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 84%, 72% and 80% of total sales in fiscal years 2000,
1999 and 1998, respectively. 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.
While domestic producers have generally been successful in
achieving a certain level of relief from certain foreign
countries through the presence of antidumping duty orders,
we cannot predict what actions, if any, the U.S. government
may take concerning trade restrictions on imports of OCTG
and line pipe products in the future. As such, 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.
WE DEPEND ON A FEW CUSTOMERS FOR A SIGNIFICANT PORTION OF
OUR NET SALES OF OIL COUNTRY TUBULAR GOODS AND A LOSS OF ONE
OR MORE SIGNIFICANT CUSTOMERS COULD AFFECT OUR ABILITY TO
SELL OUR PRODUCTS.
In fiscal 2000, seven customers accounted for
approximately 50% of total sales. The loss of any of these
customers could have a material adverse effect on our
business, financial condition and results of operations.
MANAGEMENT CAN EXERCISE SIGNIFICANT INFLUENCE OVER WHO IS
ELECTED TO THE BOARD OF DIRECTORS.
Two of our seven directors are executive officers of NS
Group. Executive officers and directors of NS Group, as a
group, beneficially own 16.0% of the common stock of NS
Group as of November 2000. 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 EXPOSES 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.
