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 27, 1997
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
24,130,367 (Class)
(Outstanding at January 30, 1998)
NS GROUP, INC.
INDEX
PART I FINANCIAL INFORMATION
PAGE
Item 1 Financial Statements
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 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 1 Legal Proceedings 18
Item 6 Exhibits and Reports on Form 8-K 18
NS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(In thousands, except per share amounts)
(Unaudited)
December 27, December 28,
1 9 9 7 1 9 9 6
NET SALES $123,733 $ 105,167
COST AND EXPENSES
Cost of products sold 106,142 92,824
Selling and administrative
expenses 6,841 6,398
Operating income 10,750 5,945
OTHER INCOME (EXPENSE)
Interest income 2,341 307
Interest expense (3,559) (6,063)
Other, net 14 83
Income before income taxes 9,546 272
PROVISION FOR INCOME TAXES 3,009 23
Net income $ 6,537 $ 249
NET INCOME PER COMMON SHARE
Basic $.27 $.02
Diluted $.26 $.02
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 23,983 13,809
Diluted 25,393 13,826
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
NS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 27, 1997 AND SEPTEMBER 27, 1997
(Dollars in thousands) (Unaudited)
December 27, September 27,
CURRENT ASSETS 1 9 9 7 1 9 9 7
Cash $ 5,646 $ 6,998
Short-term investments 154,969 128,828
Funds held for debt called
for redemption 59,517
Accounts receivable, less
allowance for doubtful
accounts of $700 and $712,
respectively 2,045 63,151
Inventories 79,362 73,474
Other current assets 29,104 32,953
Total current assets
331,126 364,921
PROPERTY, PLANT AND EQUIPMENT 283,425 278,779
Less - accumulated
depreciation (159,262) (154,962)
124,163 123,817
OTHER ASSETS 10,306 11,578
Total assets $465,595 $500,316
CURRENT LIABILITIES
Notes payable $ 364 $ 722
Payments due on debt called
for redemption 59,517
Accounts payable 48,521 47,667
Other current liabilities 30,743 28,126
Current portion of long-term
debt 1,958 1,958
Total current liabilities 81,586 137,990
LONG-TERM DEBT 76,330 76,424
DEFERRED TAXES 12,404 13,087
COMMON SHAREHOLDERS' EQUITY
Common stock, no par value 278,332 261,368
Common stock options and
warrants 1,221 1,612
Unrealized loss on available
for sale securities (1,888) (1,238)
Retained earnings 17,610 11,073
Total common shareholders'
equity 295,275 272,815
Total liabilities and
shareholders' equity $465,595 $500,316
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 27, 1997 AND DECEMBER 28, 1996
(Dollars in thousands) (Unaudited)
December 27, December 28,
1 9 9 7 1 9 9 6
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 6,537 $ 249
Adjustments to reconcile net
income to net cash flows from
operating activities:
Depreciation and amortization 4,414 4,452
Amortization of debt discount
and finance costs 331 418
Increase (decrease) in long-term
deferred taxes (333) 1,005
Decrease in accounts receivable,
net 1,106 2,408
(Increase) decrease in
inventories (5,888) 856
(Increase) decrease in other
current assets 3,891 (1,115)
Increase (decrease) in accounts
payable 854 (37)
Increase (decrease) in accrued
liabilities (4,462) 4,415
Net cash flows from operating
activities 6,450 12,651
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in property, plant and
equipment, net (4,736) (835)
Decrease in other assets 16 682
Net cash flows from
investing activities (4,720) (153)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable (358) (436)
Repayments on long-term debt (52,669) (568)
Proceeds from issuance of
common stock 16,569 -
Net cash flows from financing
activities (36,458) (1,004)
Net increase (decrease) in cash
and short-term investments (34,728) 11,494
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF YEAR 195,343 17,297
CASH AND SHORT-TERM INVESTMENTS AT
END OF PERIOD $160,615 $28,791
Cash paid during the period for:
Interest $ 1,998 $ 1,133
Income taxes, net of refunds $ 167 $ 3
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: Summary of Significant Accounting Policies
Basis of Presentation
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 27, 1997 for additional
footnote disclosure, including a summary of significant
accounting policies.
Earnings Per Share
Basic earnings per share is computed by dividing net
income by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share
reflects the potential dilution from instruments that could
result in additional common shares being issued which, for
the Company, includes stock options and warrants.
Fiscal Year-End
The Company's fiscal year ends on the last Saturday of
September.
Note 2: Inventories
At December 27, 1997 and September 27, 1997,
inventories stated at the lower of LIFO (last-in, first-out)
cost or market represent approximately 47% and 53% of total
inventories before the LIFO reserve, respectively.
Inventories consist of the following components ($000's):
December 27, September 27,
1 9 9 7 1 9 9 7
Raw materials $12,405 $10,300
Semi-finished and
finished goods 69,788 66,005
82,193 76,305
LIFO reserve (2,831) (2,831)
$79,362 $73,474
Note 3: Long-term Debt
In October 1997 the Company redeemed $52.4 million
principal amount of its outstanding 13.5% Senior Secured
Notes due 2003 (Notes). The redemption was made from the
proceeds of the Company's September 1997 public offering and
included a prepayment penalty of $7.1 million, which was
recorded in the fourth quarter of fiscal 1997, plus accrued
interest.
Note 4: Common Stock Issuances
During the first quarter of fiscal 1998, the Company
issued 540,295 shares of its common stock through the
exercise of the underwriters' over-allotment option related
to the Company's September 1997 public offering. The
Company also issued 294,265 shares of its common stock in
the first quarter of fiscal 1998 in connection with the
exercise of stock options and warrants.
Note 5: 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, the
Company's steel mini-mills produce dust which contains lead,
cadmium and chromium, and is classified as a hazardous
waste. The Company currently collects the dust resulting
from its electric arc furnace operations through emission
control systems and contracts with a company for treatment
and disposal of the dust at an EPA-approved facility.
The Company has on its property at Newport a permitted
hazardous waste disposal facility. Newport's permit for
operating the hazardous waste disposal facility required
that it investigate, test, and analyze for potential
releases of hazardous constituents from its closed loop
water recirculating system. Based on the findings of its
investigation, which have been filed with the EPA, the
Company believes that the cost of any remediation, if
required, 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.
The conditions which contributed to the alleged violations
were corrected and Koppel has demonstrated compliance with
air emissions regulations. At this time, the Company is
unable to determine the extent of any civil penalties which
the EPA may assess.
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. In
accordance with the Consent Order, investigating,
monitoring, testing and analysis of the potential releases
has been completed and a final report has been forwarded to
the EPA; however, additional monitoring and remediation may
be required. 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. To date, the Company has
been fully indemnified against all matters pertaining to the
Consent Order and the Company believes that the indemnity
provisions provide for it to be fully indemnified against
all future 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. Such insurance claims will exhaust available
insurance coverage pertaining to these incidents. Based on
current knowledge, the Company 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 27, 1997, 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 27, 1997, 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 not be
indemnified on future matters. 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 6: 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. All
significant intercompany accounts and transactions between
the Subsidiary Guarantors have been eliminated.
December 27, September 27,
1997 1997
(Dollars in thousands)
Current assets $169,005 $168,412
Non-current assets $130,801 $131,526
Current liabilities $ 70,516 $ 70,871
Payable to parent $176,899 $174,495
Other non-current
liabilities 1,772 2,003
Total non-current
liabilities $178,671 $176,498
Three Months Ended
December 27, December 28,
1997 1996
(Dollars in thousands)
Net sales $123,733 $ 105,167
Gross profit $ 17,591 $ 12,343
Net income $ 6,136 $ 1,296
NS GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
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: (i) the
level of domestic as well as worldwide oil and natural gas
drilling activity; (ii) general economic conditions; (iii)
product demand, inventory levels and industry capacity;
(iv) industry pricing; (v) the level of imports and the
presence or absence of governmentally imposed trade
restrictions; (vi) manufacturing efficiencies; (vii)
volatility in raw material costs, particularly steel scrap;
(viii) costs of compliance with environmental regulations;
and (ix) product liability or other claims. 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.
The following analysis of financial condition and
results of operations of the Company should be read in
conjunction with the unaudited Consolidated Financial
Statements and related Notes of the Company.
The Company operates in two business segments:
specialty steel and industrial adhesives. Within the
specialty steel segment are the operations of Newport, a
manufacturer of welded tubular steel products and hot rolled
coils, and Koppel, a manufacturer of seamless tubular steel
products and special bar quality (SBQ) products. The
Company's specialty steel products consist of: (i) welded
and seamless oil country tubular goods (OCTG) used primarily
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 used primarily 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.
Results of Operations
The Company's net sales, gross profit and operating
income by business segment for the three month periods ended
December 27, 1997 and December 28, 1996 are summarized
below.
Three Months Ended
December 27, December 28,
1997 1996
(Dollars in thousands)
Net sales
Specialty steel segment
Newport $ 54,781 $ 48,086
Koppel 59,428 46,894
114,209 94,980
Adhesives segment 9,524 10,187
$123,733 $105,167
Gross profit
Specialty steel segment
Newport $ 8,053 $ 6,380
Koppel 7,114 3,522
15,167 9,902
Adhesives segment 2,424 2,441
$ 17,591 $ 12,343
Operating income
Specialty steel segment
Newport $ 6,262 $ 5,021
Koppel 5,465 1,640
11,727 6,661
Adhesives segment 307 244
Corporate allocations ( 1,284) (960)
$ 10,750 $ 5,945
Sales data for the Company's specialty steel segment
for the three month periods ended December 27, 1997 and
December 28, 1996 were as follows:
Three Months Ended
December 27, December 28,
1997 1996
Tons shipped
Newport
Welded tubular 97,600 93,800
Hot rolled coils and other
products 7,000 7,700
Koppel
Seamless tubular 46,500 33,600
SBQ 36,800 36,000
187,900 171,100
Net sales ($000's)
Newport
Welded tubular $ 51,806 $ 44,890
Hot rolled coils and other
products 2,975 3,196
Koppel
Seamless tubular 42,855 30,917
SBQ 16,573 15,977
$114,209 $ 94,980
Net sales for the first quarter of fiscal 1998
increased $18.6 million, or 17.7%, from the first quarter of
fiscal 1997 to $123.7 million. Specialty steel segment net
sales increased $19.2 million, or 20.2%. The overall
increase in specialty steel segment net sales was primarily
attributable to increased shipments and average selling
prices of the Company's tubular products as more fully
discussed below. The adhesives segment net sales decreased
$0.7 million, or 6.5%. The decline in adhesives segment net
sales was attributable to a decline in sales of methylene
chloride-based products, which were largely restricted by
OSHA regulations beginning in the fiscal 1998 first quarter,
as well as Imperial's emphasis on eliminating certain
non-strategic, low margin product lines.
Welded tubular product net sales increased $6.9
million, or 15.4%, on a volume increase of 4.1%, from the
first quarter of fiscal 1997. Average selling price for all
welded tubular products increased 10.9% over the prior
fiscal year first quarter. The increase in shipments and
average selling price were primarily attributable to
increases in shipments and selling prices of welded OCTG
products, which was driven by an increase in drilling
activity over the comparable prior year period.
Seamless tubular product net sales increased $11.9
million, or 38.6%, on a volume increase of 38.4%, from the
first quarter of fiscal 1997. Average selling prices for
seamless tubular products remained relatively unchanged from
the comparable prior year period. Like welded tubular
product, the improvement in seamless tubular product
shipments was positively impacted by improved drilling
activity, resulting in increased shipments of seamless OCTG
products.
Demand for the Company's OCTG products is cyclical in
nature, being dependent on the number and depth of oil and
natural gas wells being drilled in the United States and
globally. The level of drilling activity is largely a
function of the current prices of oil and natural gas and
expectations of future prices. The average number of oil
and natural gas drilling rigs in operation in the United
States (rig count) was 997 in the first quarter of fiscal
1998, up from 846 in the comparable period of fiscal 1997.
In addition, shipments by domestic producers of OCTG
products are influenced by the levels of inventory held by
producers, distributors and end users, as well as the level
of foreign imports of OCTG products.
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 duties are
subject to annual review by the U.S. Department of Commerce
through 2000. The Company believes the imposition of the
duties has had a positive effect on its shipments and the
pricing of certain of its seamless tubular products;
however, it 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 increased $0.6 million, or 3.7%,
on a volume increase of 2.2%, from the comparable fiscal
quarter of a year ago. Average selling prices for the
comparable quarterly periods increased 1.4%. The demand for
the Company's SBQ products is cyclical in nature and is
generally sensitive to general economic conditions.
Gross profit for the first quarter of fiscal 1998
increased $5.2 million from the first quarter of fiscal
1997, for a gross profit margin of 14.2% in the first
quarter of fiscal 1998 compared to 11.7% in the first
quarter of fiscal 1997. Specialty steel segment gross
profit increased $5.3 million over the prior year comparable
period and gross profit margin increased to 13.3% from 10.4%
in the first quarter of fiscal 1997. Newport's gross profit
margin increased from 13.3% in the first quarter of fiscal
1997 to 14.7% in the current fiscal quarter on the strength
of increased selling prices of OCTG products. Koppel's
gross profit margin increased from 7.5% in the prior fiscal
year first quarter to 12.0% for the current fiscal year due
in part to a favorable change in product mix to a greater
percentage of tubular product sales versus SBQ product
sales. In addition, Koppel's operating efficiencies were
negatively impacted by a scheduled repair and maintenance
shut-down in its tubular operations in the prior fiscal year
first quarter.
The adhesives segment gross profit remained virtually
unchanged for the comparable quarters while gross profit
margin increased from 24.0% in the first quarter of fiscal
1997 to 25.5% in the first quarter of fiscal 1998. The
increase in margin was primarily a result of the elimination
of lower margin sales as previously discussed.
Fiscal 1998 first quarter selling and administrative
expenses increased $0.4 million from the first quarter of
fiscal 1997 but decreased as a percentage of sales to 5.5%,
from 6.1% in the comparable prior year period.
Due to the above factors, operating income for the
Company increased $4.8 million, from $5.9 million in the
first quarter of fiscal 1997, to $10.8 million in the first
quarter of fiscal 1998. The increase in operating income
was almost solely attributable to the specialty steel
segment and was primarily attributable to more favorable
product mix and operating performance at Koppel and improved
pricing and shipments of welded OCTG products.
Fiscal 1998 first quarter interest income increased
$2.0 million over the first quarter of fiscal 1997 and
interest expense declined $2.5 million for the three month
comparable periods. The increase in interest income and
decrease in interest expense is the result of increased
average invested cash and investment balances and a decrease
in long-term debt obligations, respectively, which resulted
from the Company's September 1997 public offering (including
the exercise of the underwriters' overallotment option in
October 1997) (Offering) and related retirement of long-term
debt.
The Company's combined federal and state effective tax
rate for the first quarter of fiscal 1998 was 31.5%. This
rate is lower than the combined federal and state statutory
rates primarily due to the utilization of net operating loss
carryforwards for which certain deferred tax valuation
allowances had been previously recorded. The Company is
currently paying federal taxes at the alternative minimum
tax rate of 20%.
As a result of the above factors, the Company reported
net income of $6.5 million, or $.27 per share ($.26
diluted), in the first quarter of fiscal 1998 compared to
net income of $0.2 million, or $.02 per share (basic and
diluted), in the first quarter of fiscal 1997. The increase
in weighted average shares outstanding for the comparable
three month periods is primarily the result of the Offering.
Liquidity and Capital Resources
Working capital at December 27, 1997 was $249.5 million
compared to $226.9 million at September 27, 1997. The
current ratio was 4.1 to 1 at December 27, 1997 compared to
2.6 to 1 at September 27, 1997. At December 27, 1997, the
Company had cash and short-term investments totaling $160.6
million. At December 27, 1997, the Company had no
outstanding advances against its $45.0 million revolving
credit facility (Credit Facility); however, $11.2 million of
the Credit Facility secured various letters of credit issued
primarily in connection with the purchase of steel slabs at
Newport.
Net cash flows provided by operating activities totaled
$6.5 million in the first quarter of fiscal 1998 compared to
$12.7 million in the comparable prior fiscal year period.
The Company recorded net income of $6.5 million in the first
quarter of fiscal 1998 compared to $0.2 million in the first
quarter of fiscal 1997. Major sources of cash from
operating activities in the first quarter of fiscal 1998
included $4.7 million in non-cash depreciation and
amortization charges and a $3.9 million decrease in other
current assets which resulted primarily from the receipt of
certain insurance claims filed by the Company. The major
uses of cash in operating activities included a $5.9 million
increase in inventories which occurred partly in
anticipation of a scheduled repair and maintenance shut-down
at the seamless tubular facilities late in the first fiscal
quarter. Accrued liabilities decreased $4.5 million due to
the payment of accrued interest and debt prepayment penalty
in connection with the redemption of $52.4 million principal
amount of the Company's 13.5% Senior Secured Notes (Notes)
in October 1997.
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 Notes; and 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. The major
use of cash in operating activities for the period was a
$1.1 million increase in other current assets.
The Company invested $4.7 million in capital
expenditures during the first quarter of fiscal 1998,
primarily related to improvements to and acquisition of
machinery and equipment in the specialty steel segment. The
Company currently estimates that fiscal 1998 capital
spending will approximate $36.0 million, primarily in the
specialty steel segment. Of the total, approximately $10.0
million is estimated to be incurred in connection with the
purchase and installation of a new AC electric arc furnace
at Newport. Total spending for the furnace over fiscal 1998
and 1999 is estimated at $25.0 million and start-up is
scheduled for Spring 1999. A significant portion of the
remaining fiscal 1998 capital expenditures will be used to
invest in equipment which should reduce operating costs and
increase tubular product finishing capabilities. Sources
for funding capital expenditures are expected to include
cash flow from operations and available cash and short-term
investments.
Repayments on long-term debt of $52.7 million during
the fiscal 1998 first quarter includes the redemption of
$52.4 million principal amount of the Company's Notes.
Reference is made to Note 3: Long-term Debt, to the Notes to
Consolidated Financial Statements. During the first quarter
of fiscal 1998, the Company received $16.6 million in
proceeds from the issuance of common stock. Approximately
$15.4 million of the proceeds represents the exercise of the
underwriters' over-allotment option in connection with the
Offering. The remainder represents the exercise of stock
options and warrants.
Earnings before interest, taxes, depreciation and
amortization (EBITDA) were $17.5 million in the first
quarter of fiscal 1998 compared to $10.8 million in the
comparable period of fiscal 1997. EBITDA is calculated as
net income 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
See Note 5: Commitments and Contingencies to the Notes
to Consolidated Financial Statements.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
For a discussion regarding the Consent Order entered
into by Koppel and the EPA in March 1995 and the Notice of
Violation received by Koppel from the EPA in November 1996,
see Note 5: Commitments and Contingencies - Environmental
Matters to the Notes to Condensed Consolidated Financial
Statements.
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 2, 1998 By: /s/Clifford R. Borland
Clifford R. Borland
Chairman and Chief
Executive Officer
Date: February 2, 1998 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
Registrant's 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
27 Financial Data Schedule
<TABLE> <S> <C>
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<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 27, 1997, 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>
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<NAME> NS GROUP, INC>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-26-1998
<PERIOD-START> SEP-28-1997
<PERIOD-END> DEC-27-1997
<EXCHANGE-RATE> 1
<CASH> 5,646
<SECURITIES> 154,969
<RECEIVABLES> 62,745
<ALLOWANCES> 700
<INVENTORY> 79,362
<CURRENT-ASSETS> 331,126
<PP&E> 283,425
<DEPRECIATION> 159,262
<TOTAL-ASSETS> 465,595
<CURRENT-LIABILITIES> 81,586
<BONDS> 76,330
0
0
<COMMON> 279,553
<OTHER-SE> 15,722
<TOTAL-LIABILITY-AND-EQUITY> 465,595
<SALES> 123,733
<TOTAL-REVENUES> 123,733
<CGS> 106,142
<TOTAL-COSTS> 106,142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,559
<INCOME-PRETAX> 9,546
<INCOME-TAX> 3,009
<INCOME-CONTINUING> 6,537
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 6,537
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<EPS-DILUTED> .26
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