SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 1996
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
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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Common stock, no par value 13,812,663 (Class)
(Outstanding at
January 31, 1997)
NS GROUP, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 19
NS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 28, 1996 AND SEPTEMBER 28, 1996
(Dollars in thousands) (Unaudited)
<TABLE>
<S> <C> <C>
December 28, September 28,
CURRENT ASSETS 1 9 9 6 1 9 9 6
Cash and cash equivalents $ 2,881 $ 3,442
Short-term investments 25,910 13,855
Accounts receivable, less
allowance for doubtful
accounts of $847 and $757,
respectively 49,416 51,824
Inventories 52,461 53,317
Other current assets 28,697 28,037
Total current assets 159,365 150,475
PROPERTY, PLANT AND EQUIPMENT 273,132 272,286
Less - accumulated depreciation(142,875) (138,512)
130,257 133,774
OTHER ASSETS 14,792 15,785
Total assets $304,414 $300,034
CURRENT LIABILITIES
Notes payable $ 443 $ 879
Accounts payable
41,810 41,847
Other current liabilities 28,791 24,376
Current portion of long-term
debt 2,477 2,468
Total current liabilities 73,521 69,570
LONG-TERM DEBT 164,381 164,789
DEFERRED TAXES 9,415 8,559
COMMON SHAREHOLDERS' EQUITY
Common stock, no par value 49,004 49,004
Common stock options and
warrants 2,781 2,774
Unrealized loss on available
for sale securities (1,562) (1,287)
Retained earnings 6,874 6,625
Total common shareholders'
equity 57,097 57,116
Total liabilities and
shareholders' equity $304,414 $300,034
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
NS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED
DECEMBER 28, 1996 AND DECEMBER 30, 1995
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<S> <C> <C>
December 28, December 30,
1 9 9 6 1 9 9 5
NET SALES $105,167 $ 89,295
COST AND EXPENSES
Cost of products sold 92,824 82,402
Selling and administrative
expenses 6,398 6,286
Operating income 5,945 607
OTHER INCOME (EXPENSE)
Interest expense (6,063) (6,055)
Interest income 307 125
Other, net 83 698
Income (loss) before
income taxes 272 (4,625)
PROVISION (CREDIT) FOR
INCOME TAXES 23 (1,421)
Net income (loss) $ 249 $ (3,204)
NET INCOME (LOSS) PER
COMMON SHARE $.02 $(.23)
WEIGHTED AVERAGE SHARES
OUTSTANDING 13,809 13,809
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
NS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED
DECEMBER 28, 1996 AND DECEMBER 30, 1995
(Dollars in thousands) (Unaudited)
<TABLE>
<S> <C> <C>
December 28, December 30,
1 9 9 6 1 9 9 5
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ 249 $(3,204)
Adjustments to reconcile
net income (loss)
to net cash flows from
operating activities:
Depreciation and
amortization 4,452 4,725
Amortization of debt
discount and finance costs 418 409
Increase (decrease) in
long-term deferred taxes 1,005 (1,746)
Decrease in accounts
receivable, net 2,408 3,842
(Increase) decrease in
inventories 856 (9,682)
(Increase) decrease in
other current assets (1,115) 3,374
Increase (decrease) in
accounts payable (37) 4,256
Increase in accrued
liabilities 4,415 4,161
Net cash flows from
operating activities 12,651 6,135
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in property,
plant and equipment, net (835) (1,844)
(Increase) decrease in
other assets 682 (304)
Net cash flows from
investing activities (153) (2,148)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable (436) (255)
Repayments on long-term debt (568) (175)
Net cash flows from
financing activities (1,004) (430)
Net increase in cash
and short-term
investments 11,494 3,557
CASH AND SHORT-TERM
INVESTMENTS AT
BEGINNING OF YEAR 17,297 11,251
CASH AND SHORT-TERM
INVESTMENTS AT
END OF PERIOD $28,791 $14,808
Cash paid during the period for:
Interest $ 1,133 $ 1,190
Income taxes, net
of refunds $ 3 $ (650)
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
NS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Principles of Consolidation
The condensed 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) and Northern Kentucky
Management, Inc. All significant intercompany balances
and transactions have been eliminated.
The accompanying information reflects, in the opinion
of management, all adjustments (which consist only of
normal recurring adjustments) necessary to present fairly
the results for the interim periods. The preparation of
financial statements in conformity with generally accepted
accounting principles requires that management make
certain estimates and assumptions that affect the amounts
reported in the consolidated financial statements and
accompanying notes. Actual results could differ from
those estimates. Reference should be made to NS Group,
Inc.'s Form 10-K for the fiscal year ended September 28,
1996 for additional footnote disclosure, including a
summary of significant accounting policies.
In the first quarter of fiscal 1997, the Company
adopted the provisions of Statement of Financial
Accounting Standards No. 121 (Statement 121). Statement
121 establishes accounting standards for impairment of
long-lived assets to be held and used and for long-lived
assets that are to be disposed. The impact on the
Company's financial statements from the adoption of
Statement 121 was not material.
In the first quarter of fiscal 1997, the Company also
adopted Statement of Financial Accounting Standards No.
123 (Statement 123). Statement 123 establishes accounting
and reporting standards for stock-based employee
compensation plans. As permitted under Statement 123 the
Company has elected to remain on the intrinsic value based
method of accounting for stock-based employee compensation
plans. As such, beginning with the 1997 fiscal year-end,
Statement 123 requires pro forma disclosures of net income
and earnings per share, as if the fair value based method
of accounting had been applied.
Certain amounts for the prior period have been
reclassified in the accompanying condensed consolidated
financial statements to conform to fiscal 1997
presentation.
The Company's fiscal year ends on the last Saturday
of September.
Note 2: Inventories
At December 28, 1996 and September 28, 1996,
inventories stated at the lower of LIFO (last-in,
first-out) cost or market represent approximately 32% and
36% of total inventories before the LIFO reserve,
respectively. Inventories consist of the following
components ($000's):
<TABLE>
<S> <C> <C>
December 28, September 28,
1 9 9 6 1 9 9 6
Raw materials $ 6,867 $ 5,948
Semi-finished
and finished goods 48,716 50,471
55,583 56,419
LIFO reserve (3,122) (3,102)
$52,461 $53,317
</TABLE>
Note 3: Commitments and Contingencies
The Company has various commitments for the purchase
of materials, supplies and energy arising in the ordinary
course of business.
Legal Matters
The Company is subject to various claims, lawsuits
and administrative proceedings arising in the ordinary
course of business with respect to workers compensation,
health care and product liability coverages (each of which
is self-insured to certain levels), as well as commercial
and other matters. The Company accrues for the cost of
such matters when the incurrence of such costs is probable
and can be reasonably estimated. Based upon its
evaluation of available information, management does not
believe that any such matters are likely, individually or
in the aggregate, to have a material adverse effect upon
the Company's consolidated financial position, results of
operations or cash flows.
Environmental Matters
The Company is subject to federal, state and local
environmental laws and regulations, including, among
others, the Resource Conservation and Recovery Act (RCRA),
the Clean Air Act, the 1990 Amendments to the Clean Air
Act, the Clean Water Act and all regulations promulgated
in connection therewith, including, among others, those
concerning the discharge of contaminants as air emissions
or waste water effluents and the disposal of solid and/or
hazardous wastes such as electric arc furnace dust. As
such, the Company is from time to time involved in
administrative and judicial proceedings and administrative
inquiries related to environmental matters.
As with other steel mills in the industry, Koppel and
Newport produce dust which contains lead, cadmium and
chromium, and is classified as a hazardous waste. The
Company currently collects the dust resulting from its
electric arc furnace operations through emission control
systems and contracts with a company for treatment and
disposal of the dust at an EPA-approved facility.
The Company has on its property at Newport a
permitted hazardous waste disposal facility. Newport's
permit for operating the hazardous waste disposal facility
requires that it investigate, test, and analyze for
potential releases of hazardous constituents from its
closed loop water recirculating system. Any contamination
documented as a result of the investigation would require
certain cleanup measures; however, the Company believes
that the cost of any such cleanup measures, if required,
would not be material.
In November 1996, Koppel received a Notice of
Violation from the EPA alleging violations of the Clean
Air Act and the Pennsylvania State Implementation Plan.
The violations allegedly occurred during 1995 and 1996 and
pertain to air emissions from Koppel's electric arc
furnace operations. At this time, the Company is unable
to determine if the EPA will assess civil penalties as a
result of the alleged violations, or the extent of any
such potential penalties.
In March 1995, Koppel and the EPA signed a Consent
Order relating to an April 1990 RCRA facility assessment
(the Assessment) completed by the EPA and the Pennsylvania
Department of Environmental Resources. The Assessment was
performed in connection with a permit application
pertaining to a landfill that is adjacent to the Koppel
facilities. The Assessment identified potential releases
of hazardous constituents at or adjacent to the Koppel
facilities prior to the Company's acquisition of the
Koppel facilities. The Consent Order establishes a
schedule for investigating, monitoring, testing and
analyzing the potential releases. Contamination
documented as a result of the investigation requires
cleanup measures and certain remediation has begun.
Pursuant to various indemnity provisions in agreements
entered into at the time of the Company's acquisition of
the Koppel facilities, certain parties have agreed to
indemnify the Company against various known and unknown
environmental matters. The Company believes that the
indemnity provisions provide for it to be fully
indemnified against all matters covered by the Consent
Order, including all associated costs, claims and
liabilities.
In two separate incidents occurring in fiscal 1993
and 1992, radioactive substances were accidentally melted
at Newport, resulting in the contamination of a quantity
of electric arc furnace dust. The Company is
investigating and evaluating various issues concerning
storage, treatment and disposal of the radiation
contaminated electric arc furnace dust; however, a final
determination as to method of treatment and disposal, cost
and further regulatory requirements cannot be made at this
time. Depending on the ultimate timing and method of
treatment and disposal, which will require appropriate
federal and state regulatory approval, the actual cost of
disposal could substantially exceed current estimates and
the Company's insurance coverage.
The Company expects to recover and has recorded a
$2.3 million receivable relating to insurance claims for
the recovery of disposal costs which will be filed with
the applicable insurance carrier at the time such disposal
costs are incurred. As of December 28, 1996, claims
recorded in connection with disposal costs exhaust
available insurance coverage. Based on current knowledge,
management believes the recorded gross reserves of $4.4
million for disposal costs pertaining to these incidents
are adequate.
Subject to the uncertainties concerning the Consent
Order and the storage and disposal of the radiation
contaminated dust, the Company believes that it is
currently in compliance in all material respects with all
applicable environmental regulations. The Company cannot
predict the level of required capital expenditures or
operating costs that may result from future environmental
regulations.
Capital expenditures for the next twelve months
relating to environmental control facilities are expected
to be approximately $1.0 million; however, such
expenditures could be influenced by new or revised
environmental regulations and laws or new information or
developments with respect to the Company's operating
facilities.
As of December 28, 1996, the Company had
environmental remediation reserves of $4.4 million which
pertain almost exclusively to accrued disposal costs for
radiation contaminated dust. As of December 28, 1996, the
estimated range of possible losses related to the
environmental contingency matters discussed above in
excess of those accrued by the Company is $0 to $3.0
million; however, with respect to the Consent Order, the
Company cannot estimate the range of possible losses
should the Company ultimately not be indemnified. Based
upon its evaluation of available information, management
does not believe that any of the environmental contingency
matters discussed above are likely, individually or in the
aggregate, to have a material adverse effect upon the
Company's consolidated financial position, results of
operations or cash flows. However, the Company cannot
predict with certainty that new information or
developments with respect to the Consent Order or its
other environmental contingency matters, individually or
in the aggregate, will not have a material adverse effect
on the Company's consolidated financial position, results
of operations or cash flows.
Note 4: Summarized Financial Information
The Company's Senior Secured Notes are
unconditionally guaranteed in full, jointly and severally,
by each of the Company's subsidiaries (Subsidiary
Guarantors), each of which is wholly-owned. Separate
financial statements of the Subsidiary Guarantors are not
presented because they are not deemed material to
investors. The following is summarized financial
information of the Subsidiary Guarantors as of December
28, 1996 and September 28, 1996 and for the three month
periods ended December 28, 1996 and December 30, 1995.
All significant intercompany accounts and transactions
between the Subsidiary Guarantors have been eliminated.
<TABLE>
<S> <C> <C>
December 28, September 28,
1996 1996
(Dollars in thousands)
Current assets $128,094 $123,803
Noncurrent assets $138,799 $151,110
Current liabilities $ 61,488 $ 61,980
Payable to parent $159,315 $162,593
Other noncurrent
liabilities 9,731 9,953
Total non-
current liabilities $169,046 $172,546
</TABLE>
Three Months Ended
December 28, December 30,
1996 1995
(Dollars in thousands)
<TABLE>
<S> <C> <C>
Net sales $105,167 $ 89,295
Gross profit $ 12,343 $ 6,893
Net income
(loss) $ 1,296 $ (2,386)
</TABLE>
NS GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company operates in two business segments:
specialty steel and industrial adhesives. Within the
specialty steel segment are the operations of Koppel, a
manufacturer of seamless tubular steel products and
special bar quality (SBQ) products and Newport, a
manufacturer of welded tubular steel products and hot
rolled coils. The Company's specialty steel products
consist of: (I) seamless and welded oil country tubular
goods (OCTG) primarily used in oil and natural gas
drilling and production operations; (ii) line pipe used in
the transmission of oil, gas and other fluids; (iii) SBQ
products primarily used in the manufacture of heavy
industrial equipment; and (iv) hot rolled coils which are
sold to service centers and other manufacturers for
further processing. Within the adhesives segment are the
operations of Imperial, a manufacturer of industrial
adhesives products.
The matters discussed or incorporated by reference in
this Report on Form 10-Q that are forward-looking
statements (as defined in the Private Securities
Litigation Reform Act of 1995) involve risks and
uncertainties. Such risks and uncertainties include, but
are not limited to, the level of domestic as well as
worldwide oil and natural gas drilling activity; general
economic conditions; product demand and industry capacity;
industry pricing; the presence or absence of
governmentally imposed trade restrictions; manufacturing
efficiencies; volatility in raw material costs,
particularly steel scrap; costs of compliance with
environmental regulations; product liability or other
claims; the Company's ability to meet operating cash
requirements, including capital expenditures; and the
Company's capital structure, which may limit its
operational and financial flexibility. These risks and
uncertainties may cause the actual results or performance
of the Company to differ materially from any future
results or performance expressed or implied by such
forward-looking statements.
Results of Operations
The Company's net sales, cost of products sold and
operating results by business segment for the three month
periods ended December 28, 1996 and December 30, 1995 are
summarized below.
Three Months Ended
December 28, December 30,
1996 1995
(Dollars in thousands)
<TABLE>
<S> <C> <C>
Net sales
Specialty steel segment
Koppel $ 46,894 $ 42,043
Newport 48,086 38,339
94,980 80,382
Adhesives segment 10,187 8,913
$ 105,167 $ 89,295
Cost of products sold
Specialty steel segment
Koppel $ 43,372 $ 37,481
Newport 41,706 37,937
85,078 75,418
Adhesives segment 7,746 6,984
$ 92,824 $ 82,402
Operating income
Specialty steel segment
Koppel $ 1,640 $ 3,049
Newport 5,021 (1,623)
6,661 1,426
Adhesives segment 244 132
Corporate allocations ( 960) (951)
$ 5,945 $ 607
</TABLE>
Sales data for the Company's specialty steel segment
for the three month periods ended December 28, 1996 and
December 30, 1995 were as follows:
Three Months Ended
December 28, December 30,
1996 1995
<TABLE>
<S> <C> <C>
Tons shipped
Koppel
Seamless tubular 33,600 34,100
SBQ 36,000 28,900
Newport
Welded tubular 93,800 74,800
Hot rolled coils and
other products 7,700 11,000
171,100 148,800
Net sales ($000's)
Koppel
Seamless tubular $ 30,917 $ 28,063
SBQ 15,977 13,980
Newport
Welded tubular 44,890 34,176
Hot rolled coils and
other products 3,196 4,163
$ 94,980 $ 80,382
</TABLE>
Net sales for the first quarter of fiscal 1997
increased $15.9 million, or 17.8%, from the first quarter
of fiscal 1996 to $105.2 million. Specialty steel segment
net sales increased $14.6 million, or 18.2%, and the
adhesives segment net sales increased $1.3 million, or
14.3%. The overall increase in specialty steel segment
net sales was primarily attributable to increased
shipments of the Company's tubular products as more fully
discussed below.
Total seamless tubular net sales for the fiscal 1997
first quarter increased $2.9 million, or 10.2%, on a
volume decrease of 1.5% from the first quarter of fiscal
1996. The increase in total seamless tubular net sales
for the quarter was due to increased shipments and average
selling prices for seamless OCTG products, from the
comparable prior year period. These increases were
attributable to increased domestic and world wide drilling
activity, including off-shore drilling and, with respect
to pricing, changes in product mix. The increase in total
seamless tubular net sales was moderated by a decrease in
sales and shipments of seamless line pipe. Fiscal 1997
first quarter average selling prices for all seamless
tubular products increased 11.8% over the first quarter of
fiscal 1996.
Total welded tubular net sales for the quarter
increased $10.7 million, or 31.3%, on a volume increase of
25.4%, from the comparable prior year period. The
increase in total welded tubular net sales for the first
quarter was primarily attributable to an increase in
shipments of welded OCTG products over the first quarter
of fiscal 1996. Welded OCTG shipments were impacted by a
10.6% increase in domestic drilling activity from the
first quarter of fiscal 1996. The increase in total
welded tubular net sales and shipments was moderated by a
decline in welded line pipe sales and shipments from the
fiscal 1996 first quarter, which resulted, in part, from
the Company's increased emphasis on welded OCTG products.
The average selling price for all welded tubular products
in the first quarter of fiscal 1997 was $479 per ton, a
4.8% increase from the comparable prior year period. The
increase was due to the improved OCTG market and to
changes in product mix.
The demand for the Company's OCTG products is
cyclical in nature, being primarily dependent on the
number and depth of oil and natural gas wells being
drilled in the United States and globally. The average
number of oil and natural gas drilling rigs in operation
in the United States (rig count) was 846 in the first
quarter of fiscal 1997, up from 765 in the comparable
period of fiscal 1996. The level of drilling activity is
largely a function of the current prices of oil and
natural gas and the industry's future price expectations.
Demand for OCTG products is also influenced by the levels
of inventory held by producers, distributors and end
users. In addition, the demand for OCTG products produced
domestically is also significantly impacted by the level
of foreign imports of OCTG products. The level of OCTG
imports is affected by: (I) the value of the U.S. dollar
versus other key currencies; (ii) overall world demand for
OCTG products; (iii) the production cost competitiveness
of domestic producers; (iv) trade practices of, and
government subsidies to, foreign producers; and (v) the
presence or absence of governmentally imposed trade
restrictions in the United States.
The U. S. government is currently imposing duties on
the imports of various OCTG products from certain foreign
countries in response to antidumping and countervailing
duty cases filed by several U.S. steel companies. The
Company cannot predict the U.S. government's future
actions regarding import duties or other trade
restrictions on imports of OCTG products.
SBQ product net sales for the first quarter of
fiscal 1997 increased $2.0 million, or 14.3%, on a volume
increase of 24.6% from the comparable prior year period.
Fiscal 1997 first quarter average selling price for SBQ
products declined 8.3% from the first quarter of fiscal
1996. While shipments of SBQ products have stabilized and
are above comparable prior year levels, market and
competitive conditions resulted in lower pricing. Other
product shipments in the first quarter of fiscal 1997 were
primarily attributable to the sale of hot rolled coils.
The demand for the Company's SBQ and hot rolled coil
products is cyclical in nature and is sensitive to general
economic conditions.
Gross profit for the first quarter of fiscal 1997
increased $5.5 million from the first quarter of fiscal
1996 for a gross profit margin of 11.7% in fiscal 1997
compared to 7.7% in the first quarter of fiscal 1996. The
specialty steel segment gross profit increased $4.9
million for the three month period and gross profit margin
increased to 10.4% from 6.2% in the first quarter of
fiscal 1996. The increase in specialty steel segment
gross profit and margin for the three month comparable
periods was attributable to Newport's operations, where
gross profit margins increased from 1.0% to 13.3% as a
result of improved operating efficiencies, cost reduction
initiatives, as well as higher shipments and average
selling prices. Koppel's gross profit margins declined
from 10.9% in the prior year three month period to 7.5%
for the current year, primarily due to lower operating
efficiencies resulting from a scheduled repair and
maintenance shut down in its tubular operations as well as
a decline in SBQ pricing, as discussed above.
The adhesives segment gross profit increased $0.5
million for the first fiscal quarter due primarily to an
increase in sales volume and slightly lower raw material
costs. Gross profit margin for the first quarter of
fiscal 1997 was 24.0% compared to 21.6% for the comparable
fiscal 1996 period. The increase was primarily a result
of increased sales of higher margin products.
Fiscal 1997 first quarter selling and administrative
expenses increased $0.1 million from the first quarter of
fiscal 1996 and decreased as a percentage of net sales to
6.1% from 7.0% in the comparable prior year period.
As a result of the above factors, operating income
increased $5.3 million, from $0.6 million in the first
quarter of fiscal 1996 to $5.9 million in the current
quarter. The increase in operating income was almost
solely attributable to the specialty steel segment and was
primarily due to improved operations at the Company's
welded tubular operations combined with increased
shipments and average selling prices for welded and
seamless OCTG products. The specialty steel segment was
also impacted by lower operating efficiencies at the
Company's seamless tubular operations resulting from a
scheduled repair and maintenance shut down.
Interest expense was unchanged at $6.1 million for
the first quarter of fiscal 1997 and 1996, and interest
income increased $0.2 million for the same periods as a
result of higher average invested cash and short-term
investment balances.
Other income (expense), net decreased $0.6 million
for the three month periods. The prior year comparable
period includes income from property claims filed with the
Company's insurance company in previous years.
As a result of the above factors, the Company
reported net income of $0.2 million, or $.02 per share, in
the first quarter of fiscal 1997 compared to a net loss of
$3.2 million, or a $.23 loss per share in the first
quarter of fiscal 1996.
Liquidity and Capital Resources
Working capital at December 28, 1996 was $85.8
million compared to $80.9 million at September 28, 1996.
The current ratio was 2.17 to 1 at December 28, 1996
compared to 2.16 to 1 at September 28, 1996. At December
28,1996, the Company had cash and short-term investments
totaling $28.8 million, $1.9 million of which was
restricted in an environmental trust account related to a
permitted hazardous waste disposal facility located on the
Company's property at Newport. At December 28, 1996, the
Company had no outstanding advances against its $45.0
million revolving credit facility (Credit Facility);
however, $27.5 million of the Credit Facility secured
various letters of credit issued primarily in connection
with the purchase of steel slabs at Newport, of which
$10.3 million is due in January of 1997.
Net cash flows provided by operating activities
totaled $12.7 million in the first quarter of fiscal 1997,
compared to $6.1 million in the comparable prior year
period. The Company recorded net income of $0.2 million
in the first quarter of fiscal 1997 compared to a net loss
of $3.2 million in the first quarter of fiscal 1996.
Major sources of cash from operating activities in the
first quarter of fiscal 1997 included $4.9 million in
non-cash depreciation and amortization charges; a $4.4
million increase in accrued liabilities primarily
resulting from accrued interest expense on the Company's
senior secured notes, which have a scheduled $8.9 million
interest payment in January of 1997; a $2.4 million
decrease in accounts receivable, primarily due to lower
sales in December 1996 at Koppel, resulting from the
scheduled repair and maintenance shut down; and an
increase in long-term deferred taxes and a decrease in
inventories of $1.0 million and $0.9 million,
respectively. The major use of cash in operating
activities for the period was a $1.1 million increase in
other current assets.
For the first quarter of fiscal 1996, net cash flows
used in operating activities of $6.1 million were
primarily impacted by a $9.7 million increase in
inventories resulting from the purchase of steel slabs at
Newport and a $1.7 million decrease in long-term deferred
taxes. Offsetting these uses were $5.1 million in
non-cash depreciation and amortization charges; a $4.3
million increase in accounts payable, resulting primarily
from the purchase of steel slabs; a $4.2 million increase
in accrued liabilities, primarily from accrued interest
expense on the Company's senior secured notes; a decrease
in accounts receivable resulting from a decline in sales
and a decrease in other current assets primarily due to
the collection of previously filed insurance claims.
The Company invested $0.8 million in capital
expenditures during the first quarter of fiscal 1997,
primarily related to improvements to and acquisition of
machinery and equipment in the specialty steel segment.
The Company currently estimates that fiscal 1997 capital
spending will approximate $9.0 million, primarily in the
specialty steel segment, and its sources for funding
capital expenditures include cash flow from operations,
available cash and short-term investments, as well as
available borrowing sources. The Company also generated
$0.7 million in cash from the sale of certain investment
property.
Net cash flows from financing activities in the first
quarter of fiscal 1997 included repayments on long-term
debt of $0.6 million, compared to long-term debt
repayments of $0.2 million in the first quarter of fiscal
1996.
Earnings before interest, taxes, depreciation and
amortization (EBITDA) were $10.8 million in the first
quarter of fiscal 1997 compared to $6.2 million in the
first quarter of fiscal 1996. EBITDA is calculated as net
income (loss) plus interest expense, taxes, depreciation
and amortization. EBITDA provides additional information
for determining the Company's ability to meet debt service
requirements. EBITDA does not represent and should not be
considered as an alternative to net income, any other
measure of performance as determined by generally accepted
accounting principles, as an indicator of operating
performance or as an alternative to cash flows from
operating, investing or financing activities or as a
measure of liquidity.
The Company believes that its current available cash
and short-term investments, its cash flow from operations
and its borrowing sources will be sufficient to meet
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, the Company has generally been able to pass
these inflationary increases through to its customers.
Other Matters
Legal Matters
The Company is subject to various claims, lawsuits
and administrative proceedings arising in the ordinary
course of business with respect to workers compensation,
health care and product liability coverages (each of which
is self-insured to certain levels), as well as commercial
and other matters. Based upon its evaluation of available
information, management does not believe that any such
matters are likely, individually or in the aggregate, to
have a material adverse effect upon the Company's
consolidated financial position, results of operations or
cash flows.
Environmental Matters
The Company is subject to federal, state and local
environmental laws and regulations, including, among
others, the Resource Conservation and Recovery Act (RCRA),
the Clean Air Act, the 1990 Amendments to the Clean Air
Act, the Clean Water Act and all regulations promulgated
in connection therewith, including, among others, those
concerning the discharge of contaminants as air emissions
or waste water effluents and the disposal of solid and/or
hazardous wastes such as electric arc furnace dust. As
such, the Company is from time to time involved in
administrative and judicial proceedings and administrative
inquiries related to environmental matters.
As with other steel mills in the industry, Koppel and
Newport produce dust which contains lead, cadmium and
chromium, and is classified as a hazardous waste. The
Company currently collects the dust resulting from its
electric arc furnace operations through emission control
systems and contracts with a company for treatment and
disposal of the dust at an EPA-approved facility.
The Company has on its property at Newport a
permitted hazardous waste disposal facility. Newport's
permit for operating the hazardous waste disposal facility
requires that it investigate, test, and analyze for
potential releases of hazardous constituents from its
closed loop water recirculation system. Any contamination
documented as a result of the investigation would require
certain cleanup measures; however, the Company believes
that the cost of any such cleanup measures will not be
material.
In November 1996, Koppel received a Notice of
Violation from the EPA alleging violations of the Clean
Air Act and the Pennsylvania State Implementation Plan.
The violations allegedly occurred during 1995 and 1996 and
pertain to air emissions from Koppel's electric arc
furnace operations. At this time, the Company is unable
to determine if the EPA will assess civil penalties as a
result of the alleged violations, or the extent of any
such potential penalties.
In March 1995, Koppel and the EPA signed a Consent
Order relating to an April 1990 RCRA facility assessment
(the Assessment) completed by the EPA and the Pennsylvania
Department of Environmental Resources. The Assessment was
performed in connection with a permit application
pertaining to a landfill that is adjacent to the Koppel
facilities. The Assessment identified potential releases
of hazardous constituents at or adjacent to the Koppel
facilities prior to the Company's acquisition of the
Koppel facilities. The Consent Order establishes a
schedule for investigating, monitoring, testing and
analyzing the potential releases. Contamination
documented as a result of the investigation requires
cleanup measures and certain remediation has begun.
Pursuant to various indemnity provisions in agreements
entered into at the time of the Company's acquisition of
the Koppel facilities, certain parties have agreed to
indemnify the Company against various known and unknown
environmental matters. The Company believes that the
indemnity provisions provide for it to be fully
indemnified against all matters covered by the Consent
Order, including all associated costs, claims and
liabilities.
In two separate incidents occurring in fiscal 1993
and 1992, radioactive substances were accidentally melted
at Newport, resulting in the contamination of a quantity
of electric arc furnace dust. The Company is
investigating and evaluating various issues concerning
storage, treatment and disposal of the radiation
contaminated electric arc furnace dust; however, a final
determination as to method of treatment and disposal, cost
and further regulatory requirements cannot be made at this
time. Depending on the ultimate timing and method of
treatment and disposal, which will require appropriate
federal and state regulatory approval, the actual cost of
disposal could substantially exceed current estimates and
the Company's insurance coverage. The Company expects
to recover and has recorded a $2.3 million receivable
relating to insurance claims for the recovery of disposal
costs which will be filed with the applicable insurance
carrier at the time such disposal costs are incurred. As
of December 28, 1996, claims recorded in connection with
disposal costs exhaust available insurance coverage.
Based on current knowledge, management believes the
recorded gross reserves of $4.4 million for disposal costs
pertaining to these incidents are adequate.
Subject to the uncertainties concerning the Consent
Order and the storage and disposal of the radiation
contaminated dust, the Company believes that it is
currently in compliance in all material respects with all
applicable environmental regulations. The Company cannot
predict the level of required capital expenditures or
operating costs that may result from future environmental
regulations.
Capital expenditures for the next twelve months
relating to environmental control facilities are expected
to be approximately $1.0 million; however, such
expenditures could be influenced by new and revised
environmental regulations and laws or new information or
developments with respect to the Company's operating
facilities.
As of December 28, 1996, the Company had
environmental remediation reserves of $4.4 million, which
pertain almost exclusively to accrued disposal costs for
radiation contaminated dust. As of December 28, 1996, the
estimated range of possible losses related to the
environmental contingency matters discussed above in
excess of those accrued by the Company is $0 to $3.0
million; however, with respect to the Consent Order, the
Company cannot estimate the range of possible losses
should the Company ultimately not be indemnified. Based
upon its evaluation of available information, management
does not believe that any of the environmental contingency
matters discussed above are likely, individually or in the
aggregate, to have a material adverse effect upon the
Company's consolidated financial position, results of
operations or cash flows. However, the Company cannot
predict with certainty that new information or
developments with respect to the Consent Order or its
other environmental contingency matters, individually or
in the aggregate, will not have a material adverse effect
on the Company's consolidated financial position, results
of operations or cash flows.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
For a discussion regarding the Consent Order entered
into by the Company and the EPA and the Notice of
Violation received by Koppel from the EPA, see
Management's Discussion and Analysis of Financial
Condition and Results of Operations - Other Matters -
Environmental Matters.
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits - Reference is made to the Index to
Exhibits, which is incorporated herein by reference.
b) Reports on Form 8-K - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
NS GROUP, INC.
Date: February 3, 1997 By: /s/Clifford R. Borland
Clifford R. Borland
Chairman and Chief Executive
Officer
Date: February 3, 1996 By: /s/John R. Parker
John R. Parker
Vice President and Treasurer
INDEX TO EXHIBITS
Number Description
3.1 Amended and Restated Articles of Incorporation of
Registrant, filed as Exhibit 3.1 to Amendment No. 1 to
Registrants' Form S-1 dated January 17, 1995, File No.
33-56637, and incorporated herein by this reference
3.2 Amended and restated By-Laws of Registrant, dated
December 4,1995, filed as Exhibit 3.2 to Company's Form
10-K for the fiscal year ended September 30,1995, File No.
1-9838, and incorporated herein by this reference
4.21 Revolving Credit, Guaranty and Security Agreement
among Bank of New York Commercial Corporation, PNC Bank
Ohio, N.A., Newport, Koppel, Imperial, the Company,
Erlanger, Northern Kentucky Air, Inc. and Northern
Kentucky Management, Inc., filed as Exhibit 4.21 to
Company's Form 10-Q for the quarterly period ended July 1,
1995, File No. 1-9838, and incorporated herein by this
reference; Amendment No. 1 dated October 23, 1995 and
Amendment No. 2 dated December 21, 1995 filed as Exhibit
4.21 to Company's Form 10-Q for the quarterly period ended
December 30, 1995, File No. 1-9838, and incorporated
herein by this reference; Amendment No. 3 dated February
14, 1996, filed as Exhibit 4.1 to Company's Post-Effective
Amendment No. 1 on Form S-3 to Form S-1 Registration
Statement, Registration No. 33-56637, and incorporated
herein by this reference; Amendment No. 4 dated September
12,1996, filed as exhibit 4.21 to Company's Form 10-K for
the fiscal year ended September 28,1996, File No. 1-9838,
and incorporated herein by this reference; and Amendment
No. 5 dated December 27, 1996, filed herewith
27 Financial Date Schedule
Exhibit 4.21
AMENDMENT NO. 5
TO
REVOLVING CREDIT, GUARANTY AND SECURITY AGREEMENT
THIS AMENDMENT NO. 5 ("Amendment") is entered into as of December
27, 1996, among NEWPORT STEEL CORPORATION, a corporation organized
under the laws of the State of Kentucky ("Newport"), KOPPEL STEEL
CORPORATION, a corporation organized under the laws of the State of
Pennsylvania ("Koppel"), and IMPERIAL ADHESIVES, INC., a corporation
organized under the laws of the State of Ohio (Imperial") (each of Newport,
Koppel and Imperial a "Borrower" and, jointly and severally, the
"Borrowers"), NS GROUP, INC., a corporation organized under the laws of
the State of Kentucky ("Holdings"), ERLANGER TUBULAR CORPORATION, a
corporation organized under the laws of the State of Oklahoma
("Erlanger"), NORTHERN KENTUCKY AIR, INC., a corporation organized under
the laws of Kentucky ("Air"), NORTHERN KENTUCKY MANAGEMENT, INC., a
corporation organized under the laws of the State of Kentucky
("Management") (each of Holdings, Erlanger, Air and Management, a
"Guarantor" and, jointly and severally, the "Guarantors"), the undersigned
financial institutions and any financial institution that hereafter
becomes a lender under the Loan Agreement (as hereinafter defined)
(collectively, the "Lenders" and individually a "Lender"),
THE BANK OF NEW YORK COMMERCIAL CORPORATION (BNYCC), a
corporation organized under the laws of the State of New York, PNC BANK,
OHIO, NATIONAL ASSOCIATION ("PNC"), BNYCC and PNC as co-agents
for Lenders (BNYCC and PNC in such capacity, the "Co-Agents) and BNYCC
as administrative and collateral monitoring agent for the Lenders
(BNYCC, in such capacity, the "ACM Agent").
BACKGROUND
Borrowers, Guarantors and Lenders are parties to a
Revolving Credit, Guaranty and Security Agreement dated as
of July 28, 1995 (as the same has been amended by
Amendment No. 1 thereto, Amendment No. 2 thereto,
Amendment No. 3 thereto, and Amendment No. 4 thereto, and
as the same may further be amended, supplemented or
otherwise modified from time to time, the ("Loan
Agreement") pursuant to which Lenders provide Borrowers
with certain financial accommodations.
Borrowers have requested that Lenders increase the
sublimit for Letters of Credit and Lenders are willing to
do so on the terms and conditions hereafter set forth.
NOW, THEREFORE, in consideration of any loan or
advance or grant of credit heretofore or hereafter made to
or for the account of Borrowers by Lenders, and for other
good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged the parties
hereto hereby agree as follows:
1. Definitions. All capitalized terms not
otherwise defined herein shall have the meanings given to
them in the Loan Agreement.
2. Amendment to Loan Agreement. Subject to
satisfaction of the conditions precedent set forth in
Section 3 below, the Loan Agreement is hereby amended as
follows:
(a) the following defined term is hereby added in
its appropriate alphabetical order
"Acceptances" shall have the meaning set forth in
Section 2.8 hereof.
(b) the following defined terms are hereby amended
in their entirety to provide as follows:
"Advances" shall mean and include the Revolving
Advances, Letters of Credit and Acceptances.
"Individual Formula Amount" shall mean at the
date of determination thereof, with respect to each
Borrower an amount equal to: (a) up to the Receivables
Advance Rate of Eligible Receivables of such Borrower,
plus (b) up to the Inventory Advance Rate of the value of
Eligible Inventory of such Borrower; minus (c) the
aggregate amount of Letters of Credit and Acceptances
issued, caused to be issued or created on behalf of such
Borrower minus (d) such reserves as ACM Agent may
reasonably deem proper and necessary from time to time.
"Individual Maximum Revolving Advance Amount" shall
mean (a) on the Closing Date, with respect to Newport,
$30,000,000, with respect to Koppel, $20,250,000, and with
respect to Imperial $4,500,000 and (b) at such time as the
Maximum Revolving Amount is increased to $50,000,000, with
respect to Newport $30,000,000, with respect to Koppel
$22,500,000 and with respect to Imperial $5,000,000.
"Revolving Advances" shall mean Advances made other
than Letters of Credit and Acceptances.
(c) Section 2.1(a)(iii) is hereby amended in its
entirety to provide as follows.
"(iii) the aggregate undrawn amount of outstanding
Letters of Credit and Acceptances minus"
(d) Sections 2.8 and 2.9(a) are hereby amended in
its entirety to provide as follows:
"2.8 Letters of Credit and Acceptances. Subject to
the terms and conditions hereof, the ACM Agent shall issue
or cause the issuance of Letters of Credit ("Letters of
Credit") on behalf of Newport or Koppel or (b) accept, or
cause to be accepted, drafts on behalf of any Borrower
under such Letters of Credit ("Acceptances"), provided,
however, that the ACM Agent will not be required to issue
or cause to be issued any Letters of Credit or accept or
cause to be accepted any Acceptances to the extent that
the face amount of such Letters of Credit and Acceptances
would then cause the sum of (i) the outstanding Revolving
Advances, plus (ii) the outstanding Letters of Credit
(with the requested Letter of Credit being deemed to be
outstanding for purposes of this calculation), plus (iii)
outstanding Acceptances to exceed the lesser of (x) the
Maximum Revolving Advance Amount or (y) the Formula
Amount; provided, further, however, that ACM Agent will
hot be required to issue or cause to be issued any Letters
of Credit or accept or cause to be accepted any
Acceptances to the extent that the face amount of such
Letters of Credit and Acceptances issued for such Borrower
would then cause the sum of (i) the outstanding Revolving
Advances to such Borrower plus (ii) the outstanding
Letters of Credit issued or caused to be issued on behalf
of such Borrower (with the requested Letter of Credit
deemed to be outstanding for purposes of this calculation)
plus (iii) outstanding Acceptances created or caused to
be created for such Borrower to exceed the lesser of (x)
such Borrower's Individual Maximum Revolving Advance
Amount or (y) such Borrower's Individual Formula Amount
(assuming that (c) of the definition of Individual Formula
Amount is deemed to be $O). The maximum amount of
outstanding Letters of Credit and Acceptances shall not
exceed $30,000,000 for the benefit of Newport or
$2,000,000 for the benefit of Koppel in the aggregate at
any time.
The maximum amount of all outstanding Letters of
Credit and Acceptances shall not exceed $30,000,000 in the
Aggregate at any time. All disbursements or payments
related to Letters of Credit and Acceptances shall be
deemed to be Revolving Advances and shall bear interest at
the Revolving Interest Rate with respect to Domestic Rate
Loans; Letters of Credit that have not been drawn upon and
unmatured Acceptances shall not bear interest. Letters of
Credit and Acceptances shall be subject to the terms and
conditions set forth in the Letter of Credit and Security
Agreement attached hereto as Exhibit 2.8.
2.9. Issuance of Letters of Credit and Acceptances.
(a) Borrowing Agent on behalf of Newport or Koppel
may request ACM Agent to issue or cause the issuance of a
Letter of Credit or create an Acceptance by delivering to
ACM Agent at the Payment office, ACM Agent's standard form
of Letter of Credit and Security Agreement in the form
attached hereto as Exhibit 2.8, together with Bank's
standard form of Letter of Credit Application
(collectively, the "Letter of Credit Application")
completed to the satisfaction of ACM Agent; and such other
certificates, documents, and other papers and information
as ACM Agent may reasonably request."
(e) Sections 2.10(a), 2.10(b) and 2.10(c) are hereby
amended in their entirety to provide as follows:
2.10 Requirements For Issuance of Lettersof Credit
and Acceptances.
(a) In connection with the issuance of any Letter of
Credit or Acceptance, Borrowers shall indemnify, save and
hold ACM Agent and each Lender harmless from any loss,
cost, expense or liability, including, without limitation,
payments made by ACM Agent and any Lender, and expenses
and reasonable attorneys' fees incurred by ACM Agent or
any Lender arising out of, or in connection with, any
Letter of Credit or Acceptance to be issued or created for
Newport or Koppel. Borrowers shall be bound by ACM
Agent's or any issuing or accepting bank's regulations and
good faith interpretations of any Letter of Credit or
Acceptance issued or created for its account, although
this interpretation may be different from its own; and,
neither ACM Agent nor any Lender, the bank which opened
the Letter of Credit or Acceptance, nor any of its
correspondents shall be liable for any error, negligence,
or mistakes, whether of omission or commission, in
following Borrowing Agent's or any Borrower's instructions
or those contained in any Letter of Credit or Acceptance
or of any modifications, amendments or supplements thereto
or in issuing or paying any Letter of Credit or
Acceptance, except for ACM Agent's or any Lender's or such
correspondents' gross (not mere) negligence or willful
misconduct.
(b) Borrowing Agent shall authorize and direct any
bank which issues a Letter of Credit to name the
applicable Borrower as the "Account Party" therein and to
deliver to ACM Agent all instruments, documents, and other
writings and property received by the bank pursuant to the
Letter of Credit or in connection with any Acceptance and
to accept and rely upon ACM Agent's instructions and
agreements with respect to all matters arising in
connection with the Letter of Credit, Acceptance or the
application therefor.
(c) In connection with all Letters of Credit and
Acceptances issued or caused to be issued and Acceptances
created or caused to be created by ACM Agent under this
Agreement, each Borrower hereby appoints ACM Agent, or its
designee, as its attorney, with full power and authority
(i) to sign and/or endorse such Borrower's name upon any
warehouse or other receipts, letter of credit applications
and acceptances; (ii) to sign such Borrower's name on
bills of lading; (iii) to clear Inventory through the
United States of America Customs Department ("Customs") in
the name of such Borrower or ACM Agent or ACM Agent's
designee, and to sign and deliver to Customs officials
powers of attorney in the name of such Borrower for such
purpose; and (iv) to complete in such Borrower's name or
ACM Agent's name, or in the name of ACM Agent's designee,
any order, sale or transaction, obtain the necessary
documents in connection therewith, and collect the
proceeds thereof. Neither ACM Agent nor its attorneys
will be liable for any acts or omissions nor for any error
of judgment or mistakes of fact or law, except for ACM
Agent's or its attorneys gross (not mere) negligence or
willful misconduct. This power, being coupled with an
interest, is irrevocable as long as any Letters of Credit
or Acceptances remain outstanding."
(f) The first paragraph of Section 3.2 is hereby
amended in its entirety to provide as follows:
"Borrowers shall pay ACM Agent (i) for the ratable
benefit of Lenders for issuing or causing the issuance of
a Letter of Credit or for creating or causing to be
created an Acceptance, a fee computed at a rate per annum
of two and three quarters percent (2.75%) on the
outstanding amount thereof from time to time, ("Letter of
Credit Fees"), and (ii) Bank's other customary charges
payable in connection with Letters of Credit and
Acceptances, as in effect from time to time (which charges
shall be furnished to Borrowing Agent by ACM Agent upon
request). Such fees and charges shall be payable (i) in
the case of any Letter of Credit or any Acceptance, on its
opening or creation (ii) in the case of a standby Letter
of Credit, (A) monthly thereafter in advance and (B) upon
each increase in the outstanding amount thereof, and (iii)
in the case of any Letter of Credit that is not a standby
Letter of Credit, at the time of each increase in face
amount thereof. Any such charge in effect at the time of
a particular transaction shall be the charge for that
transaction, notwithstanding any subsequent change in
Bank's prevailing charges for that type of transaction.
All Letter of Credit Fees payable hereunder shall be
deemed earned in full on the date when the same are due
and payable hereunder and shall not be subject to rebate
or proration upon the termination of this Agreement for
any reason."
3. Conditions of Effectiveness. This Amendment
shall become effective as of December 27, 1996, when and
only when ACM Agent shall have received (i) six (6) copies
of this Amendment executed by Borrowers and Guarantors and
(ii) such other certificates, instruments, documents,
agreements and opinions of counsel as may be required by
ACM Agent or its counsel, each of which shall be in form
and substance satisfactory to ACM Agent and its counsel..
4. Representations and Warranties. Borrowers and Guarantors
hereby represent and warrant as follows:
(a) This Amendment and the Loan Agreement,amended
hereby, constitute legal, valid and binding obligations of
Borrowers and Guarantors and are enforceable against
Borrowers and Guarantors in accordance with their
respective terms.
(b) Upon the effectiveness of this Amendment,
Borrowers and Guarantors hereby reaffirm all covenants,
representations and warranties made in the Loan Agreement
to the extent the same are not amended hereby and agree
that all such covenants, representations and warranties
shall be deemed to have been remade as of the effective
date of this Amendment.
(c) No Event of Default or Default has occurred and
is continuing or would exist after giving effect to this
Amendment.
(d) Neither any Borrower or any Guarantor has any
defense, counterclaim or offset with respect to the Loan
Agreement.
5. Effect on the Loan Agreement
(a) Upon the effectiveness of Section 2 hereof,
each reference in the Loan Agreement to "this Agreement,"
"hereunder," "hereof," "herein" or words of like import
shall mean and be a reference to the Loan
Agreement as amended hereby.
(b) Except as specifically amended herein, the Loan
Agreement, and All other documents, instruments and
agreements executed and/or delivered in connection
therewith, shall remain in full force and effect, and are
hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of
this Amendment shall not operate as a waiver of any right,
power or remedy of ACM Agent or Lenders, nor constitute a
waiver of any provision of the Loan Agreement, or any
other documents, instruments or agreements executed and/or
delivered under or in connection therewith.
6. Governing Law. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and
their respective successors and assigns and shall be
governed by and construed in accordance with the laws of
the State of New York.
7. Headings. Section headings in this Amendment are
included herein for convenience of reference only and
shall not constitute a part of this Amendment for any
other purpose.
8. Counterparts. This Amendment may be executed by
the parties hereto in one or more counterparts, each of
which shall be deemed an original and all of which taken
together shall be deemed to constitute one and the same
agreement.
IN WITNESS WHEREOF, this Amendment has been duly
executed as of the day and year first written above.
NEWPORT STEEL CORPORATION
KOPPEL STEEL CORPORATION
IMPERIAL ADHESIVES, INC.
NS GROUP, INC.
ERLANGER TUBULAR CORPORATION
NORTHERN KENTUCKY AIR, INC.
NORTHERN KENTUCKY MANAGEMENT, INC.
By: /s/ John R. Parker
John R. Parker
Title: Treasurer of each
of the foregoing
Corporations
THE BANK OF NEW YORK COMMERCIAL CORPORATION, as Lender, as
Co-Agent and as ACM Agent
By: /s/ Daniel J. Murray
Name: Daniel J. Murray
Title: Vice President
PNC BANK, OHIO, NATIONAL
ASSOCIATION, as Lender and as
Co-Agent
By: /s/ Matthew D. Tevis
Name: Matthew D. Tevis
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from NS Group, Inc. and Subsidiaries
Condensed Consolidated Financial Statements as of and
for the three month period ended December 28, 1996,
included in the Company's quarterly report on Form 10-Q
and is qualified in its entirety by reference to such
condensed consolidated financial statements.
</LEGEND>
<CIK> 0000745026
<NAME> NS GROUP, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> DEC-28-1996
<EXCHANGE-RATE> 1
<CASH> 2,881
<SECURITIES> 25,910
<RECEIVABLES> 50,263
<ALLOWANCES> 847
<INVENTORY> 52,461
<CURRENT-ASSETS> 159,365
<PP&E> 273,132
<DEPRECIATION> 142,875
<TOTAL-ASSETS> 304,414
<CURRENT-LIABILITIES> 73,521
<BONDS> 164,381
0
0
<COMMON> 51,785
<OTHER-SE> 5,312
<TOTAL-LIABILITY-AND-EQUITY> 304,414
<SALES> 105,167
<TOTAL-REVENUES> 105,167
<CGS> 92,824
<TOTAL-COSTS> 92,824
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,063
<INCOME-PRETAX> 272
<INCOME-TAX> 23
<INCOME-CONTINUING> 249
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 249
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
