16
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 April 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 21,532,779
(Class) (Outstanding at May 1, 2000)
NS GROUP, INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated FinancialStatements 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 17
PART II OTHER INFORMATION
Item 4 -
Submission of Matters to a Vote of Security
Holders 18
Item 6 -
Exhibits and Reports on Form 8-K 18
NS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED
APRIL 1, 2000 AND MARCH 27, 1999
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
NET SALES
COST AND EXPENSES $100,107 $56,460 $186,733 $110,729
Cost of products sold
98,268 63,149 189,180 124,099
Selling and administrative
expenses 7,456 6,826 14,477 13,658
Operating income (loss) (5,617) (13,515) (16,924) (27,028)
OTHER INCOME (EXPENSE)
Investment income 62 1,500 1,434 3,215
Interest expense (2,926) (2,884) (6,064) (5,807)
Other, net 287 115 463 275
Income (loss) before income
taxes and extraordinary items (8,194) (14,784) (21,091) (29,345)
PROVISION (CREDIT) FOR INCOME
TAXES 37 (126) 74 (3,305)
Income (loss) before
extraordinary items (8,231) (14,658) (21,165) (26,040)
EXTRAORDINARY ITEMS - (3,400) - (3,837)
Net income (loss) $(8,231) $(18,058) $(21,165) $(29,877)
PER COMMON SHARE (BASIC AND DILUTED)
Income (loss) before
extraordinary items $(.38) $(.67) $(.98) $(1.17)
Extraordinary items - (.16) - (.17)
Net income (loss) $(.38) $(.83) $(.98) $(1.34)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic and diluted 21,515 21,832 21,504 22,271
The accompanying notes tocondensed consolidated financial
statements are an integral part of these statements.
NS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF APRIL 1, 2000 AND SEPTEMBER 25, 1999
(Dollars in thousands) (Unaudited)
April 1, September 25,
2000 1999
CURRENT ASSETS
Cash $2,310 $1,073
Short-term investments 16,135 30,032
Accounts receivable, less
allowance for doubtful
accounts of $846 and
$837, respectively 54,940 40,924
Inventories 67,210 56,659
Other current assets 25,901 26,093
Total current assets 166,496 154,781
PROPERTY, PLANT AND EQUIPMENT 335,467 330,477
Less - accumulated
depreciation (198,382) (187,330)
137,085 143,147
LONG-TERM INVESTMENTS 36,058 54,560
OTHER ASSETS 6,507 7,307
Total assets $346,146 $359,795
CURRENT LIABILITIES
Accounts and notes
payable $ 41,085 $ 28,923
Accrued liabilities 24,765 28,087
Current portion of
long-term debt 202 198
Total current
liabilities 66,052 57,208
LONG-TERM DEBT 73,073 72,833
DEFERRED TAXES 8,602 8,602
COMMON SHAREHOLDERS' EQUITY
Common stock, no par value 280,491 280,051
Treasury stock (23,676) (23,676)
Common stock options and
warrants 916 896
Accumulated other
comprehensive income (loss) (5,812) (3,784)
Accumulated earnings
(deficit) (53,500) (32,335)
Total common
shareholders' equity 198,419 221,152
Total liabilities
and shareholders'equity $346,146 $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 SIX MONTH PERIODS ENDED
APRIL 1, 2000 AND MARCH 27, 1999
(Dollars in thousands) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES April 1, March 27,
2000 1999
Net income (loss) $(21,165) $(29,877)
Adjustments to reconcile net income
(loss) to net cash flows from operating
activities:
Depreciation and amortization 11,354 11,144
Amortization of debt discount
and finance costs 579 736
Decrease in long-term deferred
taxes - (3,371)
(Gain) loss on disposal of
equipment (72) -
Loss on sales of investments 1,082 283
(Increase) decrease in accounts
receivable, net (14,016) 6,397
(Increase) decrease in
inventories (10,551) 4,700
Decrease in other current assets 192 3,210
Increase (decrease) in accounts
payable 12,556 (5,881)
Increase (decrease) in accrued
liabilities (3,322) 2,359
Net cash flows from operating
activities (23,363) (10,300)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchases of property, plant and
equipment, net (5,256) (21,290)
Proceeds from sale of equipment 211 -
Net (purchases) sales of long-term
investments 15,326 (690)
(Increase) decrease in other
assets 489 (144)
Net cash flows from financing
activities 10,770 (22,124)
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in notes payable (394) (162)
Repayments on long-term debt (113) (4,577)
Proceeds from issuance of common
stock 440 32
Purchases of treasury stock - (7,683)
Net cash flows from investing
activities (67) (12,390)
Net decrease in cash and short-
term investments (12,660) (44,814)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF YEAR 31,105 66,472
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $18,445 21,658
Cash paid during the period for:
Interest $5,078 $ 5,241
Income taxes, net of refunds $ 114 $(3,062)
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
NS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLDIATED 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 2.3 million shares of the
Company's common stock were not included in the computation
of diluted EPS for the second quarter and six month periods
of fiscal 2000, respectively, because they were antidilutive.
Fiscal Year-End
The Company's fiscal year ends on the last Saturday of
September. The first quarter and six month periods of fiscal
2000 and 1999 are 14 and 13 week and 27 and 26 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 Six Months Ended
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
Net income (loss) $ (8,231) $(18,058) $(21,165) $(29,877)
Unrealized gains
(losses) on available
for sale securities (1,234) 160 (2,028) 716
Comprehensive income
(loss) $ (9,465) $(17,898) $(23,193) $(29,161)
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 following table sets forth selected financial information
by reportable business segment (in thousands).
Operating Income
Net Sales (Loss)
Three Months Ended April 1, March 27, April 1, March 27,
2000 1999 2000 1999
Energy products segment $71,909 $30,104 $(2,277) $(12,940)
Industrial products
segment - SBQ 17,445 15,774 (1,845) 49
Industrial products
segment - Adhesives 10,753 10,582 550 368
Corporate allocations - - (2,045) (992)
Total consolidated $100,107 $56,460 $(5,617) $(13,515)
Operating Income
Net Sales (Loss)
Six Months Ended April 1, March 27, April 1, March 27,
2000 1999 2000 1999
Energy products segment $132,812 $ 60,308 $(11,030) $(24,282)
Industrial products
segment - SBQ 31,884 28,809 (3,575) (1,771)
Industrial products
segment - Adhesives 22,037 21,612 845 887
Corporate allocations - - (3,164) (1,862)
Total consolidated $186,733 $110,729 $(16,924) $(27,028)
Total assets as of April 1, 2000 were $222.6 million for the
energy products segment;$39.2 million for the industrial products
segment - SBQ; $14.7 million for the industrial products segment
- - adhesives and $69.6 million for corporate.
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 April 1, 2000 and September 25, 1999, inventories
consisted of the following components ($000's):
April 1, September 25,
2 0 0 0 1 9 9 9
Raw materials $11,915 $ 9,707
Semi-finished and
finished goods 55,295 46,952
$67,210 $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 the
Company's 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 $0.5 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 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.
April 1, September 25,
2 0 0 0 1 9 9 9
(Dollars in thousands)
Current assets $139,811 $115,172
Non-current assets 141,419 148,858
Current liabilities 58,398 50,357
Payable to parent $219,121 $192,090
Other non-current
liabilities 1,067 1,184
Total non-current
liabilities $220,188 $193,274
Three Months Ended Six Months Ended
April 1, March 27, April 1, March 27,
2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9
(Dollars in thousands)
Net sales $100,107 $ 56,460 $186,733 $110,729
Gross profit
(loss) $ 1,839 $ (6,689) $ (2,447) $(13,370)
Income (loss)
before
extraordinary
items $ (7,983) $(15,778) $(22,392) $(27,907)
Net income
(loss) $ (7,983) $(19,178) $(22,392) $(31,307)
NS GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERTIONS
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 and natural
gas. 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
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 770 in the second quarter of fiscal 2000 and
was 771 for the first six months of fiscal 2000, compared to
554 and 623, respectively, for the comparable prior year
periods. The increased drilling activity has also had a
positive impact on the excessive industry-wide tubular
inventory levels which developed during fiscal 1999. While
market conditions have improved and remain positive, we
incurred operating losses in the second quarter and first
half of fiscal 2000 due to a slow recovery in pricing for
OCTG products and operating inefficiencies related to our
new electric arc furnace in the first fiscal quarter.
However, 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 and six month periods ended April 1, 2000 and
March 27, 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 six month comparative periods,
as discussed below, were partially attributable to the
additional week of operations in the first quarter of fiscal
2000.
Three Months Ended Six Months Ended
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
Net sales
Energy products segment $71,909 $ 30,104 $132,812 $60,308
Industrial products
segment - SBQ 17,445 15,774 31,884 28,809
Industrial products
segment - Adhesives 10,753 10,582 22,037 21,612
$100,107 $ 56,460 $186,733 $110,729
Gross profit (loss)
Energy products segment $ 137 $(10,463) $ (6,140) $(19,475)
Industrial products
segment - SBQ (1,239) 886 (2,280) 41
Industrial products
segment - Adhesives 2,941 2,888 5,973 6,064
$ 1,839 $ (6,689) $ (2,447) $(13,370)
Operating income (loss)
Energy products segment $ (2,277) $(12,940) $(11,030) $(24,282)
Industrial products
segment - SBQ (1,845) 49 (3,575) (1,771)
Industrial products
segment - Adhesives 550 368 845 887
(3,572) (12,523) (13,760) (25,166)
Corporate allocations (2,045) (992) (3,164) (1,862)
$(5,617) (13,515) $(16,924) $(27,028)
Tons shipped
Energy products segment:
Welded tubular products 105,700 45,600 206,000 89,700
Seamless tubular products 37,500 16,100 69,900 29,400
Other 600 2,100 1,000 3,200
143,800 63,800 276,900 122,300
Industrial products
segment - SBQ 42,400 36,900 78,700 66,400
186,200 100,700 355,600 188,700
Net sales in the second quarter of fiscal 2000 were
$100.1 million, an increase of 77.3% from the second quarter
of fiscal 1999. For the fiscal 2000 six month period, net
sales were $186.7 million, a 68.6% increase over the
comparable prior year period. Virtually all of the increase
was attributable to our energy products segment.
Energy product segment sales were $71.9 million and
$132.8 million in the three and six month periods of fiscal
2000, an increase of 138.9% and 120.2%, respectively, from
the comparable periods of fiscal 1999. Second quarter
shipments of energy products were 143,800 tons, an increase
of 125.4% from the comparable prior year period. For the
six months, energy product shipments were 276,900 tons, an
increase of 126.4%. 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 $416 and $733 per ton,
respectively, in the fiscal 2000 second quarter. This is an
increase of 7.5% for welded products, and virtually
unchanged for seamless product, from the comparable quarter
of a year ago. We believe there will be continued strength
in the energy markets and expect selling prices to improve
further 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. 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 August 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 to
certain imports of line pipe from countries other than
Canada and Mexico for three years.
While the above mentioned actions have reduced such
imports, thereby benefiting domestic OCTG and line pipe
procedures, 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.
Industrial products segment - SBQ product sales were
$17.4 million and $31.9 million in the three and six month
periods of fiscal 2000, an increase of 10.6% and 10.7%,
respectively, from the comparable periods of fiscal 1999.
Second quarter and six month SBQ product shipments increased
14.9% and 18.5%, respectively, from the comparable prior
year periods. The average selling price for SBQ products
was $411 per ton in the second quarter and $405 per ton for
the six month period, a decrease of 4.0% and 6.7%,
respectively, from the comparable periods of a year ago.
The decrease in selling price was primarily due to current
competitive marketplace conditions for SBQ products.
Industrial products segment - Adhesives product sales
were $10.8 million and $22.0 million for the respective
three and six month periods, virtually unchanged from the
comparable prior year periods.
The energy products segment recorded a gross profit of
$0.1 million and an operating loss of $2.3 million in the
second quarter of fiscal 2000 compared to a gross loss and
operating loss of $10.5 million and $12.9 million,
respectively, in the second quarter of fiscal 1999. For the
fiscal 2000 six month period, the energy products segment
recorded a gross loss and operating loss of $6.1 million and
$11.0 million, respectively, compared to a gross loss and
operating loss of $19.5 million and $24.3 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, for the second quarter comparative period, improved
pricing for welded tubular products. In addition, the prior
fiscal year second quarter results were negatively affected
by a six week shut-down for installation of our new electric
arc furnace at our Newport operations.
The new electric arc furnace operated at 53% of its
expected performance level in the first quarter of fiscal
2000, well below our expectations. However, operating
performance improved to 65% in the second fiscal
quarter of 2000. We expect further performance improvement
in the second half of calendar 2000.
Selling, general and administrative expense for the
energy products segment in the fiscal 2000 second quarter
was virtually unchanged from the second quarter of fiscal
1999, but due to the significant increase in sales, it
decreased to 3.4% of sales from 8.2% of sales in the
comparable fiscal 1999 period.
The industrial products segment - SBQ products recorded
a gross loss of $1.2 million and an operating loss of $1.8
million in the second quarter of fiscal 2000 compared to a
gross profit and operating income of $0.9 million and $49
thousand, respectively, in the second quarter of fiscal
1999. For the fiscal 2000 six month period, the gross loss
and operating loss was $2.3 million and $3.6 million,
respectively, compared to a gross profit of $41 thousand and
an operating loss of $1.8 million for the prior year period.
Although SBQ shipments increased for both comparative
periods, a decline in comparative period selling prices,
together with an increase in steel scrap raw material costs,
resulted in a decline in gross profit and operating income.
The industrial products segment - Adhesives gross
profit was $2.9 million and $6.0 million, respectively, for
the three and six month comparative periods, virtually
unchanged from the comparable fiscal 1999 periods. Fiscal
2000 second quarter operating income increased $0.2 million
to $0.6 million from the second quarter of fiscal 2000 as a
result of lower selling, general and administrative expenses
due primarily to a decrease in sales personnel and a decline
in information technology related expenses.
Fiscal 2000 second quarter and six month investment
income decreased $1.4 million and $1.8 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 sales securities.
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.
As a result of the above factors, we reported a loss
before extraordinary items of $8.2 million, or a $0.38 loss
per basic and diluted share, in the second quarter of fiscal
2000 compared to the second quarter of fiscal 1999 loss
before extraordinary items of $14.7 million, or a $0.67 loss
per basic and diluted share. For the current six month
period, we reported a loss before extraordinary items of
$21.2 million, or a $0.98 loss per basic and diluted share,
compared to a loss before extraordinary items of $26.0
million, or a $1.17 loss per basic and diluted share, for
the first six months of fiscal 1999.
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.
Liquidity and Capital Resources
Working capital at April 1, 2000 was $100.4 million
compared to $97.6 million at September 25, 1999. The
current ratio was 2.5 to 1 at April 1, 2000 compared to 2.7
to 1 at September 25, 1999. At April 1, 2000, we had cash
and investments totaling $54.5 million and had no advances
against our $50 million revolving credit facility.
Net cash flows from operating activities were a net use
of $23.4 million in the first six months of fiscal 2000. We
recorded a net loss of $21.2 million in the first six months
of fiscal 2000 compared to a net loss of $29.9 million in
the comparable fiscal 1999 period. Major sources of cash
from operating activities in the first six months of fiscal
2000 included $11.4 million in non-cash depreciation and
amortization charges and a $12.6 million increase in
accounts payable due to an increase in business activity.
The major uses of cash in operating activities included a
$14.0 million and a $10.6 million increase in accounts
receivable and inventories due to the increase in business
activity and a $3.3 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 six months of fiscal 1999 included $11.1 million in
non-cash depreciation and amortization charges; a $6.4
million and $4.7 million decrease in accounts receivable and
inventory, respectively, resulting from the decline in
business activity; and a $3.2 million decrease in other
current assets which resulted primarily from the receipt of
refundable federal income taxes. Accrued liabilities
increased $2.5 million, in part, due to an increase in costs
associated with environmental liabilities. Accounts payable
decreased $5.9 million primarily as a result of the decline
in business activity.
We made capital investments totaling $5.3 million in
the first six months of fiscal 2000, primarily in the energy
products segment. We currently estimate that capital
spending for the remaining six months of fiscal 2000 will be
approximately $4.3 million.
Our fiscal 2000 six month financing activities included
the use of $0.4 million to repay notes payable and long-term
debt and the receipt of $0.4 million from the issuance of
common stock.
Earnings before net interest expense, taxes,
depreciation and amortization (EBITDA) were $0.2 million and
a negative $5.1 million in the second quarter and first six
months of fiscal 2000, respectively, compared to a negative
$8.6 million and a negative $15.6 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.
Other Matters
You should read Note 5 to the notes to condensed
consolidated financial statements for information pertaining
to commitments and contingencies.
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.
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security
Holders
The annual meeting of shareholders was held on February
10, 2000. In connection with the meeting, proxies were solicited
pursuant to the Securities Exchange Act of 1934. The following are
the voting results on proposals considered and voted upon at
the meeting, all of which were described in the proxy
statement.
1. All nominees for director were elected. The vote was
as follows:
For Against
Clifford R. Borland 18,077,096 459,537
Paul C. Borland, Jr. 18,075,321 461,312
Patrick J.B. Donnelly 18,169,196 367,437
John B. Lally 18,076,996 459,637
R. Glen Mayfield 18,169,016 367,617
Ronald R. Noel 18,075,696 460,937
Rene J. Robichaud 18,114,051 422,582
2. The proposal to ratify the Board of Directors'
appointment of Arthur Andersen LLP as the Company's
independent public accountants for its fiscal year
ending September 30, 2000 was approved (For, 18,419,223;
Against, 100,990; Abstain, 16,420).
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 February 3,
2000 reporting under Item 5 the appointment
of Rene J. Robichaud as chief executive
officer.
Current Report on Form 8-K dated March 14,
2000 reporting under Item 5 the retirement of
Ronald R. Noel as an officer and director.
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: May 5, 2000 By: /s/ Rene J. Robichaud
Rene J. Robichaud
President and Chief
Executive Officer
Date: May 5, 2000 By: /s/ Thomas J. Depenbrock
Thomas J. Depenbrock
Vice President, Treasurer and
Chief Financial Officer
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 Consulting Agreement between the Company and Ronald R.
Noel, 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.
Exhibit 10.1
Consulting Agreement
THIS AGREEMENT, is made this ____day of March, 2000,
("Agreement"), by and between NS GROUP, INC. ("Company") and
RONALD R. NOEL ("Consultant").
WHEREAS, Consultant has been employed by the Company as
Vice President and as President of Newport Steel Corporation
("Newport"); and
WHEREAS, Consultant is retiring as an officer of the
Company, and as President and an employee of Newport,
effective March 31, 2000; and
WHEREAS, the Company has requested that Consultant remain
available in an advisory capacity after his retirement from
active employment;
NOW, THEREFORE, in consideration of the mutual promises
herein contained, the parties agree as follows:
1. Consultant will be retained by the Company,
effective April 1, 2000, to advise the Company and/or
Newport, as requested by the Company, for a term of twelve
(12) months.
2. Consultant will receive a consulting fee of
$1,500.00 per day for each day that he provides such services,
plus reasonable expenses incurred by Consultant, payable on
the last business day of each month. Consultant will be
available as needed, but will provide such services no more
than fifteen (15) days per month, without his prior agreement
to work a greater number of days. A day in which Consultant
spends four (4) hours or less in performing such service will
count as one-half day and a day in which he spends more that
four (4) hours, but no more than eight (8) hours, will count
as a full day. If Consultant works more that eight (8) hours
in a day, the excess hours will be credited toward another day
of service.
3. In performing such service, Consultant will act as
an independent contractor and will not be an employee of the
Company or Newport. He will report on a regular basis and
when requested to the President and Chief Executive Officer of
the Company, or to another officer as directed by the
President and Chief Executive Officer.
4. Any notice given pursuant to this Agreement is to be
sent via first-class mail or fax as follows:
To the Company: Mr. Rene J. Robichaud
Fax: (606) 292-6825
President and C.E.O.
NS Group, Inc.
530 W. Ninth Street
Newport, Kentucky 51071
To the Consultant: Mr. Ronald R. Noel
10741 Omaha Trace
Union, Kentucky 41091
4. This Agreement will be binding upon and inure to the
benefit of the parties and shall not be assigned by either
party without the prior written consent of the other party.
5. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky.
6. This Agreement contains the entire agreement between
the parties with respect to this matter and supersedes any
previous understandings or agreements, written or oral,
regarding such consulting services.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed individually and by a duly authorized
representative as of the date first set forth above.
NS GROUP, INC.
By: /s/Rene J. Robichaud
Rene J. Robichaud
President and C.E.O.
CONSULTANT
/s/Ronald R. Noel
Ronald R. Noel
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from NS Group, Inc.'s
condensed consolidated financial statements as of and for the six month period
ended January 1, 2000, included in the Company's Quarterly Report on Form 10-Q
and is qualified in its entirety by reference to such condensed consolidated
financial statements.
</LEGEND>
<CIK> 0000745026
<NAME> NS GROUP, INC.
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<PERIOD-END> APR-01-2000
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<ALLOWANCES> 846
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0
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