements entered into among the Company, B&W and
PMAC, Ltd. (PMAC) at the time of the Company's acquisition
of the Koppel facilities, B&W and PMAC agreed to indemnify
the Company against various known and unknown environmental
matters. While reserving its rights against B&W, PMAC has
accepted full financial responsibility for the matters
covered by the proposed Consent Agreement other than with
respect to a 1987 release of hazardous constituents (the
1987 Release) that the Company believes could represent the
most significant component of any potential cleanup, and
other than with respect to hazardous constituents generated
by Koppel after its acquisition by the Company, if any.
B&W, PMAC and Koppel are in dispute as to whether the
indemnification provisions related to the 1987 Release
expire in October 1995. Although B&W has not acknowledged
responsibility for any cleanup measures that may be required
as a result of any investigation (other than with respect to
the 1987 Release, in the event certain actions are taken by
the EPA prior to October 1995), B&W and PMAC have agreed to
jointly retain an environmental consultant to assist in
negotiating the Consent Agreement and to conduct the
required investigation. Prior to the completion of the site
analysis to be performed in connection with any Consent
Agreement, the Company cannot predict the expected cleanup
cost for the SWMU's and AOC's covered by the proposed
Consent Agreement. The Company believes that it is entitled
to full indemnity for all of the matters covered by the
proposed Consent Agreement from B&W and/or PMAC. Pursuant
to its contractual arrangements with PMAC, the Company has a
right of offset against $15 million principal amount of
Subordinated Convertible Debentures due October 2000 through
2005 issued to PMAC which are held in escrow to secure
PMAC's indemnification obligations to the Company.
Subject to the uncertainties concerning the proposed
Consent Agreement and the storage and disposal of the
radiation contaminated baghouse dust, the Company believes
it is in compliance in all material respects with all
applicable environmental regulations. Regulations resulting
from the 1990 Amendments that will pertain to the Company's
electric arc furnace operations are currently not expected
to be promulgated until 1997 or later. The Company cannot
predict the level of required capital expenditures 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 Company's environmental control
facilities are anticipated to total approximately $1.0
million through fiscal 1997, however such expenditures could
be influenced by new and revised environmental laws and
regulations.
Employees
As of September 24, 1994, the Company had 1,568
employees, of whom 384 were salaried and 1,184 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 1995 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 40 acres of
real estate upon which is located a tubular processing
facility. The facility is located adjacent to accessible
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; Kalamazoo, Michigan; Lynchburg, Virginia;
Nashville, Tennessee - The Company owns approximately seven
acres of property in Cincinnati, Ohio, five acres of
property in Kalamazoo, Michigan, 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; the Kalamazoo property
consists of one 24,000 square foot building; 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 40 acres
of partially developed land near Newport, Kentucky, acquired
in fiscal 1989, for use as investment property.
Information regarding encumbrances on the Company's
properties is incorporated herein by reference from Note 5
to the Consolidated Financial Statements, included in the
1994 Annual Report to Shareholders, such relevant portion
filed herewith under Exhibit 13, under the caption
"Consolidated Financial Statements."
Capacity Utilization
The Company's capacity utilization for fiscal 1994 was as
follows:
Rated Capacity
Facility (in tons) Tons Produced Percent
Koppel facilities
Melt shop ....... 400,000 278,300 69.6%
Bar mill ........ 200,000 169,900 85.0%
Seamless tube mill 200,000 100,900 50.5%
Newport facilities
Melt shop ....... 700,000 367,300 52.5%
Hot strip rolling
mill .. 750,000 353,200 47.1%
Welded pipe mills 580,000 269,900 46.5%
ITEM 3. LEGAL PROCEEDINGS
In September 1994, the Company received a proposed
Consent Agreement from the EPA. See "Environmental
Matters."
Newport is a co-defendant in a claim for breach of
implied warranty in the United States District Court for the
Southern District of Texas arising from the failure of two
joints of welded pipe during testing of an off-shore
pipeline. The plaintiff is seeking damages in excess of $5
million for costs associated with replacing the entire
pipeline and lost production revenues. The Company believes
that it has meritorious defenses to this claim, although no
assurances can be given as to the outcome of this case.
Insurance may be available for a portion, but not all, of
any award for damages.
In addition, the Company is subject to various other
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. The Company believes it has meritorious defenses
with respect to these claims and litigation and that the
ultimate disposition of any of the proceedings to which the
Company is currently a party will not have a material
adverse effect on its consolidated financial position.
There can be no assurance, however, as to the ultimate
disposition of these matters.
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
NS Group, Inc. is listed on the New York Stock
Exchange, trading symbol, NSS.
Stock Price
Fiscal 1994 High Low
First Quarter $ 9 1/2 $ 5 7/8
Second Quarter 7 3/4 6 1/4
Third Quarter 7 1/8 4 7/8
Fourth Quarter 7 5 7/8
Fiscal 1993 High Low
First Quarter $ 5 $ 3 1/2
Second Quarter 6 3/8 3 5/8
Third Quarter 8 7/8 5
Fourth Quarter 10 3/4 7 5/8
Additional information pertaining to dividends is
incorporated herein by reference from Note 5 to the
Consolidated Financial Statements included in the 1994
Annual Report to Shareholders, such relevant portion filed
herewith under Exhibit 13, under the caption "Consolidated
Financial Statements".
As of November 28, 1994, there were approximately 310
record holders of Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference from the 1994 Annual
Report to Shareholders are Note 2 to the Consolidated
Financial Statements and selected financial data, such
relevant portions filed herewith under Exhibit 13, under the
captions "Consolidated Financial Statements" and
"Consolidated Historical Summary", respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
Incorporated herein by reference from the 1994 Annual
Report to Shareholders, such relevant portion filed herewith
under Exhibit 13, under the caption "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 1994 Annual
Report to Shareholders, such relevant portion filed herewith
under Exhibit 13, under the caption "Consolidated Financial
Statements."
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 20, 1994 for the Annual
Meeting of Shareholders on February 16, 1995, under the
caption "I. Election of Directors" - "Nominees for Election
as Directors"; "Committees of the Board"; and "Executive
Compensation".
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's
Proxy Statement dated December 20, 1994 for the Annual
Meeting of Shareholders on February 16, 1995, under the
caption "I. Election 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 20, 1994 for the Annual
Meeting of Shareholders on February 16, 1995, "Securities
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 20, 1994 for the Annual
Meeting of Shareholders on February 16, 1995, under the
caption "I. Election of Directors" - "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 1994
Annual Report to Shareholders for the fiscal year ended
September 24, 1994, are incorporated by reference in
Item 8:
- Consolidated Statements of Income
- 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 Schedules - The
following schedules are included herein:
- Report of Independent Public Accountants on
Financial
Statement Schedules
- Schedule I - Marketable Securities - Other
Investments
- Schedule V - Property, Plant and Equipment
- Schedule VI - Accumulated Depreciation and
Amortization of Property, Plant
and Equipment
- Schedule VIII - Valuation and Qualifying
Accounts
- Schedule IX - Short-Term Borrowings
- Schedule X - Supplementary Income Statement
Information
(a) 3. Exhibits
Reference is made to the Index to Exhibits,
which is incorporated herein by reference.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
quarter ended September 24, 1994.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
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 October 31, 1994.
Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The
schedules listed in Item 14(a) 2 are the responsibility of
the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's
rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state 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
October 31, 1994
SCHEDULE I
NS GROUP, INC. AND SUBSIDIARIES
___________________
MARKETABLE SECURITIES - OTHER INVESTMENTS
(Dollars in thousands)
Amount at
Which Shown
Market in Balance
Type of Investment Cost Value Sheet
At September 25, 1993
Fixed Rate Obligations:
Corporate notes......................... $ 527 $ 503 $ 503
Variable Rate Preferred Stocks............ 1,000 1,000 1,000
U.S. Treasury Securities.................. 1,954 1,954 1,954
Total short-term investments at
September 25, 1993.................... $ 3,481 $ 3,457 $ 3,457
At September 24, 1994
Fixed Rate Obligations:
Corporate notes......................... $ 527 $ 500 $ 500
Variable Rate Preferred Stocks:
Utilities
Duke Power Company .................. 1,500 1,500 1,500
Houston Industries, Inc. ............ 1,500 1,500 1,500
Kansas City Power & Light Company ... 1,500 1,500 1,500
Virginia Electric & Power Company ... 1,500 1,500 1,500
Other Utilities ..................... 6,000 6,000 6,000
Financial
Northern Trust Corp. ................ 1,500 1,500 1,500
Konica Capital....................... 1,000 1,000 1,000
Transamerica Corporation............. 1,500 1,500 1,500
Other Financial...................... 6,000 6,000 6,000
Industrial.............................. 3,000 3,000 3,000
Other Variable Rate Investments:
Provident Institutional Funds
Tempcash Fund..................... 11,995 11,995 11,995
Other............................... 2,576 2,576 2,576
Total short-term investments at
September 24, 1994................... $40,098 $40,071 $40,071
SCHEDULE V
NS GROUP, INC. AND SUBSIDIARIES
______________________
PROPERTY, PLANT AND EQUIPMENT
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Balance at Balance
Beginning Additions at End
Classification of Year at Cost Retirements Other(a) of Year
For the Year Ended
September 26, 1992:
Land and land improvements.. $ 8,320 $ 50 $ (122) $ - $8,248
Buildings................... 17,788 1,251 (23) - 19,016
Machinery and equipment..... 226,498 4,900 (1,863) - 229,535
Construction in progress.... 6,046 (2,053)(b) - - 3,993
$258,652 $ 4,148 $(2,008) $ - $260,792
For the Year Ended
September 25, 1993:
Land and land improvements.. $ 8,248 $ 186 $ (12) $ - $ 8,422
Buildings................... 19,016 121 - - 19,137
Machinery and equipment..... 229,535 6,404 1,767) - 234,172
Construction in progress.... 3,993 (631)(b) - - 3,362
$260,792 $ 6,080 $(1,779) $ - $265,093
For the Year Ended
September 24, 1994:
Land and land improvements.. $ 8,422 $ 1,210 $ - $ (682) $ 8,950
Buildings................... 19,137 756 (283) (719) 18,891
Machinery and equipment..... 234,172 9,389 (3,993) (8,185) 231,383
Construction in progress.... 3,362 405 (b) - (270) 3,497
$265,093 $ 11,760 $(4,276) $(9,856) $262,721
</TABLE>
_____________________________
(a) Reductions due to the sale of subsidiary.
(b) Net change in construction in progress for the year.
SCHEDULE VI
NS GROUP, INC. AND SUBSIDIARIES
___________________
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Additions
Balance at Charged to Balance
Beginning Costs and at End
Classification of Year Expenses Retirements Other(a) of Year
For the Year Ended
September 26, 1992:
Land and land improvements.. $ 602 $ 189 $ - $ - $ 791
Buildings................... 2,213 444 (1) - 2,656
Machinery and equipment..... 53,772 17,485 (380) - 70,877
$56,587 $18,118 $ (381) $ - $ 74,324
For the Year Ended
September 25, 1993:
Land and land improvements.. $ 791 $ 197 $ - $ - $ 988
Buildings................... 2,656 1,015 - - 3,671
Machinery and equipment..... 70,877 16,928 (837) - 86,968
$74,324 $18,140 $ (837) $ - $ 91,627
For the Year Ended
September 24, 1994:
Land and land improvements.. $ 988 $ 192 $ - $ (22) $ 1,158
Buildings................... 3,671 434 (217) (134) 3,754
Machinery and equipment..... 86,968 17,409 (3,659) (3,448) 97,270
$91,627 $18,035 $(3,876) $(3,604) $102,182
</TABLE>
_____________________________
(a) Reductions due to the sale of subsidiary.
SCHEDULE VIII
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)
BALANCE, September 28, 1991....... $ 1,138 $ 97
Additions:
Charged to costs and expenses.. 632 1,903
Deductions:
Net charges of nature for which
reserves were created......... ( 463) (1,792)
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
_______________________
(1) Deducted from accounts receivable
SCHEDULE IX
NS GROUP, INC. AND SUBSIDIARIES
____________________
SHORT-TERM BORROWINGS
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Maximum
Amount Average Weighted
Weighted Outstanding Amount Average
Balance Average at Month-end Outstanding Interest
Category of Aggregate at End Interest During During Rate During
Short-Term Borrowings(1) of Year Rate the Year the Year(2) the Year(2)
For the Year Ended
September 26, 1992:
Lines of credit.... $20,279 7.29% $31,744 $24,127 7.62%
Other notes........ 402 5.58 608 297 5.58
$20,681 7.26 $32,352 $24,424 7.59
For the Year Ended
September 25, 1993:
Lines of credit.... $26,229 7.30% $29,729 $25,333 7.30%
Other notes........ 738 5.58 1,137 533 5.58
$26,967 7.27 $30,866 $25,866 7.27
For the Year Ended
September 24, 1994:
Lines of credit.... $28,197 9.05% $33,353 $29,011 7.89%
Other notes........ 675 5.29 855 490 5.58
$28,872 8.96 $34,208 $29,501 7.86
</TABLE>
____________________________
(1) Short-term borrowings were under various bank line of credit agreements and
short-term demand notes which are used to finance various insurance
contracts.
(2) Computed on a monthly weighted average basis.
SCHEDULE X
NS GROUP, INC. AND SUBSIDIARIES
__________________
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Dollars in thousands)
Charged to
Costs and
Item Expenses
For the Year Ended September 26, 1992:
Maintenance and repairs.............................. $23,904
For the Year Ended September 25, 1993:
Maintenance and repairs.............................. $21,703
For the Year Ended September 24, 1994:
Maintenance and repairs.............................. $21,249
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 9, 1994 By: /s/Clifford R. Borland
Clifford R. Borland, President
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 9, 1994 By: /s/Clifford R. Borland
Clifford R. Borland,
President,
Chief Executive Officer
and Director
Date: December 9, 1994 /s/John R. Parker
John R. Parker, Vice
President and
Treasurer, Principal
Financial Officer
Date: December 9, 1994 /s/Thomas J. Depenbrock
Thomas J. Depenbrock
Corporate Controller
Date: December 9, 1994 /s/Ronald R. Noel
Ronald R. Noel, Director
Date: December 9, 1994 /s/John B. Lally
John B. Lally, Director
Date: December 9, 1994 /s/Patrick J. B. Donnelly
Patrick J. B. Donnelly,
Director
Date: December 9, 1994 /s/R. Glen Mayfield
R. Glen Mayfield, Director
INDEX TO EXHIBITS
Number Description
3(a) Amended and Restated Articles of Incorporation of Registrant, filed
as Exhibit 3(a) to Registrant's Form 10-K for the fiscal year ended
September 30, 1989, File No. 1-9838, and incorporated herein by this
reference
3(b) Amended and Restated By-Laws of Registrant, dated November 14, 1991,
filed as Exhibit 3(b) to Registrant's Form 10-K for the fiscal year ended
September 28, 1991, File No. 1-9838, and incorporated herein by this
reference
4(a) Note Agreement dated as of November 15, 1989 and amended as of
October 3, 1990, between Newport Steel Corporation and the Purchasers
named therein and related agreements, filed as Exhibit 4(a) to
Registrant's Form 10-K for the fiscal year ended September 30, 1989, File
No. 1-9838, and incorporated herein by this reference; Second and Third
Amendment Agreements, dated May 11, 1992 and November 24, 1992,
respectively, filed as Exhibit 4(a) to Registrant's Form 10-K for the
fiscal year ended September 26, 1992, File No. 1-9838, and incorporated
herein by this reference; Fourth Amendment Agreement dated February 8,
1993, filed as Exhibit 4(a) to Registrant's Form 10-Q for the quarterly
period ended March 27, 1993, File No. 1-9838, and incorporated herein by
this reference; and Fifth Amendment Agreement dated August 17, 1994,
filed herewith
4(b) Form of 11% Subordinated Convertible Debenture due 2005, filed as
Exhibit 4.1 to Registrant's Current Report on Form 8-K dated October 18,
1990, File No. 1-9838, and incorporated herein by this reference
4(c) Form of Warrant dated October 4, 1990, filed as Exhibit 4.2 to
Registrant's Current Report on Form 8-K dated October 18, 1990, File No.
1-9838, and incorporated herein by this reference; and First Amendment to
Warrant dated September 26, 1992, filed as Exhibit 4(c) to Registrant's
Form 10-K for the fiscal year ended September 26, 1992, File No. 1-9838,
and incorporated herein by this reference
4(d) Loan Agreement dated as of October 4, 1990 between Koppel Steel
Corporation and General Electric Capital Corporation, filed as Exhibit
4.3 to Registrant's Current Report on Form 8-K dated October 18, 1990,
File No. 1-9838, and incorporated herein by this reference; amendment
dated September 27, 1991, filed as Exhibit 4(d) to Registrant's Form 10-K
for the fiscal year ended September 28, 1991, File No. 1-9838, and
incorporated herein by this reference; Second Amendment to Loan Agreement
dated September 26, 1992, filed as Exhibit 4(d) to Registrant's Form 10-K
for the fiscal year ended September 26, 1992, File No. 1-9838, and
incorporated herein by this reference; and Third Amendment to Loan
Agreement, dated September 24, 1993, filed herewith
No other long-term debt instrument issued by the Registrant exceeds 10%
of the consolidated total assets of the Registrant and its subsidiaries.
The Registrant will furnish to the Commission upon request copies of such
instruments and related agreements.
10(a) Registrant's Amended Employee Incentive Stock Option Plan, filed as
Exhibit 10(a) to Registrant's Form 10-K for the fiscal year ended
September 30, 1989, File No. 1-9838, and incorporated herein by this
reference
10(b) Registrant's Executive Bonus Plan, filed as Schedule B to Exhibit
10.4 to Registrant's Registration Statement on Form S-18, File No. 2-
90643, and incorporated herein by this reference
10(c) Registrant's Non-Qualified Stock Option and Stock Appreciation
Rights Plan of 1988, filed as Exhibit 1 to Registrant's Proxy Statement
dated January 13, 1989, File No. 1-9838, and incorporated herein by this
reference
10(d) Rights Agreement dated as of November 17, 1988 between Registrant
and Pittsburgh National Bank, filed as Exhibit 1 to Registrant'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 Registrant's Form 10-Q dated May 29, 1994, File No. 1-9838, and
incorporated herein by this reference.
10(e) Registrant's 1993 Incentive Stock Option Plan, filed as Exhibit 1
to Registrant's Proxy Statement dated December 22, 1992, File No. 1-9838,
and incorporated herein by this reference
10(f) 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(g) 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 the Registrant's
Form 10-K for the fiscal year ended September 25, 1993, File No. 1-9838,
and incorporated herein by this reference
10(h) Registration Rights Agreement dated October 6, 1993 among Kentucky
Electric Steel, Inc., NS Group, Inc. and NSub I, Inc. filed as Exhibit
10(i) to the Registrant's Form 10-K for the fiscal year ended September
25, 1993, File No. 1-9838, and incorporated herein by this reference
13 Excerpted portion of the 1994 Annual Report to Shareholders 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)
