SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
AMENDMENT NO. 1
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 1, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to
_____________
Commission file number 1-9838
NS GROUP, INC.
Exact name of registrant as specified in its charter
KENTUCKY 61-0985936
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification number)
Ninth & Lowell Streets, Newport, Kentucky 41072
(Address of principal executive offices)
Registrant's telephone number, including area code (606) 292-6809
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common stock, no par value 21,512,049
(Class) (Outstanding at
February 4, 2000)
PART I
The undersigned registrant hereby amends its Form 10-Q for the
fiscal quarter ended January 1, 2000. The amendment restates
the accounting and reporting for the Company's abandonment of
certain equipment in the first quarter of fiscal 1999. The
effect of the restatement is to (1) increase fiscal 1999 first
quarter cost of sales by $1.5 million and (2) decrease fiscal
1999 first quarter tax provision by $0.6 million.
FINANCIAL INFORMATION
Item 1. Financial Statements
NS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED
JANUARY 1, 2000 AND DECEMBER 26, 1998
(In thousands, except per share amounts)
(Unaudited)
January 1, December 26,
2 0 0 0 1 9 9 8
NET SALES $ 86,626 $ 54,269
COST AND EXPENSES
Cost of products sold 90,912 60,950
Selling and administrative
Expenses 7,021 6,832
Operating income (loss) (11,307) (13,513)
OTHER INCOME (EXPENSE)
Investment income 1,372 1,715
Interest expense (3,138) (2,923)
Other, net 176 160
Income (loss) before
income taxes and
extraordinary item (12,897) (14,561)
PROVISION (CREDIT) FOR
INCOME TAXES 37 (3,179)
Income (loss) before
extraordinary item (12,934) (11,382)
EXTRAORDINARY ITEM - (437)
Net income (loss) (12,934) $(11,819)
PER COMMON SHARE
(BASIC and DILUTED)
Income (loss) before
extraordinary item $(.60) $(.50)
Extraordinary item - (.02)
Net income (loss) $(.60) $(.52)
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic and diluted 21,470 22,709
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
NS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 1, 2000 AND SEPTEMBER 25, 1999
(Dollars in thousands) (Unaudited)
January 1, September 25,
CURRENT ASSETS 2 0 0 0 1 9 9 9
Cash $ 1,601 $ 1,073
Short-term investments 19,371 30,032
Accounts receivable,
less allowance for doubtful
accounts of $952 and $837,
respectively 40,775 40,924
Inventories 65,194 56,659
Other current assets 25,499 26,093
Total current assets 152,440 154,781
PROPERTY, PLANT AND EQUIPMENT 333,183 330,477
Less - accumulated
Depreciation (192,974) (187,330)
140,209 143,147
LONG-TERM INVESTMENTS 53,505 54,560
OTHER ASSETS 7,192 7,307
Total assets $353,346 $359,795
CURRENT LIABILITIES
Accounts and notes payable $ 37,097 $ 28,923
Accrued liabilities 26,769 28,087
Current portion of
long-term debt 202 198
Total current liabilities 64,068 57,208
LONG-TERM DEBT 72,955 72,833
DEFERRED TAXES 8,602 8,602
COMMON SHAREHOLDERS' EQUITY
Common stock, no par value 280,358 280,051
Treasury stock (23,676) (23,676)
Common stock options and
Warrants 886 896
Accumulated other
comprehensive income (loss) (4,578) (3,784)
Accumulated earnings (deficit) (45,269) (32,335)
Total common shareholders'
Equity 207,721 221,152
Total liabilities
and shareholders'
equity $353,346 $359,795
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
NS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED
JANUARY 1, 2000 AND DECEMBER 26, 1998
(Dollars in thousands) (Unaudited)
January 1, December 26,
2 0 0 0 1 9 9 8
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $(12,934) $(11,819)
Adjustments to reconcile
net income (loss)
to net cash flows from
operating activities:
Depreciation and amortization 5,837 6,326
Amortization of debt discount
and finance costs 303 501
Decrease in long-term deferred taxes - (3,514)
Loss on sales of investments 149 217
Decrease in accounts receivable, net 149 7,699
Increase in inventories (8,535) (3,930)
Decrease in other current assets 594 4,429
Increase (decrease) in accounts
payable 8,568 (6,192)
Decrease in accrued liabilities (1,390) (2,210)
Net cash flows from operating
Activities (7,259) (8,493)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchases of property, plant and
equipment, net (2,761) (12,629)
Net (purchases) sales of long-term
Investments 75 (12,622)
Increase in other assets (39) (91)
Net cash flows from financing
Activities (2,725) (25,342)
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in notes payable (394) (80)
Repayments on long-term debt (62) (4,531)
Proceeds from issuance of common stock 307 31
Purchases of treasury stock - (4,165)
Net cash flows from investing
Activities (149) (8,745)
Net decrease in cash and
short-term investments (10,133) (42,580)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF YEAR 31,105 66,472
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 20,972 $ 23,892
Cash paid during the period for:
Interest $26 $ 181
Income taxes, net of refunds $33 $(3,265)
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
NS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statement include the
accounts of NS Group, Inc. and its wholly-owned subsidiaries (the
Company): Newport Steel Corporation (Newport), Koppel Steel
Corporation (Koppel), Erlanger Tubular Corporation (Erlanger),
Imperial Adhesives, Inc. (Imperial) and Northern Kentucky
Management, Inc. All significant intercompany balances and
transactions have been eliminated.
The accompanying condensed consolidated financial statements
for the first quarter of fiscal 1999 have been restated from those
previously reported to reflect additional depreciation of $1.5
million related to the abandonment of certain equipment in the
first quarter of fiscal 1999. Prior to the restatement the
equipment had been written down in the fourth quarter of fiscal
1998, rather than the depreciation of such equipment being
increased in the fourth quarter of fiscal 1998 and the first
quarter of fiscal 1999. The net effect of the restatement
after the related tax effect, is to increase the fiscal 1999
first quarter loss before extraordinary item and net loss
by $0.9 million, or $.04 per diluted share.
The accompanying information reflects, in the opinion of
management, all adjustments (which consist of only normal
recurring adjustments) necessary to present fairly the results for
the interim periods. The preparation of financial statements in
conformity with generally accepted accounting principles requires
that management make certain estimates and assumptions that affect
the amounts reported in the condensed consolidated financial
statements and accompanying notes. Actual results could differ
from those estimates. Reference should be made to NS Group,
Inc.'s Form 10-K/A, Amendment No. 2 for the fiscal year ended
September 25, 1999 for additional footnote disclosure, including
a summary of significant accounting policies.
Earnings Per Share
Basic earnings per share is computed by dividing net income
(loss) 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, are comprised of stock
options and warrants only.
Securities that could potentially result in dilution of basic
EPS through the issuance of 2.4 million shares of the Company's
common stock were not included in the computation of diluted EPS
in the first quarter of fiscal 2000 because they were
antidilutive.
Fiscal Year-End
The Company's fiscal year ends on the last Saturday of
September. The first quarter of fiscal 2000 and 1999 are 14 and
13 week periods, respectively.
Note 2: Comprehensive Income
The Company's other comprehensive income currently consists
solely of unrealized gains/losses on available for sale
securities. Comprehensive income was as follows (000's):
Three Months Ended
January 1, December 26,
2000 1998
Net income (loss) $(12,934) $(11,819)
Unrealized gains (losses)
on available for sale
securities (794) 556
Comprehensive income
(loss) $(13,728) $(11,263)
Note 3: Business Segment Information
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 of the
Company. 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. The
following table sets forth selected financial information by
reportable business segment.
(In thousands)
Three Months Ended
January 1, 2000
Operating Depreciation
Net Income Total and Capital
Sales (Loss) Assets Amortization Expenditures
Energy
products
segment $60,903 $(8,753) $208,458 $4,622 $ 2,500
Industrial
products
segment-SBQ 14,439 (1,730) 39,426 1,067 467
Industrial
products
segment -
Adhesives 11,284 295 15,207 148 5
Corporate
assets and
allocations - (1,119) 90,255 - -
Total
Consolidated $86,626 $(11,307) $353,346 $5,837 $ 2,972
Three Months Ended
December 26, 1998
Energy
products
segment $30,204 $(11,342) $203,914 $5,242 $11,805
Industrial
products
segment-SBQ 13,035 (1,820) 42,071 930 779
Industrial
products
segment -
Adhesives 11,030 519 14,544 154 45
Corporate
assets and
allocations - (870) 128,078 - -
Total
Consolidated $54,269 $(13,513) $388,607 $6,326 $12,629
Note 4: Inventories
Inventories are stated at the lower of FIFO (first-in, first-
out) cost or market, or the lower of average cost or market. At
January 1, 2000 and September 25, 1999, inventories consisted of
the following components ($000's):
January 1, September 25,
2 0 0 0 1 9 9 9
Raw materials $11,011 $ 9,707
Semi-finished and finished goods 54,183 46,952
$65,194 $56,659
Note 5: Commitments and Contingencies
The Company has various commitments for the purchase of
materials, supplies and energy arising in the ordinary course of
business.
Legal Matters
The Company is subject to various claims, lawsuits and
administrative proceedings arising in the ordinary course of
business with respect to workers' compensation, health care and
product liability coverages (each of which is self-insured to
certain levels), as well as commercial and other matters. The
Company accrues for the cost of such matters when the incurrence
of such costs is probable and can be reasonably estimated. Based
upon its evaluation of available information, management does not
believe that any such matters are likely, individually or in the
aggregate, to have a material adverse effect upon the Company's
consolidated financial position, results of operations or cash
flows.
Environmental Matters
The Company is subject to federal, state and local
environmental laws and regulations, including, among others, the
Resource Conservation and Recovery Act (RCRA), the Clean Air Act,
the 1990 Amendments to the Clean Air Act 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 our Newport
facilities, 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 Company believes that it is currently in compliance in
all material respects with all applicable environmental
regulations. The Company cannot predict the level of required
capital expenditures or operating costs that may result from
future environmental regulations.
Capital expenditures for the next twelve months relating to
environmental control facilities are expected to be approximately
$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 January 1, 2000, the Company had environmental
remediation reserves of $3.5 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 6: Summarized Financial Information
The Company's Senior Secured Notes are unconditionally
guaranteed in full, jointly and severally, by each of the
Company's subsidiaries (Subsidiary Guarantors), each of which is
wholly-owned. Separate financial statements of the Subsidiary
Guarantors are not presented because they are not deemed material
to investors. The following is summarized financial information
of the Subsidiary Guarantors. All significant intercompany
accounts and transactions between the Subsidiary Guarantors have
been eliminated.
January 1, September 25,
2 0 0 0 1 9 9 9
(In thousands)
Current assets $123,145 $115,172
Non-current assets 145,272 148,858
Current liabilities 54,744 50,357
Payable to parent $203,242 $192,090
Other non-current liabilities 1,118 1,184
Total non-current liabilities $204,360 $193,274
Three Months Ended
January 1, December 26,
2 0 0 0 1 9 9 8
(In thousands)
Net sales $ 86,626 $ 54,269
Gross profit (loss) $ (4,286) $ (6,681)
Net income (loss) $(14,409) $(12,129)
NS GROUP, INC. AND SUBSIDIARIES
Item 2. 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
- Industry-wide inventory levels and their fluctuations
- The level of imports
- Steel scrap price volatility
- General economic conditions
- Those discussed in Exhibit 99.1 of the Company's Annual
Report on Form 10-K for its fiscal year ended September
25, 1999.
The forward-looking events discussed in this report might not
occur and actual results could differ materially from those
suggested by the forward-looking statements. Accordingly, you
should not place undue reliance on these 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
unaudited condensed consolidated financial statements included in
this report.
General
We conduct our business within three business segments:
- The energy products segment
- The industrial products segment - special bar quality(SBQ)
- The industrial products segment - adhesives products
Our energy products include welded and seamless tubular
goods, primarily used in oil and natural gas drilling and
production operations, referred to as oil country tubular goods,
or OCTG. We also produce welded and seamless line pipe products
used in the transmission of oil, natural gas and other fluids. We
also produce a limited amount of other tubular products and hot
rolled coils.
Our industrial products segment - special bar quality, or
SBQ, includes products used in a variety of industrial
applications such as farm equipment, heavy machinery, construction
and off-road vehicles.
Our adhesives products are used in a variety of industrial
product assembly applications and footwear finishes.
You should read Note 3 to the unaudited condensed
consolidated financial statements included in this report for
selected financial information by business segment.
Results of Operations
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 rise in the first
quarter of fiscal 2000 as increasing oil and natural gas prices
led to an increase in domestic drilling activity. The average
number of oil and natural gas drilling rigs in operation in the
United States, which is referred to as "rig count", rose to 772 in
the first quarter of fiscal 2000, compared to 692 in the first
quarter of fiscal 1999 and 602 for all of fiscal 1999. The
increased drilling activity has also had a positive impact on the
excessive industry-wide tubular inventory situation which
developed during fiscal 1999. While market conditions have
improved and remain positive, we incurred operating losses in the
first quarter of fiscal 2000 due to a slow recovery in pricing for
OCTG products and operating inefficiencies related to our new
electric arc furnace. We expect continued improvement in OCTG
pricing and operating efficiencies, resulting in improved
operating results, particularly in the second half of fiscal 2000.
NS Group's net sales, gross profit (loss), operating income
(loss) and tons shipped by business segment for the three months
ended January 1, 2000 and December 26, 1998 are summarized in the
following table. The first quarters of fiscal 2000 and 1999 are
14 and 13 week periods, respectively. As such, the increases and
decreases in operating results for the quarterly comparative
periods, as discussed below, were partially attributable to the
additional week of operations in the first quarter of fiscal 2000.
Three Months Ended
January 1, December 26,
2 0 0 0 1 9 9 8
(Dollars in thousands)
Net sales
Energy products segment $ 60,903 $ 30,204
Industrial products segment - SBQ 14,439 13,035
Industrial products segment - Adhesives 11,284 11,030
$ 86,626 $ 54,269
Gross profit (loss)
Energy products segment $ (6,277) $ (9,012)
Industrial products segment - SBQ (1,041) (845)
Industrial products segment - Adhesives 3,032 3,176
$ (4,286) $ (6,681)
Operating income (loss)
Energy products segment $ (8,753) $(11,342)
Industrial products segment - SBQ (1,730 (1,820)
Industrial products segment - Adhesives 295 519
(10,188 (12,643)
Corporate allocations (1,119) (870)
$(11,307) $(13,513)
Tons shipped
Energy products segment:
Welded tubular products 100,300 44,100
Seamless tubular products 32,400 13,300
Other 400 1,200
Industrial products segment - SBQ 36,300 29,500
169,400 88,100
Net sales in the first quarter of fiscal 2000 were $86.6
million, an increase of 59.6% from the first quarter of fiscal
1999. Virtually all of the increase was attributable to our
energy products segment.
Energy product segment sales were $60.9 million, an increase
of 101.6% from the first quarter of fiscal 1999. Shipments of
energy products were 133,100 tons, an increase of 127.5% from the
comparable prior year period. The increase was substantially the
result of increased OCTG shipments as rig count steadily increased
during the first quarter of fiscal 2000. The average selling
price for our welded and seamless tubular products was $382 and
$689 per ton, respectively, a decrease of 12.2% and 12.7%,
respectively, from the comparable quarter of a year ago. Based on
our backlog, average selling prices for the second quarter of
fiscal 2000 will not rise as rapidly as shipment volumes would
indicate. However, with continued strength in the energy markets,
we expect selling prices to improve significantly in the second
half of fiscal 2000.
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 can not 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 segments - SBQ products sales were $14.4
million, an increase of 10.8% from the first quarter of fiscal
1999. SBQ product shipments of 36,300 tons increased 23.1% from
the comparable prior year period. The average selling price for
SBQ product was $398 per ton, a decline of 10.0% from the
comparable period in fiscal 1999. The decrease was primarily
attributable to a very competitive marketplace for SBQ products.
Industrial products segment - Adhesives product sales were
$11.3 million, a 2.3% increase from the fiscal 1999 first quarter
on a similar increase in sales volume.
The energy products segment recorded a gross loss and
operating loss of $6.3 million and $8.8 million, respectively,
compared to a gross loss of $9.0 million and an operating loss of
$11.3 million in the first quarter of fiscal 1999. Although sales
and production volumes increased significantly from the prior
fiscal year first quarter, our gross loss and operating loss
improved by only $2.7 million and $2.6 million, respectively,
due to lower average selling prices and higher steel scrap costs
versus the prior fiscal year first quarter as well as non-
recurring depreciation charges of $1.5 million incurred in the
first quarter of fiscal 1999 related to the abandonment of certain
equipment at Newport. Our combined pipe mill capacity utilization
was 85% in the current period compared to 33% in the first quarter
of fiscal 1999.
Selling, general and administrative expense for the energy
products segment increased slightly from the first quarter of
fiscal 1999, but due to the significant increase in sales it
decreased to 5.3% of sales from 9.5% of sales in the comparable
fiscal 1999 period.
Our new electric arc furnace at our Newport operations
performed at 53% of rated capacity in the fiscal 2000 first
quarter, well below our expectations. We expect its performance
to improve significantly in the second quarter of fiscal 2000.
Capacity utilization was over 61% for the month of January.
The industrial products segment - SBQ products had a gross
loss of $1.0 million and an operating loss of $1.7 million in the
first quarter of fiscal 2000 compared to a gross loss and
operating loss of $0.8 million and $1.8 million, respectively, for
the comparable prior year period. For the first quarter of fiscal
2000, the results reflect a decline in average selling price and
an increase in shipments over the prior year comparable period.
Selling general and administrative expense for the SBQ products
business decreased as a percent of sales from 9.2% in the first
quarter of fiscal 1999 to 6.1% in the current quarter due to the
increase in sales.
The industrial products segment - adhesives products gross
profit decreased $0.1 million and operating income decreased $0.2
million as competitive pricing pressures resulted in lower
margins. Selling, general and administrative expense increased as
a percent of sales to 26.0% compared to 24.9% in the comparable
prior year period.
Investment income decreased $0.3 million from the first
quarter of fiscal 1999 due primarily to a decrease in average
invested cash and investment balances. Interest expense increased
$0.2 million due primarily to the 14 week period in fiscal 2000
compared to a 13 week period in the first quarter of fiscal 1999.
We exhausted our federal income tax refund capability in
fiscal 1999, and as such, tax benefits from any operating losses
are offset by valuation allowances resulting in no net federal tax
benefit being recorded for losses. All recorded amounts for
income taxes in fiscal 2000 represent state and local income
taxes.
As a result of the above factors, we reported a net loss of
$12.9 million, or a $0.60 loss per basic and diluted share, in the
first quarter of fiscal 2000 compared to the first quarter of
fiscal 1999 net loss of $11.8 million, or a $0.52 loss per basic
and diluted share.
Liquidity and Capital Resources
Working capital at January 1, 2000 was $88.4 million compared
to $97.6 million at September 25, 1999. The decline in working
capital was primarily the result of a reduction in short-term
investments which were used primarily to fund operating losses.
The current ratio was 2.4 to 1 at January 1, 2000 compared to 2.7
to 1 at September 25, 1999. At January 1, 2000, we had cash and
investments totaling $74.5 million and had no advances against our
$50 million revolving credit facility.
Net cash flows from operating activities were a net use of
$7.3 million in the first quarter of fiscal 2000. We recorded a
net loss of $12.9 million in the first quarter of fiscal 2000
compared to a net loss of $11.8 million in the comparable fiscal
1999 period. Major sources of cash from operating activities in
the first quarter of fiscal 2000 included $5.8 million in non-cash
depreciation and amortization charges and an $8.6 million increase
in accounts payable due to an increase in business activity. The
major uses of cash in operating activities included an $8.5
million increase in inventories due to the increase in business
activity and a $1.3 million decrease in accrued liabilities
primarily due to payment of accrued costs associated with
environmental liabilities.
Major sources of cash from operating activities in the first
quarter of fiscal 1999 included $6.8 million in non-cash
depreciation and amortization charges; a $7.7 million decrease in
accounts receivable resulting from the decline in business
activity; and a $4.4 million decrease in other current assets
which resulted primarily from the receipt of refundable federal
income taxes. During the fiscal 1999 first quarter, inventories
increased $3.9 million as steel scrap inventories were increased
to take advantage of favorable market prices. Accounts payable
decreased $6.2 million as a result of the decline in business
activity.
We made capital investments totaling $3.0 million in the
first quarter of fiscal 2000, primarily in the energy products
segment. We currently estimate that capital spending for the
remaining nine months of fiscal 2000 will be approximately $13.6
million.
Our fiscal 2000 first quarter financing activities included
the use of $0.5 million to repay notes payable and long-term debt
and the receipt of $0.3 million from the issuance of common stock.
Earnings before net interest expense, taxes, depreciation and
amortization (EBITDA) were a negative $5.3 million in the first
quarter of fiscal 2000 compared to a negative $7.0 million for the
first quarter of fiscal 1999. 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.
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
Total costs associated with the successful completion of our
Year 2000 readiness efforts approximated $3.8 million. Although
we believe we successfully avoided any significant disruptions
from the Year 2000 issue relating to the century rollover, we will
continue to monitor all critical systems for any delayed
complications, problems relating to the leap year and problems
arising from our suppliers, customers, and other third parties.
Other Matters
You should read Note 5 to the notes to condensed consolidated
financial statements for information pertaining to commitments and
contingencies.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
NS GROUP, INC.
Date: April 10, 2000 By: /s/Thomas J. Depenbrock
Thomas J. Depenbrock
Vice President and
Corporate Controller
