SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 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)
530 West Ninth Street, Newport, Kentucky 41071
(Address of principal executive offices)
Registrant's telephone number, including area code (859) 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 22,007,562
(Class) (Outstanding at August 4, 2000)
NS GROUP, INC.
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
Page 2
PART I FINANCIAL INFORMATION
NS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
July 1, June 26, July 1, June 26,
2000 1999 2000 1999
NET SALES
$106,813 $59,582 $293,546 $170,311
COST AND EXPENSES
Cost of products sold
102,939 63,186 292,119 187,285
Selling and administrative
expenses 7,402 6,309 21,879 19,967
Operating income (loss) (3,528) (9,913) (20,452) (36,941)
OTHER INCOME (EXPENSE)
Investment income 581 1,617 2,015 4,832
Interest expense (2,921) (2,884) (8,985) (8,691)
Other, net 1,788 2,636 2,251 2,911
Income (loss) before income
taxes and extraordinary items (4,080) (8,544) (25,171) (37,889)
PROVISION (CREDIT) FOR INCOME
TAXES 37 37 111 (3,268)
Income (loss) before
extraordinary items (4,117) (8,581) (25,282) (34,621)
EXTRAORDINARY ITEMS - - - (3,837)
Net income (loss) $(4,117) $(8,581) $(25,282) $(38,458)
PER COMMON SHARE (BASIC AND
DILUTED)
Income (loss) before
extraordinary items $(.19) $(.40) $(1.17) $(1.58)
Extraordinary items - - - (.17)
Net income (loss) $(.19) $(.40) $(1.17) $(1.75)
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic and diluted 21,632 21,417 21,538 21,995
See accompanying notes to condensed consolidated financial statements.
Page 3
NS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands) (Unaudited)
July 1, September
2000 25, 1999
CURRENT ASSETS
Cash $ 2,121 $ 1,073
Short-term investments 37,091 30,032
Accounts receivable, less
allowance for doubtful
accounts of $903 and
$837, respectively 54,562 40,924
Inventories 66,675 56,659
Other current assets 23,121 26,093
Total current assets 183,570 154,781
PROPERTY, PLANT AND EQUIPMENT 336,583 330,477
Less - accumulated
depreciation (203,789) (187,330)
132,794 143,147
LONG-TERM INVESTMENTS 24,575 54,560
OTHER ASSETS 6,346 7,307
Total assets $347,285 $359,795
CURRENT LIABILITIES
Accounts and notes payable $ 36,885 $ 28,923
Accrued liabilities 32,787 28,087
Current portion of
long-term debt 202 198
Total current
liabilities 69,874 57,208
LONG-TERM DEBT 73,203 72,833
DEFERRED TAXES 8,602 8,602
SHAREHOLDERS' EQUITY
Common stock, no par value 282,418 280,051
Treasury stock (23,644) (23,676)
Common stock options and
warrants 457 896
Accumulated other
comprehensive loss (5,976) (3,784)
Accumulated deficit (57,649) (32,335)
Total shareholders'
equity 195,606 221,152
Total liabilities and
shareholders' equity $347,285 $359,795
See accompanying notes to condensed consolidated financial statements.
Page 4
NS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
For the Nine Months Ended
July 1, June 26,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(25,282) $(38,458)
Adjustments to reconcile net income
(loss) to net cash flows from operating
activities:
Depreciation and amortization 16,872 16,497
Amortization of debt discount and
finance costs 853 971
Decrease in long-term deferred
taxes - (3,371)
Gain on disposal of equipment (72) -
Losses on sales of investments 1,396 292
(Increase) decrease in accounts
receivable, net (13,638) 7,766
(Increase) decrease in
inventories (10,280) 6,321
Decrease in other current assets 2,972 3,728
Increase (decrease) in accounts
payable 8,286 (4,763)
Increase in accrued liabilities 4,770 2,613
Net cash flows from operating
activities (14,123) (8,404)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and
equipment (6,108) (24,609)
Proceeds from sale of equipment 211 -
Net sales of long-term investments 26,303 10,062
(Increase) decrease in other
assets 494 (172)
Net cash flows from investing
activities 20,900 (14,719)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable (394) (216)
Repayments in long-term debt (151) (4,626)
Proceeds from issuance of common
stock 1,875 34
Purchases of treasury stock - (7,683)
Net cash flows from financing
activities 1,330 (12,491)
Net increase (decrease) in cash
and short-term investments 8,107 (35,614)
Cash and short-term investments:
At beginning of period 31,105 66,472
At end of period $39,212 $30,858
Cash paid (received) during the period
for:
Interest $ 5,092 $ 5,260
Income taxes, net of refunds $ 150 $(3,017)
See accompanying notes to condensed consolidated financial statements
Page 5
NS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements include
the accounts of NS Group, Inc. and its wholly-owned
subsidiaries (the Company): Newport Steel Corporation
(Newport), Koppel Steel Corporation (Koppel), Erlanger
Tubular Corporation (Erlanger), Imperial Adhesives Inc.
(Imperial) and Northern Kentucky Management, Inc. All
significant intercompany balances and transactions have been
eliminated.
The accompanying information reflects, in the opinion of
management, all adjustments (which consist 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, as amended, 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 2.5 million shares of the
Company's common stock were not included in the computation
of diluted EPS for the third quarter and nine month periods
of fiscal 2000, respectively, because they were antidilutive.
Noncash Transaction
In the third quarter of fiscal year 2000, warrants
exercisable at a price of $8.00 per share for 272,481 common
shares of the Company were exercised on a cashless basis
resulting in the issuance of 151,125 shares.
Fiscal Year-End
The Company's fiscal year ends on the last Saturday of
September. The first quarter and nine month periods of
fiscal 2000 and 1999 are 14 and 13 week and 27 and 26 week
periods, respectively.
Page 6
Note 2: Comprehensive Income
The Company's other comprehensive income currently
consists solely of unrealized gains and losses on
available-for-sale securities. Comprehensive income was
as follows ($000's):
Three Months Ended Nine Months Ended
July 1, June 26, July 1, June 26,
2000 1999 2000 1999
Net income (loss) $(4,117) $(8,581) $(25,282) $(38,458)
Unrealized (losses)
on available-for-
sale securities (164) (1,150) (2,192) (434)
Comprehensive income
(loss) $(4,281) $(9,731) $(27,474) $(38,892)
Note 3: Other Income, Net
In the third quarter of both fiscal 2000 and fiscal
1999, the Company received claim settlements pertaining to
the Company's purchases of electrodes in the years from 1992
to 1997. The settlements increased Other Income, net by $1.7
million in 2000 and $2.8 million in 1999, or $.08 and $.13
per diluted share, respectively.
Note 4: 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 - SBQ segment consists
of special bar quality (SBQ) products used primarily in the
manufacture of heavy industrial equipment.
The Company's Industrial Products - Adhesives segment
consists of industrial adhesives products used in various
product assembly applications.
Page 7
The following table sets forth selected financial information
by reportable business segment in thousands of dollars.
Net Sales Operating Income (Loss)
Three Months Ended July 1, June 26, July 1, June 26,
2000 1999 2000 1999
Energy Products $81,627 $35,632 $(1,069) $(9,536)
Industrial
Products - SBQ 14,062 12,611 (1,504) (538)
Industrial
Products -
Adhesives 11,124 11,339 796 1,013
Corporate
allocations - - (1,751) (852)
Total $106,813 $59,582 $(3,528) $(9,913)
Net Sales Operating Income (Loss)
Nine Months Ended July 1, June 26, July 1, June 26,
2000 1999 2000 1999
Energy Products $214,439 $95,940 $(12,099) $(33,818)
Industrial
Products - SBQ 45,946 41,420 (5,079) (2,309)
Industrial
Products -
Adhesives 33,161 32,951 1,641 1,900
Corporate
allocations - - (4,915) (2,714)
Total $293,546 $170,311 $(20,452) $(36,941)
Total assets as of July 1, 2000 were $213.1 million for the
Energy Products segment; $43.0 million for the Industrial Products -
SBQ segment; $9.0 million for the Industrial Products - Adhesives
segment and $82.2 million for Corporate.
Note 5: 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 July 1, 2000 and September 25, 1999, inventories consisted of
the following components ($000's):
July 1, September 25,
2000 1999
Raw materials $11,284 $ 9,707
Semi-finished and
finished goods 55,391 46,952
$66,675 $56,659
Page 8
Note 6: 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 the
Company's welded tubular facilities, resulting in the
contamination of a quantity of electric arc furnace dust.
The Company has completed disposal of the dust at a USEPA
approved facility. Documentation of the storage site clean-
up has been submitted to Kentucky regulatory authorities and
the Company is awaiting approval of the clean closure.
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.
Page 9
Capital expenditures for the next twelve months
relating to environmental control facilities are expected to
be approximately $1.7 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.
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 7: 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. All significant intercompany
accounts and transactions between the Subsidiary Guarantors
have been eliminated. Summarized financial information of
the Subsidiary Guarantors, in thousands of dollars, is
presented below.
July 1, September 25,
2000 1999
Current assets $138,179 $115,172
Non-current assets $137,024 $148,858
Current liabilities $ 59,352 $ 50,357
Payable to parent $215,652 $192,090
Other non-current liabilities 1,029 1,184
Total non-current liabilities $216,681 $193,274
Three Months Ended Nine Months Ended
July 1, June 26, July 1, June 26,
2000 1999 2000 1999
Net sales $106,813 $59,582 $293,546 $170,311
Gross profit (loss) $ 3,874 $(3,604) $ 1,427 $(16,974)
Income (loss) before
extraordinary items $ (5,058) $(7,557) $(27,450) $(37,784)
Net income (loss) $ (5,058) $(7,557) $(27,450) $(41,184)
Page 10
NS GROUP, INC.
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.
Page 11
General Overview
We conduct our business within three business segments:
- Energy Products
- Industrial Products - SBQ
- Industrial Products - Adhesives
Our Energy Products segment includes 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
and natural gas. Further, we produce a limited amount of
other tubular products and hot rolled coils.
Our Industrial Products - SBQ segment, includes
products used in a variety of industrial applications such
as farm equipment, heavy machinery, construction and off-
road vehicles.
Our Industrial Products - Adhesives segment includes
adhesives products used in a variety of industrial product
assembly applications and footwear finishes.
You should read Note 4 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
half 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 848 in the third quarter of fiscal 2000 and
was 797 for the first nine months of fiscal 2000, compared
to 522 and 589, respectively, for the comparable prior
fiscal year periods. Market conditions have continued to
improve as rig count has increased to 981 as of August 4,
2000. As a result, we will realize improved pricing and
expect a return to profitability in the fourth quarter of
fiscal 2000.
Page 12
The Company's net sales, gross profit (loss), operating
income (loss) and tons shipped by business segment for the
three and nine month periods ended July 1, 2000
and June 26, 1999 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 nine month
comparative periods, as discussed below, were partially
attributable to the additional week of operations in the
first quarter of fiscal 2000.
(Dollars in thousands)
Three Months Ended Nine Months Ended
July 1, June 26, July 1, June 26,
2000 1999 2000 1999
Net sales
Energy Products $81,627 $35,632 $214,439 $ 95,940
Industrial Products
- SBQ 14,062 12,611 45,946 41,420
Industrial Products
- Adhesives 11,124 11,339 33,161 32,951
$106,813 $59,582 $293,546 $170,311
Gross profit (loss)
Energy Products $ 1,828 $(7,146) $ (4,312) $(26,621)
Industrial Products
- SBQ (999) 245 (3,279) 286
Industrial Products
- Adhesives 3,045 3,297 9,018 9,361
$ 3,874 $(3,604) $ 1,427 $(16,974)
Operating income (loss)
Energy Products $ (1,069) $(9,536) $(12,099) $(33,818)
Industrial Products
- SBQ (1,504) (538) (5,079) (2,309)
Industrial Products
- Adhesives 796 1,013 1,641 1,900
(1,777) (9,061) (15,537) (34,227)
Corporate
allocations (1,751) (852) (4,915) (2,714)
$(3,528) $(9,913) $(20,452) $(36,941)
Tons shipped
Energy Products:
Welded tubular
products 110,200 66,100 316,200 155,800
Seamless
tubular products 41,700 15,400 111,600 44,800
Other 700 2,600 1,700 5,800
152,600 84,100 429,500 206,400
Industrial Products
- SBQ 33,900 31,400 112,600 97,800
186,500 115,500 542,100 304,200
Page 13
Net sales in the third quarter of fiscal 2000 were
$106.8 million, an increase of 79.3% from the third quarter
of fiscal 1999. For the fiscal 2000 nine month period, net
sales were $293.5 million, a 72.4% increase over the
comparable prior year period. Virtually all of the increase
was attributable to our energy products segment.
We reported a loss before extraordinary items of $4.1
million, or a $.19 loss per basic and diluted share, in the
third quarter of fiscal 2000 compared to the third quarter
of fiscal 1999 loss before extraordinary items of $8.6
million, or a $.40 loss per basic and diluted share. For
the current nine month period, we reported a loss before
extraordinary items of $25.3 million, or a $1.17 loss per
basic and diluted share, compared to a loss before
extraordinary items of $34.6 million, or a $1.58 loss per
basic and diluted share, for the first nine months of fiscal
1999.
ENERGY PRODUCTS
Energy Products segment sales were $81.6 million and
$214.4 million in the three and nine month periods of fiscal
2000, an increase of 129.1% and 123.5%, respectively, from
the comparable periods of fiscal 1999. Third quarter
shipments of energy products were 152,600 tons, an increase
of 81.5% from the comparable prior year period. For the
nine months, energy product shipments were 429,500 tons, an
increase of 108.1%. The increase was substantially the
result of an increase in shipments of our OCTG products as
rig count increased significantly over the prior year
periods. The average selling price for our welded and
seamless tubular products was $440 and $780 per ton,
respectively, in the fiscal 2000 third quarter. This is an
increase of 22.6% for welded products, and an 8.8% increase
for seamless product, from the comparable quarter of a year
ago and an increase of 5.8% and 6.4% from the second quarter
of fiscal 2000. We believe there will be continued strength
in the energy markets and expect fiscal 2000 fourth quarter
selling prices to improve further over the third quarter 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. companies.
The U.S. government is currently conducting "sunset reviews"
of the duties to determine whether such orders should be
revoked. These reviews are expected to be completed by July
2001.
In response to petitions filed with the U.S. government
by us and certain other line pipe producers, import relief
was granted to the line pipe industry effective March 1,
2000. This relief is in the form of tariffs applied for
three years to certain imports of line pipe from countries
other than Canada and Mexico.
While the above mentioned actions have benefited
domestic OCTG and line pipe producers, we cannot predict the
U.S. government's future actions regarding these duties and
tariffs or any other future actions regarding import duties
or other trade restrictions on imports of OCTG and line pipe
products.
Page 14
The Energy Products segment recorded a gross profit of
$1.8 million and an operating loss of $1.1 million in the
third quarter of fiscal 2000 compared to a gross loss and
operating loss of $7.1 million and $9.5 million,
respectively, in the third quarter of fiscal 1999. For the
fiscal 2000 nine month period, the Energy Products segment
recorded a gross loss and operating loss of $4.3 million and
$12.1 million, respectively, compared to a gross loss and
operating loss of $26.6 million and $33.8 million,
respectively, for the prior year period. The reduction in
losses from the prior year periods was the result of a
significant increase in shipments, improved operating
efficiencies resulting from an increase in production levels
and, particularly, for the third quarter comparative period,
improved pricing for welded and seamless tubular products.
In addition, the prior fiscal year nine month results were
negatively affected by a six week shut-down for installation
of our new electric arc furnace at our welded tubular
operations during the second quarter of fiscal 1999.
Selling, general and administrative expense for the
Energy Products segment in the fiscal 2000 third quarter
increased $0.5 million from the third quarter of fiscal
1999, but due to the significant increase in sales, it
decreased to 3.6% of sales from 6.7% of sales in the
comparable fiscal 1999 periods.
INDUSTRIAL PRODUCTS - SBQ
Industrial Products - SBQ segment product sales were
$14.1 million and $45.9 million in the three and nine
month periods of fiscal 2000, an increase of 11.5% and
10.9%, respectively, from the comparable periods of fiscal
1999. Third quarter and nine month SBQ product shipments
increased 8.0% and 15.1%, respectively, from the comparable
prior year periods. The average selling price for SBQ
products was $415 per ton in the third quarter and $408 per
ton for the nine month period, an increase of 3.2% and a
decrease of 3.8%, respectively, from the comparable
periods of a year ago.
Industrial Products - SBQ segment products recorded a
gross loss of $1.0 million and an operating loss of $1.5
million in the third quarter of fiscal 2000 compared to a
gross profit of $0.2 million and an operating loss of $0.5
million, respectively, in the third quarter of fiscal 1999.
For the fiscal 2000 nine month period, the gross loss and
operating loss were $3.3 million and $5.1 million,
respectively, compared to a gross profit of $0.3 million and
an operating loss of $2.3 million for the prior year
periods. Although SBQ shipments increased for both
comparative periods, increases in comparative period selling
prices were not sufficient to offset increases in steel
scrap raw material costs and other operating costs,
resulting in a decline in gross profit and operating income.
Page 15
INDUSTRIAL PRODUCTS - ADHESIVES
Industrial Products - Adhesives segment product sales
were $11.1 million and $33.2 million for the respective three
and nine month periods, virtually unchanged from the comparable
prior year periods.
Gross profit was $3.0 million and $9.0 million,
respectively, for the three and nine month comparative
periods, virtually unchanged from the comparable fiscal 1999
periods. Fiscal 2000 third quarter and nine month operating
income decreased $0.2 million and $0.3 million,
respectively, from the comparable prior year periods.
INVESTMENT INCOME
Fiscal 2000 third quarter and nine month investment
income decreased $1.0 million and $2.8 million,respectively,
from the comparable prior year periods due to a decrease in
average invested cash and investment balances and realized
losses on available-for-sale securities.
INCOME TAXES
We exhausted our federal income tax refund capability
in fiscal 1999, and as such, tax benefits from 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.
EXTRAORDINARY ITEMS
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 expensed 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.
Liquidity And Capital Resources
Working capital at July 1, 2000 was $113.7 million
compared to $97.6 million at September 25, 1999. The
current ratio was 2.6 to 1 at July 1, 2000 compared to 2.7
to 1 at September 25, 1999. At July 1, 2000, we had cash
and investments totaling $63.8 million and had no advances
against our $50 million revolving credit facility.
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Net cash flows from operating activities were a net use
of $14.1 million in the first nine months of fiscal 2000.
We recorded a net loss of $25.3 million in the first nine
months of fiscal 2000 compared to a net loss of $38.5
million in the comparable fiscal 1999 period. Major sources
of cash from operating activities in the first nine months
of fiscal 2000 included $17.7 million in non-cash
depreciation and amortization charges and an $8.3 million
increase in accounts payable due to an increase in business
activity. The major uses of cash in operating activities
included a $13.6 million and a $10.3 million increase in
accounts receivable and inventories, respectively, due to
the increase in business activity and a $4.8 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 nine months of fiscal 1999 included $17.5 million in
non-cash depreciation and amortization charges; a
$7.8 million and $6.3 million decrease in accounts
receivable and inventory, respectively, resulting from the
decline in business activity; and a $3.7 million decrease in
other current assets which resulted primarily from the
receipt of refundable federal income taxes. Accrued
liabilities increased $2.6 million, in part, due to an
increase in costs associated with environmental liabilities.
Accounts payable decreased $4.8 million primarily as a
result of the decline in business activity.
We made capital investments totaling $6.1 million in
the first nine months of fiscal 2000, primarily in the
Energy Products segment. We currently estimate that capital
spending for the remaining three months of fiscal 2000 will
be approximately $2.5 million.
Our fiscal 2000 nine month financing activities
included the use of $0.5 million to repay notes payable and
long-term debt and the receipt of $1.9 million from the
issuance of common stock through company stock option plans
and warrants.
Earnings before net interest expense, taxes,
depreciation and amortization (EBITDA) were $3.8 million and
a negative $1.3 million in the third quarter and first
nine months of fiscal 2000, respectively, compared to a
negative $1.9 million and a negative $17.5 million in the
comparable periods 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.
Page 17
OTHER MATTERS
You should read Note 6 to the notes to condensed
consolidated financial statements for information pertaining
to commitments and contingencies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Our long-term investments and long-term debt, all of
which are for other than trading purposes, are subject to
interest rate risk. 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.
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PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits - Reference is made to the Index to Exhibits,
which is incorporated herein by reference.
b) Reports on Form 8-K
Current Report on Form 8-K dated April 24,
2000 reporting under Item 5 the election of
three directors of the Company effective
April 20, 2000.
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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: August 11, 2000 By:/s/ Rene J. Robichaud
Rene J. Robichaud
President and Chief
Executive Officer
Date: August 11, 2000 By:/s/ Thomas J. Depenbrock
Thomas J. Depenbrock
Vice President, Treasurer and
Chief Financial Officer
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INDEX TO EXHIBITS
Number Description
3.1 Amended and Restated Articles of
Incorporation of Registrant, filed as Exhibit 3.1
to Amendment No. 1 to Registrant's Form S-1 dated
January 17, 1995, File No. 33-56637, and
incorporated herein by this reference.
3.2 Amended and Restated By-Laws of Registrant, dated
November 4, 1999, filed as Exhibit 3.2 to Company's
Form 10-Q for the fiscal quarter ended January 1,
2000, File No. 1-9838, and incorporated herein
by this reference.
10.1 Employment Agreement between the Company and William W.
Beible, Jr., dated May 8, 2000 filed herewith.*
10.2 Change of Control Severance Agreement between the
Company and William W. Beible, Jr., dated May 8, 2000
filed herewith.*
10.3 Salary Continuation Agreement between the Company and
William W. Beible, Jr., dated May 8, 2000 filed herewith.*
10.4 Company's 2000 Non-Employee Director Stock Option Plan
filed herewith.*
27 Financial Data Schedule
*Indicates management contract or compensatory plan or arrangement in which
one or more directors or executive officers of the Company participates or
is a party.
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