SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 25, 1999
COMMISSION FILE NUMBER 1-9838
NS GROUP, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-0985936
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
Ninth and Lowell Streets, Newport, Kentucky 41072
(Address of principal executive offices)
Registrant's telephone number, including area code (606) 292-
6809
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
Common Stock, no par value which registered
Preferred Stock Purchase Rights New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X
NO
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
Based on the closing sales price of November 29, 1999, as
reported in The Wall Street Journal, the aggregate market
value of the voting stock held by non-affiliates of the
registrant was approximately $174.4 million.
The number of shares outstanding of the registrant's
Common Stock, no par value, was 21,492,708 at November 29,
1999.
Documents Incorporated by Reference
Parts I, II and III incorporate certain information by
reference from the Annual Report to Shareholders for the
fiscal year ended September 25, 1999 ("1999 Annual Report").
Part III also incorporates certain information by reference
from the Company's Proxy Statement dated December 20, 1999 for
the Annual Meeting of Shareholders on February 10, 2000
("Proxy").
Table of Contents
PART I
Page
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote
of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 13
Item 6. Selected Consolidated Financial Data 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 13
PART III
Item 10. Directors and Executive Officers of the
Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial
Owners and Management 14
Item 13. Certain Relationships and Related
Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 15
The matters discussed or incorporated by reference in
this Report on Form 10-K that are forward-looking statements
(as defined in the Private Securities Litigation Reform Act of
1995) involve risks and uncertainties. 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. Reference is made to the introductory paragraph
of "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the 1999
Annual Report and incorporated herein by reference and to
Exhibit 99.1 to this Form 10-K for a discussion of risks and
uncertainties.
PART I
ITEM 1. BUSINESS
The Company was incorporated in Kentucky in 1980. As used
herein, the terms "Company" and "NS Group" refer to NS Group,
Inc. and its wholly-owned subsidiaries - Newport Steel
Corporation (Newport or Welded), Koppel Steel Corporation
(Koppel or Seamless), Erlanger Tubular Corporation (Erlanger),
Imperial Adhesives, Inc. (Imperial) and Northern Kentucky
Management, Inc.
NS Group conducts business in three industry segments:
the energy products segment, the industrial products segment -
special bar quality (SBQ) products and the industrial products
segment -adhesives. Incorporated herein by reference from the
1999 Annual Report is the segment data included in
"Management's Discussion and Analysis of Financial Condition
and Result of Operations" and "Note 2 to the Consolidated
Financial Statements", which contains additional information
pertaining to industry segment data.
Energy Products Segment
General
The Company is a producer of tubular steel products used
in the energy industry. Products produced by the Company
include welded and seamless tubular goods, primarily used in
oil and natural gas drilling and production operations,
referred to as oil country tubular goods (OCTG); and welded
and seamless line pipe, used in the transmission of oil,
natural gas and other fluids.
OCTG products are produced in numerous sizes, weights,
grades and end finishes. The Company manufactures most of its
OCTG products to American Petroleum Institute ("API")
specifications. The grade of pipe used in a particular
application depends on technical requirements for strength,
corrosion resistance and other performance qualities. OCTG
products are generally classified into groupings of "carbon"
and "alloy" grades. Carbon grades of OCTG products have less
yield strength than alloy grades and are therefore generally
used in shallower oil and natural gas wells than alloy grades.
Carbon and alloy grades of OCTG products are manufactured by
both welded and seamless producers. Welded products are
produced by processing flat rolled steel into strips that are
cold-formed, welded, heat-treated or seam-annealed and end-
finished with threads and couplings. Seamless products are
produced by individually heating and piercing solid steel
billets into pipe and then end finishing the pipe into OCTG
products in a manner similar to welded pipe. The seamless
manufacturing process involves higher costs than the welded
process and, as a result, seamless products are generally
priced higher than comparably sized welded 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 and anticipated prices of oil and
natural gas. 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 average number of
oil and natural gas drilling rigs in operation in the United
States was 602 in fiscal 1999, 905 in fiscal 1998, and 906 in
fiscal 1997. Demand for the Company's OCTG products in fiscal
1999 declined significantly from fiscal 1998. The decline was
attributable to decreased domestic drilling activity coupled
with excess industry-wide inventories.
U.S. domestic shipments (excluding exports) of OCTG
products in fiscal 1999, 1998 and 1997 were 915,000 tons, 1.8
million tons, and 2.5 million tons, respectively.
Demand for line pipe is only partially dependent on oil
and natural gas drilling activities. Line pipe demand is also
dependent on factors such as the level of pipeline
construction activity, line pipe replacement requirements, new
residential construction and gas utility purchasing programs.
Overall, total shipments by domestic line pipe producers
(excluding exports) were 1.9 million tons in fiscal 1999, 1.9
million tons in fiscal 1998, and 1.6 million tons in fiscal
1997. Total domestic shipments of line pipe product 16 inches
in diameter and smaller, the product sizes that the Company
produces, were 709,000 tons in fiscal 1999, 879,000 tons in
fiscal 1998 and 852,000 tons in fiscal 1997.
Since 1995, the U.S. government has been imposing duties
on 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
primarily pertain to the import of seamless OCTG products and
are subject to annual review by the U.S. Department of
Commerce through 2000. Also, the Company, together with
certain other line pipe producers, recently filed petitions
with the U.S. government seeking relief from imports of welded
and seamless line pipe products. The Company cannot predict
the U.S. government's actions regarding these petitions or any
other future actions regarding import duties or other trade
restrictions on imports of OCTG and line pipe products.
Products
The Company's welded OCTG products are used primarily as
casing in oil and natural gas wells during drilling
operations. Casing forms the structural wall of oil and
natural gas wells to provide support and prevent caving during
drilling operations and is generally not removed after it has
been installed in a well. Welded OCTG products are generally
used when higher strength is not required, typically in wells
less than 10,000 feet in depth. The Company sells its welded
OCTG products in both a plain end (unthreaded) product as well
as a threaded and coupled product in both carbon and alloy
grades. The Company's welded tubular products range in size
from 4.5 to 16.0 inches in outside diameter.
The Company's seamless OCTG products are used as drill
pipe, casing and production tubing. Drill pipe is used and
may be reused to drill several wells. Production tubing is
placed within the well and is used to convey oil and natural
gas to the surface. The Company's seamless OCTG products are
sold as a finished threaded and coupled product in both carbon
and alloy grades. Compared to similarly sized welded
products, seamless production tubing and casing are better
suited for use in hostile drilling environments such as deeper
wells or off-shore drilling because of their greater strength
and durability. The majority of the Company's seamless OCTG
product sales are of production tubing in sizes ranging from
1.9 inches to 5 inches in outside diameter.
The Company's line pipe products are used primarily in
gathering lines for the transportation of oil and natural gas
at the drilling site and in transmission lines by both gas
utility and transmission companies. Line pipe products are
coated and shipped as a plain end product. The majority of
the Company's line pipe sales are of welded products.
The Company's OCTG products are inspected and tested to
ensure that they meet or exceed API specifications. Products
that do not meet specification are classified as less than
prime products and are sold at substantially reduced prices.
In addition, the Company also sells a limited amount of
other products, including standard pipe, piling and hot rolled
coil.
Markets and Distribution
The Company sells its energy related tubular products to
its customers through an in-house sales force. Nearly all of
the Company's OCTG products are sold to domestic distributors,
some of whom subsequently sell the Company's products into the
international marketplace. The primary geographic markets for
the Company's seamless OCTG products have been the southwest
United States and various foreign markets, including offshore
applications. The Company has historically marketed its
welded OCTG products in the east, central and southwest
regions of the United States. In these areas, shallow oil and
natural gas drilling and exploration activity utilize welded
tubular products.
Customers
The Company has approximately 185 tubular product
customers. The Company's OCTG and line pipe products are used
by major and independent oil and natural gas exploration and
production companies in drilling and production applications.
Line pipe products are also used by gas utility and
transmission companies. Substantially all of the Company's
OCTG products are sold to domestic distributors. Line pipe
products are sold to both domestic distributors and directly
to end users. The Company has long-standing relationships
with many of its larger customers; however, the Company
believes that it is not dependent on any one customer and that
it could, over time, replace lost sales attributable to any
one customer. In fiscal 1999, no one customer accounted for
more than 10% of total net sales.
Competition
The markets for the Company's tubular products are highly
competitive and cyclical. The Company's principal
competitors in its primary markets include domestic and
foreign integrated producers, mini-mills and welded tubular
product processing companies. The Company believes that the
principal competitive factors affecting its business are
price, quality and customer service.
In the welded OCTG and line pipe market, the Company
competes against certain manufacturers who purchase hot rolled
coils for further processing into welded OCTG and line pipe
products. The cost of finished tubular products for these
manufacturers is largely dependent on the market price of hot
rolled coils. Depending on market demand for hot rolled
coils, these tubular manufacturers may purchase hot rolled
coils at a lower or higher cost than the Company's cost to
manufacture hot rolled coils. Increases or decreases in
imports of hot rolled coils can also impact the market price
for hot rolled coils.
The Company's principal domestic competitors in the
welded tubular market are Lone Star Steel Company, Maverick
Tube Corporation, LTV Corporation and IPSCO Steel, Inc. In
the small diameter seamless OCTG market in which the Company
competes, its principal competitors include the USS/Kobe Steel
Company and a number of foreign producers.
Manufacturing
The Company manufactures welded tubular products at its
facilities located near Newport, Kentucky and manufactures
seamless tubular products at its facilities located in
Ambridge, Pennsylvania. During fiscal 1999, the Company made
capital investments of $26.6 million ($31.2 million in fiscal
1998) in its energy products business segment to increase
productivity and expand product range. The rated annual
capacities of the Company's welded and seamless tubular
facilities are 570,000 tons and 250,000 tons, respectively.
Capacity utilization of the welded tubular facilities during
fiscal 1999 was 41% and capacity utilization for the seamless
tubular facilities during fiscal 1999 was 27%.
The Company processes and finishes its tubular products
at facilities located at (i) the Port of Catoosa, near Tulsa,
Oklahoma, (ii) Baytown, Texas, located near Houston, Texas;
and (iii) the Seamless facilities located in Ambridge,
Pennsylvania. The finishing processes include upsetting,
which is a forging process that thickens tube ends; heat
treating, which is a furnace operation designed to strengthen
the steel; straightening; non-destructive testing; coating for
rust prevention; and threading.
All of the Company's tube-making and finishing facilities
are located on or near major rivers or waterways, enabling the
Company to transport its tubular products into the southwest
by barge. The Company ships substantially all of its seamless
and welded OCTG products destined for the southwest region by
barge, which is a lower cost alternative to rail and truck
shipping.
The Company manufactures its tubular products in a mini-
mill environment. The term mini-mill connotes a smaller,
relatively low cost mill that typically uses steel scrap as
its basic raw material and offers a limited range of products.
At the Company's Welded and Seamless facilities, steel scrap
is melted in electric arc furnaces and poured into continuous
casting systems. A hot strip rolling mill converts continuous
cast slabs into hot rolled coils at the Welded facility. Hot
rolled coils are slit and formed into welded tubular products
at two welded pipe-making facilities. At the Seamless
facility, billets are reheated to form tube rounds which are
pierced and rolled to specific size and wall thickness. The
Company believes that its mini-mill operations can produce hot
rolled coil (which are used to manufacture welded tubular
products) and billets (which are used to manufacture seamless
tubular products) at a cost lower than the cost to purchase
those items over the term of our markets' cycles.
In February 1999, the Company completed the installation
of a new ultra-high powered AC electric arc furnace at its
Welded facility that replaced three older, less efficient
furnaces. The new furnace is expected to increase
productivity and significantly reduce unit operating costs.
As of October, 1999, the furnace was operating at
approximately 55% of its expected production capabilities.
The Welded and Seamless melt shops rated annual
capacities are 700,000 tons and 450,000 tons, respectively.
Capacity utilization in fiscal 1999 was 37% for the welded
facility and 48% for the Seamless facility.
Raw Materials and Supplies
The primary raw material used in the energy products
segment is steel scrap, which is generated principally from
industrial, automotive, demolition, railroad and other steel
scrap sources. Steel scrap is purchased by the Company either
through scrap brokers or directly in the open market. The
long-term demand for steel scrap in the domestic steel
industry may increase as steel-makers continue to expand steel
scrap-based electric arc furnace and thin slab casting
capacities. For the foreseeable future, however, the Company
believes that supplies of steel scrap will continue to be
available in sufficient quantities at competitive prices. In
addition, a number of technologies exist for the processing of
iron ore into forms which may be substituted for steel scrap
in electric arc furnace-based steel-making operations. Such
forms include direct-reduced iron, iron carbide and hot-
briquetted iron.
The Company's melt shop facilities consume significant
amounts of electricity. The Company currently purchases its
electricity from utility companies located near its mini-mill
facilities pursuant to various contracts. The contracts
provide for unlimited power demand and discounted rates in
return for the utilities' right to periodically curtail
service during periods of peak demand. These curtailments are
generally limited to a few hours and historically have had a
negligible impact on the Company's operations.
Industrial Products Segment - Special Bar Quality Products
General
The bar product market represents the second largest
segment of the steel market. Total fiscal 1999 shipments by
domestic producers of hot rolled bar (which include the
Company's SBQ products) were approximately 7.4 million tons.
Bar products are generally categorized into merchant bar
quality products and SBQ products. SBQ products are used for
a wide variety of industrial applications including
automotive, metal-working fabrication, construction, farm
equipment, heavy machinery and trucks and off-road vehicles.
The Company competes in relatively small segments of the SBQ
market. Unlike the majority of SBQ products, which are
primarily used by passenger car manufacturers, heavy SBQ
products such as those produced by the Company are primarily
used in the manufacture of heavy industrial products.
Special Bar Quality Products
The Company manufactures products for a specialized niche
of the SBQ products market at its Koppel facility in sizes
ranging from 2.875 to 6.0 inches in diameter. The Company
produces its SBQ products from continuous cast blooms that
enable substantial size reduction in the bloom during
processing and provides greater strength-to-weight ratios.
These SBQ products are primarily used in critical weight-
bearing applications such as suspension systems, gear blanks,
drive axles for tractors and off-road vehicles, heavy
machinery components and hydraulic and pneumatic cylinders.
The Company's SBQ products are ISO 9002 certified. The demand
for the Company's SBQ products is cyclical in nature and is
sensitive to general economic conditions.
Markets and Distribution
The Company sells its SBQ products to approximately 50
customers located generally within 400 miles of its Koppel,
Pennsylvania facilities.
Customers
The Company sells its SBQ products to service centers,
cold finishers, forgers and original equipment manufacturers.
Competition
The Company competes with a number of SBQ manufacturers,
including CSC Industries, Inc., Republic Technologies, Inc.,
Ispat Inland, Inc., Qualitech, Inc., Mac Steel Division of
Quanex Corporation, North Star Steel Company, Inc. and the
Timkin Company.
Manufacturing
The SBQ products mill utilizes the Koppel facility's melt
shop to produce 9 inch square blooms. Blooms are reheated and
passed through a series of rolls in the bar mill, where they
are reshaped into round bars. SBQ products are available in
both carbon and alloy grades in sizes measuring 2.875 to 6
inches in diameter. The bar mill's rated annual capacity is
200,000 tons and it operated at 71% of capacity in fiscal
1999.
Industrial Products Segment - Adhesives Products
General
The Company manufactures custom water-borne, solvent-
borne and hot-melt adhesives and footwear finishes. These
products are manufactured at plants located in Cincinnati,
Ohio and Nashville, Tennessee.
Products and Markets
The Company maintains approximately 700 active formulae
for the manufacture of water-borne, solvent-borne and hot-melt
adhesives products and approximately 500 active formulae for
the manufacture of footwear finishes. The Company's multiple
product lines are used primarily in product assembly
applications in the footwear, foam bonding, marine and
recreational vehicles, consumer packaging, construction,
furniture, and transportation industries. The Company's
industrial adhesives products are marketed throughout the
United States and Caribbean basin through an in-house sales
force as well as independent sales representatives. Products
are distributed from the Company's manufacturing sites and a
number of public warehouses across the United States and in
Puerto Rico.
Competition
Competition in the industrial adhesives industry includes
several major producers, as well as numerous small and mid-
sized companies comparable to Imperial. The Company competes
on the basis of price, product performance and customer
service and believes that its diversity and ability to develop
applications to meet customer specific needs allows it to
compete effectively with substantially all adhesives
producers.
Manufacturing Process
The Company's adhesives products are manufactured by
combining and mixing predetermined quantities of raw
materials. The raw materials are measured according to
specific formulae and mixed in numerous specially designed
industrial mixers. Raw materials are available from multiple
sources and consist primarily of petrochemical-based
materials. Pricing of raw materials generally follows trends
in the petrochemical markets. The physical properties of
finished formulae are measured and monitored by a statistical
process control system. The Company works closely with its
customers to develop adhesives applications designed to meet
their specific product requirements.
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 and the
Clean Water Act, and all regulations promulgated in connection
therewith. Such laws and regulations include 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 produced by 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.
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 has contracted with a
company to dispose of the dust at an EPA-approved facility.
The project is expected to be completed by the second quarter
of fiscal 2000. The Company believes disposal costs will not
exceed its gross environmental remediation reserves of $5.3
million. In connection with these incidents, the Company has
an insurance receivable outstanding of $1.6 million as of
September 25, 1999.
Subject to the uncertainties concerning the storage 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 compliance with future
environmental regulations.
Capital expenditures for the next twelve months relating
to environmental control facilities are expected to be
approximately $0.8 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 September 25, 1999, the Company had environmental
remediation reserves of $5.4 million attributable primarily to
the accrued disposal costs for radiation
contaminated dust. 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 its environmental contingency
matters, individually or in the aggregate, will not have a
material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.
Employees
As of September 25, 1999, the Company had 1,619
employees, of whom 389 were salaried and 1,230 were hourly.
Substantially all of the Company's hourly employees are
represented by the United Steelworkers of America under
contracts expiring in 2000 for Erlanger; 2001 for Imperial and
2002 for the Welded and Seamless operations.
ITEM 2. PROPERTIES
The Company's principal operating properties are listed
below. The Company believes its facilities are adequate and
suitable for its present level of operations.
Location and Properties
Energy Products Segment
Newport, Kentucky - The Company owns approximately 250
acres of real estate upon which is located a melt shop, hot
strip mill, two welded pipe mills, a barge facility, machine
and fabricating shops and storage and repair facilities
aggregating approximately 675,000 square feet, as well as
administrative offices. The facilities are also located
adjacent to rail lines.
Tulsa, Oklahoma - The Company leases approximately 36
acres of real estate upon which is located a tubular
processing facility. The facility is located at the Tulsa
Port of Catoosa where barge facilities are in close proximity.
Located on this property are six buildings aggregating
approximately 119,000 square feet which house the various
finishing operations.
Koppel, Pennsylvania - The Company owns approximately 160
acres of real estate upon which are located a melt shop,
machine and fabricating shops, storage and repair facilities
and administrative offices aggregating approximately 500,000
square feet. The facilities are located adjacent to rail
lines. The melt shop and administrative offices support the
Seamless operations and the industrial products segment for
SBQ products.
Ambridge, Pennsylvania - The Company owns approximately
45 acres of real estate upon which are located a seamless tube
making facility and seamless tube finishing facilities
aggregating approximately 659,000 square feet. The facilities
are located adjacent to rail lines and river barge facilities.
Baytown, Texas - The Company owns approximately 55 acres of
real estate upon which are located a tubular processing
facility and barge facilities. Located on the property are
eight buildings aggregating approximately 82,000 square feet
which house the various finishing operations.
Industrial Products Segment-SBQ
Koppel, Pennsylvania - The Company owns approximately 67
acres of real estate upon which are located a bar mill,
machine and fabricating shops and storage repair facilities
aggregating approximately 400,000 feet. The melt shop and
administrative offices support the energy products Seamless
operations and the SBQ products operations.
Industrial Products Segment-Adhesives
Cincinnati, Ohio and Nashville, Tennessee - The Company
owns approximately seven acres of property in Cincinnati,
Ohio; and 3.1 acres in Nashville, Tennessee for use in its
adhesives and finishes operations. The Cincinnati properties
contain five buildings aggregating approximately 150,000
square feet. The Nashville property contains one building
aggregating approximately 60,000 square feet.
Other
Newport, Kentucky - The Company owns approximately 19
acres of partially developed land near Newport, Kentucky,
which is held as investment property and is listed for sale.
Information regarding encumbrances on the Company's
properties is included in Note 5 to the Consolidated Financial
Statements of the 1999 Annual Report, and is incorporated
herein by reference.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Incorporated herein by reference from the 1999 Annual
Report, "Corporate and Shareholder Information - Stock Market
Information" and "Corporate and Shareholder Information -
Stock Price" and Note 5 to the Consolidated Financial
Statements.
As of November 29, 1999 there were approximately 229
record holders of Common Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Incorporated herein by reference from the 1999 Annual
Report, "Consolidated Financial Summary".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Incorporated herein by reference from the 1999 Annual
Report, "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Incorporated herein by reference from the 1999 Annual
Report, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources" and Notes 4, 5 and 6 to the Consolidated Financial
Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference from the 1999 Annual
Report, "Consolidated Statements of Operations"; "Consolidated
Balance Sheets"; "Consolidated Statements of Cash Flows";
Consolidated Statements of Common Shareholders' Equity";
"Notes to Consolidated Financial Statements"; "Report of
Management" and "Report of Independent Public Accountants".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference from the Proxy under the
caption "Proposals of the Board, Item 1 - Election of
Directors," "Securities Ownership of Management, footnote
(6)"; "The Board of Directors, Board Committees and Meeting
Attendance"; and "Securities Ownership of Management, Section
16(a) Beneficial Ownership Reporting Compliance".
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Proxy under the
caption "Compensation of Directors"; and "Compensation of
Executive Officers".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated herein by reference from the Proxy under
the caption "Securities Ownership of Management" and
"Securities Ownership of Certain Beneficial Owners".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Proxy under the
caption "Compensation of Executive Officers, Compensation
Committee Interlocks and Insider Participation" and "Certain
Relationships and Related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8
(a) 1. Consolidated Financial Statements -
Audited consolidated financial statements required by this
item are incorporated by reference and listed in Part II, Item
8.
2. Consolidated Financial Statement
Schedule - The financial statement schedule required to be
filed as a part of this report is included herein:
- Report of Independent Public Accountants on Financial
Statement Schedule
- Schedule II - Valuation and Qualifying Accounts
3. Exhibits - Reference is made to the Index
to Exhibits, which is included herein as part of this report.
(b) Reports on Form 8-K
Current Report on Form 8-K dated July 15, 1999 and
filed July 16, 1999 reporting under Item 5 the announcement of
the appointment of a director.
Report of Independent Public Accountants
on Financial Statement Schedule
To NS Group, Inc.
We have audited in accordance with generally accepted
auditing standards the consolidated financial statements
included in NS Group, Inc. and subsidiaries annual report to
shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated November 1, 1999. Our
audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule
listed in Item 14(a) 2 is the responsibility of the Company's
management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to
be set forth therein in relation to the basic financial
statements taken as a whole.
/s/Arthur Andersen LLP
Cincinnati, Ohio ARTHUR ANDERSEN LLP
November 1, 1999
SCHEDULE II
NS GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Reserves Deducted from
Assets in Balance Sheets
Allowance
for Allowance
Doubtful for Cash
Accounts(1) Discounts(1)
BALANCE, September 28, 1996 $ 757 $ 341
Additions:
Charged to costs and expenses 1,050 7,414
Deductions:
Net charges of nature for which
reserves were created (1,095) (7,124)
BALANCE, September 27, 1997 $ 712 $ 631
Additions:
Charged to costs and expenses 1,319 5,143
Deductions:
Net charges of nature for which
reserves were created (1,279) (5,622)
BALANCE, September 26, 1998 $ 752 $ 152
Additions:
Charged to costs and expenses
Deductions: 1,598 2,502
Net charges of nature for which
reserves were created (1,513) (2,400)
BALANCE, September 25, 1999 $ 837 $ 254
(1) Deducted from accounts receivable
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NS GROUP, INC.
Date: December 10, 1999 By: /s/John R. Parker
John R. Parker, Vice
President, Treasurer and
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Clifford R.
Borland and John R. Parker, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities to sign any and all
amendments to this Annual Report on Form 10-K and any other
documents and instruments incidental thereto, and to file the
same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform
each and every act and thing requisite or
necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-
fact and agents and/or any of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Date: December 10, 1999 /s/Clifford R. Borland
Clifford R. Borland
Chief Executive Officer
and Director
Date: December 10, 1999 /s/Rene J. Robichaud
Rene J. Robichaud,
President, Chief Operating
Officer and Director
Date: December 10, 1999 /s/John R. Parker
John R. Parker,
Vice President,
Treasurer and Chief
Financial Officer
(Principal Financial Officer)
Date: December 10, 1999 /s/Thomas J. Depenbrock
Thomas J. Depenbrock
Vice President and
Corporate Controller
(Principal Accounting Officer)
Date: December 10, 1999 /s/Ronald R. Noel
Ronald R. Noel
Vice President and Director
Date: December 10, 1999 /s/Paul C. Borland, Jr.
Paul C. Borland, Jr.,
Director
Date: December 10, 1999 /s/Patrick J. B. Donnelly
Patrick J. B. Donnelly,
Director
Date: December 10, 1999 /s/John B. Lally
John B. Lally, Director
Date: December 10, 1999 /s/R. Glen Mayfield
R. Glen Mayfield, Director
INDEX TO EXHIBITS
Number Description
3.1 Amended and Restated Articles of Incorporation of
Registrant, filed as Exhibit 3.1 to Amendment No. 1 to
Registrants' Form S-1 dated January 17, 1995, File No. 33-
56637, and incorporated herein by this reference
3.2 Amended and restated By-Laws of Registrant, dated
December 4, 1995, filed 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
Exhibit 4.1 through 4.17 were filed as exhibits
under their respective Exhibit numbers to the Company's Form
10-Q for the quarterly period ended July 1, 1995, File No. 1-
9838, and are incorporated herein by this reference
4.1 Indenture (including form of Senior Secured Note)
between the Company and The Huntington National Bank, as
trustee (the "Trustee")
4.2 Leasehold and Fee Mortgage, Assignment of Rents and
Leases and Security Agreement from Newport to the Trustee
(Kentucky)
4.3 Mortgage, Assignment of Rents and Leases and
Security Agreement from Koppel to the Trustee (Pennsylvania)
4.4 Deed of Trust, Assignment of Rents and Leases and
Security Agreement from Koppel to the Trustee (Texas)
4.5 Leasehold Mortgage, Assignment of Rents and Leases
and Security Agreement from Erlanger to the Trustee
(Oklahoma)
4.6 Junior Leasehold and Fee Mortgage, Assignment of
Rents and Leases and Security Agreement from Newport to
the Company (Kentucky)
4.7 Junior Mortgage, Assignment of Rents and Leases and
Security Agreement from Koppel to the Company (Pennsylvania)
4.8 Junior Deed of Trust, Assignment of Rents and Leases
and Security Agreement from Koppel to the Company (Texas)
4.9 Junior Leasehold Mortgage, Assignment of Rents and
Leases and Security Agreement from Erlanger to the Company
(Oklahoma)
4.10 Subsidiary Security Agreement between Newport and
the Trustee
4.11 Subsidiary Security Agreement between Koppel and the
Trustee
4.12 Subsidiary Security Agreement between Erlanger and
the Trustee
4.13 ICN Security Agreement between Newport and the
Company
4.14 ICN Security Agreement between Koppel and the
Company
4.15 ICN Security Agreement between Erlanger and the
Company
4.16 Pledge and Security Agreement between the Company
and the Trustee
4.17 Subsidiary Guarantee
4.18 Warrant Agreement between the Company and The
Huntington National Bank, as warrant agent, filed as Exhibit
4.22 to the Company's Form 10-Q for the quarterly period ended
July 1, 1995, File No. 1-9838, and incorporated herein by this
reference
4.19 Credit Agreement between the Company and Bank of
America National Trust and Savings Association, dated July 31,
1998, filed as Exhibit 4.20 to the Company's Form 10-K for the
fiscal year ended September 26, 1998, File No. 1-9838, and
incorporated herein by this reference; and Amendment No. 1
dated March 25, 1999, filed as Exhibit 4.20 to the Company's
Form 10-Q for the quarterly period ended March 27, 1999, File
No. 1-9838, and incorporated herein by this reference
10.1 Company's Amended Employee Incentive Stock Option
Plan, filed as Exhibit 10(a) to Company's Form 10-K for the
fiscal year ended September 30, 1989, File No. 1-9838, and
incorporated herein by this reference*
10.2 Company's Executive Bonus Plan, filed as Schedule B
to Exhibit 10.4 to Company's Registration Statement on Form S-
18, File No. 2-90643, and incorporated herein by this
reference*
10.3 Company's Non-Qualified Stock Option and Stock
Appreciation Rights Plan of 1988, filed as Exhibit 1 to the
Company's Proxy Statement dated January 13, 1989, File No. 1-
9838, and incorporated herein by this reference*
10.4 Rights Agreement dated November 17, 1998 between the
Company and Registrar and Transfer Company, filed as Exhibit 1
to the Company's Form 8-K dated November 5, 1998, File No. 1-
9838, and incorporated herein by this reference
10.5 Company's 1993 Incentive Stock Option Plan, filed as
Exhibit 1 to the Company's Proxy Statement dated December 22,
1992, File No. 1-9838, and incorporated herein by this
reference*
10.6 Registration Rights Agreement dated October 6, 1993
among Kentucky Electric Steel, Inc., NS Group, Inc. and NSub
I, Inc. (formerly Kentucky Electric Steel Corporation), filed
as Exhibit 10(i) to the Company's Form 10-K for fiscal year
ended September 25, 1993, File No. 1-9383, and incorporated
herein by this reference
10.7 Form of Warrant dated October 4, 1990, filed as
Exhibit 4.2 to the Company's Form 8-K dated October 18, 1990,
File No. 1-9838, and incorporated herein by reference; and
First Amendment to Warrant dated September 26, 1992, filed as
Exhibit 4(c) to the Company's Form 10-K for the fiscal year
ended September 26, 1992, File No. 1-9838, and incorporated
herein by this reference
10.8 Company's Amended and Restated 1995 Stock Option and
Stock Appreciation Rights Plan, filed as Exhibit A to the
Company's Proxy Statement dated December 21, 1998, File No. 1-
9838, and incorporated herein by this reference*
10.9 Form of Change of Control Severance Agreement, filed
herewith*
10.10 Form of Salary Continuation Agreement, filed
herewith*
10.11 Employment Agreement between the Company and Ren, J.
Robichaud, dated June 21, 1999, filed herewith*
13 1999 Annual Report to Shareholders (not deemed
"filed" except for portions which are expressly incorporated
by reference), filed herewith
21 Subsidiaries of Registrant, filed herewith
23 Consent of Independent Public Accountants, filed
herewith
24 Power of Attorney (contained on Signature Page)
27 Financial Data Schedule, filed herewith
27.1 Restated Financial Data Schedule, filed herewith
27.2 Restated Financial Data Schedule, filed herewith
27.3 Restated Financial Data Schedule, filed herewith
99.1 Risk Factors, filed herewith
* Indicates management contracts or compensatory plans or
arrangements in which one or more directors or executive
officers of the Company participates or is a party.
Exhibit 10.9
FORM OF
CHANGE OF CONTROL SEVERANCE AGREEMENT
AGREEMENT by and between NS Group, Inc., a
Kentucky Corporation (the "Company"), and
____________________ (the "Employee"), dated as of the
_______ day of ________________.
The Company wishes to assure that it will have the
continued dedication of the Employee, notwithstanding the
possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Company believes it is
imperative to diminish the inevitable distraction of the
Employee by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control, to
encourage the Employee's full attention and dedication to
the Company upon a Change of Control, and to provide the
Employee with compensation arrangements upon a Change of
Control which provide the Employee with individual financial
security and which are competitive with those of other
corporations and, in order to accomplish these objectives,
the Company desires to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
Certain Definitions
(a) "Affiliate" of any specified Person means (i)
any other Person which, directly or indirectly, is in
control of, is controlled by or is under common control with
such specified Person or (ii) any other person who is a
director or officer (A) of such specified Person, (B) of any
subsidiary of such specified Person or (C) of any Person
described in clause (i) above or (iii) any person in which
such Person has, directly or indirectly, a 5 percent or
greater voting or economic interest or the power to control.
For the purposes of this definition, "control" of a Person
means the power, direct or indirect, to direct or cause the
direction of the management or policies of such Person
whether through the ownership of voting securities, or by
contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
(b) "Agreement Period" shall mean the period as
defined in Section 2 of this Agreement.
(c) "Board of Directors" shall mean the Board of
Directors of the Company as constituted from time to time.
(d) "Change of Control" shall mean:
(i) the direct or indirect sale, lease,
exchange or other transfer of all or substantially all of
the assets of the Company to any Person or entity or group
of Persons or entities acting in concert as a partnership or
other group (a "Group of Persons") other than a Person
described in clause (i) of the definition of Affiliate:
(ii) the consummation of any consolidation or
merger of the Company with or into another corporation with
the effect that the stockholders of the Company immediately
prior to the date of the consolidation or merger hold less
than 51% of the combined voting power of the outstanding
voting securities of the surviving entity of such merger or
the corporation resulting from such consolidation ordinarily
having the right to vote in the election of directors (apart
from rights accruing under special circumstances)
immediately after such merger or consolidation;
(iii) the stockholders of the Company shall
approve any plan or proposal for the liquidation or
dissolution of the Company;
(iv) a Person or Group of Persons acting in
concert as a partnership, limited partnership, syndicate or
other group shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases
or otherwise, have become the direct or indirect beneficial
owner (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended ("the Exchange Act"))
("Beneficial Owner") of securities of the Company
representing 30% or more of the combined voting power of the
then outstanding securities of the Company ordinarily (and
apart from rights accruing under special circumstances)
having the right to vote in the election of directors;
(v) a Person or Group of Persons, together
with any Affiliates thereof, shall succeed in having a
sufficient number of its nominees elected to the Board of
Directors of the Company such that such nominees, when added
to any existing director remaining on the Board of Directors
of the Company after such election who is an Affiliate of
such Person or Group of Persons, will constitute a majority
of the Board of Directors of the Company; provided that the
Person or Group of Persons referred to in clauses (i), (iv)
and (v) shall not mean Clifford Borland or any Group of
Persons with respect to which Clifford Borland is the
Beneficial Owner of the majority of the voting equity
interests.
(e) "Cause" for termination of the Employee's
employment shall be deemed to exist if the Board of
Directors of the Company should determine that the Employee
has committed any of the following: (i) fraud; (ii)
misappropriation of Company property or funds; (iii)
embezzlement; (iv) malfeasance in office; (v) misfeasance in
office which is willful or grossly negligent; or (vi)
nonfeasance in office which is willful or grossly negligent.
(f) "Company" as used herein includes NS Group,
Inc. and any of its subsidiaries and divisions and, as
provided by Section 12(b) hereof, any successor.
(g) "Date of Termination" shall be the date on
which the Notice of Termination is actually perceived by the
addressee, or alternatively, if the Notice of Termination
specifies a date other than the date of receipt of such
notice then that specified date shall be the Date of
Termination.
(h) "Effective Date" shall mean the first date on
which a Change of Control occurs; provided, however, that if
the Employee's employment is terminated by the Company prior
to the date on which a Change of Control occurs, and the
Employee can reasonably demonstrate that such termination by
the Company was in contemplation of a Change of Control,
then for all purposes of this Agreement the "Effective Date"
shall mean the date immediately prior to the date of such
termination.
(i) "Good Reason" means: (i) any material change
in compensation; (ii) substantial decrease in the nature or
scope of the Employee's duties, responsibilities, powers,
authority, title, position or status; (iii) unreasonable
travel requirements; (iv) any relocation required on the
part of Employee, without his consent, outside of a 50-mile
radius from the place of his employment on the Effective
Date; or (v) material breach by the Company of an
employment, compensation or similar agreement between the
Employee and the Company.
(j) "Person" means any individual, corporation,
partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, government or
any agency or political subdivision thereof or any other
entity within the meaning of Section 13(d)(3) or 14(d) (2)
of the Exchange Act.
(k) "Reduce Amount" as used herein shall mean the
maximum amount which could be paid to the Employee under
this Agreement without any portion of such amount being
nondeductible by the Company by virtue of Section 280G of
the Internal Revenue Code of 1986, as amended.
(l) "Voting Power" shall mean the voting power of
all securities of a Person then outstanding generally
entitled to vote for the election of directors of the Person
(or, where appropriate, for the election of persons
performing similar functions).
2. Agreement Period
The Company hereby agrees to provide the
Employee with the protections and benefits enumerated in
Section 3 of this Agreement for the period commencing on the
Effective Date and ending on the second anniversary of the
Effective Date.
3. Obligations of the Company Upon Termination
(a) Notice of Termination. Any termination
after the Effective Date by the Company or by the Employee
shall be communicated by Notice of Termination, within ten
(10) business days after the later of the date of employment
termination or the date of Change of Control, to the other
party hereto given in accordance with Section 13(c) of this
Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) sets forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employee's
employment, and (ii) if the termination date is other than
the date of receipt of such notice, specifies the
termination date.
(b) Termination by the Company for Cause;
Termination by the Employee for Other Than Good Reason. If
during the Agreement Period, the Employee's employment is
terminated by the Company for Cause, by the Employee other
than for Good Reason, or by reason of death or disability,
this Agreement shall terminate without further obligation to
the Employee.
(c) Termination by the Employee for Good Reason:
Termination by the Company for Other Than for Cause. If,
during the Agreement Period, the Company shall terminate the
Employee's employment other than for Cause, or the
employment of the Employee shall be terminated by the
Employee for Good Reason, the Employee shall be entitled to
the following payments and benefits:
(i) The Company shall pay to the
Employee in a lump sum in cash within thirty (30) days after
the Date of Termination the aggregate of two (2) times the
amount of the Employee=s base salary in effect on the Date
of Termination and two (2) times the average amount of the
Employee's bonus payments made in the five (5) years prior
to the Date of Termination, plus a payment equal to a pro
rata portion (based on the whole number of months worked in
the fiscal year by the Employee prior to the Date of
Termination and, if applicable performance targets have not
been met on the Date of Termination, based on a reasonable
estimate of the amount of bonus to be earned for the full
year) of the Employee's annual bonus for the year of
termination.
(ii) For two (2) years after the Date of
Termination, the Company shall continue providing medical,
dental, life and disability insurance benefits to the
Employee in an amount equivalent to that which would have
been provided to the Employee had the Employee's employment
not been terminated. The Employee shall not be obligated to
pay higher fees for such benefits than he or she was paying
at the Date of Termination. In the event it is not possible
to provide this continued coverage, the Company shall
provide the Employee with a cash payment in the amount
necessary for the Employee to purchase equivalent insurance
for two (2) years after the Date of Termination.
(iii) Within ten (10) business days
after the later of the date of employment termination or the
date of Change of Control, the Company shall provide, at no
cost to the Employee, individual outside assistance for the
Employee in finding other employment. Such obligation may
be fulfilled by the Company through the retention of an
outplacement service for use by the Employee.
4. Reduction of Termination Benefits
In the event the Company's independent
auditors (the "Accounting Firm") shall determine that any
payment or distribution by the Company to or for the benefit
of the Employee made pursuant to Section 3 of this Agreement
would be nondeductible by the Company for Federal income tax
purposes because of Section 280G of the Internal Revenue
Code of 1986, as amended, then the aggregate present value
of amounts payable or distributable to or for the benefit of
the Employee pursuant to this Agreement shall be limited to
the Reduced Amount. If the Accounting Firm makes such a
determination, the Company shall promptly provide the
Employee with notice to that effect as well as a copy of
both the detailed calculation thereof and the Reduced
Amount.
5. Funding of Grantor Trust
The Board of Directors of the Company shall
have the option to establish a so-called "Rabbi Trust" upon
the occurrence, or in anticipation, of a Change of Control
to secure for the Employee the benefits provided pursuant to
Section 3 of this Agreement. If the Board of Directors
elects to do so, the Company shall, immediately upon the
occurrence of a Change of Control, make an irrevocable
contribution to the Rabbi Trust in an amount that is
sufficient to pay the Employee the benefits to which such
Employee would be entitled pursuant to the terms of this
Agreement as of the date on which the Change of Control
occurred.
6. Non-exclusivity of Rights
Nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in
any benefit, bonus, incentive or other plan or program
provided by the Company or any of its affiliated companies
and for which the Employee may qualify, nor shall anything
herein limit or otherwise affect such rights that the
Employee may have under any stock option or other agreements
with the Company. Amounts which are vested benefits or
which the Employee is otherwise entitled to receive under
any plan or program of the Company at or subsequent to the
Date of Termination shall be payable in accordance with such
plan or program.
7. No Setoff; Cooperation
The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or
action which the Company may have against the Employee or
others.
8. Confidential Information
The Employee shall hold in a fiduciary
capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the
Company and its businesses, which shall have been obtained
by the Employee during the Employee's employment by the
Company and which shall not be public knowledge. After
termination of the Employee's employment with the Company,
the Employee shall not, without the prior written consent of
the Company, communicate or divulge any secret or
confidential information, knowledge or data to anyone other
than the Company and those designated by it.
9. Non-Solicitation
(a) The Employee agrees that, during the
Agreement Period, the Employee will not: (i) solicit, raid,
entice, or induce any present or prospective employee of the
Company to be employed by any competitor of the Company, or
(ii) assist a competitor in taking such action.
(b) Remedies. The Employee agrees that any
breach or threatened breach or alleged breach or alleged
threatened breach by the Employee of any provision of
Sections 8 or 9 will entitle the Company, in addition to any
other legal remedies available to it, to apply to any court
of competent jurisdiction to enjoin the breach or threatened
breach or alleged breach or alleged threatened breach, it
being acknowledged and agreed that any such material breach
will cause irreparable injury to the Company and that any
damages will not provide adequate remedies to the Company.
The parties understand and intend that each restriction
agreed to by the Employee will be construed as separable and
divisible from every other restriction, and that the
unenforceability, in whole or in part, of any restriction
will not affect the enforceability of the remaining
restrictions and that one or more or all of such
restrictions may be enforced in whole or in part as the
circumstances warrant. No waiver of any one breach of the
restrictions contained herein will be deemed a waiver of any
future breach.
10. Exclusive Remedy
The Employee's rights to severance benefits
pursuant to Section 3 hereof shall be the Employee's sole
and exclusive remedy for any termination of the Employee's
employment by the Company without Cause or by the Employee
for Good Reason. The payments, severance benefits and
severance protections provided to the Employee pursuant to
this Agreement are provided in lieu of any severance
payments, severance benefits and severance protections
provided in any other plan or policy of the Company, except
as may be expressly provided in writing under the terms of
any plan or policy of the Company, or in a written agreement
between the Company and the employee entered into after the
date of this Agreement. In no event shall the Employee be
obligated to seek other employment or take any other action
by way of mitigation of the amounts payable to the Employee
under any of the provisions of this Agreement.
11. Statement of Intention
It is the intention of the parties hereto
that, prior to the Effective Date, this Agreement shall not
create any rights or obligations in the Employee or the
Company , or require any payments by the Company to the
Employee.
12. Successors
(a) The Employee. This Agreement is personal
to the Employee and without the prior written consent of the
Company shall not be assignable by the Employee otherwise
than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable
by the Employee's legal representatives.
(b) The Company. This Agreement shall inure
to the benefit of and be binding upon the Company and its
successors. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree
to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if
no such succession had taken place.
As used in this Agreement, "Company" shall
include any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement
by operation of law, or otherwise.
13. Miscellaneous
(a) Interpretation. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Kentucky, without reference to principles of
conflict of laws. The captions of this Agreement are not
part of the provisions hereof and shall have no force or
effect.
(b) Legal Fees. In the event of any
litigation involving this Agreement, and if the Employee is
successful in such litigation, the Company will reimburse
the Employee for all legal fees and expenses paid by the
Employee in prosecuting or defending such litigation.
(c) Notices. All notices and other
communications hereunder shall be in writing and shall be
given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage
prepaid, addressed to the Employee at the Employee's address
on the payroll records of the Company and to the Company as
follows:
NS Group, Inc.
Ninth & Lowell Streets
P.O. Box 1670
Newport, Kentucky 41072
Attention: President
And to such other address as either party shall have
furnished to the other in writing in accordance herewith.
Notice and communications shall be effective when actually
received by the addressee.
(d) Severability. The invalidity or
unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other
provision of this Agreement.
(e) Withholding Taxes. The Company may
withhold from any amounts payable under this Agreement such
Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(f) No Waiver. The failure of the Employee
or the Company to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such
provision or any other provision thereof.
(g) Entire Agreement. This Agreement
contains the entire understanding of the Company and the
Employee with respect to the subject matter hereof. This
Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their
respective successors and legal representatives.
(h) Dispute to Resolution Procedures. If any
question shall arise in regard to the interpretation of any
provision of this Agreement or as to the rights and
obligations of either of the parties hereunder, the Employee
and a designated representative of the Company shall meet
with each other to negotiate and attempt to resolve such
question in good faith. The Employee and such
representative may, if they so desire, consult outside
experts for assistance in arriving at a resolution. In the
event that a resolution is not achieved within fifteen (15)
days after their first meeting, then either party may submit
the question for final resolution by binding arbitration in
accordance with the rules and procedures of the American
Arbitration Association applicable to commercial
transactions, and judgment upon any award thereon may be
entered in any court having jurisdiction thereof. The
arbitration shall be held in Covington, Kentucky. In the
event of any arbitration, the Employee shall select one
arbitrator, the Company shall select one arbitrator and the
two arbitrators so selected shall select a third arbitrator,
any two of which arbitrators together shall make the
necessary determinations. All out-of-pocket costs and
expenses of the parties in connection with such arbitration,
including, without limitation, the fees of the arbitrators
and any administration fees and reasonable attorney=s fees
and expenses, shall be borne by the parties in such
proportions as the arbitrators shall decide that such
expenses should, in equity, be apportioned.
IN WITNESS WHEREOF, the Employee and the Company
have executed this Agreement as of the day and year first
above written.
I HAVE READ THIS CHANGE OF CONTROL SEVERANCE AGREEMENT AND,
UNDERSTANDING ALL ITS TERMS, INCLUDING THAT THIS AGREEMENT
CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES, I SIGN IT AS MY FREE ACT AND DEED.
Employee:
_________________________________
Company:
NS GROUP, INC.
___________________________
SCHEDULE OF DOCUMENTS OMITTED
The following agreements are substantially identical to the
Form of Change of Control Severance Agreement shown here,
except for the identity of the employee, dates of execution
and, except that under paragraph 3.(c)(i), Messrs. C.R.
Borland and R. J. Robichaud's payment would be the aggregate
of three times the amount of his then current base salary
and three times the average amount of his bonus payments in
the prior five years. These documents are not filed as
separate documents in accordance with Exchange Act rule 12b-
31.
Employee:
Clifford R. Borland
Ronald R. Noel
John R. Parker
Rene J. Robichaud
Exhibit 10.10
FORM OF
SALARY CONTINUATION AGREEMENT
This Agreement is entered into between NS Group, Inc.,
a corporation having its corporate office in Newport,
Kentucky ("Company"), and _______("Participant"), effective
________.
WITNESSETH
WHEREAS, Participant is employed by the Company, and by
reason thereof, has acquired experience and knowledge of
considerable value to the Company; and
WHEREAS, the Company wishes to offer an inducement to
Participant to remain in its employ by compensating him
beyond his regular salary for services which he had rendered
or will hereafter render; and
WHEREAS, Participant is willing to continue in the
employ of the Company until his retirement, or until it is
mutually agreed by both the Company and Participant that his
services are no longer necessary.
NOW THEREFORE, it is mutually agreed as follows:
1. As of the date of this Agreement, Participant is
employed by the Company, and Participant hereby agrees to
continue such employment upon the terms and conditions set
forth in this Agreement. Participant is an "at will"
employee of the Company and this Agreement does not impose
any obligation for the employment relationship to continue
for a specified period of time.
2. As compensation for his services, the Company
hereby agrees to pay Participant and Participant hereby
agrees to accept from the Company, a yearly salary to be
determined by the Board of Directors of the Company.
3. Subject to the limitations set forth in paragraphs
9 and 11 below, in the event that Participant retires from
active employment with the Company after attaining age 62,
the Company shall pay Participant _______ per month (the
"Monthly Payments") for life commencing on the first day of
the month following the date of such retirement.
Notwithstanding the foregoing, if the Company requests that
Participant retire from active employment with the Company
before attaining age 62 (for any reason other than for
"cause" as defined in paragraph 9 of this Agreement) and
Participant agrees to do so, the Company may, in its sole
discretion, provide that Participant may begin receiving the
benefits provided for in this Agreement immediately, subject
to such actuarial reductions as the Company may deem
appropriate to reflect the early commencement of benefits.
4. In the event that Participant dies (a) while in
the active employ of the Company, or (b) after becoming
fully vested in the benefits provided pursuant to this
Agreement because of either a permanent disability or a
Change of Control (as provided for in paragraphs 6 and 7)
but prior to the commencement of payments hereunder,
Participant's spouse at the time of death shall be entitled
to receive Monthly Payments commencing on the first day of
the month following Participant's death and ending on the
earlier of (i) the first day of the month during which the
spouse dies and (ii) the date on which the 120th Monthly
Payment is made. In the event that Participant dies (and is
survived by a spouse) while receiving Monthly Payments
hereunder but prior to receipt of at least 120 such
payments, the spouse shall be entitled to continue receiving
such payments until the earlier of (i) the first day of the
month during which the spouse dies and (ii) the date on
which the 120th Monthly Payment is made.
5. Upon retirement from the Company at or following
attainment of age 62, continued health insurance coverage
shall be provided for Participant and the person (if any)
who is his spouse at the time of retirement. The coverage
will be the same as that which may be provided from time to
time to active employees, and will be paid for by the
Company. Such coverage will continue for Participant until
Participant reaches the age at which he is eligible for
Medicare and for Participant's spouse until she reaches the
age at which she is eligible for Medicare.
6. In the event that Participant becomes permanently
disabled (as defined in the Company's long-term disability
plan which covers the Participant) while in the active
employ of the Company, Participant shall become fully vested
in the benefits provided pursuant to paragraph 3 of this
Agreement, and shall begin receiving such benefits at the
later of age 62 or when long-term disability benefits are no
longer payable to Participant.
7. In the event of a "Change of Control" of the
Company while Participant is in the active employ of the
Company, Participant shall become fully vested in the
benefits provided pursuant to paragraph 3 of this Agreement.
Participant must wait until age 62 to begin receiving these
benefits. For purposes of this Agreement, "Change of
Control" shall mean the happening of any of the following:
(a) the direct or indirect sale, lease,
exchange or other transfer of all or substantially all of
the assets of the Company to any Person (i.e., individual,
corporation, partnership, joint venture, association, joint-
stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or
any other entity within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934) or entity
or group of Persons or entities acting in concert as a
partnership or other group (a "Group of Persons") other than
a Person described in clause (i) of the definition
of "Affiliate," as set forth below. For purposes of the
definition of Change of Control, an "Affiliate" of any
specified Person means: (i) any other Person which, directly
or indirectly, is in control of, is controlled by or is
under common control with such specified Person or (ii) any
other Person who is a director or officer (a) of such
specified Person, (b) of any subsidiary of such specified
Person or (c) of any Person described in clause (i) above or
(iii) any Person in which such Person has, directly or
indirectly, a 5 % or greater voting or economic interest or
the power to control. For the purposes of this definition,
"control" of a Person means the power, direct or indirect,
to direct or cause the direction of the management or
policies of such Person whether through the ownership of
voting securities, or by contract or otherwise; and the
terms "controlling" and "controlled" have meanings
correlative to the foregoing;
(b) the consummation of any consolidation or
merger of the Company with or into another corporation with
the effect that the stockholders of the Company immediately
prior to the date of the consolidation or merger hold less
than 51% of the combined voting power of the outstanding
voting securities of the surviving entity of such merger or
the corporation resulting from such consolidation ordinarily
having the right to vote in the election of directors (apart
from rights accruing under special circumstances)
immediately after such merger or consolidation;
(c) the stockholders of the Company shall
approve any plan or proposal for the liquidation or
dissolution of the Company;
(d) a Person or Group of Persons acting in
concert as a partnership, limited partnership, syndicate or
other group shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases
or otherwise, have become the direct or indirect beneficial
owner (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) ("Beneficial Owner") of
securities of the Company representing 30% or more of the
combined voting power of the then outstanding securities of
the Company ordinarily (and apart from rights accruing under
special circumstances) having the right to vote in the
election of directors;
(e) a Person or Group of Persons, together
with any Affiliates thereof, shall succeed in having a
sufficient number of its nominees elected to the Board of
Directors of the Company such that such nominees, when added
to any existing director remaining on the Board of Directors
of the Company after such election who is an Affiliate of
such Person or Group of Persons, will constitute a majority
of the Board of Directors of the Company;
provided that the Person or Group of Persons referred to in
clauses (a), (d) and (e) shall not mean Clifford Borland or
any Group of Persons with respect to which Clifford Borland
is the Beneficial Owner of the majority of the voting equity
interests.
8. Notwithstanding any other provision of this
Agreement, the Company has an unconditional right to offset
any amounts which Participant owes the Company against
amounts due under this Agreement.
9. Participant agrees that if his employment with the
Company is terminated with "cause" (regardless of whether
Participant has attained the age of 62) Participant shall
not be entitled to any benefits whatsoever provided under
this Agreement and the Company shall have no liability or
obligation to provide any such benefits to Participant
pursuant to this Agreement. The termination of
Participant's employment with the Company shall be deemed
with "cause" if the Company should determine that
Participant has committed any of the following: (i) fraud;
(ii) misappropriation of Company property or funds; (iii)
embezzlement; or (iv) malfeasance, misfeasance or
nonfeasance in office which is willful or grossly negligent.
10. Participant agrees that, without the written
consent of the board of directors of the Company, he will
not, during the term of his employment with the Company or
any business entity controlling, controlled by or under
common control with the Company (an "Affiliate"), directly
or indirectly (a) engage in any activity, or in any manner
be connected with or employed by any person, firm,
corporation, or any other entity, in competition with the
Company or any Affiliate, or (b) call upon, solicit, divert,
or take away or attempt to solicit, divert, or take away any
of the customers or employees of the Company or any
Affiliate. The parties agree that these restrictions
against competition and solicitation will continue to apply
after Participant's employment with the Company ends if and
only if Participant's benefits are vested (i.e. Participant
is entitled to receive Monthly Payments hereunder either
immediately or upon the attainment of age 62), and in such
event will remain in effect for 5 years after Participant's
termination of employment. Participant further agrees that
he will not, during the term of his employment with the
Company or any Affiliate and for a period of 5 years
thereafter, use or disclose to anyone not legally entitled
thereto any confidential or proprietary information or trade
secrets relating to the business of the Company.
11. Participant agrees that, if he breaches any
covenant of paragraph 10 above, no further payments shall be
due or payable by the Company hereunder either to
Participant or to Participant's spouse and the Company shall
have no further liability or obligation hereunder.
12. The benefits provided hereunder shall not affect
the right of the Participant to participate in any current
or future Company retirement plan or in any supplemental
compensation arrangement which constitutes a part of the
Company's regular compensation structure. Upon
Participant's termination of employment, his annual base
salary and other benefits shall cease upon commencement of
the benefits provided hereunder, except as required by
applicable law or the applicable benefit plan.
13. It is agreed that neither Participant nor
Participant's spouse shall have any right to commute, sell,
assign, transfer or otherwise convey the right to receive
any payments hereunder, which payments and the right thereto
are expressly declared to be non-transferable. In the event
that Participant or Participant's spouse takes any action or
agrees to take any action in violation of this paragraph,
the Company shall have no further liability or obligation
hereunder.
14. If the Company acquires an insurance policy or any
other asset in connection with the liabilities assumed by it
hereunder, it is expressly understood by Participant and
agreed to by him that neither Participant nor Participant's
spouse shall have any right with respect to, or claim
against, such policy or asset. Such policy or asset: (a)
shall not be deemed to be held under any trust for the
benefit of Participant or Participant's spouse; (b) shall
not be held in any way as collateral security for the
fulfillment of the obligations of the Company under this
Agreement; and (c) shall be, and remain, a general
unpledged, unrestricted asset of the Company.
15. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and
their respective successors, permitted assigns and other
legal representatives. Nothing in this Agreement, whether
expressed or implied, is intended to confer any rights or
remedies under or by reason of this Agreement on any other
persons other than the Company, each of the Company's
Affiliates, Participant or Participant's spouse, and their
respective successors, permitted assigns and other legal
representatives.
16. This Agreement sets forth the entire agreement and
understanding of the parties in respect of the transactions
contemplated hereby and supersedes all prior agreements,
arrangements and understandings relating to the subject
matter hereof.
17. This Agreement may be executed simultaneously in
two counterparts, each of which shall be deemed an original
but both of which taken together shall constitute one and
the same instrument.
18. If any provision of this Agreement is determined
by a court of competent jurisdiction to be unenforceable
because it is overbroad, the other provisions hereof shall
not be effected, and this agreement shall be modified to the
extent necessary to make the invalid or unenforceable
provision valid and enforceable to the maximum extent
permissible under applicable law. This Agreement shall be
construed in accordance with the laws of the State of
Kentucky, and Participant and the Company hereby consent to
the filing and conduct of any litigation concerning this
Agreement exclusively in the State of Kentucky.
19. Whenever the singular number is used herein it
shall include the plural if the context so requires and
reference to the masculine gender herein shall be deemed to
refer to all genders.
20. The Company, or any successor thereto, may not
amend or terminate this Agreement, without the written
consent of Participant.
21. The Company shall use its best efforts to cause
this Agreement to be assumed by any successor to the Company
by virtue of a sale of substantially all of its assets or
otherwise.
22. This Agreement shall supersede any previous
agreement between Participant and the Company with regard to
salary continuation benefits, which is deemed to be
terminated.
IN WITNESS WHEREOF, Participant and the Company, by its
duly authorized officer, have executed this Agreement as of
___________________,
NS Group, Inc.
By:
Title:
Participant
Schedule of Documents Omitted
The following agreements are substantially identical to the
Form of Salary Continuation Agreement shown here, except for
the identity of the employees, dates of execution and the
amount of the monthly benefit. These documents are not
filed as separate documents in accordance with Exchange Act
rule 12b-31.
Employee Monthly Benefit
Clifford R. Borland $16,406
Paul C. Borland, Jr. $ 9,000
Ronald R. Noel $ 8,333
John R. Parker $ 7,438
Rene J. Robichaud $12,500
Exhibit 10.11
EMPLOYMENT AGREEMENT
Agreement made as of the 21st day of June 1999 between
NS Group, Inc., a Kentucky corporation ("Employer"), and
Rene J. Robichaud ("Employee").
WITNESSETH:
WHEREAS, Employer desires to employ Employee in an
executive position with significant executive and
administrative responsibilities and Employee desires to be
employed by Employer in such capacity upon the terms and
conditions hereinafter provided; and
WHEREAS, Employee shall serve Employer in the executive
capacity specified by the Board of Directors of NS Group,
Inc., a Kentucky corporation; and
WHEREAS, in such capacity Employee will develop or have
access to all of the business methods and confidential
information relating to Employer, including, but not
limited to, its financial matters, its sales and
distribution organization and methods, its designs and
procedures for the manufacture of its products, its market
development, its personnel training and development programs
and its customer and supplier relationships; and
WHEREAS, Employee and Employer are desirous of entering
into this Employment Agreement which sets forth the rights
and obligations of the parties during the continuation of
such employment, as well as following any termination
thereof;
NOW THEREFORE, in consideration of the mutual covenants
and promises herein contained and in pursuance of the above,
Employee and Employer agree as follows:
1. EMPLOYMENT
Employer shall employ Employee as President and Chief
operating Officer or in such other executive capacity as the
Board of Directors of NS Group shall specify, to perform all
duties that are customarily performed by one holding such
position or as otherwise designated by the Board of
Directors of NS Group, and Employee agrees to such
employment, subject to the general supervision and direction
by Employer and pursuant to the terms and conditions hereof.
Employee covenants and agrees that he will, at all times,
faithfully and industriously perform any and all duties
conferred upon him by Employer, and Employee further agrees
that he will devote all necessary working time and attention
thereto.
2. TERM; TERMINATION
Employee's employment with Employer will commence on June
21, 1999 and shall continue for a period of three (3) years
thereafter, subject to the right of Employer to terminate
this Employment Agreement for just cause, upon thirty (30)
days prior written notice to Employee, and the right of
Employee to terminate this Employment Agreement for any
reason or no reason upon thirty (30) days prior written
notice to Employer.
3. COMPENSATION; EMPLOYEE BENEFITS
Employer shall pay Employee for Employee's services
hereunder a salary at the rate of not less than $300,000 per
annum. Employee shall also be entitled to participate in a
bonus participation plan, stock option program, and other
fringe benefits available to other employees of NS Group or
any of its subsidiaries who are similarly situated in terms
of (i) position with NS Group or any of its subsidiaries,
(ii) seniority and (iii) geographical location of
employment. Employee's participation in such plans,
benefits and programs shall be subject to the rules,
regulations and amendments pertaining to eligibility and
participation therein.
In addition, Employee shall be eligible to receive vacation
as follows:
Length of Service Vacation Entitlement
Six months, but less than 1 year 1 week
One year, but less than 15 years 3 weeks
4. OTHER EMPLOYMENT
Employee shall devote substantially all of his normal
working time, attention, knowledge, and skills solely to the
business and interest of Employer. Employee shall not,
directly, or indirectly in any manner whatsoever, solicit,
accept or serve, on behalf of himself or any other third
party, any similar or related business without Employer's
approval. Furthermore, Employee shall not, directly or
indirectly, act for the benefit or on behalf of any
competitor of Employer or in any way inconsistent with
Employer's best interest.
This provision shall not be construed to prohibit Employee
from devoting non-business hours to the passive pursuit of
personal business interests not competitive with the
business of Employer or NS Group, or any subsidiary or
affiliate of Employer or NS Group, provided such interests
do not interfere with Employee's duties and responsibilities
owed to Employer.
5. REPRODUCTION OF DOCUMENTS
Employee shall not (except in the performance of his duties
hereunder) at any time or in any manner make or cause to be
made any copies, pictures, duplicates, facsimiles or other
reproductions or recordings or any abstracts or summaries of
any reports, studies, memoranda, correspondence, manuals,
records, plans or other written, printed or otherwise
recorded materials of any kind whatsoever belonging to or in
the possession of Employer or NS Group, or any subsidiary or
affiliate of Employer or NS Group. Employee shall have no
right, title or interest in any such material, and Employee
agrees that (except in the performance of his duties
hereunder) he will not, without the prior written consent of
Employer, remove any such material from any premises of
Employer or NS Group, or any subsidiary or affiliate of
Employer or NS Group, and that he will surrender all such
material to Employer, immediately upon the termination of
his employment or at any time prior thereto upon the request
of Employer.
6. NON-DISCLOSURE OF INFORMATION
Employee specifically agrees that he will not at any time,
whether during his employment or for a period of two (2)
years after such employment ends for any reason, disclose or
communicate to any third party any secret, private or
confidential information or trade secret relating to the
business of Employer or NS Group, or any subsidiary or
affiliate of Employer or NS Group, including business
methods and techniques, research data, marketing and sales
information, customer lists, know-how, and any other
information, process or technique or information concerning
the business of Employer or NS Group, or any subsidiary or
affiliate of Employer or NS Group, their manner and method
of operation, their plans or other data not disclosed to the
general public or known with the industry, regardless of
whether such information or trade secret was acquired prior
to or after execution of this Employment Agreement.
7. COVENANT NOT TO COMPETE
Employer and Employee recognize that Employer's industry is
highly competitive and that Employee will acquire special
knowledge from Employer. Employee, therefore, agrees that
for twelve (12) months after the employment relationship
ends for any reason;
(a) He shall not, either directly or indirectly, by
or for himself, or as agent of another, or through others as
his agent, in any way seek to induce, bring about, promote,
facilitate or encourage the discontinuance of or in any way
solicit for himself or others, those persons or entities who
are customers or employees of Employer or NS Group, or any
subsidiary or affiliate of Employer or NS Group;
(b) He shall not engage in, or become an owner,
stockholder, partner, lender, investor, director, officer,
employee, consultant or act in any other capacity with
respect to any entity which engages in, a business that
competes with, or is substantially similar to, the business
currently being conducted by Employer or NS Group, or any
subsidiary or affiliate of Employer or NS Group, and located
within North America; and
(c) If he fails to comply with any of the provisions
of this paragraph 7, Employee shall forthwith pay over to
the Employer the lesser of all benefits received by Employee
or Employer's actual damages resulting from such violation
of these covenants, together with all sums expended or costs
incurred by Employer to enforce the provisions of this
covenant, including Employer's reasonable attorneys' fees.
8. INJUNCTIVE RELIEF
In addition to, and not in lieu of, any other remedy to
which Employer may otherwise be entitled, the parties agree
that a breach by Employee of any covenant set forth in
paragraphs 1, 4, 5, 6, 7, or 9 of this Employment Agreement
shall result in irreparable injury, harm and damage to
Employer for which there is no adequate remedy at law, and
the parties further agree that, in the event of any
violation or breach by Employee of any of those provisions
of this Employment Agreement, Employer shall be entitled to
an immediate injunction and restraining order through proper
action filed in a court of competent jurisdiction to prevent
such violation or breach. Employee agrees to indemnify and
hold Employer harmless for any costs and expenses, including
reasonable attorneys' fees, which Employer may incur to
remedy any violation or breach by Employee of any covenant
set forth in paragraphs 1, 4, 5, 6, 7, or 9 hereof.
9. INVENTIONS
Employee agrees that any and all inventions and discoveries,
whether or not patentable, which Employee has conceived or
may conceive and which pertain to work or business which he
has performed or may perform on behalf of Employer, whether
or not during working hours, shall be the sole and exclusive
property of Employer.
Employee further agrees to inform Employer of all inventions
and discoveries promptly after they have been conceived or
made in detail sufficient to permit Employer to understand
such inventions and discoveries and practice them without
the exercise of further inventive skill. When requested to
do so, Employee agrees, whether during the term of this
Employment Agreement or within three (3) years thereafter,
to execute any and all documents necessary or desirable to
convey title to such inventions and discoveries to Employer
and to assist Employer in perfecting and enforcing
Employer's right in and to any such invention or discovery,
including filing patent applications regarding such
inventions or discoveries in the United States or in foreign
countries. Employee agrees that any invention, product
design, product improvement or technological innovation
which Employee, either individually or jointly with others,
has already conceived or during the term of this Employment
Agreement may conceive, develop, create or suggest that
directly results from any work which Employee does or has
done for Employer or NS Group, or any subsidiary or
affiliate of Employer or NS Group, shall be the absolute
property of Employer and shall promptly be disclosed by
Employee to Employer.
10. REPRESENTATIONS BY EMPLOYEE
Employee represents that he is neither restricted nor
prohibited in any manner from employment and performance of
duties on behalf of Employer as herein provided.
11. SEVERABILITY
Employer and Employee agree that should any provision of
this Employment Agreement be held to be illegal, invalid or
unenforceable for any reason, such term or provision shall
be deemed to be modified to the extent necessary to permit
its enforcement to the maximum extent permitted by
applicable law, and any court making such determination
shall have power to modify any and all such provisions, and
such provisions shall then be applicable in modified form.
If any provision of this Employment Agreement is invalid or
unenforceable for any reason, the remainder of this
Employment Agreement and all other provisions herein shall
not be affected thereby.
12. ENTIRE AGREEMENT AND AMENDMENTS
Employer and Employee agree that this Agreement constitutes
the entire agreement between them with respect to the
subject matter hereof and that any and all prior
discussions, negotiations, commitments and understandings
relating thereto are hereby superseded and merged herein.
The terms and provisions of this Agreement shall not be
changed, amended, waived, modified or terminated in any
respect whatsoever except by a written instrument executed
by Employer and Employee.
13. INTERPRETATION
This Employment Agreement shall be interpreted as written
jointly by Employer and Employee.
14. GOVERNING LAW, FORUM SELECTION and CONSENT TO PERSONAL
JURISDICTION
Employer and Employee hereby consent that any action to
enforce any provision of this Employment Agreement shall be
brought only in a state or federal court located in the
Commonwealth of Kentucky. This Agreement shall be
interpreted, governed and enforced in accordance with the
laws of the Commonwealth of Kentucky.
15. ASSIGNMENT
This Employment Agreement shall be binding upon and inure to
the benefit of Employer, its successors and assigns, and to
the benefit of Employee, his heirs, administrators and legal
representatives, except that Employee's duties to perform
services hereunder are non-transferable.
16. NO WAIVER OF RIGHTS
Neither failure nor delay on the part of a party in
exercising any right, power or privilege herein contained
shall operate as a waiver thereof on the part of such part,
nor shall a single or partial exercise thereof preclude any
other or further exercise of any right, power or privilege
by a party to this Employment Agreement.
17. AMENDMENT A
More specific conditions of employment are described in the
attached Amendment A to this Employment Agreement.
IN WITNESS WHEREOF, the Employer and Employee have agreed
upon and executed this Employment Agreement on the day and
year first written above.
WITNESSES:
/s/Susan Vaughn
/s/ Rene J. Robichaud
Rene J. Robichaud
NS GROUP, INC.
By: /s/ Clifford R. Borland
Its: Chairman and CEO
Attachment: Amendment A
AMENDMENT A
CONDITIONS OF EMPLOYMENT
EMPLOYMENT - The position of President and Chief Operating
Officer of NS Group, Inc. All subsidiary companies of NS
Group will report to you. In addition, all corporate staff
functions including Finance and Treasurer, human resource
management, capital planning and environmental policy will
report to you. You will be expected to lead the Company's
strategic planning and development activities to include the
direction taken by its' existing businesses as well as
potential acquisitions to achieve diversification.
SALARY - The starting base salary will be $300,000 per year.
In addition, you will have a bonus opportunity equal to 100%
of your annual base salary. The bonus will be based on the
financial results of NS Group, Inc.
STOCK OPTIONS - The Compensation Committee of the Board of
Directors is prepared to offer you, on your acceptance of
the position, 500,000 options of common stock of NS Group,
Inc. The options will be exercisable in five equal segments
on the first through the fifth anniversary of the date of
the award. (The award of 550,000 options at $7.30 per share
was awarded on June 22, 1999.)
DIRECTORSHIP - As President of NS Group, Inc. you will be
appointed a director of the Company at the Board Meeting
scheduled for July 15, 1999.
RETIREMENT - Should you remain with NS Group until age 62,
you will be eligible for a retirement benefit of $12,500 per
month. This payment is payable for life. In the event of
your death prior to the payment of 120 monthly payments, the
balance (120 less the payments received) would be payable to
your spouse or other person designated by you.
PROMOTION - The Board review of your performance leading to
promotion to Chief Executive Officer will begin with the six-
month anniversary of your employment.
SAVINGS PLAN - You will be eligible to participate in the
Company's Salaried Employee Retirement Savings Plan. As a
highly compensated employee, your contribution will be
limited to $10,000 per year. NS Group matches employee
contributions to your account equivalent to 50% of the first
4% of gross earnings.
AUTOMOTIVE STIPEND - You will be provided with an automotive
stipend of $15,000 per year or $1,250 per month. This
benefit is designed to cover the cost of a leased company
car, all fuel, oil and maintenance requirements, and the tax
gross-up for this taxable benefit. The Company will cover
insurance costs on its liability policy.
GOLF OR COUNTRY CLUB FEES - The Company will pay the
initiation and membership fees associated with your joining
a golf or country club of your choice once you have
relocated your family to the Greater Cincinnati/Northern
Kentucky areas.
OTHER FRINGE BENEFITS - Other benefits include health care
and dental benefits for you and your family, employee life
insurance, sickness and accident salary continuation and
long-term disability, supplemental sickness and accident
benefits, educational assistance, as well as paid vacations
and holidays. Also included are relocation benefits
covering moving of household goods, real estate commissions
on selling your existing home, and other costs related to
relocating your family to the Greater Cincinnati area.
CONTRACT GUARANTEE - With this contract your salary and any
bonuses earned during the three years are guaranteed in the
event your employment is terminated for reasons other than
"cause", suicide, or leaving for other employment. In
addition, sixty percent of the June 22, 1999 option award
will vest at termination if cause, suicide, or other
employment are not involved.
CHANGE OF CONTROL SEVERANCE AGREEMENT - A Change of Control
Severance Agreement offering individual financial security
in the event a Change of Control occurs provides benefits
which generally would exceed the guarantees of this
contract. The benefits are not additive. The conditions
prevailing would dictate which contract or agreement would
apply.
Exhibit 13
The following are the excerpted portions of the NS Group, Inc.
Annual Report to Shareholders for the fiscal year ended September
25, 1999 which are expressly incorporated by reference into Form
10-K.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
We make forward-looking statements in this report which represent
our expectations or beliefs about future events and financial
performance. You can identify these statements by forward-
looking words such as "expect," "believe," "anticipate," "goal,"
"plan," "intend," "estimate," "may," "will" or similar words.
Forward-looking statements are subject to known and unknown
risks, uncertainties and assumptions, including:
* oil and gas price volatility;
* the level and cyclicality of domestic and
worldwide oil and natural gas drilling;
* fluctuations in industry-wide inventory
levels;
* domestic and foreign competitive
pressures;
* the level of imports and the presence or
absence of governmentally imposed
trade restrictions;
* manufacturing efficiencies;
* steel scrap price volatility;
* costs of compliance with environmental
regulations;
* asserted and unasserted claims;
* general economic conditions;
* our ability and the ability of entities
with which we do business to modify or
redesign our and their computer
systems to work properly in the year
2000; and
* those other risks and uncertainties
described under "Risk Factors"
included in Exhibit 99.1 of our Form
10-K for the fiscal year ended
September 25, 1999.
In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this report might not occur.
In addition, actual results could differ materially from those
suggested by the forward-looking statements. Accordingly, you
should not place undue reliance on the forward-looking
statements. We undertake no obligation to publicly update or
revise any forward-looking statements, whether the result of new
information, future events or otherwise.
For a more complete understanding of our business activities and
financial results, you should read the following analysis of
financial condition and results of operations together with the
audited financial statements included in this report.
General
We conduct our business within three business segments, which are
as follows:
The energy products segment
Our products include tubular steel products that are used in the
energy industry. These products include welded and seamless
tubular goods, primarily used in oil and natural gas drilling and
production operations. These products are referred to as oil
country tubular goods, or OCTG. We also produce welded and
seamless line pipe products which are used in the transmission of
oil, natural gas and other fluids. We also produce a limited
amount of other products, including standard pipe, piling and hot
rolled coil.
The industrial products segment - special bar quality products.
Our products include special bar quality products, or SBQ. These
products are used for a wide variety of industrial applications,
including:
* farm equipment
* metal-working fabrication
* heavy machinery
* construction
* off-road vehicles
* automotive
* oil field tools and supplies
- - The industrial products segment-adhesives products.
Our products include custom water-borne, solvent-borne and hot-
melt adhesives as well as footwear finishes. These products are
used in numerous industrial product assembly applications.
You should read Note 2 to the audited financial statements
included in this report for selected financial information by
business segment.
Results of Operations
Overview
Demand for our OCTG products is cyclical in nature and is
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, among other things, dependent on the
current and anticipated prices for oil and natural gas. Also,
shipments by domestic producers of OCTG products may be
positively or negatively affected by the amount of inventory held
by producers, distributors and end users, as well as the amount
of foreign imports of OCTG products.
Demand for our OCTG products began to decline in the second half
of fiscal 1998 and continued to decline significantly in fiscal
1999. Significant declines in oil and natural gas prices led to
a decline in drilling activity in the United States throughout
most of fiscal 1999. This decline resulted in excessive industry-
wide tubular inventories, which further negatively affected our
OCTG business. The average number of oil and natural gas
drilling rigs in operation in the United States, which is
referred to as "rig count", fell as low as 488 in April 1999, the
lowest level in NS Group's 18 year history. For all of fiscal
1999, the average rig count was 602, also the lowest level in NS
Group's history. By comparison, the average rig count was 905
for fiscal 1998.
The market conditions described above negatively affected our
industry during the latter half of fiscal 1998 and fiscal 1999.
Our business experience indicates that oil and natural gas prices
are volatile and can have a substantial effect upon drilling
levels and resulting demand for our energy related products. Oil
and gas prices and drilling activity began to improve in the
fourth quarter of fiscal 1999, and have continued to improve into
fiscal 2000. However, the timing and extent of such recovery is
uncertain and we expect to incur operating losses in the energy
products segment during the first half of fiscal 2000.
NS Group's net sales, gross profit (loss), operating income
(loss) and tons shipped by business segment for fiscal 1999, 1998
and 1997 are summarized in the following table.
(dollars in thousands) 1999 1998 1997
Net sales
Energy products segment $144,151 $296,690 $372,727
Industrial products
segment SBQ 54,728 72,603 67,502
Industrial products
segment Adhesives 43,684 40,562 40,941
$242,563 $409,855 $481,170
Gross profit (loss)
Energy products segment $(31,381) $ 19,045 $ 50,754
Industrial products
segment SBQ 463 6,942 6,670
Industrial products segment
Adhesives 12,175 11,004 10,630
$(18,743) $ 36,991 $ 68,054
Operating income (loss)
Energy products segment $(41,311) $ 7,573 $ 39,243
Industrial products
segment SBQ (2,707) 4,074 4,246
Industrial products
segment Adhesives 2,179 2,302 1,799
(41,839) 13,949 45,288
Corporate allocations (3,746) (5,256) (4,591)
$(45,585) $ 8,693 $40,697
Tons shipped
Energy products segment 317,000 474,000 616,600
Industrial products
segment SBQ 130,500 160,100 152,400
447,500 634,100 769,000
Fiscal Year 1999 Compared to Fiscal Year 1998
Total net sales in fiscal 1999 were $242.6 million, a decrease of
40.8% from fiscal 1998. The decline in net sales was
attributable primarily to our energy products segment and
secondarily to our SBQ products business.
Energy product segment sales in fiscal 1999 were $144.2 million,
a decrease of 51.4% from fiscal 1998. Energy product segment
shipments of 317,000 tons declined 33.1% from fiscal 1998. The
decrease was substantially attributable to a decline in OCTG
shipments, which resulted from the declining rig count as well as
excessive levels of industry inventory. The average selling
price for our welded tubular products was $382 per ton, a
decrease of 25.0% from fiscal 1998. The average selling price
for our seamless tubular products was $740 per ton, a decrease of
16.6% from fiscal 1998. The decrease in average selling price
was due primarily to the market conditions discussed above and a
change in mix to lower priced products.
Since 1995, the U.S. government has been imposing duties on
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 primarily pertain to
the import of seamless OCTG products and are subject to annual
review by the U.S. Department of Commerce through 2000. Also, in
fiscal 1999, we joined with certain other line pipe producers to
file petitions with the U.S. government to seek relief from
imports of welded and seamless line pipe products. While these
duties and actions have reduced such imports, we cannot predict
the U.S. government's actions regarding these petitions or any
other future actions regarding import duties or other trade
restrictions on imports of OCTG and line pipe products.
Industrial products segment - SBQ product sales in fiscal 1999
were $54.7 million, a decrease of 24.6% from fiscal 1998. SBQ
product shipments of 130,500 tons declined 18.5% from fiscal
1998. The average selling price for SBQ product was $419 per
ton, a decline of 7.7% from fiscal 1998. The decrease in
shipments and average selling price was primarily attributable to
heightened competition resulting from new entrants to the SBQ
marketplace.
Industrial products segment - adhesives product sales in fiscal
1999 were $43.7 million, an increase of 7.7% from fiscal 1998,
primarily as a result of an increase in sales volume of 8.3%.
The significant decline in shipments and average selling prices
resulted in a gross loss of $31.4 million and an operating loss
of $41.3 million for the energy products segment. This compares
to gross profit of $19.0 million and operating income of $7.6
million in fiscal 1998. Fiscal 1999 results were also negatively
impacted by lower operating efficiencies that resulted from
significantly reduced operating levels, which was brought about
by poor market demand for our energy products. Our combined melt
shop capacity utilization was 41% in fiscal 1999 compared to 59%
in fiscal 1998. Our combined pipe mill capacity utilization was
37% in fiscal 1999 compared to 57% in fiscal 1998. In addition,
our operating costs were negatively affected in fiscal 1999 by a
six week shutdown at the melt shop of our welded tubular product
facility for final installation of a new electric arc furnace and
subsequent start-up costs associated with the furnace. As of
October 1999, the furnace was operating at approximately 55% of
its expected production capabilities. Selling, general and
administrative expense for the energy products segment declined
21.1% from fiscal 1998 due to reductions in employment costs and
selling related expenses. However, due to the significant
decline in sales as discussed above, selling, general and
administrative expense increased as a percentage of sales from
5.2% in fiscal 1998 to 8.4% in fiscal 1999.
The industrial products segment - SBQ products had a gross profit
of $0.5 million and an operating loss of $2.7 million in fiscal
1999 compared to a gross profit of $6.9 million and operating
profit of $4.1 million in fiscal 1998. The decrease in gross
profit and operating income were due primarily to the decline in
average selling price and secondarily to the decrease in
shipments. Selling, general and administrative expense for the
SBQ products business increased as a percent of sales from 5.2%
in fiscal 1998 to 7.6% in fiscal 1999, due to the decline in
sales as discussed above.
The industrial products segment - adhesives products gross profit
increased $1.2 million and operating income decreased $0.1
million from fiscal 1998. The increase in gross profit was
attributable to improved sales volume. Selling, general and
administrative expense increased $1.4 million and also increased
as a percent of sales from 22.5% in fiscal 1998 to 24.2% in
fiscal 1999. The increases were primarily the result of
increased investment in sales personnel to support future
increases in sales.
Investment income decreased $2.5 million from fiscal 1998 due
primarily to a decrease in average invested cash and investment
balances. Interest expense decreased $1.1 million from fiscal
1998 due to decreases in long-term debt obligations. Other
income, net was $3.5 million in fiscal 1999 and included a $2.8
million favorable claim settlement with our electrode suppliers
relating to purchases from several prior years.
Our combined federal and state effective tax rate for fiscal 1999
was a benefit of 6.6%. Our tax loss benefits were limited to
available refunds for taxes paid in previous periods at the
alternative minimum tax rate. We exhausted our refund capability
in fiscal 1999, and as such, tax benefits from any future
operating losses will likely be offset by valuation allowances
resulting in no net tax benefits being recorded for losses.
In the second quarter of fiscal 1999, we recorded an additional
$4.3 million in disposal costs as well as additional expected
insurance recoveries of $0.9 million in connection with ongoing
efforts to dispose of radiation contaminated dust generated at
our welded tubular products facility in 1993. These amounts were
recorded as an extraordinary charge of $3.4 million, with no
income tax benefit.
In the first quarter of fiscal 1999, we incurred prepayment costs
and wrote off unamortized debt issuance costs in connection with
the early retirement of $4.0 million principal amount of long-
term indebtedness, resulting in an extraordinary charge of $0.4
million, net of applicable income tax benefit of $0.1 million.
As a result of the above factors, we reported a net loss of $48.4
million, or a $2.22 loss per basic and diluted share, in fiscal
1999 compared to net income of $3.1 million, or $.13 per basic
and diluted share, in fiscal 1998. Weighted average shares
outstanding decreased for the comparable periods as a result of
our common stock buyback program that was completed in the second
quarter of fiscal 1999.
Fiscal Year 1998 Compared to Fiscal Year 1997
Total net sales for fiscal 1998 were $409.9 million, a decrease
of 14.8% from fiscal 1997. The decline in net sales was solely
attributable to our energy products segment.
Energy products segment sales were $296.7 million for 1998, a
decrease of 20.4% from fiscal 1997. Energy product segment
shipments of 474,000 tons declined 23.1% from fiscal 1997. The
average selling price for our welded tubular products was $509
per ton for fiscal 1998, a 1.2% increase from fiscal 1997. The
average selling price for our seamless tubular products for
fiscal 1998 was $887 per ton, virtually unchanged from fiscal
1997. The decline in shipments and net sales resulted from the
precipitous drop in rig count that occurred in the second half of
fiscal 1998. While the rig count for all of fiscal 1998 of 905
was virtually unchanged from fiscal 1997, rig count fell by over
200 rigs, from a high of 997 in the first quarter of fiscal 1998,
to a low of 794 in the fourth fiscal quarter.
Industrial products segment - SBQ product sales in fiscal 1998
were $72.6 million, an increase of 7.6% from fiscal 1997. SBQ
product shipments of 160,100 tons increased 5.1%. The average
selling price for SBQ products increased 2.5% from fiscal 1997.
Industrial products segment - adhesives products sales in fiscal
1998 were $40.6 million, virtually unchanged from fiscal 1997.
Gross profit for fiscal 1998 decreased 45.6% from fiscal 1997 to
$37.0 million. Operating income for fiscal 1998 decreased $32.0
million from fiscal 1997, to $8.7 million. The decline in gross
profit and operating income were entirely attributable to the
energy products segment.
The decreases in energy product segment gross profit and
operating income were due to the decline in shipments of OCTG
products as well as lower operating efficiencies resulting from
reduced production levels. In addition, we incurred a one-time,
non-cash asset impairment loss of $3.2 million in fiscal 1998
related to the abandonment of three electric arc furnaces that
were subsequently replaced with new equipment.
Investment income in fiscal 1998 increased $7.3 million from
fiscal 1997 and interest expense decreased $11.6 million for the
same period. The increase in investment income and the decrease
in interest expense was the result of increased average cash and
investment balances and a decrease in long-term debt obligations,
respectively, which resulted from our September 1997 public
offering and related retirement of long-term debt.
Other income, net was $0.5 million in fiscal 1998 compared to
$1.5 million in fiscal 1997. Both years included gains from the
sales of certain development property and settlement of insurance
claims.
Our combined federal and state effective tax rate for fiscal 1998
was 50.5%. This rate exceeds the combined statutory tax rates
because we recorded additional valuation allowances for deferred
tax assets.
As a result of the above factors, we reported fiscal 1998 income
before extraordinary item of $2.4 million, or $.10 per basic and
diluted share, compared to income before extraordinary item of
$13.2 million, or $.93 per basic share ($.88 diluted), in fiscal
1997.
In connection with an environmental contingency matter provided
for as an extraordinary charge in previous years, we recorded an
extraordinary credit of $0.7 million, net of applicable income
taxes of $0.3 million, or $.03 per basic and diluted share, in
fiscal 1998.
Liquidity and Capital Resources
Working capital at September 25, 1999 was $97.6 million compared
to $147.5 million at September 26, 1998. The decline in working
capital was primarily the result of a reduction in short-term
investments which were used to fund operating losses, make
investments in property, plant and equipment, retire long-term
debt and repurchase common stock. The current ratio was 2.7 to 1
at September 25, 1999 compared to 3.8 to 1 at September 26, 1998.
At September 25, 1999, we had cash and investments totaling $85.7
million and had no advances against our $50 million revolving
credit facility.
Net cash flows from operating activities were a net use of $14.5
million in fiscal 1999. We recorded a net loss of $48.4 million
in fiscal 1999. Major sources of cash from operating activities
in fiscal 1999 included $21.7 million in non-cash depreciation
and amortization charges; a $9.4 million decrease in inventory
resulting from the decline in business activity; a $4.8 million
decrease in other current assets which resulted primarily from
the receipt of refundable federal income taxes; and a $3.8
million increase in accrued liabilities and other due, in part,
to an increase in estimated costs associated with environmental
liabilities. Accounts receivable increased $3.6 million as a
result of an increase in business activity in our energy products
segment in the last quarter of fiscal 1999.
Net cash flows provided by operating activities totaled $30.6
million in fiscal 1998. We recorded net income of $3.1 million
in fiscal 1998. Major sources of cash from operating activities
in fiscal 1998 included $19.2 million in non-cash depreciation
and amortization charges and $3.2 million in a non-cash asset
impairment loss; and decreases of $24.7 million and $10.3 million
in accounts receivable and inventory, respectively, resulting
from a decline in business activity. The major uses of cash in
operating activities included a $7.1 million reduction in accrued
debt prepayment fees, and a $25.8 million decrease in accounts
payable and accrued liabilities and other resulting primarily
from a decline in business activity.
Net cash flows provided by operating activities totaled $9.7
million in fiscal 1997. We recorded net income of $3.9 million
in fiscal 1997. Major sources of cash from operating activities
in fiscal 1997 included $23.8 million in non-cash depreciation
and amortization charges; a $7.1 million accrual for debt
prepayment penalty; a $4.5 million increase in long-term deferred
taxes and a $9.6 million increase in accounts payable and accrued
liabilities and other due to increased business activity. The
major uses of cash in operating activities included increases of
$11.3 million and $20.7 million in accounts receivable and
inventory, respectively, resulting from an increase in business
activity related primarily to improvements in the OCTG
marketplace. Additional uses of cash in operating activities
included a $7.4 million increase in other current assets
primarily related to increases in our current deferred tax asset
and receivables recorded in connection with certain insurance
claims.
We made capital investments totaling $28.4 million in fiscal
1999, $32.6 million in fiscal 1998 and $7.1 million in fiscal
1997. These capital expenditures were primarily related to
improvements to and acquisitions of machinery and equipment in
our energy products segment. Of the total spending in fiscal
1999, $18.3 million pertained to the purchase and installation of
a new AC electric arc furnace. We currently estimate that fiscal
2000 capital spending will approximate $16.7 million, the
majority of which represents the completion of projects begun in
fiscal 1999 in our energy products segment. Sources for funding
capital expenditures include available cash and investments, cash
flows from operations, as well as available borrowing sources.
Our long-term investments decreased by $21.1 million from fiscal
1998 as we used this cash source to fund our operating activities
as well as our capital expenditure program and financing
activities, which included our stock buyback program and the
retirement of debt. Our long-term investments and long-term
debt, all of which are for other than trading purposes, are
subject to interest rate risk. Information concerning the
maturities and fair value of our interest rate sensitive
investments and debt is included in Notes 4, 5 and 6 to the
audited financial statements. We utilize professional investment
advisors and consider our net interest rate risk when selecting
the type and maturity of securities to purchase for our
portfolio. Other factors considered include, but are not limited
to, the timing of the expected need for the funds invested and
the repricing and credit risks of the securities.
Repayments on long-term debt in fiscal 1999 were $4.7 million and
include the early retirement of $4.0 million principal amount of
our senior secured notes. We completed a three million share
buyback program in fiscal 1999, repurchasing the final 1.6
million shares of NS Group's common stock for $7.7 million.
Our annual long-term debt maturities are $0.2 million in fiscal
2000, $0.2 million in fiscal 2001, $0.1 million in fiscal 2002,
$74.7 million in fiscal 2003 and $0.1 million in fiscal 2004.
You should read Note 5 to the audited financial statements for
further information concerning our long-term debt and credit
facility.
Earnings before net interest expense, taxes, depreciation and
amortization (EBITDA) were a negative $21.5 million for fiscal
1999 and a positive $30.5 million for fiscal 1998 and $59.8
million for fiscal 1997. EBITDA is calculated as income before
extraordinary items plus net interest expense, taxes,
depreciation and amortization. EBITDA provides additional
information for determining our 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, as an
alternative to cash flows from operating, investing or financing
activities or as a measure of liquidity.
At September 25, 1999, we had regular tax net operating loss
carryforwards which will fully eliminate the regular tax
liability on approximately $89.5 million of future regular
taxable income. While we may have alternative minimum tax (AMT)
liability, we also have AMT net operating loss carryforwards
which will eliminate 90% of the AMT liability on approximately
$44.0 million of future AMT income. While future tax provisions
will depend in part on our ongoing assessment of our future
ability to utilize our tax benefits, we expect that the tax
provisions that we record on approximately the next $55 million
in pre-tax income will be substantially less than the amounts at
full statutory rates. You should read Note 11 to the audited
financial statements for further information concerning our
federal tax status.
We believe that our current available cash and investments, our
cash flow from operations and our borrowing sources will be
sufficient to meet anticipated operating cash requirements,
including capital expenditures, for at least the next twelve
months.
Year 2000 Readiness Disclosure
The Year 2000 issue results from date sensitive computer programs
that use only the last two digits to refer to a year. Such
computer programs do not properly recognize a year that begins
with "20" instead of "19". This issue impacts us and virtually
every business that relies on a computer. If not corrected,
systems failures or miscalculation could occur causing disruption
of our operations, including, among other things, a temporary
inability to process transactions, manufacture products or engage
in similar normal business activities.
Our subsidiaries are not dependent on an integrated or
centralized corporate-wide data processing system. As such, we
have formal project teams at each subsidiary to address the
respective subsidiaries' Year 2000 readiness. Information
technology (IT) systems, such as any hardware or software used to
process daily operational data and information, as well as non-IT
systems, such as micro controllers contained in various
manufacturing equipment, have been assessed for Year 2000
compliance.
We have addressed the Year 2000 issue in a four phase process.
The first phase was one of awareness and involved the
inventorying of all IT and non-IT systems. This phase has been
completed. The second phase of our process was an assessment
stage, during which we determined whether each of our identified
systems was Year 2000 compliant. We completed this phase of the
process during the second quarter of fiscal 1999. The
remediation and testing phases of our systems are in various
stages of completion. Remediation efforts may include
modification or replacement of software and certain hardware so
that systems will properly utilize dates beyond December 31,
1999. Approximately 90% of our IT systems have been remediated
while remediation on our non-IT systems is approximately 98%
complete. We currently anticipate completion of all remediation
and testing of our systems prior to calendar year end.
We also face certain risks to the extent that our customers or
suppliers of products and services do not become Year 2000
compliant. We are continually evaluating the status of
significant customers and suppliers to determine the extent to
which we are vulnerable to non-compliance by these third parties.
Ongoing evaluation will continue through the end of calendar
1999; however, we believe our broad customer base and
availability of alternative suppliers will mitigate the risks
associated with the readiness of these third parties.
We have developed formal contingency plans in the event we
experience Year 2000 related problems. Back-up measures have
been identified for each system requiring remediation. For
example, the contingency plan for many IT systems would be to
revert to a manual record system and, for many non-IT systems,
internal clocks could be reset to an earlier date.
Costs associated with our Year 2000 efforts were approximately
$1.6 million in fiscal 1999, and estimated costs to complete are
$1.1 million, which include final payments for various new
equipment and software installations. Costs pertain primarily to
system software and hardware replacements and upgrades for both
our IT and non-IT systems.
We believe that with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose
significant operational problems. However, if such modifications
and conversions are not made or are not completed in time, or if
a material third party fails to properly remediate its Year 2000
issues, or if the costs are higher than expected, the Year 2000
issue could have a material effect on our operations. While we
are not currently aware of any significant exposure, there can be
no assurance that the Year 2000 issue will not have a material
impact on our business and operations.
Other Matters
You should read Note 9 to the audited financial statements for
information pertaining to commitments and contingencies.
Consolidated Statements of Operations
For the years ended September 25, 1999, September 26, 1998 and
September 27, 1997
(In thousands, except per share amounts)
1999 1998 1997
Net sales $242,563 $409,855 $481,170
Cost of products sold 261,306 372,864 413,116
Selling and administrative
Expenses 26,842 28,298 27,357
Operating income (loss) (45,585) 8,693 40,697
Investment income 5,906 8,358 1,010
Interest expense (11,601) (12,653) (24,261)
Other income, net 3,543 501 1,465
Income (loss) before
income taxes and
extraordinary items (47,737) 4,899 18,911
Provision (credit) for
income taxes (3,148) 2,472 5,726
Income (loss) before
extraordinary items (44,589) 2,427 13,185
Extraordinary items, net of
income taxes (3,837) 659 (9,256)
Net income (loss) $(48,426) $ 3,086 $ 3,929
Per common share (basic)
Income (loss) before
extraordinary items $(2.04) $.10 $ .93
Extraordinary items,
net of income taxes (.18) .03 (.65)
Net income (loss) $(2.22) $.13 $ .28
Per common share (diluted)
Income (loss) before
extraordinary items $(2.04) $.10 $ .88
Extraordinary items, net
of income taxes (.18) .03 (.62)
Net income (loss) $(2.22) $.13 $ .26
Weighted average shares outstanding
Basic 21,852 23,684 14,141
Diluted 21,852 24,511 14,969
See notes to consolidated financial statements
Consolidated Balance Sheets
September 25, 1999 and September 26, 1998
(In thousands)
ASSETS 1999 1998
Current assets
Cash $ 1,073 $ 1,783
Short-term investments 30,032 64,689
Accounts receivable, less
allowance for doubtful
accounts of $837 and $752,
respectively 40,924 37,275
Inventories 56,659 66,041
Operating supplies 12,782 14,211
Deferred tax assets 5,376 8,140
Other current assets 7,935 8,541
Total current assets 154,781 200,680
Property, plant and equipment -- at cost
Land and buildings 32,078 31,570
Machinery and equipment 294,364 261,441
Construction in progress 4,035 13,889
Less -- accumulated depreciation (187,330) (171,700)
Net property, plant and
Equipment 143,147 135,200
Long-term investments 54,560 75,626
Other assets 7,307 7,800
Total assets $359,795 $419,306
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts and notes payable $ 28,923 $ 28,305
Accrued liabilities and other 28,087 24,243
Current portion of long-term debt 198 678
Total current liabilities 57,208 53,226
Long-term debt 72,833 76,325
Deferred taxes 8,602 11,706
Common shareholders' equity
Common stock, no par value,
40,000 shares authorized,
24,364 and 24,334 shares issued,
respectively 280,051 279,886
Treasury stock, 2,917 and 1,354
shares, respectively (23,676) (15,992)
Common stock options and warrants 896 898
Accumulated other comprehensive
income (loss) (3,784) (2,834)
Accumulated earnings (deficit) (32,335) 16,091
Common shareholders' equity 221,152 278,049
Total liabilities and
shareholders' equity $359,795 $419,306
See notes to consolidated financial statements
Consolidated Statements of Cash Flows
For the years ended September 25, 1999, September 26, 1998 and
September 27, 1997
(In thousands) 1999 1998 1997
Cash flows from operating
activities:
Net income (loss) $(48,426) $ 3,086 $ 3,929
Adjustments to reconcile
net income (loss) to net
cash flows from operating
activities:
Depreciation and
Amortization 20,529 18,066 17,609
Write-down of assets
to be disposed - 3,215 -
Amortization of debt
discount and finance
costs 1,206 1,172 6,219
Increase (decrease)
in long-term deferred
taxes (3,104) (49) 4,488
(Gain) loss on disposal
of equipment (262) 55 206
Loss on sales of
investments 705 282 -
(Increase) decrease in
accounts receivable (3,649) 24,676 (11,327)
(Increase) decrease in
inventories 9,382 10,264 (20,721)
(Increase) decrease in
operating supplies and
other current assets 4,799 2,769 (7,393)
Increase (decrease) in
accrued prepayment fees
on debt called for
redemption - (7,079) 7,079
Increase (decrease) in
accounts payable 466 (21,929) 5,820
Increase (decrease) in
accrued liabilities
and other 3,844 (3,883) 3,750
Net cash flows from
operating activities (14,510) 30,645 9,659
Cash flows from investing activities:
Purchases of property,
plant and equipment (28,401) (32,576) (7,139)
Proceeds from sale of
Equipment 580 152 382
Purchases of available
for sale securities (45,053) (112,102) -
Sales of available for
sale securities 32,035 22,019 -
Maturities of available
for sale securities 32,259 16,931 -
(Increase) decrease in
other assets (210) 120 4,053
Net cash flows from
investing activities (8,790) (105,456) (2,704)
Cash flows from financing activities:
Increase (decrease) in
notes payable 152 (480) (157)
Proceeds from issuance of
long-term debt - 55 340
Repayments on long-term debt (4,675) (54,397) (11,994)
Proceeds from issuance of
common stock 140 17,843 182,902
Purchases of treasury stock (7,684) (17,081) -
Net cash flows from
financing activities (12,067) (54,060) 171,091
Net increase (decrease)
in cash and short-term
investments (35,367) (128,871) 178,046
Cash and short-term investments
at beginning of year 66,472 195,343 17,297
Cash and short-term investments
at end of year $ 31,105 $ 66,472 $195,343
Cash paid during the year for:
Interest $ 10,359 $ 12,738 $ 23,231
Income taxes, net of
refunds received (2,977) 4,493 1,463
See notes to consolidated financial statements
Consolidated Statements of Common Shareholders' Equity
For the years ended September 25, 1999, September 26, 1998 and
September 27, 1997
(In thousands)
Options
Common Stock Treasury Stock and
Shares Amount Shares Amount Warrants
Balance,
September
28, 1996 13,809 $ 49,004 - $ - $2,774
Net income
Unrealized
gain on
investments
Comprehensive
income
Issuance of
common stock 6,000 169,823
Conversion of
11% subor-
dinated deben-
tures 1,665 28,300
Stock option
plans 645 6,327 (12)
Exercise of
common stock
warrants 1,191 7,914 (1,150)
Balance,
September
27, 1997 23,310 261,368 - - 1,612
Net income
Unrealized
loss on
investments
Compre-
hensive
income
Issuance
of common
stock 540 15,340
Purchase of
treasury
stock 1,437 (17,081)
Stock
option
plans 94 1,007 (83) 1,089 (102)
Exercise of
common stock
warrants 390 2,171 (612)
Balance,
September
26, 1998 24,334 279,886 1,354 (15,992) 898
Net loss
Unrealized
loss on
investments
Comprehensive
loss
Purchase of
treasury stock 1,563 (7,684)
Stock option
plans 14 73 24
Exercise of
common stock
warrants 16 92 (26)
Balance,
September
25, 1999 24,364 $280,051 2,917 $(23,676)$896
Consolidated Statements of Common Shareholders' Equity
For the years ended September 25, 1999, September 26, 1998 and
September 27, 1997
(In thousands)
Accumulated
Other Accumu Compre-
Comprehensive lated hensive
Income Earnings Income
(Loss) (Deficit) Total (Loss)
Balance,
September
28, 1996 $(1,287) $9,727 $ 60,218
Net income 3,929 3,929 $ 3,929
Unrealized
gain on
investments 49 49 49
Comprehensive
income $ 3,978
Issuance of
common stock 169,823
Conversion of
11% subor-
dinated deben-
tures 28,300
Stock option
plans 6,315
Exercise of
common stock
warrants 6,764
Balance,
September
27, 1997 (1,238) 13,656 275,398
Net income 3,086 3,086 $ 3,086
Unrealized
loss on
investments (1,596) (1,596) (1,596)
Compre-
hensive
income $ 1,490
Issuance
of common
stock 15,340
Purchase of
treasury
stock (17,081)
Stock
option
plans (651) 1,343
Exercise of
common stock
warrants 1,559
Balance,
September
26, 1998 (2,834) 16,091 278,049
Net loss (48,426) (48,426) $(48,426)
Unrealized
loss on
investments (950) (950) (950)
Compre-
Hensive loss $(49,376)
Purchase of
treasury
stock (7,684)
Stock option
Plans 97
Exercise of
common stock
warrants 66
Balance,
September
25, 1999 $(3,784) $(32,335) $221,152
See notes to consolidated financial statements
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of NS
Group, Inc. and its wholly-owned subsidiaries (the Company):
Newport Steel Corporation (Newport), Koppel Steel Corporation
(Koppel), Erlanger Tubular Corporation (Erlanger), Imperial
Adhesives, Inc. (Imperial) and Northern Kentucky Management, Inc.
All significant intercompany accounts and transactions have been
eliminated.
Use of Estimates
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.
Cash
Cash includes currency on hand and demand deposits with financial
institutions.
Investments
Short-term investments consist primarily of money market mutual
funds, commercial paper and U.S. treasury securities, for which
market value approximates cost. Long-term investments consist
primarily of corporate and government bonds which are classified
as "available for sale" and carried at fair value, based on
quoted market prices. Realized gains and losses are included in
investment income. The cost of securities sold is based on the
specific identification method. Unrealized gains and losses on
available for sale securities are included, net of tax, in
accumulated other comprehensive income (loss) within common
shareholders' equity until disposition. Other comprehensive
income (loss), net of applicable income taxes, if any, consists
of the following:
(In thousands) 1999 1998 1997
Net unrealized holding
gains (losses) for the
period $(1,655) $(1,779) $49
Reclassification adjust-
ment for (gains) losses
realized 705 183 -
Net unrealized gains
(losses), net of income
taxes of $0, $859, and
$(26), respectively $ (950) $(1,596) $49
Inventories
At September 25, 1999 and September 26, 1998, inventories are
stated at the lower of FIFO (first-in, first-out) cost or market,
or the lower of average cost or market. Inventory costs include
labor, material and manufact-uring overhead. Inventories consist
of the following:
(In thousands) 1999 1998
Raw materials $ 9,707 $ 7,921
Semi-finished and finished goods 46,952 58,120
Total inventories $56,659 $66,041
Until fiscal 1999, one subsidiary used the LIFO (last-in, first-
out) method to determine inventory cost. Effective September 27,
1998, the subsidiary changed to the FIFO method. The change in
accounting principle, which has been applied retroactively, was
made to provide a better matching of sales and expenses given
technological changes in various manufacturing processes. The
change in accounting principle reduced both previously reported
income before extraordinary items and previously reported net
income by $2.1 million and $0.5 million for fiscal 1998 and 1997,
respectively, and reduced the related diluted per share amounts
by $.09 and $.04 per share for fiscal 1998 and 1997,
respectively.
Property, Plant and Equipment and Depreciation
For financial reporting purposes, plant and equipment are
depreciated on a straight-line method over the estimated useful
lives of the assets. Expenditures for maintenance and repairs
are charged to expense as incurred. Expenditures for equipment
renewals which extend the life or increase the productivity or
capacity of an asset are capitalized.
Following the start-up of a new electric arc furnace in the
second quarter of fiscal 1999, Newport abandoned its existing
three electric arc furnaces together with related property and
equipment. As such, in the fourth quarter of fiscal 1998, the
Company recorded to cost of products sold a non-cash impairment
loss of $3.2 million. The impaired assets were written down to a
fair value of $0.2 million based on the estimated salvage value
of the assets. The write-down negatively im-pacted fiscal 1998
income before extraordinary items by $2.0 million, or $.08 per
diluted share.
Treasury Stock
The Company repurchased 1.6 million shares of its common stock
for $7.7 million during fiscal 1999, completing a three million
share buyback program. The Company's repurchases of shares of
common stock are recorded as treasury stock at cost and result in
a reduction of common shareholders' equity. When treasury shares
are reissued, the Company uses average cost to value treasury
shares and any excess of average cost over reissuance price is
treated as a reduction of retained earnings.
Revenue Recognition
The Company records revenue from product sales when the product
is shipped from its facilities or, when at the customer's
request, the goods are set aside for storage and are paid for in
full.
Income Taxes
Deferred income tax balances represent the estimated future tax
effects of temporary differences between the financial reporting
basis and the tax basis of certain assets and liabilities. A
valuation allowance is established to reduce deferred tax assets
to amounts that are more likely than not to be realized.
Environmental Remediation and Compliance
Environmental remediation costs are accrued, except to the extent
capitalizable, when incurrence of such costs are probable and the
costs can be reasonably estimated. Environmental compliance
costs include maintenance and operating costs associated with
pollution control facilities, costs of ongoing monitoring
programs, permit costs and other similar costs. Such costs are
expensed as incurred.
Fiscal Year-End
The Company's fiscal year ends on the last Saturday of September.
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 securities that could result in additional common
shares being issued which, for the Company, includes stock
options and warrants only.
Securities that could potentially result in dilution of basic EPS
through the issuance of 0.6 million and 1.1 million shares of the
Company's common stock in fiscal 1999 and 1998, respectively,
were not included in the computation of diluted EPS because they
were antidilutive.
Note 2 Business Segment Information
The Company adopted SFAS 131, "Disclosure about Segments of an
Enterprise and Related Information", for fiscal 1999.
Accordingly, segment information for fiscal 1998 and 1997 has
been restated to conform to the new presentation.
The Company has three reportable segments. The Company's energy
products segment consists primarily of (i) welded and seamless
tubular goods used primarily in oil and natural gas drilling and
production operations (oil country tubular goods, or OCTG); and
(ii) line pipe used in the transmission of oil, natural gas and
other fluids. The energy products segment reflects the
aggregation of two business units which have similar products and
services, manufacturing processes, customers and distribution
channels and is consistent with both internal management
reporting and resource and budgetary allocations. The Company's
industrial products segment for special bar quality (SBQ)
products consists of SBQ products used primarily in the
manufacture of heavy industrial equipment. The Company's
industrial products segment for adhesives products consists of
industrial adhesives products used in various product assembly
applications.
The Company evaluates performance and allocates resources on
operating income before interest and income taxes. The
accounting policies of the reportable segments are the same as
those described in Note 1. Corporate assets include primarily
cash, investments and income tax assets. Corporate allocations
include primarily corporate general and administrative overhead
costs.
The operations of all segments are conducted principally in the
United States. The Company grants trade credit to customers, the
most significant of which are distributors serving the oil and
natural gas exploration and production industries which purchase
tubular steel products from the energy products segment. In
fiscal 1997, one energy products customer accounted for 10.3% of
net sales. The following table sets forth selected financial
information by reportable business segment for fiscal 1999, 1998,
and 1997.
(In thousands)
Operating Depreciation
1999 Net Income Total and Capital
Sales (Loss) Assets Amortization Expenditures
Energy
products
segment $144,151 $(41,311) $204,454 $15,791 $26,598
Industrial
products
segment
- -SBQ 54,728 (2,707) 38,551 4,125 1,220
Industrial
products
segment -
Adhesives 43,684 2,179 15,097 613 583
Corporate
assets and
allocations - (3,746) 101,693 - -
Total
Consoli-
dated $242,563 $(45,585) $359,795 $20,529 $28,401
1998
Energy
products
segment $296,690 $ 7,573 $202,277 $13,704 $31,162
Industrial
products
segment
- - SBQ 72,603 4,074 41,181 3,780 834
Industrial
products
segment -
Adhesives 40,562 2,302 14,570 582 580
Corporate
assets and
allocations - (5,256) 161,278 - -
Total
Consoli-
dated $409,855 $ 8,693 $419,306 $18,066 $32,576
1997
Energy
products
segment $372,727 $39,243 $228,798 $13,383 $ 6,001
Industrial
products
segment
- - SBQ 67,502 4,246 45,543 3,571 588
Industrial
products
segment -
Adhesives 40,941 1,799 13,505 655 550
Corporate
assets and
allocations - (4,591) 215,053 - -
Total
Consoli-
dated $481,170 $ 40,697 $502,899 $17,609 $ 7,139
Note 3 Accrued Liabilities and Other
Accrued liabilities and other consist of the following:
(In thousands) 1999 1998
Accrued payroll and payroll related items $10,562 $10,554
Accrued environmental remediation 5,364 2,675
Deferred revenue 4,419 635
Workers' compensation 2,305 3,242
Accrued interest 2,151 2,186
Other 3,286 4,951
Note 4 Long-term Investments
At September 25, 1999 and September 26, 1998, the Company's long-
term investments, which are all classified as available for sale,
consist of the following:
(In thousands)
Amortized Gross Unrealized Market
1999 Cost Gains Losses Value
Corporate bonds $49,131 $107 $(2,222) $47,016
U.S. government-backed
Securities 6,035 4 (45) 5,994
$55,166 $111 $(2,267) $53,010
Equity securities $ 4,800 $ - $(3,250) $ 1,550
1998
Corporate bonds $46,945 $163 $(1,393) $45,715
U.S. government-backed
Securities 20,337 176 (10) 20,503
Other debt securities 7,997 11 - 8,008
$75,279 $350 $(1,403) $74,226
Equity securities $ 4,800 $ - $(3,400) $ 1,400
At September 25, 1999, scheduled maturities of the
Company's investments in long-term debt securities were as
follows:
(In thousands) Average Amortized Market
Year End Rate Cost Value
One year or less 6.23 $14,323 $14,261
One year through five years 6.98 11,854 11,706
After five years 9.22 28,989 27,043
$55,166 $53,010
Gross gains and losses of $0.2 million and $0.9 million,
respectively, were realized during fiscal 1999. Fiscal 1998
gross realized gains and losses were $0.1 million and $0.4
million, respectively. There were no realized gains or losses on
available for sale securities in fiscal 1997.
Note 5 Long-term Debt and Credit Facility
Long-term debt of the Company consists of the following:
(In thousands) 1999 1998
13.5% senior secured notes due
July 15, 2003 (Notes), interest
due semi-annually, secured by
property, plant and equipment
(net of unamortized discount of
$3,009 and $3,712, respectively) $71,649 $74,946
Other 1,382 2,057
73,031 77,003
Less current portion (198) (678)
$72,833 $76,325
The Notes are unconditionally guaranteed in full, jointly and
severally, by each of the Company's subsidiaries and are secured
by substantially all of the Company's property, plant and
equipment. The indenture relating to the Notes contains a number
of restrictive covenants including, among other things,
limitations on the ability of the Company to incur additional
indebtedness; create liens; make certain restricted payments,
including dividends; engage in certain transactions with
affiliates; engage in sale and leaseback transactions; dispose of
assets; issue or sell stock of its subsidiaries; enter into
agreements that restrict the ability of its subsidiaries to pay
dividends and make distributions; engage in mergers,
consolidations and transfers of substantially all of the
Company's assets; and make certain investments, loans and
advances. The Notes may be redeemed at the option of the
Company, at any time, in whole or in part, beginning in 2000,
initially at a price of approximately 104%, declining to 100% in
2002.
The Company has a $50.0 million revolving credit agreement with
interest rates that range from the prime rate to prime plus .25%
with respect to domestic rate loans, and interest rates on
offshore rate loans (based on LIBOR) that range from the offshore
rate plus .375% to the offshore rate plus .875%. The credit
facility contains certain financial covenants that become
applicable if the Company does not maintain specified levels of
cash and investments and earnings (as defined). These covenants
include a maximum ratio of debt to cash flow, a minimum interest
coverage ratio, a maximum outstanding loans under the line to
working capital and a minimum net worth. The credit facility
also has restrictions on capital expenditures and the sale of
certain assets. At September 25, 1999 approximately $1.4 million
of the credit facility was utilized to collateralize letters of
credit and $48.6 million was available for borrowing. The credit
facility expires in fiscal 2003.
During 1999 the Company purchased $4.0 million principal amount
of its Notes on the open market. The Company paid a premium and
wrote off a prorata portion of unamortized debt discount and debt
issuance costs which resulted in an extraordinary charge of $0.4
million, net of applicable income tax benefit of $0.1 million, or
$.02 per basic and diluted share.
In connection with the retirement of long-term indebtedness, the
Company incurred prepayment costs and wrote off unamortized debt
discount and debt issuance costs in fiscal 1997, which resulted
in an extraordinary charge of $9.3 million, net of applicable
income tax benefit of $2.3 million, or $.65 and $.62 per basic
and diluted share, respectively.
Annual long-term debt maturities are $0.2 million in fiscal 2000,
$0.2 million in fiscal 2001, $0.1 million in fiscal 2002, $74.7
million in fiscal 2003 and $0.1 million in 2004.
As of September 25, 1999 and September 26, 1998, the weighted-
average interest rate on outstanding notes payable was 5.9% and
6.1%, respectively.
Note 6 Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of financial instruments:
Cash and short-term investments-The carrying amount approximates
fair value because of the short maturity of these instruments.
Long-term investments-The carrying amount is fair value which is
based upon quoted market prices.
Notes payable-The carrying amount approximates fair value because
of the short maturity of these instruments.
Long-term debt-The fair value of the Company's Notes is based
upon their trading price as of fiscal year-end. The fair value
of other long-term debt was estimated by calculating the present
value of the remaining interest and principal payments on the
debt to maturity. The present value computation uses a discount
rate based upon current market rates.
The carrying amount and fair value of the Company's financial
instruments are as follows:
(In thousands) 1999 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and short-term
investments $31,105 $31,105 $66,472 $66,472
Long-term investments 54,560 54,560 75,626 75,626
Notes payable 394 394 242 242
Long-term debt 72,833 78,228 76,325 87,012
Note 7 Preferred Stock
The Company's authorized stock includes two million shares of
Class A Preferred Stock, issuable in one or more series. The
rights, preferences, privileges and restrictions of any series of
Class A Preferred Stock; the number of shares constituting any
such series and the designation thereof, are subject to
determination by the Board of Directors.
One million shares of the Class A Preferred Stock has been
designated as Series B Junior Participating Preferred Stock, par
value $10 per share, in connection with a Shareholder Rights Plan
(Plan) adopted in November, 1998. Pursuant to the Plan, one
Preferred Stock Purchase Right (Right) is attached to each
outstanding share of common stock of the Company.
The Plan includes provisions which are intended to protect
shareholders against certain unfair and abusive takeover attempts
by anyone acquiring or tendering for 20% or more of the Company's
common stock. The Company may redeem the Rights for one-half
cent per Right at any time before a 20% position has been
acquired. The Rights expire in November 2008.
Note 8 Stock Options and Warrants
The Company has various stock option plans under which the
Company may grant incentive and nonqualified stock options and
stock appreciation rights to purchase shares of the Company's
common stock. All incentive stock options were granted at fair
market value on the date of grant. Incentive stock options
generally become exercisable beginning one to three years after
the grant date and expire after ten years. Nonqualified stock
options become exercisable according to a vesting schedule
determined at the grant date and expire no later than ten years
after grant. Nonqualified stock options were granted during
fiscal 1999 at exercise prices that were approximately 87% of the
market price on the date of grant. Nonqualified stock options
were granted at exercise prices approximating the market price on
the date of grant during fiscal 1998. For fiscal 1999 and 1998,
the weighted-average fair value of options granted was $5.96 and
$9.29, respectively. A summary of transactions in the plans
follows:
1999 1998 1997
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding,
beginning
of year 1,378,114 $10.67 896,755 $ 6.73 1,629,330 $7.22
Granted 552,000 7.31 851,950 14.37 - -
Expired (158,075) 13.32 (170,132) 13.56 (87,395) 8.01
Exercised (21,410) 7.55 (200,459) 6.32 (645,180) 7.78
Outstanding,
end of
year 1,750,629 $ 9.41 1,378,114 $10.67 896,755 $6.73
Exercisable,
end of
year 538,157 $ 6.81 445,549 $ 6.32 489,504 $7.73
Available
for grant 938,470 - 333,440 - 1,153,230 -
The Company accounts for these plans in accordance with the
intrinsic value method. Under this method, compensation cost is
recognized over the vesting period for any difference between the
option price and the market price at the date of grant.
Compensation cost for these plans was not material for fiscal
1999, 1998, and 1997. Unrecognized compensation costs associated
with prior grants that will be recognized in future periods is
$0.6 million at September 25, 1999.
Pro forma compensation cost, net income (loss) and per share
amounts computed as if the Company had accounted for option
grants on the fair value method would have been $1.2 million,
$(49.6) million and $(2.28) basic and diluted, respectively, for
fiscal 1999 and $0.8 million, $2.3 million, and $.10 basic and
$.09 diluted, respectively for fiscal 1998. Amounts for fiscal
1997 would not have been materially different from reported
amounts.
The fair value of the granted options were determined using the
Black-Scholes option pricing model with the following assumptions
for fiscal 1999 and 1998, respectively: no common stock
dividends; expected volatility of 58% and 59%; risk-free interest
rates of 6.1% and 5.5%; and expected life of 8 years and 7 years.
A summary of information about stock options outstanding at
September 25, 1999 follows:
Options Outstanding Options Exercisable
Range of Average Average Average
Exercise Exercise Remaining Exercise
Prices Shares Price Life Shares Price
$2.63-$5.94 278,954 $ 4.17 5.4 239,852 $ 4.16
$6.13-$9.53 822,775 7.27 7.7 224,855 7.19
$13.25-$14.38 648,900 14.37 8.3 73,450 14.20
1,750,629 $ 9.40 7.5 538,157 $ 6.81
At September 25, 1999, the Company had common stock warrants
outstanding, exercisable for approximately 272,000 shares of the
Company's common stock at a price of $8.00 per share and 437,000
shares at a price of $4.00 per share. The warrants expire
October 4, 2000 and July 15, 2003, respectively.
Note 9 Commitments and Contingencies
The Company has various commitments for the purchase of
materials, supplies and energy arising in the ordinary course of
business.
The Company has change of control severance agreements with
certain of its key employees. The agreements contain provisions
that would entitle each participant to receive an amount ranging
from two to three times the participant's base salary plus two to
three times the participant's five year average bonus, and
continuation of certain benefits, if there is a change of control
of the Company (as defined) and a termination of employment.
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.
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 and the Clean Water Act, and all
regulations promulgated in connection therewith. Such laws and
regulations include 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 produced by 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.
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 has contracted with a company to
dispose of the dust at an EPA - approved facility. The project
is expected to be completed by the second quarter of fiscal 2000.
The estimated costs associated with these incidents were
initially recorded as extraordinary items. Such estimates have
been adjusted periodically to reflect the most current
information. As such, the Company recorded an extraordinary
credit of $0.7 million, net of taxes of $0.3 million, in fiscal
1998. In the second quarter of fiscal 1999, the Company recorded
an additional $4.3 million in disposal costs as well as
additional expected insurance recoveries of $0.9 million in
connection with its efforts to dispose of the dust. These
amounts were recorded as an extraordinary charge of $3.4 million.
The Company believes disposal costs will not exceed its gross
environmental remediation reserves as of September 25, 1999 of
$5.3 million. In connection with these incidents, the Company
has an insurance receivable outstanding of $1.6 million as of
September 25, 1999.
Subject to the uncertainties concerning the storage 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 compliance with future environmental
regulations.
Capital expenditures for the next twelve months relating to
environmental control facilities are expected to be approximately
$0.8 million. 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 September 25, 1999, the Company had environmental
remediation reserves of $5.4 million attributable primarily to
accrued disposal costs for radiation contaminated dust. 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 its environmental
contingency matters, individually or in the aggregate, will not
have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.
Note 10 Employee Benefit Plans
The Company has established various profit sharing plans at the
operating companies which are based on the earnings of the
respective companies. Generally, the plans require mandatory
contributions at a specified percentage of pretax profits (with
certain guaranteed minimums based on hours worked) for the
bargaining unit employees, and discretionary contributions for
salaried employees. The Company also has defined contribution
plans covering substantially all of its employees and a non-
qualified deferred compensation plan covering certain employees.
The expense for these plans was approximately $1.1 million, $3.3
million and $2.8 million in fiscal years 1999, 1998, and 1997,
respectively.
Note 11 Income Taxes
The provision (credit) for income taxes, including ($0.1)
million, $0.3 million and ($2.3) million allocated to
extraordinary items in fiscal 1999, 1998 and 1997, respectively,
consists of the following:
(In thousands) 1999 1998 1997
Current $(2,917) $1,235 $2,780
Deferred (340) 1,115 (649)
Tax benefit of employee
stock option exercises
allocated to equity - 474 1,281
Provision (credit) for
income taxes $(3,257) $2,824 $3,412
The income tax provision (credit) differs from the amount
computed by applying the statutory federal income tax rate to
income (loss), including extraordinary items, before income taxes
for the following reasons:
(In thousands) 1999 1998 1997
Income tax provision
(credit) at statutory
tax rate of 35% $(18,089) $2,067 $2,569
Change in taxes resulting from:
State income taxes,
net of federal effect (295) 471 95
Change in valuation
Allowance 15,603 519 885
Other, net (476) (233) (137)
Provision (credit) for
income taxes $ (3,257) $2,824 $3,412
The following represents the components of deferred tax
liabilities and assets at September 25, 1999 and September 26,
1998:
(In thousands) 1999 1998
Deferred tax liabilities:
Property, plant and equipment $27,348 $28,862
Other items 171 353
27,519 29,215
Deferred tax assets:
Reserves and accruals 7,332 7,913
Net operating tax loss
Carryforward 31,338 14,076
Alternative minimum tax and
other tax credit carryforwards 3,155 5,933
Unrealized loss on investments 2,010 1,663
Other items 535 538
44,370 30,123
Valuation allowance (20,077) (4,474)
Net deferred tax assets 24,293 25,649
Net deferred tax liability $ 3,226 $ 3,566
For federal income tax purposes, the Company has alternative
minimum tax credit carryforwards of approximately $3.2 million,
which are not limited by expiration dates, and net operating tax
loss carryforwards of approximately $89.5 million, which expire
beginning in 2008. The Company has recorded deferred tax assets
related to these carryforwards, net of a deferred tax asset
valuation allowance. In estimating the amount of the valuation
allowance required, the Company has considered future taxable
income related to the reversal of temporary differences in the
tax and financial reporting basis of assets and liabilities.
Note 12 Related Party Transactions
One of the Company's directors has a controlling interest in a
company which purchases secondary and limited service tubular
products from Newport. Sales to this customer were approximately
$11.1 million, $13.2 million and $15.6 million for fiscal years
1999, 1998 and 1997, respectively. Trade receivables from this
customer were $1.3 million and $1.0 million at the end of fiscal
1999 and 1998, respectively.
Note 13 Quarterly Financial Data (unaudited)
Quarterly results of operations for fiscal 1999 and 1998 are as
follows:
(In thousands, except per share amounts)
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
Net sales $54,269 $56,460 $59,582 $72,252
Gross loss (5,138) (6,689) (3,604) (3,312)
Loss before extra-
ordinary items (10,418) (14,658) (8,581) (10,932)
Net loss (10,855) (18,058) (8,581) (10,932)
Loss per common share
before extraordinary
items
Basic and diluted (.46) (.67) (.40) (.51)
Net loss per common
share
Basic and diluted (.48) (.83) (.40) (.51)
1998
Net sales $123,733 $123,566 $96,882 $65,674
Gross profit
(loss) 17,591 16,179 9,753 (6,532)
Income (loss) before
extraordinary item 6,537 5,736 1,189 (11,035)
Net income (loss) 6,537 5,736 1,189 (10,376)
Income (loss) per
common share
before extraordinary
item
Basic .27 .24 .05 (.48)
Diluted .26 .23 .05 (.48)
Net income (loss)
per common share
Basic .27 .24 .05 (.45)
Diluted .26 .23 .05 (.45)
Reference is made to Note 1: Summary of Significant Accounting
Policies - Property, Plant and Equipment and Depreciation
regarding a fiscal 1998 fourth quarter asset impairment loss.
Also, reference is made to Notes 5 and 9 to the Consolidated
Financial Statements for a discussion of extraordinary items in
fiscal 1999 and 1998.
Note 14 Summarized Financial Information
The Company's 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 September 25, 1999 and September 26, 1998 and
for each of the three years in the period ended September 25,
1999. All significant intercompany accounts and transactions
between the Subsidiary Guarantors have been eliminated.
(In thousands) September 25, 1999 September 26, 1998
Current assets $115,172 $131,227
Noncurrent assets 148,858 140,942
Current liabilities 50,357 44,625
Payable to parent $192,090 $174,316
Other noncurrent
Liabilities 1,184 1,379
Total noncurrent
Liabilities $193,274 $175,695
Fiscal Year Ended
(In thousands) 1999 1998 1997
Net sales $242,563 $409,855 $481,170
Gross profit (loss) (18,743) 36,991 68,054
Income (loss) before
extraordinary items (48,692) 1,200 7,690
Net income (loss) (52,092) 1,859 7,690
Report of Management
The accompanying consolidated financial statements have been
prepared by the management of NS Group, Inc., in conformity with
generally accepted accounting principles and, in the judgment of
management, present fairly and consistently the Company's
consolidated financial position and results of operations. These
statements necessarily include amounts that are based on
management's best estimates and judgments. The financial
information contained elsewhere in this report is consistent with
that contained in the consolidated financial statements.
In fulfilling its responsibilities for the integrity of financial
information, management maintains accounting systems and related
controls. These controls provide reasonable assurance, at
appropriate costs, that assets are safeguarded against losses and
that financial records are reliable for use in preparing
financial statements. These systems are enhanced by written
policies, an organizational structure that provides division of
responsibilities and careful selection and training of qualified
people.
In connection with their annual audit, independent public
accountants perform an examination in accordance with generally
accepted auditing standards, which includes a review of the
system of internal accounting control and an expression of an
opinion that the consolidated financial statements are fairly
presented in all material respects.
The Board of Directors, through its Audit Committee composed
solely of non-employee directors, reviews the Company's financial
reporting and accounting practices. The independent public
accountants meet regularly with and have access to this
Committee, with or without management present, to discuss the
results of their audit work.
/s/ Clifford R. Borland
Clifford R. Borland
Chairman and Chief
Executive Officer
/s/ Rene, J. Robichaud
Rene, J. Robichaud
President and Chief
Operating Officer
/s/John R. Parker
John R. Parker
Vice President, Treasurer and
Chief Financial Officer
Report of Independent Public Accountants
To the Shareholders of NS Group, Inc.
We have audited the accompanying consolidated balance sheets of
NS Group, Inc. (a Kentucky corporation) and subsidiaries as of
September 25, 1999 and September 26, 1998, and the related
consolidated statements of operations, common shareholders'
equity and cash flows for each of the three years in the period
ended September 25, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of NS Group, Inc. and subsidiaries as of September 25, 1999 and
September 26, 1998, and the results of their operations and their
cash flows for each of the three years in the period ended
September 25, 1999 in conformity with generally accepted
accounting principles.
As explained in Note 1 to the consolidated financial statements,
the Company has given retroactive effect to the change by one of
its subsidiaries from the LIFO method to the FIFO method of
inventory costing.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
November 1, 1999
Consolidated Financial Summary
(Dollars in thousands, except per share amounts)
1999 1998 1997 1996 1995
Summary of
Operations
Net sales $242,563 $409,855 $481,170 $409,382 $371,352
Operating
income
(loss) (45,586) 8,693 40,697 12,710 8,147
Operating
income
margin (18.8)% 2.1% 8.5% 3.1% 2.2%
Income (loss)
before extra-
ordinary items (47,737) 4,899 18,911 (8,944) (4,835)
Net income
(loss) (48,426) 3,086 3,929 (8,944) (10,035)
Income (loss)
per diluted
share
before extra-
ordinary items (2.04) .10 .88 (.65) (.35)
Net income
(loss) per
diluted share (2.22) .13 .26 (.65) (.73)
Dividends per
common share - - - - -
Weighted average
shares
outstanding -
diluted (000's) 21,852 24,511 14,969 13,809 13,809
Other Financial and Statistical Data
Working
Capital $ 97,573 $147,454 $229,514 $ 84,007 $ 74,443
Total assets 359,795 419,306 502,899 303,136 300,086
Long-term debt 72,833 76,325 76,424 164,789 166,528
Common
shareholders'
equity 221,152 278,049 275,398 60,218 69,699
Capital
Expenditures 28,401 32,576 7,139 6,510 12,233
Depreciation
and amorti-
zation 21,735 19,238 23,828 20,902 21,311
EBITDA (21,513) 30,475 59,771 32,614 30,141
Current ratio 2.71 3.77 2.66 2.21 2.30
Debt to total
Capitalization 24.8% 21.5% 21.7% 73.2% 70.5%
Book value per
outstanding
share 10.31 12.10 11.81 4.36 5.05
Product shipments (tons)
Energy
Products 317,000 474,000 616,600 549,500 487,100
Industrial
products -
SBQ 130,500 160,100 152,400 133,700 169,000
Employees 1,619 1,803 1,948 1,774 1,728
Stock Market Information
NS Group, Inc. is listed on the New York Stock Exchange (Symbol:
NSS).
Stock Price
Fiscal 1999 High Low
First Quarter $7 13/16 $4
Second Quarter 6 1/2 3 13/16
Third Quarter 9 3/16 4 3/8
Fourth Quarter 13 11/16 8
Fiscal 1998 High Low
First Quarter $41 1/4 $13 1/4
Second Quarter 18 12 5/8
Third Quarter 15 7/16 8 5/16
Fourth Quarter 10 1/4 5 1/2
Exhibit 21
SUBSIDIARIES OF NS GROUP, INC.
(all are wholly-owned)
Name State of Incorporation
Erlanger Tubular Corporation Oklahoma
Imperial Adhesives, Inc. Ohio
Koppel Steel Corporation Pennsylvania
Newport Steel Corporation Kentucky
Northern Kentucky Management Kentucky
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to
the incorporation of our reports included or incorporated by
reference in this Form 10-K, into the Company's previously
filed Registration Statements, File Nos. 33-24182, 33-24183,
33,51899, 33-28995, 33-37454, 33-39695, 33-56637, 333-03657,
333-73161, 333-73163, 333-73169 and 333-85925.
/s/Arthur Andersen LLP
Cincinnati, Ohio Arthur Andersen LLP
December 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Exhibit 27 contains summary financial information extracted from NS Group,
Inc.'s consolidated financial statements as of and for the fiscal year ended
September 25, 1999, included in the Company's Annual Report on Form 10-K and is
qualified in its entirety by reference to such consolidated financial
statements.
</LEGEND>
<CIK> 0000745026
<NAME> NS GROUP, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-25-1999
<PERIOD-START> SEP-27-1998
<PERIOD-END> SEP-25-1999
<EXCHANGE-RATE> 1
<CASH> 1,073
<SECURITIES> 30,032
<RECEIVABLES> 41,611
<ALLOWANCES> 687
<INVENTORY> 56,659
<CURRENT-ASSETS> 154,781
<PP&E> 330,477
<DEPRECIATION> 187,330
<TOTAL-ASSETS> 359,795
<CURRENT-LIABILITIES> 57,208
<BONDS> 72,833
0
0
<COMMON> 257,271
<OTHER-SE> (36,119)
<TOTAL-LIABILITY-AND-EQUITY> 359,795
<SALES> 242,563
<TOTAL-REVENUES> 242,563
<CGS> 261,306
<TOTAL-COSTS> 261,306
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,601
<INCOME-PRETAX> (47,737)
<INCOME-TAX> (3,148)
<INCOME-CONTINUING> (44,589)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,837)
<CHANGES> 0
<NET-INCOME> (48,426)
<EPS-BASIC> (2.22)
<EPS-DILUTED> (2.22)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Exhibit 27.1,together with Exhibits 27.2 and 27.3, Restated Financial Data
Schedules, contains restated information for all applicable periods in
accordance with Regulation S-K, Item 601(c) (2) (iii) to reflect an accounting
principle change for inventory costing from the LIFO (last-in, first-out) method
to the FIFO (first-in, first-out) method at one of the Company's subsidiaries.
</LEGEND>
<RESTATED>
<CIK> 0000745026
<NAME> NS GROUP, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> SEP-28-1996 SEP-27-1997 SEP-27-1997 SEP-27-1997
<PERIOD-START> OCT-01-1995 SEP-29-1996 SEP-29-1996 SEP-26-1996
<PERIOD-END> SEP-28-1996 DEC-28-1996 MAR-29-1997 JUN-28-1997
<EXCHANGE-RATE> 1 1 1 1
<CASH> 3,442 2,881 1,744 5,028
<SECURITIES> 13,855 25,910 18,057 16,155
<RECEIVABLES> 52,581 50,263 51,423 62,744
<ALLOWANCES> 757 847 854 930
<INVENTORY> 56,419 55,583 67,343 75,557
<CURRENT-ASSETS> 153,577 162,505 163,692 187,812
<PP&E> 272,286 273,132 274,641 275,659
<DEPRECIATION> 138,512 142,875 146,762 150,988
<TOTAL-ASSETS> 303,136 307,554 305,060 325,660
<CURRENT-LIABILITIES> 69,570 73,521 70,974 86,041
<BONDS> 164,789 164,381 163,722 162,689
0 0 0 0
0 0 0 0
<COMMON> 51,778 51,785 51,829 53,047
<OTHER-SE> 8,440 8,452 10,458 15,551
<TOTAL-LIABILITY-AND-EQUITY> 303,136 307,554 305,060 325,660
<SALES> 409,382 105,167 216,277 349,130
<TOTAL-REVENUES> 409,382 105,167 216,277 349,130
<CGS> 368,928 92,804 188,197 301,696
<TOTAL-COSTS> 368,928 92,804 188,197 301,696
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 24,375 6,063 12,168 18,298
<INCOME-PRETAX> (10,384) 292 3,294 10,088
<INCOME-TAX> (1,440) 5 876 2,740
<INCOME-CONTINUING> (8,944) 287 2,418 7,348
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (8,944) 287 2,418 7,348
<EPS-BASIC> (.65) .02 .18 .53
<EPS-DILUTED> (.65) .02 .18 .47
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Exhibit 27.2, together with Exhibits 27.1 and 27.3, Financial Data
Schedules, contains restated information for all applicable periods in
accordance with Regulation S-K, Item 601(c) (2) (iii) to reflect an
accounting principle change for inventory costing from the LIFO
(last-in, first-out) method to the FIFO (first-in, first-out) method at
one of the Company's subsidiaries.
</LEGEND>
<RESTATED>
<CIK> 0000745026
<NAME> NS GROUP, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 6-MOS
<FISCAL-YEAR-END> SEP-27-1997 SEP-26-1998 SEP-26-1998
<PERIOD-START> SEP-29-1996 SEP-28-1997 SEP-28-1997
<PERIOD-END> SEP-27-1997 DEC-27-1997 MAR-28-1998
<EXCHANGE-RATE> 1 1 1
<CASH> 6,998 5,646 3,471
<SECURITIES> 188,345 154,969 71,731
<RECEIVABLES> 63,863 62,745 71,395
<ALLOWANCES> 712 700 646
<INVENTORY> 76,305 82,193 83,842
<CURRENT-ASSETS> 367,504 333,709 258,908
<PP&E> 278,779 283,425 292,481
<DEPRECIATION> 154,962 159,262 163,490
<TOTAL-ASSETS> 502,899 468,178 455,584
<CURRENT-LIABILITIES> 137,990 81,586 65,205
<BONDS> 76,424 76,330 76,106
0 0 0
0 0 0
<COMMON> 262,980 279,553 279,588
<OTHER-SE> 12,418 18,305 24,594
<TOTAL-LIABILITY-AND-EQUITY> 502,899 468,178 455,584
<SALES> 481,170 123,733 247,299
<TOTAL-REVENUES> 481,170 123,733 247,299
<CGS> 413,116 106,142 213,529
<TOTAL-COSTS> 413,116 106,142 213,529
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 24,261 3,559 6,581
<INCOME-PRETAX> 18,911 9,546 18,111
<INCOME-TAX> 5,726 3,009 5,838
<INCOME-CONTINUING> 13,185 6,537 12,273
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> (9,256) 0 0
<CHANGES> 0 0 0
<NET-INCOME> 3,929 6,537 12,273
<EPS-BASIC> .28 .27 .51
<EPS-DILUTED> .26 .26 .49
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Exhibit 27.3,together with Exhibits 27.1 and 27.2, Restated Financial
Data Schedules, contains restated information for all applicable periods in
accordance with Regulation S-K, Item 601 (c) (2) (iii) to reflect an
accounting principle change for inventory costing from the LIFO (last-in,
first-out) method to the FIFO (first-in, first-out) method at one of the
Company's subsidiaries.
</LEGEND>
<RESTATED>
<CIK> 0000745026
<NAME> NS GROUP, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> SEP-26-1998 SEP-26-1998
<PERIOD-START> SEP-28-1997 SEP-28-1997
<PERIOD-END> JUN-27-1998 SEP-26-1998
<EXCHANGE-RATE> 1 1
<CASH> 2,781 1,783
<SECURITIES> 67,283 64,689
<RECEIVABLES> 52,604 38,027
<ALLOWANCES> 702 752
<INVENTORY> 72,593 66,041
<CURRENT-ASSETS> 225,031 200,680
<PP&E> 301,157 306,900
<DEPRECIATION> 167,918 171,700
<TOTAL-ASSETS> 433,744 419,306
<CURRENT-LIABILITIES> 52,530 53,226
<BONDS> 76,193 76,325
0 0
0 0
<COMMON> 280,359 264,792
<OTHER-SE> 11,597 13,257
<TOTAL-LIABILITY-AND-EQUITY> 433,744 419,306
<SALES> 344,181 409,855
<TOTAL-REVENUES> 344,181 409,855
<CGS> 300,658 372,864
<TOTAL-COSTS> 300,658 372,864
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 9,629 12,653
<INCOME-PRETAX> 19,942 4,899
<INCOME-TAX> 6,480 2,472
<INCOME-CONTINUING> 13,462 2,427
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 659
<CHANGES> 0 0
<NET-INCOME> 13,462 3,086
<EPS-BASIC> .56 .13
<EPS-DILUTED> .54 .13
</TABLE>
2
Exhibit 99.1
RISK FACTORS
Investing in our common stock will provide you with an
equity ownership in NS Group. Performance of your shares
will reflect the performance of our business, which is
impacted by, among other things, industry conditions,
general economic conditions and competition. The price of
our stock may decline and could lower the value of your
investment. You should carefully consider the following
factors before deciding whether to invest in shares of our
common stock.
FLUCTUATIONS IN OIL AND NATURAL GAS PRICES COULD ADVERSELY
AFFECT US BECAUSE WE SELL A SIGNIGICANT PORTION OF OUR
PRODUCTS TO THE ENERGY INDUSTRY.
Our energy products segment consists of tubular steel
products, primarily oil country tubular goods, or OCTG, and
line pipe. These products are sold to companies in the
energy industry and constitute the most significant source
of our revenues. Our energy product segment sales accounted
for 59% of total sales in fiscal 1999, 72% of total sales in
fiscal 1998 and 77% of total sales in fiscal 1997. Demand
for these products depends primarily upon the number of oil
and natural gas wells being drilled in the United States and
Canada as well as worldwide drilling activity. The level of
drilling activity is primarily dependent on current and
anticipated oil and natural gas prices. Many factors, such
as the supply and demand for oil and natural gas, general
economic conditions and global weather patterns, affect
these prices. As a result, the future level and volatility
of oil and natural gas prices are uncertain, which may
adversely affect sales of our products.
FLUCTUATIONS IN ECONOMIC CONDITIONS IN CERTAIN INDUSTRIES
COULD ADVERSELY AFFECT THE SALE OF OUR SPECIAL BAR QUALITY
PRODUCTS.
The demand for our Special Bar Quality, or SBQ,
products is cyclical and is sensitive to general economic
conditions. The demand for and the pricing of our SBQ
products is also affected by economic trends in industries
to which we provide our products, such as:
* commercial and residential construction
* off-road vehicles
* heavy machinery components
* industrial investment in new plants and facilities.
Future economic downturns may adversely affect the sale of
our SBQ products.
OUR OPERATIONS REQUIRE CONTINUAL CAPITAL INVESTMENT THAT WE
MAY NOT ALWAYS BE ABLE TO SUSTAIN.
We operate in an industry that requires substantial
capital investment. In order to remain competitive, we must
continually upgrade our facilities. We believe our foreign
and domestic competitors will continue to invest heavily in
their facilities in order to achieve increased production
efficiencies and improve product quality. We cannot be
certain that we will have sufficient internally generated
cash or available acceptable external financing to make
necessary capital expenditures in the future.
WE MAY LOSE BUSINESS TO COMPETITORS WHO ARE LARGER THAN
US.
We compete with foreign and domestic producers,
including both integrated and mini-mill producers. Many of
these competitors have substantially greater assets and
larger sales organizations than us. These companies may be
better able to successfully endure protracted downturns in
either the energy or industrial sectors. As a result, there
may be periods of time where we are at a competitive
disadvantage and lose business to one or more of these
competitors.
WE MAY LOSE BUSINESS TO COMPETITORS WHO DO NOT PRODUCE THEIR
OWN STEEL.
In the welded OCTG and line pipe markets, we compete
against certain manufacturers who purchase hot rolled coils
for further processing into welded OCTG and line pipe
products. Since these tubular manufacturers purchase their
principal raw material from other producers, they avoid the
substantial investment required to build and operate a melt
shop and hot strip mill. The cost of finished tubular
products for these manufacturers is largely dependent on the
market price of hot rolled coils. During periods of low
demand for hot rolled coil, these tubular manufacturers may
purchase hot rolled coils at a lower cost than our cost to
manufacture hot rolled coils. As a result, there may be
periods of time where we are at a competitive disadvantage
and lose business to one or more of these competitors.
THE LEVEL OF IMPORTS OF OIL COUNTRY TUBULAR GOODS AND LINE
PIPE INTO OUR MARKETS AFFECTS DEMAND FOR OUR PRODUCTS.
The level of imports of OCTG and line pipe, which has
varied significantly over time, affects the results of our
energy products segment. High levels of imports reduce the
volume sold by domestic producers and tend to suppress
selling prices, both of which have an adverse impact on our
business. We believe that domestic import levels are
affected by, among other things:
* U.S. and overall world demand for OCTG and line pipe;
* the trade practices and government subsidies to
producers; and
* the presence or absence of antidumping duty orders.
Since 1995, the level of imports of various OCTG products
from Argentina, Italy, Japan, Korea and Mexico have been
reduced by the existence of antidumping duty orders covering
imports from these countries.
We and certain other line pipe producers have recently
filed joint petitions with the U.S. government seeking
relief from imports of welded and seamless line pipe
products. We cannot predict the U.S. government's actions
regarding these petitions or any future actions regarding
import duties or other trade restrictions on imports of OCTG
and line pipe products.
Antidumping duty orders require special duties to be
imposed in an amount designed to offset the affect of
dumping. Once an order is in place, each year foreign
producers, importers, domestic producers and other
interested parties may request an "administrative review" to
determine the duty assessment rates for imports during the
preceding year, as well as the future duty deposit rates for
the foreign producers and exporters covered by the review.
In addition, a foreign producer or exporter that did not
ship to the United States during the original period
examined by the U.S. government may request "new shipper
review" to obtain its own duty rate on an expedited basis.
Antidumping duty orders may be revoked as a result of
periodic "sunset reviews." The U.S. government is scheduled
to conduct sunset reviews of the orders with respect to
Argentina, Italy, Japan, Korea and Mexico in 2000. An
individual foreign exporter may seek to have its own orders
revoked under certain circumstances. If the orders are
revoked in full or in part or the duty rates lowered, we
could be exposed to increased competition from imports that
could have a material adverse effect on our business.
THE VOLATILITY OF STEEL SCRAP PRICES MAY ADVERSELY AFFECT
OUR BUSINESS.
The market for steel scrap, the principal raw material
used in our operations, is highly competitive and subject to
price volatility. It is influenced by supply and demand
factors, freight costs, speculation by scrap brokers and
other market conditions largely beyond our control. We may
attempt to increase the price of our finished products in
response to future increases in scrap costs. However,
increases in the prices of our products may not fully
compensate for such scrap price increases and generally lag
several months behind increases in steel scrap prices. As a
result, we may be unable to fully recover future increases
in steel scrap prices and our business may be adversely
affected.
INDUSTRY-WIDE INVENTORY LEVELS AFFECT OUR SALES AND NET
INCOME.
Industry-wide inventory levels of our products, and in
particular, oil country tubular goods, can change
significantly from period to period. These changes can have
a direct adverse effect on the demand for new production of
energy and industrial products when customers draw from
inventory rather than purchase new products. Above normal
industry inventory levels and upward fluctuations in months
of supply of inventory, which defines the level of inventory
in terms of current monthly demand, have had in past years,
and may continue to have, an adverse impact on us.
SEASONAL FLUCTUATIONS WHICH AFFECT OUR CUSTOMERS MAY AFFECT
DEMAND FOR OUR PRODUCTS.
We and our competitors may experience seasonal
fluctuations in demand for our oil country tubular goods
products due to weather conditions during the first half of
the calendar year. During this period, drilling operations
may be more difficult and therefore, domestic drilling
activity and the corresponding demand for our oil country
tubular goods generally may be lower during our second and
third fiscal quarters.
MANAGEMENT CAN EXERCISE SIGNIFICANT INFLUENCE OVER WHO IS
ELECTED TO THE BOARD OF DIRECTORS.
Three of our seven directors are executive officers of
NS Group. Executive officers and directors of NS Group, as
a group, beneficially own 22.4% of the common stock of NS
Group as of October 1999. As a result, they have sufficient
voting power to influence the election of the board of
directors and the policies of NS Group.
COMPLIANCE WITH AND CHANGES TO LAWS REGULATING THE OPERATION
OF OUR BUSINESS COULD ADVERSELY AFFECT OUR PERFORMANCE.
Our business is subject to numerous local, state and
federal laws and regulations concerning environmental and
safety matters. We cannot assure you that future changes
and compliance within these laws and regulations will not
have a material effect on our operations.
OUR DEBT INSTRUMENTS CONTAIN RESTRICTIVE COVENANTS THAT MAY
PUT US AT A COMPETITIVE DISADVANTAGE WITH OUR COMPETITORS.
The indenture under which our 13 1/2% Senior Secured
Notes due 2003 were issued contains restrictive covenants
that, among other things, limit our ability to incur
additional indebtedness, pay dividends or distributions,
make investments, create liens, engage in transactions with
affiliates, engage in sale and leaseback transactions,
dispose of assets, issue or sell stock of our subsidiaries
and engage in mergers, consolidations and transfers of
substantially all of our assets. These restrictions may
place us at a competitive disadvantage in relation to our
competitors.
THE USE OF OUR PRODUCTS BY OUR CUSTOMERS EXPOSE US TO
POTENTIAL PRODUCT LIABILITY CLAIMS.
Certain losses may result or be alleged to result from
defects in our products, thereby subjecting us to claims for
damages. Drilling for oil and natural gas, in particular,
involves a variety of risks. We warrant certain of our
OCTG, line pipe and SBQ products to be free of certain
defects. We maintain insurance coverage against potential
product liability claims in amounts we believe to be
adequate. However, we may incur product liability in excess
of our insurance coverage or incur other uninsured costs,
and we may not be able to maintain insurance with adequate
coverage levels in the future.
PROVISIONS IN OUR CORPORATE DOCUMENTS AND KENTUCKY LAW COULD
DELAY OR PREVENT A CHANGE IN CONTROL OF NS GROUP, EVEN IF
THAT CHANGE WOULD BE BENEFICIAL TO OUR SHAREHOLDERS.
The existence of some provisions in our corporate
documents and Kentucky law could delay or prevent a change
in control of NS Group. Our articles of incorporation and
bylaws contain provisions that may make acquiring control of
NS Group difficult, including:
* provisions limiting the right to call special
meetings of our stockholders;
* provisions regulating the ability of our shareholders
to bring matters for action at annual meetings of our shareholders;
and
* the authorization to issue and set the terms of
preferred stock.
In addition, we have adopted a stockholder rights plan that
would cause extreme dilution to any person or group who
attempts to acquire a significant interest in NS Group
without advance approval of our board of directors.
