-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V1Sj1aM5jACV+EryG5pTXwk57I9rUjZry/rPxsApQDqyDiavtjmJRujwI8fVlBXQ KKtJYeZOEt+KeKy+oLsZHA== 0000745026-95-000026.txt : 19951222 0000745026-95-000026.hdr.sgml : 19951222 ACCESSION NUMBER: 0000745026-95-000026 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951221 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NS GROUP INC CENTRAL INDEX KEY: 0000745026 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 610985936 STATE OF INCORPORATION: KY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09838 FILM NUMBER: 95603522 BUSINESS ADDRESS: STREET 1: NINTH & LOWELL STS CITY: NEWPORT STATE: KY ZIP: 41072 BUSINESS PHONE: 6062926809 MAIL ADDRESS: STREET 1: PO BOX 1670 CITY: NEWPORT STATE: KY ZIP: 41072 FORMER COMPANY: FORMER CONFORMED NAME: NEWPORT STEEL CORP/KY DATE OF NAME CHANGE: 19870514 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE x SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1995 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 and Lowell Streets, Newport, Kentucky 41072 (Address of principal executive offices) Registrant's telephone number, including area code (606) 292-6809 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, no par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] [Cover page 1 of 2 pages] Based on the closing sales price of December 1, 1995, as reported in The Wall Street Journal, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $22.0 million. The number of shares outstanding of the registrant's Common Stock, no par value, was 13,809,413 at December 1, 1995. DOCUMENTS INCORPORATED BY REFERENCE Parts I, II and III incorporate certain information by reference from the Annual Report to Shareholders for the fiscal year ended September 30, 1995 ("1995 Annual Report To Shareholders"). Part III also incorporates certain information by reference from the Company's Proxy Statement dated December 27, 1995 for the Annual Meeting of Shareholders on February 15, 1996. [Cover page 2 of 2 pages] PART I ITEM 1. BUSINESS General The Company was incorporated in Kentucky in 1980 as Newport Steel Corporation for the purpose of purchasing the operating assets of the Newport Steel Works from Interlake, Inc. (Interlake). The Company changed its name to NS Group, Inc. in 1987 and transferred its tubular manufacturing operations to a subsidiary renamed Newport Steel Corporation. As used herein, the terms "Company" and "NS Group" refer to NS Group, Inc. and its subsidiaries, unless otherwise required by the context. In October 1990, the Company, through a newly- formed wholly-owned subsidiary, acquired certain assets now comprising Koppel Steel Corporation ("Koppel"), a steel mini-mill located in western Pennsylvania. Koppel manufactures seamless tubular products, special bar quality (SBQ) products and semi-finished steel products. Koppel operates melting and casting facilities and a bar mill in Koppel, Pennsylvania as well as a seamless tube-making facility approximately 20 miles from Koppel in Ambridge, Pennsylvania. Koppel's seamless tubular products are used in oil and natural gas drilling and production operations and in the transmission of oil, natural gas and other fluids. SBQ products are primarily used by forgers and original equipment manufacturers of heavy equipment and off-road vehicles. In October, 1993, the Company sold its wholly- owned subsidiary, Kentucky Electric Steel Corporation, to a newly formed public company in exchange for $45.6 million in cash and 400,000 shares (approximately 8%) of the new public company, then valued at $4.8 million. Kentucky Electric Steel Corporation was sold in order to enhance the Company's financial flexibility. Incorporated herein by reference from the 1995 Annual Report to Shareholders is "Note 2: Sale of Subsidiary", which contains additional information pertaining to this transaction. NS Group conducts business in two industry segments. Specialty Steel -- includes three wholly-owned subsidiaries: Newport Steel Corporation (Newport), a mini-mill manufacturer of welded tubular steel products and hot rolled coils, located near Newport, Kentucky; Erlanger Tubular Corporation (Erlanger), a tubular steel finishing operation acquired in late fiscal 1986, located near Tulsa, Oklahoma; and Koppel Steel Corporation (Koppel), a mini-mill manufacturer of seamless tubular steel products, special bar quality products and semi-finished steel products, acquired in October, 1990, located in western Pennsylvania. Adhesives -- includes the wholly-owned subsidiary, Imperial Adhesives, Inc. (Imperial), a manufacturer of industrial adhesives products, located in Cincinnati, Ohio. Incorporated herein by reference from the 1995 Annual Report to Shareholders is "Note 13: Business Segment Information", for additional information pertaining to industry segment data. Specialty Steel Segment The Company's specialty steel products consist of: (i) seamless and welded tubular goods primarily used in oil and natural gas drilling and production operations (oil country tubular goods, or OCTG); (ii) line pipe used in the transmission of oil, natural gas and other fluids; (iii) SBQ products primarily used in the manufacture of heavy industrial equipment, trucks and off-road vehicles; and (iv) hot rolled coils which are sold to service centers and other manufacturers for further processing. The Company manufactures these specialty steel products at its two mini-mills, located in Koppel, Pennsylvania and near Newport, Kentucky. The term mini-mill connotes a smaller, relatively low- cost mill that typically uses scrap steel as its basic raw material and offers a relatively limited range of products. Products Seamless OCTG Products. The Company's seamless OCTG products are used as drill pipe, casing and production tubing. Drill pipe is used and may be reused to drill several wells. Casing forms the structural wall of oil and natural gas wells to provide support and prevent caving during drilling operations and is generally not removed after it has been installed in a well. Production tubing is placed within the casing and is used to convey oil and natural gas to the surface. The Company's seamless OCTG products are sold as a finished threaded and coupled product in both carbon and alloy grades. Compared to similar welded products, seamless production tubing and casing are better suited for use in hostile drilling environments such as off-shore drilling or deeper wells because of their greater strength and durability. The production of seamless tubular products with these properties requires a more costly and specialized manufacturing process than does the production of welded tubular products. Welded OCTG Products. The Company's welded OCTG products are used primarily as casing in oil and natural gas wells during drilling operations. Welded OCTG products are generally used when higher strength is not required, typically in wells less than 10,000 feet in depth. The Company sells its welded OCTG products as both a plain end and as a finished tubular product in both carbon and alloy grades. Line Pipe Products. The Company's line pipe products are primarily used in gathering lines for the transportation of oil and natural gas at the drilling site and in transmission lines by both gas utility and transmission companies. The Company's seamless and welded line pipe products are shipped as a plain end product and welded together on site. The majority of the Company's line pipe sales are welded products. Special Bar Quality Products. The Company manufactures SBQ products in a specialized market niche of products ranging in size from 2.875 to 6.0 inches. The Company produces its SBQ products from continuous cast blooms that enables substantial size reduction in the bloom during processing and provides heavier strength-to-weight ratios. These SBQ products are primarily used in critical weight-bearing applications such as suspension systems, gear blanks, drive axles for tractors and off-road vehicles, heavy machinery components and hydraulic and pneumatic cylinders. Hot Rolled Coils. The Company produces commercial quality grade hot rolled coils, from 28 to 50 inches in width, between 0.125 and 0.500 inches in gauge, and in 15 ton coil weights. These products are sold to service centers and to others for use in high-strength applications. Other Products. The Company's OCTG products are inspected and tested to ensure that they meet API specifications. Products that do not meet specification are classified as secondary or limited service products and are sold at substantially reduced prices. Finishing Facilities. The Company processes and finishes a portion of its own welded and seamless tubular products, and to a lesser extent, those of other tubular producers, at Erlanger and at its Koppel- owned facility in Baytown, Texas (Baytown). The finishing processes at Erlanger include upsetting, which is a forging process that thickens tube ends; heat treating, which is a furnace operation designed to strengthen the steel; straightening; coating for rust prevention; and threading. Currently, Baytown is capable of upsetting, coating and threading. After finishing, products are either immediately reshipped to customers or stored as inventory to enable the Company to respond quickly to customer needs. The demand for the Company's OCTG products is cyclical in nature, being dependent on the number and depth of oil and natural gas wells being drilled in the United States. The level of drilling activity is largely a function of the current prices of oil and natural gas and the industry's future price expectations. Demand for OCTG products is also influenced by the levels of inventory held by producers, distributors and end users. In addition, the demand for OCTG products produced domestically is also significantly impacted by the level of foreign imports of OCTG products. The level of OCTG imports is affected by: (i) the value of the U.S. dollar versus other key currencies; (ii) overall world demand for OCTG products; (iii) the production cost competitiveness of domestic producers; (iv) trade practices of, and government subsidies to, foreign producers; and (v) the presence or absence of governmentally imposed trade restrictions in the United States. The demand for line pipe is only partially dependent on oil and gas drilling activities. Line pipe demand is also dependent on factors such as the level of pipeline construction activity, line pipe replacement requirements, new residential construction and gas utility purchasing programs. The demand for the Company's SBQ and hot rolled coil products is also cyclical in nature and is sensitive to general economic conditions. The demand for and the pricing of the Company's SBQ and hot rolled coil products is also affected by economic trends in areas such as commercial and residential construction, automobile production and industrial investment in new plants and facilities. Markets and Distribution The Company sells its specialty steel products to its customers through an in-house sales force which is supplemented by a number of independent sales representatives. The primary end markets for the Company's seamless tubular products has been the southwest United States and certain foreign markets. Nearly all of the Company's OCTG products are sold to domestic distributors, some of whom subsequently sell the Company's products into the international marketplace. The Company has historically marketed its welded tubular products in the east, central and southwest regions of the United States, in areas where shallow oil and gas drilling and exploration activity utilize welded tubular products. The Company sells its SBQ products to customers located generally within 400 miles of the Koppel facilities. All of the Company's steel-making and finishing facilities are located on or near major rivers or waterways, enabling the Company to transport its tubular products into the southwest by barge. The Company ships substantially all of its seamless and welded OCTG products destined for the southwest region by barge. Customers The Company has approximately 300 specialty steel product customers. The Company's OCTG and line pipe products are used by major and independent oil and natural gas exploration and production companies in drilling and production applications in the United States, Canada, Mexico and overseas. Line pipe products are also used by gas utility and transmission companies. The majority of the Company's OCTG and line pipe products are sold to domestic distributors and directly to end users. The Company sells its SBQ products to service centers, cold finishers, forgers and original equipment manufacturers, and primarily sells its hot rolled coils to service centers and other manufacturers for further processing. The Company has long-standing relationships with many of its larger customers; however, the Company believes that it is not dependent on any customer and that it could, over time, replace lost sales attributable to any one customer. Competition The markets for the Company's specialty steel products are highly competitive and cyclical. The Company's principal competitors in its primary markets include integrated producers, mini-mills, welded tubular product processing companies as well as foreign steel producers. The Company believes that the principal competitive factors affecting its business are price, quality and customer service. The Company competes with a number of domestic as well as foreign producers in the welded tubular market, which includes both OCTG and line pipe products. In the seamless OCTG market, the Company competes principally with one domestic producer as well as a number of foreign producers. With respect to its SBQ products, the Company competes with numerous other domestic steel manufacturers. Trade Cases. In response to the rising level of foreign imports of OCTG products, on June 30, 1994, the Company and six other U.S. steel companies filed antidumping petitions against imports of OCTG products from seven foreign nations (the Trade Cases). The Trade Cases asked the United States government to take action to offset injury to the domestic OCTG industry from unfairly traded imports. The antidumping petitions were filed against OCTG imports from Argentina, Austria, Italy, Japan, Korea, Mexico and Spain. The Company also joined in filing countervailing duty cases charging subsidization of OCTG imports from Austria and Italy. In July 1995, following evaluation of determinations made by the International Trade Administration of the United States Department of Commerce, the International Trade Commission (ITC) announced final affirmative determinations, resulting in the collection of duties by the Customs Service on imports of OCTG and drill pipe products from Argentina, Japan and Mexico, and OCTG products (other than drill pipe) from Italy and Korea. No duties were imposed on OCTG and drill pipe imports from Austria and Spain because the ITC issued negative determinations. Several foreign OCTG producers, as well as certain U.S. producers, have appealed the determinations to international courts or panels. The Company cannot predict the outcome or timing of these appeals at this time. Raw Materials and Supplies The Company's major raw material is steel scrap, which is generated principally from industrial, automotive, demolition, railroad and other steel scrap sources. Steel scrap is purchased by the Company either through scrap brokers or directly in the open market. The long-term demand for steel scrap and its importance to the domestic steel industry may be expected to increase as steel-makers continue to expand steel scrap-based electric arc furnace and thin slab casting capacities. For the foreseeable future, however, the Company believes that supplies of steel scrap will continue to be available in sufficient quantities at competitive prices. In addition, a number of technologies exist for the processing of iron ore into forms which may be substituted for steel scrap in electric arc furnace-based steel-making operations. Such forms include direct-reduced iron, iron carbide and hot-briquette iron. While such forms may not be cost competitive with steel scrap at present, a sustained increase in the price of steel scrap could result in increased implementation of these alternative technologies. The Company's steel manufacturing facilities consume large amounts of electricity. The Company purchases its electricity from utilities near its steel-making facilities pursuant to contracts that expire in 1996 for Koppel and 2001 for Newport. The contracts contain provisions that provide for lower priced demand charges during off-peak hours and known maximums in higher cost firm demand power. Also, the Company receives discounted demand rates in return for the utilities' right to periodically curtail service during periods of peak demand. These curtailments are generally limited to a few hours and historically have had a negligible impact on the Company's operations. The Company also consumes smaller quantities of additives, alloys and flux which are purchased from a number of suppliers. Adhesives Segment Imperial is a manufacturer of industrial adhesives products. Imperial maintains over 1,000 active formulas for the manufacture of water-borne, solvent- borne, and hot-melt adhesives, which are used in product assembly applications, including footwear, foam bonding, marine and recreational vehicles, and consumer packaging. Raw materials are available from multiple sources and consist primarily of petrochemical-based materials. Pricing generally follows trends in the petrochemical markets. Imperial produces adhesives products at manufacturing plants located in Ohio, Tennessee and Virginia. Imperial markets its adhesives products throughout the United States and Caribbean basin through an in-house sales force as well as numerous independent sales representatives. Products are distributed from three manufacturing sites and a number of public warehouses across the United States and in Puerto Rico. Competition in the industrial adhesives products market is highly-fragmented. The Company believes that it competes in this market on the basis of price, product performance and customer service. Imperial competes with numerous small or comparably-sized companies, as well as major adhesives producers. 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 (the 1990 Amendments), the Clean Water Act and all regulations promulgated in connection therewith, including, among others, 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 similar 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 resulting from 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. The Company also has on its property at Newport a permitted hazardous waste disposal facility. In March 1995, Koppel and the EPA signed a Consent Order relating to an April 1990 RCRA facility assessment (the Assessment) completed by the EPA and the Pennsylvania Department of Environmental Resources. The Assessment was performed in connection with a permit application pertaining to a landfill that is adjacent to the Koppel facilities. The Assessment identified potential releases of hazardous constituents at or adjacent to the Koppel facilities prior to the Company's acquisition of the Koppel facilities. The Consent Order establishes a schedule for investigating, monitoring, testing and analyzing the potential releases. Contamination documented as a result of the investigation will require cleanup measures and certain remediation has begun. Pursuant to various indemnity provisions in agreements entered into at the time of the Company s acquisition of the Koppel facilities, certain parties have agreed to indemnify the Company against various known and unknown environmental matters. While such parties have not at this time acknowledged full responsibility for potential costs under the Consent Order, the Company believes that the indemnity provisions provide for it to be fully indemnified against all matters covered by the Consent Order, including all associated costs, claims and liabilities. In two separate incidents occurring in fiscal 1993 and 1992, radioactive substances were accidentally melted at Newport, resulting in the contamination of the melt shop s electric arc furnace emission control facility, or baghouse facility . The occurrences of the accidental melting of radioactive materials have not resulted in any notice of violations from federal or state environmental regulatory agencies. The losses and costs incurred in 1993, net of insurance claims, resulted in an extraordinary charge of $1.1 million, net of applicable income tax benefit of $0.7 million, or an $.08 loss per share. The Company is investigating and evaluating various issues concerning storage, treatment and disposal of the radiation contaminated baghouse dust; however a final determination as to method of treatment and disposal, cost and further regulatory requirements cannot be made at this time. Depending on the ultimate timing and method of treatment and disposal, which will require appropriate federal and state regulatory approval, the actual cost of disposal could substantially exceed current estimates and the Company s insurance coverage. The Company expects to recover and has recorded a $2.3 million receivable relating to insurance claims for the recovery of disposal costs which will be filed with the Company s insurance company at the time such disposal costs are incurred. As of September 30, 1995, claims recorded in connection with disposal costs exhaust available insurance coverage. Based on current knowledge, management believes the recorded gross reserves of $4.4 million for disposal costs pertaining to these incidents are adequate. Subject to the uncertainties concerning the Consent Order and the storage and disposal of the radiation contaminated dust, the Company believes that it is currently in compliance in all material respects with all applicable environmental regulations. Regulations under the 1990 Amendments to the Clean Air Act that will pertain to the Company s operations are currently not expected to be promulgated until 1997 or later. The Company cannot predict the level of required capital expenditures or operating costs resulting from future environmental regulations such as those forthcoming as a result of the 1990 Amendments. However, the Company believes that while the 1990 Amendments may require additional expenditures, such expenditures will not have a material impact on the Company s business or consolidated financial position for the foreseeable future. Capital expenditures for the next twelve months relating to environmental control facilities are not expected to be material, however, such expenditures could be influenced by new or revised environmental regulations and laws. As of September 30, 1995, the Company had environmental remediation reserves of $4.5 million, of which $4.4 million pertain to accrued disposal costs for radiation contaminated baghouse dust. As of September 30, 1995, the possible range of estimated losses related to the environmental contingency matters discussed above in excess of those accrued by the Company is $0 to $3.0 million; however, with respect to the Consent Order, the Company cannot estimate the possible range of losses should the Company ultimately not be indemnified. 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 the Consent Order or its other environmental contingency matters, individually or in the aggregate, will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. Employees As of September 30, 1995, the Company had 1,728 employees, of whom 405 were salaried and 1,323 were hourly. Substantially all of the Company's hourly employees are represented by the United Steelworkers of America under contracts expiring in 1997 for Erlanger; 1999 for Newport and Koppel; and 1998 for Imperial. ITEM 2. PROPERTIES The Company's principal operating properties are listed in the table below. The Company believes its facilities are adequate and suitable for its present level of operations. Location and Properties Specialty Steel Segment: Newport, Kentucky - The Company owns approximately 250 acres of real estate upon which are located a melt shop, hot strip mill, two welded pipe mills, machine and fabricating shops and storage and repair facilities aggregating approximately 636,000 square feet, as well as the Company's administrative offices. Koppel, Pennsylvania - The Company owns approximately 227 acres of real estate upon which are located a melt shop, bar mill, blooming mill, pickling facility, machine and fabricating shops, storage and repair facilities and administrative offices aggregating approximately 900,000 square feet. Ambridge, Pennsylvania - The Company owns approximately 45 acres of real estate upon which are located a seamless tube making facility and seamless tube finishing facilities aggregating approximately 659,000 square feet. Tulsa, Oklahoma - The Company leases approximately 36 acres of real estate upon which are located a tubular processing facility. The facility is located at the Tulsa Port of Catoosa where barge facilities are in close proximity. Located on this property are six buildings aggregating approximately 119,000 square feet which house the various finishing operations. Baytown, Texas - The Company owns approximately 55 acres of real estate upon which is located a tubular processing facility and barge facilities. Located on the property are eight buildings aggregating approximately 65,000 square feet which house the various finishing operations. Adhesives Segment: Cincinnati, Ohio; Lynchburg, Virginia; Nashville, Tennessee - The Company owns approximately seven acres of property in Cincinnati, Ohio, and 1.5 acres of property in Lynchburg, Virginia for use in its adhesives operations. The Cincinnati properties contain five buildings aggregating approximately 150,000 square feet and the Lynchburg property consists of one 10,000 square foot building. The Company also leases approximately 3.1 acres in Nashville, Tennessee for use in its adhesives operations, including one building aggregating approximately 60,000 square feet. Other: Newport, Kentucky - The Company owns approximately 37 acres of partially developed land near Newport, Kentucky, acquired in fiscal 1989, which is held as investment property and is listed for sale. The Company also owns approximately 85 acres of additional real estate which is currently not used in operations. Information regarding encumbrances on the Company's properties, included in Note 5 to the Consolidated Financial Statements of the 1995 Annual Report to Shareholders, is incorporated herein by reference. Capacity Utilization The Company's capacity utilization for fiscal 1995 was as follows: Rated Capacity Facility (in tons) Capacity Utilization Koppel facilities Melt shop ............... 400,000 88.4% Bar mill ................ 200,000 98.5% Seamless tube mill ...... 200,000 69.0% Newport facilities Melt shop ............... 700,000 59.4% Hot strip rolling mill .. 750,000 51.1% Welded pipe mills ....... 580,000 55.8% ITEM 3. LEGAL PROCEEDINGS See "Environmental Matters" regarding the Consent Order entered into by Koppel and the EPA. The Company is subject to various claims, lawsuits and administrative proceedings arising in the ordinary course of business with respect to commercial, product liability and other matters which seek remedies or damages. Based upon its evaluation of available information, management does not believe that any such matters are likely, individually or in the aggregate, to have a material adverse effect upon the Company's consolidated financial position, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Incorporated herein by reference from the 1995 Annual Report to Shareholders, "Stock Market Information" and "Stock Price" and Note 5 to the Consolidated Financial Statements. As of December 1, 1995, there were approximately 338 record holders of Common Stock. ITEM 6. SELECTED FINANCIAL DATA Incorporated herein by reference from the 1995 Annual Report to Shareholders, "Consolidated Historical Summary" and Note 2 to the Consolidated Financial Statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated herein by reference from the 1995 Annual Report to Shareholders, "Management's Discussion and Analysis of Financial Condition and Results of Operations". ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated herein by reference from the 1995 Annual Report to Shareholders, "Consolidated Statements of Operations"; "Consolidated Balance Sheets"; "Consolidated Statements of Cash Flows"; Consolidated Statements of Common Shareholders' Equity"; "Notes to Consolidated Financial Statements"; "Report of Management"; and "Report of Independent Public Accountants". ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated herein by reference from the Company's Proxy Statement dated December 27, 1995 for the Annual Meeting of Shareholders on February 15, 1996, under the caption "Election of Directors - Nominees for Election as Directors"; "Information Regarding Meetings and Committees of the Board of Directors - Committees of the Board"; "Executive Compensation"; and "Compliance With Section of 16(a) of the Exchange Act". ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference from the Company's Proxy Statement dated December 27, 1995 for the Annual Meeting of Shareholders on February 15, 1996, under the caption "Information Regarding Meetings and Committees of the Board of Directors - Director Compensation"; "Executive Compensation"; and "Compensation Committee Interlocks and Insider Participation". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference from the Company's Proxy Statement dated December 27, 1995 for the Annual Meeting of Shareholders on February 15, 1996, "Share Ownership of Certain Beneficial Owners and Management". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference from the Company's Proxy Statement dated December 27, 1995 for the Annual Meeting of Shareholders on February 15, 1996, under the caption "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions". PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Consolidated Financial Statements - The following Consolidated Financial Statements included in the 1995 Annual Report to Shareholders for the fiscal year ended September 30, 1995, are incorporated by reference in Item 8: - Consolidated Statements of Operations - Consolidated Balance Sheets - Consolidated Statements of Cash Flows - Consolidated Statements of Common Shareholders' Equity - Notes to Consolidated Financial Statements - Report of Independent Public Accountants (a) 2. Consolidated Financial Statement Schedule - The following schedule is included herein: - Report of Independent Public Accountants on Financial Statement Schedule - Schedule II - Valuation and Qualifying Accounts (a) 3. 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 September 29, 1995 and filed October 10, 1995, reporting under Item 5 the Company's earnings expectations for the fourth fiscal quarter ending September 30, 1995; and under Item 7(c), the Company's press release dated September 29, 1995. Current Report on Form 8-K dated October 24, 1995 and filed November 3, 1995, reporting under Item 5 the Company's estimate for earnings for the fourth fiscal quarter ending September 30, 1995; and under Item 7(c), the Company's press release dated October 24, 1995. Current Report on Form 8-K dated November 10, 1995 and filed November 15, 1995, reporting under Item 5 the Company's results for its fiscal year and fourth quarter ending September 30, 1995; and under Item 7(c), the Company's press release dated November 10, 1995 Current Report on Form 8-K dated December 4, 1995 and filed December 7, 1995, reporting under Item 5 certain management changes; and under Item 7(c), the Company's press release dated December 5, 1995. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To NS Group, Inc.: We have audited in accordance with generally accepted auditing standards the consolidated financial statements included in NS Group, Inc. and subsidiaries annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated November 6, 1995. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a) 2 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Cincinnati, Ohio ARTHUR ANDERSEN LLP November 6, 1995 SCHEDULE II NS GROUP, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (Dollars in thousands) Reserves Deducted from Assets in Balance Sheets Allowance for Allowance Doubtful for Cash Accounts(1) Discounts(1) BALANCE, September 26, 1992.. $ 1,307 $ 208 Additions: Charged to costs and expenses.. 572 2,338 Deductions: Net charges of nature for which reserves were created... (1,060) (2,293) BALANCE, September 25, 1993....... $ 819 $ 253 Additions: Charged to costs and expenses.. 343 2,298 Deductions: Sale of subsidiary.. (305) - Net charges of nature for which reserves were created... (220) (2,245) BALANCE, September 24, 1994....... $ 637 $ 306 Additions: Charged to costs and expenses.. 586 4,005 Deductions: Net charges of nature for which reserves were created.... (202) (3,330) BALANCE, September 30, 1995....... $ 1,021 $ 981
(1) Deducted from accounts receivable SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NS GROUP, INC. Date: December 15, 1995 By: /s/John R. Parker John R. Parker, Vice President, Treasurer and Chief Financial Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Clifford R. Borland and John R. Parker, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign any and all amendments to this Annual Report on Form 10-K and any other documents and instruments incidental thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents and/or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: December 15, 1995 By: /s/Clifford R.Borland Clifford R. Borland, Chief Executive Officer and Director Date: December 15, 1995 By: /s/Paul C. Borland Paul C. Borland, President and Chief Operating Officer Date: December 15, 1995 /s/John R. Parker John R. Parker, Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer) Date: December 15, 1995 /s/Thomas J. Depenbrock Thomas J. Depenbrock Vice President and Corporate Controller Date: December 15, 1995 /s/Ronald R. Noel Ronald R. Noel, Director Date: December 15, 1995 /s/John B. Lally John B. Lally, Director Date: December 15, 1995 /s/Patrick J. B. Donnelly Patrick J. B. Donnelly, Director Date: December 15, 1995 /s/R. Glen Mayfield R. Glen Mayfield, Director INDEX TO EXHIBITS Number Description 3.1 Amended and Restated Articles of Incorporation of Registrant, filed as Exhibit 3.1 to Amendment No. 1 to Registrants' Form S-1 dated January 17, 1995, File No. 33- 56637, and incorporated herein by this reference 3.2 Amended and restated By-Laws of Registrant, dated December 4, 1995, filed herewith Exhibits 4.1 through 4.22 were filed under their respective Exhibit numbers to Registrant's Form 10-Q for the quarterly period ended July 1, 1995, File No. 1-9838, and are incorporated herein by this reference 4.1 Indenture (including form of Senior Secured Note) between the Company and The Huntington National Bank, as trustee (the "Trustee") 4.2 Leasehold and Fee Mortgage, Assignment of Rents and Leases and Security Agreement from Newport to the Trustee (Kentucky) 4.3 Mortgage, Assignment of Rents and leases and Security Agreement from Koppel to the Trustee (Pennsylvania) 4.4 Deed of Trust, Assignment of Rents and Leases and Security Agreement from Koppel to the Trustee (Texas) 4.5 Leasehold Mortgage, Assignment of Rents and Leases and Security Agreement from Erlanger to the Trustee (Oklahoma) 4.6 Junior Leasehold and Fee Mortgage, Assignment of Rents and Leases and Security Agreement from Newport to the Company (Kentucky) 4.7 Junior Mortgage, Assignment of Rents and Leases and Security Agreement from Koppel to the Company (Pennsylvania) 4.8 Junior Deed of Trust, Assignment of Rents and Leases and Security Agreement from Koppel to the Company (Texas) 4.9 Junior Leasehold Mortgage, Assignment of Rents and Leases and Security Agreement from Erlanger to the Company (Oklahoma) 4.10 Subsidiary Security Agreement between Newport and the Trustee 4.11 Subsidiary Security Agreement between Koppel and the Trustee 4.12 Subsidiary Security Agreement between Erlanger and the Trustee 4.13 ICN Security Agreement between Newport and the Company 4.14 ICN Security Agreement between Koppel and the Company 4.15 ICN Security Agreement between Erlanger and the Company 4.16 Pledge and Security Agreement between the Company and the Trustee 4.17 Subsidiary Guarantee 4.18 Intercreditor Agreement between the Trustee and the Bank of New York Commercial Corporation, as agent under the Credit Facility 4.19 Agreement between the Trustee, Koppel and the Commonwealth of Pennsylvania, Department of Commerce 4.20 Subordination Agreement between the Trustee and the City of Dayton, Kentucky 4.21 Revolving Credit, Guaranty and Security Agreement among Bank of New York Commercial Corporation, PNC Bank Ohio, N.A., Newport, Koppel, Imperial, the Company, Erlanger, Northern Kentucky Air, Inc. and Northern Kentucky Management, Inc. 4.22 Warrant Agreement between the Company and The Huntington National Bank, as warrant agent 10.1 Company's Amended Employee Incentive Stock Option Plan, filed as Exhibit 10(a) to Company's Form 10-K for the fiscal year ended September 30, 1989, File No. 1-9838, and incorporated herein by this reference 10.2 Company's Executive Bonus Plan, filed as Schedule B to Exhibit 10.4 to Company's Registration Statement on Form S-18, File No. 2-90643, and incorporated herein by this reference 10.3 Company's Non-Qualified Stock Option and Stock Appreciation Rights Plan of 1988, filed as Exhibit 1 to Company's Proxy Statement dated January 13, 1989, File No. 1-9838, and incorporated herein by this reference 10.4 Rights Agreement dated as of November 17, 1988 between Company and Pittsburgh National Bank, filed as Exhibit 1 to Company's Form 8- K dated November 17, 1988, File No. 1-9838, and incorporated herein by this reference, and Appointment and Amendment Agreement dated July 29, 1994 between Registrant and Registrar and Transfer Company, filed as Exhibit 10(d) to Company's Form 10-Q dated May 29, 1994, File No. 1-9838, and incorporated herein by this reference 10.5 Company's 1993 Incentive Stock Option Plan, filed as Exhibit 1 to Company's Proxy Statement dated December 22, 1992, File No. 1-9838, and incorporated herein by this reference 10.6 Transfer Agreement, dated September 29, 1993, filed on September 28, 1993 as Exhibit 10.2 to the Amendment No. 2 to the Registration Statement on Form S-1 of Kentucky Electric Steel, Inc., File No. 33-67140, and incorporated herein by this reference 10.7 Tax Agreement, dated October 6, 1993, by and among NS Group,Inc., Kentucky Electric Steel, Inc. and NSub I, Inc. (formerly Kentucky Electric Steel Corporation), filed as Exhibit 10(h) to Company's Form 10-K for the fiscal year ended September 25, 1993, File No. 1- 9383, and incorporated herein by this reference 10.8 Registration Rights Agreement dated October 6, 1993 among Kentucky Electric Steel, Inc., NS Group, Inc. and NSub I, Inc. (formerly Kentucky Electric Steel Corporation), filed as Exhibit 10(i) to Company's Form 10-K for fiscal year ended September 25, 1993, File No. 1-9383, and incorporated herein by this reference 10.9 Form of 11% Subordinated Convertible Debenture due 2005, filed as Exhibit 4.1 to Company's Form 8-K dated October 18, 1990, File No. 1-9838, and incorporated herein by this reference 10.10 Form of Warrant dated October 4, 1990, filed as Exhibit 4.2 to Company's Form 8-K dated October 18, 1990, File No. 1-9838, and incorporated herein by reference; and First Amendment to Warrant dated September 26, 1992, filed as Exhibit 4(c) to Company's Form 10-K for the fiscal year ended September 26, 1992, File No. 1-9838, and incorporated herein by this reference 13 1995 Annual Report to Shareholders (not deemed "filed" except for portions which are expressly incorporated by reference), filed herewith 21 Subsidiaries of Registrant 23 Consent of Independent Public Accountants 24 Power of Attorney (contained on Signature Page) 27 Financial Data Schedule EX-3 2 EXHIBIT 3.2 AMENDED ON DECEMBER 4, 1995, BY THE BOARD OF DIRECTORS OF THE COMPANY, AND IN FULL FORCE AND EFFECT AS OF THIS 4TH DAY OF DECEMBER, 1995 BY-LAWS OF NS GROUP, INC. ARTICLE I. OFFICES The principal office of the Corporation in the Commonwealth of Kentucky shall be located in the City of Newport, County of Campbell. The Corporation may have such other offices, either within or without the Commonwealth of Kentucky, as the Board of Directors may designate or as the business of the corporation may require from time to time. ARTICLE II. SHAREHOLDERS SECTION 1. Annual Meeting. The annual meeting of the shareholders shall be held not later than the last Thursday in the month of May in each year, at 10:00 a.m., as determined by the Board of Directors. The purpose of such meetings shall be the election of Directors and the transaction of such other business as may come before the meeting. If the election of Directors shall not be held an the date designated herein for any annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as is practicable. SECTION 2. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman or President or by the Board of Directors, and shall be called by the Chairman or President if the holders of at least fifty (50%) percent of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting sign, date and deliver to the Corporation's secretary one (1) or more written demands for the meeting describing the purpose or purposes for which it will be held. SECTION 3. Place of Meeting. The Board of Directors may designate any place, either within or without the Commonwealth of Kentucky unless otherwise prescribed by statute, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. A waiver of notice signed by all shareholders entitled to vote at a meeting may designate any place, either within or without the Commonwealth of Kentucky, unless otherwise prescribed by statute, as the place for the holding of such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the Corporation in the Commonwealth of Kentucky. SECTION 4. Notice of Meeting. Written notice stating the place, day, and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall, unless otherwise prescribed by statute, be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman or President or the Secretary, or the persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. If an annual or a special shareholders', meeting is adjourned to a different date, time, or place, notice shall not be required to be given of the new date, time, or place if the new date, time, or place is announced at the meeting before adjournment. A determination of shareholders entitled to notice of or to vote at a shareholders' meeting shall be effective for any adjournment of the meeting unless the Board of Directors fixes a new record date, which it shall do if the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting. If a new record date for the adjourned meeting is or must be fixed pursuant to the Kentucky Business Corporation Act, notice of the adjourned meeting shall be given to persons who are shareholders as of the new record date. SECTION 5. Closing of Transfer Books and Fixing of Record. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any distribution, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the Corporation may provide that the stock transfer books shall be closed for a stated period, but not to exceed in any case seventy (70) days before the meeting or action requiring a determination of shareholders. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than seventy (70) days prior to such determination. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a distribution, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such distribution is adopted, as the case may be, shall be the record date for such determination of shareholders. SECTION 6. Voting List. The officer or agent having charge of the stock transfer books for shares of the Corporation shall make a complete list of the shareholders entitled to vote at each meeting of shareholders or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each. Such list shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder beginning five (5) business days before the meeting for which the list was prepared and continuing through the meeting. SECTION 7. Quorum. A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If a quorum of shareholders is present, the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the vote of a greater number is required by the Kentucky Business Corporation Act or by the Articles of Incorporation or these By-Laws. If less than-a majority of the outstanding shares is represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. SECTION 8. Proxies. At all meetings of shareholders, a shareholder may vote in person or by proxy executed in writing by such shareholder or by his duly authorized attorney in fact. A telegram or cablegram appearing to have been transmitted by the proper person or a photographic, photostatic, telefaxed or equivalent reproduction of a writing appointing a proxy shall be deemed a sufficient, signed appointment form. Such appointment of proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No appointment of proxy shall be valid after eleven (11) months from the date of its execution, unless a longer period is expressly provided for. An appointment of proxy shall be revocable by the shareholder unless the appointment form conspicuously states that is irrevocable and the appointment is coupled with an interest. In the latter case, the appointment of proxy shall be revocable when the interest with which it is coupled is extinguished and the Secretary of the Corporation receives the written notice of revocation. SECTION 9. Voting of Shares. Subject to the provisions of Section 12 of this Article II, each outstanding share of common stock authorized by the Corporation's Articles of Incorporation to have voting power, shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders. The voting rights, if any, of classes of shares other than voting common stocks shall be as set forth in the Corporation's Articles of Incorporation or by appropriate legal action of the Board of Directors. SECTION 10. Voting of Shares of Certain Holders. Shares standing in the name of another corporation may be voted by such officer, agent, or proxy as the By-Laws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian, or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereto into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Shares of its own stock belonging to the Corporation shall not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time. SECTION 11. Informal Action by Shareholders. Unless otherwise provided by law, any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof and delivered to the Corporation. SECTION 12. Cumulative Voting. Unless otherwise provided by law, at each election for Directors every shareholder entitled to vote at such election shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are Directors to be elected and for whose election he has a right to vote, or to cumulate his votes by giving one candidate as many votes as the number of such Directors multiplied by the number of his shares shall equal, or by distributing such votes on the same principle among any number of candidates. SECTION 13. Notice of Shareholder Business at Meetings. At any meeting of shareholders, only such business shall be conducted as shall have been properly brought before the meeting. In addition to any other requirements imposed by or pursuant to law, the Articles or these By-Laws, each item of business to be properly brought before a meeting must: (a) be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors or the persons calling the meeting pursuant to these By-Laws; (b) be otherwise properly brought before the meeting by or at the direction of the Board of Directors; or (c) be otherwise properly brought before the meeting by a shareholder. For business to be brought properly before a meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event less than seventy (70) days notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. A shareholder's notice to the Secretary shall set forth as to each matter he proposes to bring before the meeting: (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting; (b) the name and address, as they appear on the Corporation's books, of the shareholder(s) proposing such business; (c) the class and number of shares of the Corporation which are beneficially owned by the proposing shareholder(s); and (d) any material interest of the proposing shareholder(s) in such business. Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in this Section 13. The Chairman of a meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 13; if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. The Chairman of a meeting shall have absolute authority to decide questions of compliance with the foregoing procedures, and his ruling thereon shall be final and conclusive. ARTICLE III. BOARD OF DIRECTORS SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by its Board of Director. SECTION 2. Number, Tenure. The number of Directors of the Corporation shall be fixed by resolution of the Board of Directors in accordance with the Kentucky Business Corporation Act and the Articles of Incorporation of the Corporation. The Board of Directors is specifically authorized to divide the Board into classes as authorized by the laws of the Commonwealth of Kentucky and the Articles of Incorporation of the Corporation. SECTION 3. Nomination of Directors. To be qualified for election as a Director, persons must be nominated in accordance with the following procedure. Nomination of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders by or at the direction of the Board of Directors or by any shareholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the procedures set forth in this Section 3. In order for persons nominated to the Board of Directors, other than those persons nominated by or at the direction of the Board of Directors, to be qualified to serve on the Board of Directors, such nominations shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder's notice shall be delivered to or mailed and received by the Secretary of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event less than seventy (70) days notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice shall set forth: (a) as to each person whom the shareholder proposed to nominate for election or re-election as a Director; (i) the name, age, business address and residence address of such person; (ii) the principal occupation or employment of such person; (C) the class and number of shares of the Corporation which are beneficially owned by such person; (iii) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (iv) if the shareholder(s) making the nomination is a person, other than the Corporation or any of its subsidiaries, who is the beneficial owner, directly or indirectly, of ten percent (10%) or more of the voting power of the outstanding voting took of the Corporation, or is an affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of ten percent (10%) or more of the voting power of the then outstanding voting stock of the Corporation, details of any relationship, agreement or understanding between the shareholder(s) and the nominee; and (v) as to the shareholder(s) making the nomina-tion; (A) the name and address, as they appear on the Corporation's books, of such share-holder(s); and (B) the class and number of shares of the Corporation which are beneficially owned by such shareholder(s). At the request of the Board of Directors, any person nominated by the Board of Directors for election as a Director shall furnish to the Secretary of the Corporation that information required to be set forth in a shareholder's notice of nomination which pertains to the nominee. No person shall be qualified for election as a Director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3. The Chairman of a meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the By-Laws, and if he should so determine, he shall so declare to the meeting, and the defective nomination shall be disregarded. The Chairman of a meeting shall have absolute authority to decide questions of compliance with the foregoing procedures, and his ruling thereon shall be final and conclusive. SECTION 4. Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this By-Law immediately after, and at the same place as the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution. SECTION 5. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman or President or any two Directors. The person or persons authorized to call special meetings of the Board of Directors may fix the place for holding any special meeting of the Board of Directors called by them. SECTION 6. Notice. Notice of any special meeting shall be given at least five (5) days previously thereto by written notice delivered by person or sent by telefax, by mail or by telegram to each Director at his business address. If sent by telefax, such notice shall he deemed to be delivered on the day it was transmitted. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any Director may waive notice of any meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except when a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. SECTION 7. Quorum. A majority of the number of Directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice. SECTION 8. Manner of Acting. The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. SECTION 9. Action Without a Meeting. Any action that may be taken by the Board of Directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so to be taken, shall be signed before such action by all of the Directors. Members of the Board of Directors and its committees may participate in meetings by means of conference telephone or similar communications equipment whereby all persons participating in the meeting can hear each other, and such participation shall constitute presence at the meeting. SECTION 10. Vacancies. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining Directors though less than a quorum of the Board of Directors, unless otherwise provided by law. A Director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any Directorship to be filled by reason of an increase in the number of Directors may be filled by election by the Board of Directors for a term of office continuing only until the next election of Directors by the shareholders. SECTION 11. Compensation. By resolution of the Board of Directors, each Director may be paid his expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a stated salary as Director or a fixed sum for attendance at each meeting of the Board of Directors or both. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 12. Presumption of Assent. A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent or abstention from the action taken shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the presiding officer of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. SECTION 13. Committees. The Board of Directors may, from time to time, appoint certain members to act in the intervals between meetings of the Board of Directors as a committee and may delegate to such committee powers and/or duties of the Board of Directors. In particular, the Board of Directors may create from its membership and define the powers and duties of an Executive Committee of not less than two (2) members. The Executive Committee, to the extent provided by resolution of the Board of Directors and the Kentucky Business Corporation Act, shall possess and may exercise all the powers of the Board of Directors. In every case, the affirmative vote of the majority or written consent of all the members of the Executive Committee shall be necessary for the approval of any action, but action may be taken by the Executive Committee without a formal meeting. The Executive Committee shall meet at the call of any members thereof and shall keep a written record of all actions taken by it. ARTICLE IV. OFFICERS SECTION 1. Number. The officers of the Corporation shall be a Chairman, President, as many vice Presidents as the Board of Directors deems appropriate, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. Such other officers and assistant officers, as may be deemed necessary, may be elected or appointed by the Board of Directors. No person shall be designated as an officer of the Corporation nor be entitled to hold himself or herself out to third parties as an officer of the Corporation unless such person has been elected by the Board of Directors to an office which, pursuant to the By-Laws or a resolution of the Board of Directors, is to be held only by an officer of the Corporation. SECTION 2. Election and Term of Office. The officers of the Corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as is practicable. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 3. Removal. Any officer or agent may be removed by the Board of Directors whenever, in its judgment, the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. SECTION 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise may be filled by the Board of Directors for the unexpired portion of the term. SECTION 5. Chairman of the Board of Directors ("Chairman"). The Chairman shall preside at all meetings of the Shareholders and Board of Directors and shall have responsibility for the preparation of all minutes of Directors and Shareholders meetings. Unless the Board of Directors determines otherwise, he shall perform the duties of Chief Executive Officer and, subject to the control of the Board of Directors, shall generally supervise and control all the business and affairs of the Corporation. He shall, when present, preside at all meetings of the shareholders and of the Board of Directors. He may sign, with the Secretary or any other proper officer of the Corporation thereunto authorized by the Board of Directors, certificates for shares of the Corporation, any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these By-Laws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed, and in general shall perform all duties incident to the office of Chairman and such other duties as may be prescribed by the Board of Directors from time to time. SECTION 6. President. In the absence of the Chairman, or if no Chairman is elected, or in the event of his death, inability or refusal to act, the President shall perform all the duties of the Chairman and, when so acting, shall have all the powers and be subject to all the restrictions placed upon the Chairman, except that if the President is not also a Director, he shall not preside at meetings of the shareholders and Directors, nor be responsible for the preparation of all minutes of such meetings unless specifically directed to do so by the Board of Directors. Unless the Board of Directors determines otherwise, he shall perform, subject to the general supervision of the Chairman, the duties of Chief Operating Officer, including the general supervision and control of all day-to-day business and affairs of the Corporation. SECTION 7. Vice President. Each Vice President shall perform such duties as, from time to time, may be assigned to him by the Chairman, the President, or by the Board of Directors. SECTION 8. Secretary. The Secretary shall: (a) keep the minutes of the proceedings of the shareholders and of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-Laws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized; (d) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (e) sign with the Chairman or President certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge cm the stock transfer book of the Corporation; and (g) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Chairman or President or by the Board of Directors. SECTION 9. Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the Corporation; (b) receive and give receipts for moneys due and payable to the Corporation from any source whatsoever and deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Article V of these By-Laws; and (c) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Chairman or President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. SECTION 10. Assistant Treasurers and Assistant Secretaries. (a) The Assistant Treasurer, if that office be created and filled, shall, if required by the Board of Directors, give bond for the faithful discharge of his duty in such sum and with such surety as the Board of Directors shall determine; (b) The Assistant Secretary, if that office be created and filled, and if authorized by the Board of Directors, may sign, with the Chairman or President or Vice President, certificates for shares of the Corporation; and (c) The Assistant Treasurers and Assistant Secretaries, in general, shall perform such additional duties as shall be assigned to them by the Treasurer or the Secretary, respectively, or by the Chairman of the Board, the President or the Board of Directors. SECTION 11. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a Director of the corporation. SECTION 12. Chief Executive Officer ("C.E.O."), Chief Operating Officer ("C.O.O."), Chief Financial Officer ("C.F.O."), Chief Accounting Officer ("C.A.O."), and Chief Compliance Officer ("C.C.O."). The duties of C.E.O., C.O.O., C.F.O., C.A.O., and C.C.O. may be assigned at the discretion of the Board of Directors to appropriate Officers of the Corporation; however the terms C.E.O., C.O.O., C.F.O., C.A.O., and C.C.O. shall constitute a description of duties and shall not constitute a corporate office. ARTICLE V. CONTRACT, LOANS, CHECKS AND DEPOSITS SECTION 1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. SECTION 2. Loans. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. SECTION 3. Checks, drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidence of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. SECTION 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies, or other depositaries as the Board of Directors may select. ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. Certificates for Shares. Certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman or President and by the Secretary or by such other officers authorized by law and by the Board of Directors so to do, and sealed with the corporate seal or its facsimile. All certificates for shares shall be consecutively numbered or otherwise identified, shall state, the name of the person to whom the certificate is issued and shall identify the class of shares and the designation of the series, if any, the certificate represents. The signatures of such officers upon such certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or registrar for the Corporation. The name and address of the person to whom the shares represented thereby are issued with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be canceled, and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate, a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. SECTION 2. Transfer of Shares. Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by Power of Attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. SECTION 3. Shares without Certificates. The Board of Directors may, in accordance with the Kentucky Business Corporation Act, authorize the issuance of some of all of the shares of any or all of the Corporation's classes or series of stock without certificates. ARTICLE VII. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Corporation shall, to the fullest extent permitted by, and in accordance with the provisions of, the Kentucky Business Corporation Act, indemnify each director or officer of the Corporation against expenses (including attorneys fees), judgments, taxes, fines and amounts paid in settlement, incurred by him in connection with, and shall advance expenses (including attorneys' fees) incurred by him in defending, any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative, or investigative) to which he is, or is threatened to be made, a party by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, employee or agent of another domestic or foreign corporation, partnership, joint venture, trust or other enterprise. After a determination that the facts then known to those making such determination would not reclude indemnification, and upon receipt of a written affirmation by the person seeking indemnification of his good faith belief that he has met the applicable standard of conduct, under the Kentucky Business Corporation Act, advancement of expenses shall be made upon receipt of a written undertaking, with such security, if any, as the Board of Directors or shareholders may reasonably require, by or on behalf of such person, to repay amounts advanced if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized herein. The indemnification provided for by this Article VII shall not be deemed exclusive of any other rights to which directors or officers of the Corporation may be entitled under any statute, agreement, by-law or action of the Board of Directors or shareholders of the Corporation, or otherwise, and shall continue as to a person who has ceased to be a director or officer of the corporation, and shall inure to the benefit of the heirs, executors and administrators of such a person. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, employee, or agent of another domestic or foreign corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in such capacity or arising out of his status as such, whether or not the Corporation would have the power or be obligated to indemnify him against such liability under the provisions of this Article VII or the Kentucky Business corporation Act. ARTICLE VIII. INDEMNIFICATION OF EMPLOYEE BENEFIT PLAN FIDUCIARIES The Corporation shall indemnify each director, officer, or employee of the Corporation who is, or is threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including actions by or in the right of the Corporation, by reason of the fact that such director, officer or employee is or was serving at the request of the Corporation as a "fiduciary" (as defined by Section 3 (21) (A) of the Employee Retirement Income Security Act of 1974 ("ERISA")) with regard to any employee benefit plan adopted by the Corporation, against expenses (including attorneys' fees), claims, fines, judgments, taxes, causes of action or liability and amounts paid in settlement, actually and reasonably incurred by him in connection with such action, or proceeding, unless such expense, claim, fine, judgment, taxes, cause of action, liability, or amount arose from his gross negligence, fraud or willful breach of his fiduciary responsibilities under ERISA, except, that with respect to any action by or in the right of the Corporation, indemnification shall be made only against expenses (including attorneys' fees). The Corporation shall advance all expenses (including attorneys' fees) incurred by any director, officer or employee in defending any such civil, criminal, administrative or investigative action, suit or proceeding pending the final disposition of such action, suit or proceeding, unless (a) the Board of Directors, by a majority vote of a quorum consisting of directors who were not or are not parties to the action, suit or proceeding concerned or (b) the shareholders determine that under the circumstances the person, by his conduct, is not entitled to indemnification because of his gross negligence, fraud or willful breach of his fiduciary responsibilities under ERISA. Advancement of expenses shall be made upon receipt of an undertaking, with such security, if any, as the Board of Directors or shareholders may reasonably require, by or on behalf of the director, officer or employee to repay such amounts unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized herein. To the extent that any director, officer or employee has been successful on the merits or otherwise in the defense of any action, suit or proceeding, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith and if he was advanced expenses by the Corporation, his undertaking shall be cancelled by the Corporation. If any action, suit or proceeding shall terminate by judgment or order adverse to the director, officer or employee, or settlement, conviction or upon a plea of nolo contendere or its equivalent, the Board of Directors, by a majority vote of a quorum consisting of directors who were not or are not parties to such action, suit or proceeding, or the shareholders, shall (unless ordered by a court to make indemnification) make a determination whether indemnification of the director, officer or employee is not proper in the circumstances because he has been guilty of gross negligence, fraud, or willful breach of his fiduciary responsibilities under ERISA. If the Board of Directors or shareholders shall determine that the person is entitled to indemnification, then he shall be indemnified against expenses (including attorneys' fees), claims, fines, judgments, taxes, causes of action or liability and amounts paid in settlement, actually and reasonably incurred by him in connection with such action, suit or proceeding and, if he was advanced expenses by the Corporation, his undertaking shall be cancelled. The termination of any action or proceeding by adverse judgment or order, conviction, settlement or plea of nolo contendere or the equivalent, shall not, of itself, create a presumption that the director, officer or employee was guilty of gross negligence, fraud or willful breach of his fiduciary responsibilities under ERISA. ARTICLE IX. FISCAL YEAR The fiscal year of the Corporation shall be determined by the Board of Directors. ARTICLE X. DISTRIBUTION The Board of Directors may from time to time declare, and the Corporation may pay, distributions on its outstanding shares in the manner and upon the terms and conditions provided by law and its Articles of Incorporation. ARTICLE XI. CORPORATE SEAL The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the Corporation and the state of incorporation and the words "Corporate Seal." ARTICLE XII. WAIVER OF NOTICE Unless otherwise provided by law, whenever any notice is required to be given to any shareholder or Director of the Corporation under the provisions of these By-Laws, or under the provisions of the Articles of Incorporation or under the provisions of the Kentucky Business Corporation Act, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XIII. AMENDMENTS The Board of Directors shall have the power and authority to alter, amend or repeal these By-Laws and to adopt new By-Laws, subject always to repeal or change by a two-thirds majority vote of all the shareholders entitled to vote thereon. EX-13 3 EXHIBIT 13 The following are the excerpted portions of the NS Group, Inc. Annual Report to Shareholders for the fiscal year ended September 30, 1995 which are expressly incorporated by reference into Form 10-K. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company operates in two separate business segments: specialty steel and industrial adhesives. Within the specialty steel segment are the operations of Newport Steel Corporation (Newport), a manufacturer of welded tubular steel products and hot rolled coils; Koppel Steel Corporation (Koppel), a manufacturer of seamless tubular steel products, special bar quality (SBQ) products and semi-finished steel products; and Erlanger Tubular Corporation (Erlanger), a tubular steel product finishing operation. The Company's specialty steel products consist of: (i) seamless and welded tubular goods primarily used in oil and natural gas drilling and production operations, (oil country tubular goods, or OCTG); (ii) line pipe used in the transmission of oil, gas and other fluids; (iii) SBQ products primarily used in the manufacture of heavy industrial equipment; and (iv) hot rolled coils which are sold to service centers and other manufacturers for further processing. Within the adhesives segment are the operations of Imperial Adhesives, Inc. (Imperial), a manufacturer of industrial adhesives products. See Note 13 to the Consolidated Financial Statements included herein for selected financial information by business segment for the fiscal years 1995, 1994 and 1993. In October 1993, the Company sold Kentucky Electric Steel Corporation (KES), a manufacturer of SBQ products, to a newly formed public company in exchange for $45.6 million in cash and 400,000 shares (approximately 8%) of the newly formed public company. Reference is made to Note 2 to the Consolidated Financial Statements concerning the Company's sale of KES and its pro forma effect on the Company's fiscal 1994 financial position and results of operations. The impact of KES on the Companys operating results for fiscal 1993 is reflected in the tables below and the following discussion. Recent Results During the fiscal 1995 fourth quarter ending September 30, 1995, the Company experienced numerous unexpected operational problems, principally at the Companys welded tubular facilities at Newport. Newports melt shop incurred an unusual number of unplanned outages during the quarter related to equipment breakdowns, lightning strikes and power curtailments due to weather conditions. As a result, steel production volume was significantly affected, limiting availability of steel to Newports hot strip mill and pipe mills. The excessive downtime throughout all of Newports operations resulted in low operating efficiencies, increased maintenance costs and lost sales opportunities during the quarter. Also impacting the quarter at Newport was a write-down of scrap inventory resulting from year end physical inventory counts. Shipments of Newports tubular products totaled 74,400 tons in the fourth quarter of fiscal 1995 compared to 78,700 tons in the third quarter of fiscal 1995 and 83,800 tons in the fourth quarter of fiscal 1994. For the same periods, average selling prices for all of Newports welded tubular products were $440, $457 and $429 per ton, respectively. The Company believes that the majority of the operational issues were limited to the fourth quarter; however, the Company expects certain additional costs will be incurred in the first quarter of fiscal 1996. The fiscal 1995 fourth quarter was also impacted by a decline in shipments of SBQ products from the Companys Koppel facilities, due to softening in market demand. SBQ shipments totaled 33,800 tons in the fourth quarter of fiscal 1995 compared to 45,100 tons in the third quarter of fiscal 1995 and 36,000 tons in the fourth quarter of fiscal 1994. For the same periods, average selling prices for SBQ products were $503, $503, and $441 per ton, respectively. Primarily as a result of the above factors, the Company recorded gross profit of $1.9 million on sales of $86.0 million for the fourth quarter, for a gross profit margin of 2.2%. The Company incurred a loss before extraordinary charge of $6.1 million, or a $.44 loss per share for the quarter. Reference is made to Note 14 of the Consolidated Financial Statements for information pertaining to quarterly financial data. Results of Operations The Company's net sales, cost of products sold and operating results by industry segment for each of the three fiscal years in the period ended September 30, 1995 are summarized below. Fiscal 1995 contains fifty-three weeks and fiscal years 1994 and 1993 contain fifty-two weeks. As such, the increases and decreases in operating results for the comparative periods, as discussed below, were partially attributable to the additional week of operations in fiscal 1995. (In thousands) 1995 1994 1993 Net sales Specialty steel, excluding KES $335,883 $270,441 $234,460 KES - - 90,547 Total specialty steel segment 335,883 270,441 325,007 Adhesives segment 35,469 32,939 28,075 $371,352 $303,380 $353,082 Cost of products sold Specialty steel, excluding KES $309,446 $252,880 $217,215 KES - - 71,468 Total specialty steel segment $309,446 252,880 288,683 Adhesives segment 27,824 25,281 21,903 $337,270 $278,161 $310,586 Operating income Specialty steel, excluding KES $ 10,428 $ 2,909 $ 4,094 KES - - 9,285 Total specialty steel segment 10,428 2,909 13,379 Adhesives segment 1,248 1,150 1,059 Corporate allocations and income (3,870) (3,370) (2,766) $ 7,806 $ 689 $ 11,672
Sales data for the Company's specialty steel segment for each of the three fiscal years in the period ended September 30, 1995 were as follows: 1995 1994 1993 Tons shipped Welded tubular 322,900 277,600 308,000 Seamless tubular $116,600 92,300 76,900 SBQ, excluding KES $169,000 147,900 102,500 Other 47,600 43,200 16,400 KES - - 244,400 656,100 561,000 748,200 Net sales ($000's) Welded tubular $145,330 $117,214 $125,132 Seamless tubular 90,926 72,675 62,535 SBQ, excluding KES 82,954 64,858 40,561 Other 16,673 15,694 6,232 KES - - 90,547 $335,883 $270,441 $325,007
Fiscal Year Ended September 30, 1995 Compared with Fiscal Year Ended September 24, 1994 Net sales in fiscal 1995 increased $68.0 million, or 22.4%, from fiscal 1994, to $371.4 million. Specialty steel net sales increased $65.4 million, or 24.2%, and the adhesive segment net sales increased $2.5 million, or 7.7%, from fiscal 1994. The overall increase in specialty steel segment net sales was the result of both higher average selling prices and increased shipment levels as more fully discussed below. Welded tubular net sales increased $28.1 million, or 24.0%, on a volume increase of 16.3%. The increase in welded tubular net sales was partially attributable to improved average selling prices for both welded OCTG and line pipe products as well as an increase in shipments. Fiscal 1995 average selling price for all welded tubular products increased 6.6% over fiscal 1994. The Companys fiscal 1995 average selling price for its welded tubular products was positively affected by stronger pricing for hot rolled coils in the steel industry in general. Seamless tubular net sales increased $18.3 million, or 25.1%, on a volume increase of 26.3%. The increase in seamless tubular net sales was partially attributable to an increase in shipments, which resulted in part from product line expansion in fiscal 1995 as well as from the favorable final rulings in the Trade Cases discussed below. Fiscal 1995 average selling price for all seamless tubular products declined less than 1% from fiscal 1994, due almost entirely to changes in product mix, including the introduction of new seamless OCTG products with lower average selling prices. Fiscal 1995 average selling price for seamless OCTG products decreased 1.9%, while seamless line pipe average selling price increased 6.9% from fiscal 1994. The demand for the Companys OCTG products is cyclical in nature, being dependent on the number and depth of oil and natural gas wells being drilled in the United States. The level of drilling activity is largely a function of the current prices of oil and natural gas and the industrys future price expectations. Demand for OCTG products is also influenced by the levels of inventory held by producers, distributors and end users. In addition, the demand for OCTG products produced domestically is also significantly impacted by the level of foreign imports of OCTG products. The level of OCTG imports is affected by: (i) the value of the U.S. dollar versus other key currencies; (ii) overall world demand for OCTG products; (iii) the production cost competitiveness of domestic producers; (iv) trade practices of, and government subsidies to, foreign producers; and (v) the presence or absence of governmentally imposed trade restrictions in the United States. The average number of oil and natural gas drilling rigs in operation in the United States (rig count) decreased 5.7% from 783 in fiscal 1994 to 738 in fiscal 1995. In response to the rising level of foreign imports of OCTG products, on June 30, 1994, the Company and six other U.S. steel companies filed antidumping petitions against imports of OCTG products from seven foreign nations (the Trade Cases). The Trade Cases asked the U.S. government to take action to offset injury to the domestic OCTG industry from unfairly traded imports. The antidumping petitions were filed against OCTG imports from Argentina, Austria, Italy, Japan, Korea, Mexico and Spain. The Company also joined in filing countervailing duty cases charging subsidization of OCTG imports from Austria and Italy. In July 1995, following evaluation of determinations made by the International Trade Administration of the United States Department of Commerce, the International Trade Commission (ITC) announced final affirmative determinations, resulting in the collection of duties by the Customs Service on imports of OCTG and drill pipe products from Argentina, Japan and Mexico, and OCTG products (other than drill pipe) from Italy and Korea. No duties were imposed on OCTG and drill pipe imports from Austria and Spain because the ITC issued negative determinations. Several foreign OCTG producers, as well as certain U.S. producers, have appealed the determinations to international courts or panels. The Company cannot predict the outcome or timing of these appeals at this time. SBQ product net sales increased $18.1 million, or 27.9%, on a volume increase of 14.3%. Fiscal 1995 average selling price for SBQ products increased 11.8%. SBQ product volume and prices increased as a result of stronger market demand in fiscal 1995 than in fiscal 1994. Selling prices were also favorably impacted in fiscal 1995 as a result of the implementation of surcharges to recover increases in certain raw material costs. Other product shipments and sales for fiscal 1995 were primarily attributable to shipments of hot rolled coils. The demand for the Companys SBQ and hot rolled coil products is cyclical in nature and is sensitive to general economic conditions. The demand for and the pricing of the Companys SBQ and hot rolled coil products is also affected by economic trends in areas such as commercial and residential construction, automobile production and industrial investment in new plants and facilities. The adhesives segment net sales increased $2.5 million, or 7.7%, primarily as a result of improved pricing. Gross profit for fiscal 1995 increased $8.9 million from fiscal 1994 for a gross profit margin of 9.2% compared to 8.3% in fiscal 1994. The specialty steel segment accounted for nearly all of the increase in gross profit and had a gross margin of 7.9% in fiscal 1995 versus 6.5% in fiscal 1994. The increase in specialty steel segment gross profit and margin was a result of improved operating efficiencies for the full fiscal year comparative periods resulting from increased production volume, as well as increases in average selling prices, as discussed above. The adhesives segment gross profit was unchanged from fiscal 1994 and gross profit margin declined from 23.2% in fiscal 1994 to 21.6% in fiscal 1995, primarily as a result of higher raw material costs. Selling and administrative expenses increased $1.7 million from fiscal 1994 but declined as a percentage of sales from 8.1% in fiscal 1994 to 7.1% in fiscal 1995. The overall increase in selling and administrative expenses was primarily attributable to increased production and sales volumes as well as costs incurred in connection with litigation settled in fiscal 1995. As a result of the above factors, operating income increased $7.1 million, from $0.7 million in fiscal 1994 to $7.8 million in fiscal 1995. The specialty steel segment earned an operating profit of $10.4 million for fiscal 1995 compared to $2.9 million for fiscal 1994. The improvement in operating results from the prior year was primarily due to an overall increase in shipments as well as increased selling prices and improved operating efficiencies resulting from increased production volume. The Companys fiscal 1995 specialty steel segment operating results were negatively impacted by a number of operational problems experienced in the fourth fiscal quarter. See Recent Results. The adhesives segment earned an operating profit of $1.2 million, unchanged from fiscal 1994. Interest expense increased $0.8 million over fiscal 1994 as a result of higher interest costs associated with the Companys Senior Secured Notes issued in the fourth quarter of fiscal 1995. Other income, net increased $1.9 million over fiscal 1994, primarily due to the recording of property claims filed with the Companys insurance carrier in connection with a motor failure at Newport in the fiscal 1995 second quarter. As a result of the above factors, the fiscal 1995 loss before extraordinary item was $5.1 million, or a $.36 loss per share, compared to net income of $13.2 million in fiscal 1994, or $.96 per share. Fiscal 1994 net income includes a one-time, after-tax gain on the sale of KES of $21.5 million, or $1.56 per share, and income of $1.7 million, or $.12 per share, relating to the adoption of a new accounting standard. Excluding these items, the Company incurred a $10.0 million loss, or a $.72 loss per share, for fiscal 1994. In connection with a fiscal 1995 fourth quarter refinancing, the Company incurred prepayment costs and wrote off unamortized debt issuance costs, which resulted in an extraordinary charge of $5.2 million, net of applicable income tax benefit of $2.8 million, or $.38 per share. See Note 5 to the Consolidated Financial Statements. Fiscal Year Ended September 24, 1994 Compared with Fiscal Year Ended September 25, 1993 Fiscal 1994 specialty steel net sales, excluding KES, increased $36.0 million, or 15.3% from fiscal 1993. Total specialty steel net sales declined $54.6 million, or 16.8% from fiscal 1993, primarily due to the sale of KES, which had fiscal 1993 net sales of $90.5 million. Welded tubular net sales declined $7.9 million, or 6.3% on a volume decline of 9.9%. Fiscal 1994 welded tubular net sales were negatively impacted by a decline in second quarter shipments that resulted primarily from customers' resistance to announced price increases. Second quarter welded tubular net sales declined $7.9 million on a volume decline of 29.8% from the second quarter of fiscal 1993. The Company adjusted its selling prices in response to the decline and volume increased in the third quarter. Fiscal 1994 average selling prices for all welded tubular products increased 3.9% from 1993. Seamless tubular net sales increased $10.1 million, or 16.2% on a volume increase of 20.0%. The increase in seamless tubular net sales resulted primarily from an increase in shipments of seamless OCTG due in part to Koppel's increased recognition in the marketplace. Fiscal 1994 average selling prices for all seamless tubular products declined 3.2% due in part to an increased level of foreign imports of seamless OCTG in fiscal 1994. The average rig count increased 3.4%, from 757 for fiscal 1993 to 783 for fiscal 1994. The effects of this increase were offset by an increased level of imported tubular products resulting in downward pressure on tubular product prices for most of fiscal 1994. SBQ product net sales, excluding KES, increased $24.3 million, or 59.9% on a volume increase of 44.3%. SBQ product average selling prices increased 10.9% from fiscal 1993. SBQ product volume and prices increased as a result of stronger market demand over the prior year, combined with Koppel's increased recognition in the marketplace. The increase in net sales of "other" products was primarily attributable to an increase in shipments of hot rolled coils, which was a result of stronger market demand for this product over the prior year. Adhesives segment net sales increased $4.9 million, or 17.3%. The increase in adhesives segment net sales over the prior year was primarily the result of expansion of product lines acquired in fiscal 1993. Consolidated gross profit decreased $17.3 million from fiscal 1993 for a gross profit margin of 8.3% compared to 12.0% in fiscal 1993. The decline in gross profit and margin was primarily due to the sale of KES. KES had gross profit in fiscal 1993 of $19.1 million. Gross profit for the specialty steel segment, excluding KES, increased $0.3 million from fiscal 1993 for a gross profit margin of 6.5% compared to 7.4% in fiscal 1993. The decline in gross profit margin was partially attributable to a 20.6% increase in the Company's average steel scrap costs over fiscal 1993. The Company recovered a portion of the increase through higher selling prices for its SBQ products and hot rolled coils; however, it was generally unsuccessful in passing the increases in scrap costs through to tubular product customers. Newport and Erlanger's gross profit declined $5.3 million primarily as a result of increased steel scrap costs and the decline in welded tubular shipments as previously discussed as well as increased maintenance costs due to severe winter weather in the second fiscal quarter. Koppel's gross profit increased $5.4 million which was primarily attributable to improved operating efficiencies due to greater production and sales volume of SBQ and seamless tubular products, as previously discussed. These improvements were partially offset by increased steel scrap costs, lower seamless tubular average selling prices and the effects of severe winter weather conditions in the second fiscal quarter. The adhesives segment gross profit increased $1.5 million from fiscal 1993 for a gross profit margin of 23.2%, compared to 22.0% in fiscal 1993. The increase in gross profit and margin was primarily due to increased volume and improved selling prices. Selling and administrative expenses declined primarily as a result of the sale of KES and declined as a percentage of net sales from 8.7% in fiscal 1993 to 8.1% in fiscal 1994. As a result of the above factors, total specialty steel segment operating income declined $11.0 million, primarily due to the sale of KES, which had fiscal 1993 operating income of $9.3 million. The specialty steel segment, excluding KES, earned an operating profit of $2.9 million in fiscal 1994 compared to $4.1 million in fiscal 1993. Of the $2.9 million specialty steel operating profit, Newport and Erlanger incurred a $6.1 million operating loss, compared to a $0.8 million loss in fiscal 1993; and Koppel earned a $9.0 million operating profit, compared to a $4.8 million operating profit in fiscal 1993. The adhesives segment earned an operating profit of $1.2 million, virtually unchanged from fiscal 1993. Interest income increased $1.5 million primarily due to an increase in average cash and short-term investment balances that resulted primarily from the sale of KES. Interest expense decreased $1.1 million, primarily as a result of a decrease in long-term debt obligations, partially offset by an increase in the average borrowings and interest rates under the Company's lines of credit. Other income increased $1.3 million primarily due to income on the sale of equipment. The sale of KES in the first quarter of fiscal 1994 resulted in a pre-tax gain of $35.3 million and increased net income and earnings per common share by $21.5 million and $1.56, respectively. See Note 2 to the Consolidated Financial Statements included herein. As a result of the above factors, income before extraordinary item and cumulative effect of a change in accounting principle was $11.5 million, or $.84 per share, for fiscal 1994, compared to a loss of $5.9 million, or a $.44 loss per share, for fiscal 1993. Excluding the effect of the after-tax gain on the sale of KES, the Company incurred a $10.0 million loss before cumulative effect of a change in accounting principle, or a $.72 loss per share, for fiscal 1994. The increase in the fiscal 1994 loss over fiscal 1993 was primarily attributable to the decline in sales in second quarter as well as the absence of operating earnings from KES in fiscal 1994, as discussed above. See Liquidity and Capital Resources - Other Matters - Environmental Matters for a discussion of the fiscal 1993 extraordinary charge. In the first quarter of fiscal 1994, the Company recorded an increase to net income of $1.7 million, or $.12 per share, for the cumulative effect of the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109). The adoption of Statement 109 had no impact on cash flow for fiscal 1994. A valuation allowance has not been recorded against deferred tax assets as it is estimated that such deferred tax assets will be realized through a reduction of taxes otherwise payable upon the reversal of existing taxable temporary differences. See Note 11 to the Consolidated Financial Statements included herein. During the first quarter of fiscal 1994, the Company also adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (Statement 115). Statement 115 requires the Company to mark certain of its investments to market either through the income statement or directly to common shareholders' equity, depending on the nature of the investment. The impact on the Company's financial statements from the adoption of Statement 115 was not material. Liquidity and Capital Resources In July 1995, the Company completed a public offering (Offering) for the sale of $131.1 million principal amount of 13.5% Senior Secured Notes due 2003 (Notes) together with warrants (Warrants) to purchase approximately 1.5 million shares of the Companys common stock at $4.00 per share. The Notes, together with the Warrants, were priced at 95.35%. Interest on the Notes is payable semi-annually. The Warrants are exercisable beginning in January 1996 and, unless exercised, will automatically expire in July 2003. Proceeds from the sale of the Notes and Warrants of approximately $120.8 million, after underwriting discount and before expenses, together with available cash on hand, were used to retire a substantial portion of the Companys outstanding indebtedness, including borrowings under its lines of credit. The Notes are guaranteed in full by each subsidiary of NS Group, Inc. and are secured by the property, plant and equipment of the Companys steel-making operations. The Indenture relating to the Notes contains a number of restrictive covenants including, among other things, limitations on the ability of the Company to incur additional indebtedness; create liens; make certain restricted payments, including dividends; engage in certain transactions with affiliates; engage in sale and leaseback transactions; dispose of assets; issue or sell stock of its subsidiaries; enter into agreements that restrict the ability of its subsidiaries to pay dividends and make distributions; engage in mergers, consolidations and transfers of substantially all of the Companys assets; and make certain investments, loans and advances. Contemporaneously with the Offering, the Company entered into a new $45.0 million revolving credit facility (Credit Facility) and terminated its previous revolving credit agreements. Borrowings are secured by inventory and accounts receivable and interest accrues at a rate per annum of (a) the sum of the alternate base rate (which is the higher of prime rate or 0.5% over the federal funds rate) plus 1% with respect to domestic rate loans or (b) the sum of the Eurodollar rate (based on LIBOR) plus 2.75% with respect to Eurodollar rate loans. Borrowings are due on demand and are limited to defined percentages of eligible inventory and accounts receivable. The Credit Facility contains financial covenants including maintenance of minimum net worth, minimum interest coverage ratios, maximum ratios of indebtedness to net worth, and minimum current ratio and working capital requirements. The Credit Facility also includes restrictions upon dividends, investments, capital expenditures, indebtedness and the sale of certain assets. At September 30, 1995, approximately $5.0 million of the Credit Facility was utilized to collateralize various letters of credit and $40.0 million was available for borrowing. The Credit Facility expires in fiscal 1998. The Companys annual long-term debt maturities are $1.9 million in fiscal 1996, $2.5 million in fiscal 1997, $3.6 million in fiscal 1998, $2.3 million in fiscal 1999 and $0.7 million in fiscal 2000. Reference is made to Note 5 to the Consolidated Financial Statements for further information concerning the Companys long-term debt and Credit Facility. Pursuant to the Companys debt agreements, it is currently prohibited from paying dividends to its shareholders. Working capital at September 30, 1995 was $65.9 million compared to $45.2 million at September 24, 1994. The current ratio at September 30, 1995 was 2.15 to 1 compared to 1.50 to 1 at September 24, 1994. At September 30, 1995, the Company had cash and short-term investments totaling $11.3 million, $2.8 million of which was restricted in an environmental trust account related to a permitted hazardous waste disposal facility located on the Companys property at Newport. The increase in working capital and the current ratio was due in large part to the repayment of its lines of credit with proceeds from the Offering. Net cash flow used in operating activities totaled $4.2 million in fiscal 1995. The Company incurred a loss before extraordinary charge in fiscal 1995 of $5.1 million compared to a net loss before the effect of the gain on the sale of KES and a change in accounting principle of $10.0 million in fiscal 1994. Major uses of cash in operating activities for fiscal 1995 included a $3.2 million increase in trade accounts receivable and a $12.4 million increase in inventories resulting from an increase in business activity and, for the increase in inventories, unusually low levels at fiscal 1994 year end due to scheduled maintenance at Newport. Other major uses include a decrease in long-term deferred taxes and an increase in refundable income taxes, both resulting from the fiscal 1995 net loss, including the extraordinary charge for prepayment costs and a non-cash cost for the write-off of unamortized debt issuance costs. Offsetting these uses were $21.3 million in non-cash depreciation and amortization charges and increases in accounts payable and accrued liabilities of $5.6 million and $2.9 million, respectively. Net cash flow used in operating activities totaled $4.3 million in fiscal 1994. Major components include a $10.0 million net loss before the effect of the gain on the sale of KES and the adoption of Statement 109, a $7.9 million increase in accounts receivable, a $1.2 million decrease in long-term deferred taxes and a $3.2 million increase in inventories. Partially offsetting these uses of operating cash flow were non-cash depreciation and amortization charges of $18.8 million, a decrease in refundable income taxes and other current assets of $2.6 million and $2.7 million, respectively, and an increase in accounts payable of $5.8 million. The increases in accounts receivable, inventories and accounts payable were primarily attributable to the increase in business activity in the specialty steel segment. Other current assets decreased primarily due to the receipt of insurance claims recorded in fiscal 1993. Cash flows from operating activities were also reduced by $4.9 million for income taxes paid, which resulted from the sale of KES. Net cash flows from operating activities were $2.4 million in fiscal 1993. Major uses of cash in operating activities in fiscal 1993 included a net loss of $7.0 million, an increase in accounts receivable of $11.5 million, resulting primarily from an increase in business activity in the specialty steel segment, and an increase in other current assets of $7.2 million, resulting primarily from the recording of insurance claims. Increases in operating cash flows resulted from increases in accounts payable and accrued liabilities of $1.0 million and $6.8 million, respectively, which were primarily attributable to the increase in business activity in the specialty steel segment and the recording of environmental remediation liabilities. The Company incurred $13.7 million, $11.8 million and $6.1 million in capital expenditures during fiscal 1995, 1994 and 1993, respectively. Such capital expenditures were primarily related to improvements to and acquisitions of machinery and equipment in the specialty steel segment. Included in total capital spending for fiscal 1995, 1994 and 1993 was $0.2 million, $0.8 million and $0.3 million, respectively, related to the Companys environmental control facilities. The Company currently estimates that fiscal 1996 capital spending will approximate fiscal 1995 spending. It is anticipated that capital spending will be funded through cash flow from operations and available borrowing sources as well as available cash and short-term investments. Short-term investments decreased $33.7 million in fiscal 1995, due in large part to operating losses, an increase in net working capital, as well as approximately $10.7 million used in connection with the fiscal 1995 fourth quarter refinancing. As a result of the sale of KES in the first quarter of fiscal 1994, the Company received $45.6 million in cash and $4.8 million in common stock of the new entity. In addition, the Company received $6.8 million in cash from the new entity in satisfaction of a dividend declared by KES prior to the sale. The Company intends to hold as an available-for-sale investment the common stock acquired in the sale of KES. As of September 30, 1995 and September 24, 1994, such common stock was recorded at $3.6 million and $4.6 million, respectively, and resulted in a direct after-tax charge to common shareholders equity of $0.6 million in fiscal 1995. Net cash flow used by financing activities in fiscal 1995 of $17.6 million includes the net effect of the fiscal 1995 fourth quarter refinancing, including $6.3 million in debt issuance costs, as well as $14.2 million in scheduled payments on long-term debt obligations made prior to the refinancing. Net cash flows used by financing activities were $4.4 million in fiscal 1994. During fiscal 1994, the Company made payments on long-term debt obligations of $7.2 million and increased its borrowings under its lines of credit by $1.9 million. Cash flows from financing activities in fiscal 1993 included net repayments on long-term debt obligations of $7.9 million and increased borrowings under the Companys lines of credit of $6.3 million. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $31.1 million for fiscal 1995, $21.6 million for fiscal 1994 (excluding the gain on the sale of KES) and $30.4 million for fiscal 1993. EBITDA is calculated as income before extraordinary items and the cumulative effect of a change in accounting principle plus interest expense, taxes, depreciation and amortization. The Company believes that its current available cash and short-term investments, its cash flow from operations and borrowing sources will be sufficient to meet its anticipated operating cash requirements, including capital expenditures, for at least the next twelve months. Inflation The Company believes that inflation has not had a material effect on its results of operations to date. Generally, the Company experiences inflationary increases in its costs of raw materials, energy, supplies, salaries and benefits and selling and administrative expenses. Except with respect to significant increases in steel scrap prices as discussed herein, the Company has generally been able to pass these inflationary increases through to its customers. Other Matters Legal Matters The Company is subject to various claims, lawsuits and administrative proceedings arising in the ordinary course of business with respect to commercial, product liability and other matters, which seek remedies or damages. 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 (the 1990 Amendments), the Clean Water Act and all regulations promulgated in connection therewith, including, among others, 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 similar 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 resulting from 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. The Company also has on its property at Newport a permitted hazardous waste disposal facility. In March 1995, Koppel and the EPA signed a Consent Order relating to an April 1990 RCRA facility assessment (the Assessment) completed by the EPA and the Pennsylvania Department of Environmental Resources. The Assessment was performed in connection with a permit application pertaining to a landfill that is adjacent to the Koppel facilities. The Assessment identified potential releases of hazardous constituents at or adjacent to the Koppel facilities prior to the Companys acquisition of the Koppel facilities. The Consent Order establishes a schedule for investigating, monitoring, testing and analyzing the potential releases. Contamination documented as a result of the investigation will require cleanup measures and certain remediation has begun. Pursuant to various indemnity provisions in agreements entered into at the time of the Companys acquisition of the Koppel facilities, certain parties have agreed to indemnify the Company against various known and unknown environmental matters. While such parties have not at this time acknowledged full responsibility for potential costs under the Consent Order, the Company believes that the indemnity provisions provide for it to be fully indemnified against all matters covered by the Consent Order, including all associated costs, claims and liabilities. In two separate incidents occurring in fiscal 1993 and 1992, radioactive substances were accidentally melted at Newport, resulting in the contamination of the melt shops electric arc furnace emission control facility, or baghouse facility. The occurrences of the accidental melting of radioactive materials have not resulted in any notice of violations from federal or state environmental regulatory agencies. The losses and costs incurred in 1993, net of insurance claims, resulted in an extraordinary charge of $1.1 million, net of applicable income tax benefit of $0.7 million, or an $.08 loss per share. The Company is investigating and evaluating various issues concerning storage, treatment and disposal of the radiation contaminated baghouse dust; however a final determination as to method of treatment and disposal, cost and further regulatory requirements cannot be made at this time. Depending on the ultimate timing and method of treatment and disposal, which will require appropriate federal and state regulatory approval, the actual cost of disposal could substantially exceed current estimates and the Companys insurance coverage. The Company expects to recover and has recorded a $2.3 million receivable relating to insurance claims for the recovery of disposal costs which will be filed with the Companys insurance company at the time such disposal costs are incurred. As of September 30, 1995, claims recorded in connection with disposal costs exhaust available insurance coverage. Based on current knowledge, management believes the recorded gross reserves of $4.4 million for disposal costs pertaining to these incidents are adequate. Subject to the uncertainties concerning the Consent Order and the storage and disposal of the radiation contaminated dust, the Company believes that it is currently in compliance with all known material and applicable environmental regulations. Regulations under the 1990 Amendments to the Clean Air Act that will pertain to the Companys operations are currently not expected to be promulgated until 1997 or later. The Company cannot predict the level of required capital expenditures or operating costs resulting from future environmental regulations such as those forthcoming as a result of the 1990 Amendments. However, the Company believes that while the 1990 Amendments may require additional expenditures, such expenditures will not have a material impact on the Companys business or consolidated financial position for the foreseeable future. Capital expenditures for the next twelve months relating to environmental control facilities are not expected to be material, however, such expenditures could be influenced by new and revised environmental regulations and laws. As of September 30, 1995, the Company had environmental remediation reserves of $4.5 million, of which $4.4 million pertain to accrued disposal costs for radiation contaminated baghouse dust. As of September 30, 1995, the possible range of estimated losses related to the environmental contingency matters discussed above in excess of those accrued by the Company is $0 to $3.0 million; however, with respect to the Consent Order, the Company cannot estimate the possible range of losses should the Company ultimately not be indemnified. 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 Companys consolidated financial position, results of operations or cash flows. However, the Company cannot predict with certainty that new information or developments with respect to the Consent Order or its other environmental contingency matters, individually or in the aggregate, will not have a material adverse effect on the Companys consolidated financial position, results of operations or cash flows. Recently Issued Accounting Standards In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121 (Statement 121) on accounting for the impairment of long-lived assets to be held and used. Statement 121 also establishes accounting standards for long-lived assets that are to be disposed. Statement 121 is required to be applied prospectively for assets to be held and used. The initial application of Statement 121 to assets held for disposal is required to be reported as the cumulative effect of a change in accounting principle. The Company is required to adopt Statement 121 no later than fiscal 1997. The Company has not yet determined when it will adopt Statement 121 and the impact, if any, that the adoption will have on its financial position or results of operations. In October 1995, the FASB issued Statement No. 123 (Statement 123) establishing financial accounting and reporting standards for stock-based employee compensation plans. Statement 123 encourages the use of the fair value based method to measure compensation cost for stock-based employee compensation plans, however, it also continues to allow the intrinsic value based method of accounting as prescribed by APB Opinion No. 25, which is currently used by the Company. If the intrinsic value based method continues to be used, Statement 123 requires pro forma disclosures of net income and earnings per share, as if the fair value based method of accounting had been applied. The fair value based method requires compensation cost be measured at the grant date based upon the value of the award and recognized over the service period, which is normally the vesting period. The Company is required to adopt Statement 123 no later than fiscal 1997. The Company has not yet determined when it will adopt Statement 123 or the valuation method it will use. CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended September 30, 1995, September 24, 1994 and September 25, 1993 (Dollars in thousands, except per share amounts) 1995 1994 1993 Net sales $371,352 $303,380 $353,082 Cost of products sold 337,270 278,161 310,586 Selling and administrative expenses 26,276 24,530 30,824 Operating income 7,806 689 11,672 Interest income 1,341 1,733 277 Interest expense (20,796) (20,030) (21,096) Other income (expense) 3,053 1,191 (131) Gain on sale of subsidiary - 35,292 - Income (loss) before income taxes, extraordinary items and cumulative effect of a change in accounting principle (8,596) 18,875 (9,278) Provision (credit) for income taxes (3,540) 7,382 (3,382) Income (loss) before extraordinary items and cumulative effect of a change in accounting principle (5,056) 11,493 (5,896) Extraordinary items, net of income taxes (5,200) - (1,095) Cumulative effect of a change in accounting principle - 1,715 - Net income (loss) $(10,256)$ 13,208 $ (6,991) Per common share Income (loss) before extraordinary items and cumulative effect of a change in accounting principle $(.36) $.84 $(.44) Extraordinary items (.38) - (.08) Cumulative effect of a change in accounting principle $ - .12 - Net income (loss) $(.74) $.96 $(.52) Weighted average shares outstanding (000s) 13,809 13,789 13,553
See notes to consolidated financial statements CONSOLIDATED BALANCE SHEETS September 30, 1995 and September 24, 1994 (Dollars in thousands) ASSETS 1995 1994 Current assets Cash and cash equivalents $ 4,838 $ 4,405 Short-term investments 6,413 40,071 Accounts receivable, less allowance for doubtful accounts of $1,021 and $637, respectively 45,858 42,651 Refundable income taxes 3,130 195 Inventories 44,716 32,290 Operating supplies and other current assets 13,525 11,721 Deferred tax assets 4,842 4,877 Total current assets 123,322 136,210 Property, plant and equipment -- at cost Land and buildings 30,110 27,841 Machinery and equipment 242,530 231,383 Construction in progress 3,622 3,497 Less -- accumulated depreciation (120,887) (102,182) Net property, plant and equipment 155,375 160,539 Other assets 19,800 18,578 Total assets $298,497 $315,327 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable $ 509 $ 28,872 Accounts payable 32,897 27,312 Accrued liabilities 22,167 19,281 Current portion of long-term debt 1,872 15,543 Total current liabilities 57,445 91,008 Long-term debt 166,528 138,110 Deferred taxes 6,414 9,745 Common shareholders' equity Common stock, no par value, 40,000,000 shares authorized, 13,809,413 shares issued and outstanding for each period 49,004 48,988 Common stock options and warrants 2,737 262 Unrealized loss on available for sale securities (713) (124) Retained earnings 17,082 27,338 Common shareholders' equity 68,110 76,464 Total liabilities and shareholders' equity $298,497 $315,327
See notes to consolidated financial statements CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended September 30, 1995, September 24, 1994 and September 25, 1993 (Dollars in thousands) 1995 1994 1993 Cash flows from operating activities: Net income (loss) $(10,256) $13,208 $ (6,991) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation and amortization 18,941 18,154 18,537 Amortization of debt discount and finance costs 2,370 635 556 Decrease in long-term deferred taxes (2,970) (1,157) (1,998) Gain on sale of subsidiary - (35,292) - (Gain) loss on disposal of equipment (470) (230) 323 Increase in accounts receivable, net (3,207) (7,921) (11,461) (Increase) decrease in inventories (12,426) (3,168) 906 (Increase) decrease in refundable income taxes (2,935) 2,618 2,012 (Increase) decrease in other current assets (1,753) 2,691 (7,203) Increase in accounts payable 5,585 5,782 958 Increase in accrued liabilities 2,886 351 6,753 Net cash flows from operating activities (4,235) (4,329) 2,392 Cash flows from investing activities: (Increase) decrease in short-term investments 33,658 (36,614) 208 Purchases of property, plant and equipment (13,730) (11,760) (6,080) Proceeds from sale of equipment 494 631 619 (Increase) decrease in other assets 1,892 (2,122) 999 Proceeds from sale of subsidiary - 50,426 - Cash dividend from sold subsidiary - 6,818 - Net cash flows from investing activities 22,314 7,379 (4,254) Cash flows from financing activities: Increase (decrease) in notes payable (28,363) 1,905 6,286 Proceeds from issuance of long-term debt 122,587 431 2,012 Proceeds from issuance of warrants 2,411 - - Repayments on long-term debt (107,950) (7,246) (9,896) Increase in debt issuance costs (6,331) (236) (388) Proceeds from issuance of common stock - 704 931 Net cash flows from financing activities (17,646) (4,442) (1,055) Net increase (decrease)in cash and cash equivalents 433 (1,392) (2,917) Cash and cash equivalents at beginning of year 4,405 5,797 8,714 Cash and cash equivalents at end of year $ 4,838 $ 4,405 $ 5,797 Cash paid during the year for: Interest $20,385 $18,964 $18,434 Income taxes, net of refunds $ 209 $ 2,297 $ (3,847)
See notes to consolidated financial statements CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY For the years ended September 30, 1995, September 24, 1994 and September 25, 1993 (Dollars in thousands) Unrealized Gain (Loss) Options on Available Common Stock and for Shares Amount Warrants Sale Securities Balance, September 26, 1992 13,504,557 $47,353 $ 100 Stock option plans 48,750 181 108 Common stock issuance 142,797 750 Net loss Balance, September 25, 1993 13,696,104 $48,284 $ 208 $ - Stock option plans 56,145 290 54 Common stock issuance 57,164 414 Unrealized losses on investments (124) Net income Balance, September 24, 1994 13,809,413 $48,988 $262 $(124) Stock option plans 64 Issuance of common stock warrants 2,411 Unrealized losses on investments (589) Other 16 Net loss Balance, September 30, 1995 13,809,413 $49,004 $2,737 $(713)
See notes to consolidated financial statements CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY For the years ended September 30, 1995, September 24, 1994 and September 25, 1993 (Dollars in thousands) Retained Earnings Total Balance, September 26, $21,121 $68,574 Stock option plans 289 Common stock issuance 750 Net loss (6,991) (6,991) Balance, September 25, 1993 $14,130 $62,622 Stock option plans 344 Common stock issuance 414 Unrealized losses on investments (124) Net income 13,208 13,208 September 24, 1994 $27,338 $76,464 Stock option plans 64 Issuance of common stock warrants 2,411 Unrealized losses on investments (589) Other 16 Net loss (10,256) (10,256) Balance, September 30, 1995 $17,082 $68,110
See notes to consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of NS Group, Inc. and its wholly-owned subsidiaries (the Company): Newport Steel Corporation (Newport), Koppel Steel Corporation (Koppel), Erlanger Tubular Corporation (Erlanger), Imperial Adhesives, Inc. (Imperial), Northern Kentucky Management, Inc. and Northern Kentucky Air, Inc. See Note 2 regarding the sale of Kentucky Electric Steel Corporation in fiscal 1994. All significant intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents Cash includes currency on hand and demand deposits with financial institutions. Cash equivalents consist of investments with original maturities of three months or less. Amounts are stated at cost, which approximates market value. Short-Term and Other Investments Short-term investments consist primarily of money market mutual funds and U.S. treasury securities, for which market value approximates cost. At September 30, 1995, approximately $2.8 million in short-term investments were restricted in an environmental trust account related to a permitted hazardous waste disposal facility located on the Companys property at Newport. Certain of the Companys investments are classified as available for sale and are recorded at current market value with an offsetting adjustment to common shareholders equity. Inventories At September 30, 1995 and September 24, 1994, inventories stated at the lower of LIFO (last-in, first-out) cost or market represent approximately 31% and 27% of total inventories before the LIFO reserve, respectively. All other inventories are stated at the lower of average cost or market, or the lower of FIFO cost or market. Inventory costs include labor, material and manufacturing overhead. Inventories consist of the following components: (In thousands) 1995 1994 Raw materials $ 6,591 $ 6,699 Semi-finished and finished goods 40,570 27,695 47,161 34,394 LIFO reserve $(2,445) (2,104) Total inventories $44,716 $32,290
Property, Plant and Equipment and Depreciation For financial reporting purposes, plant and equipment are depreciated on a straight-line method over the estimated useful lives of the assets. Depreciation claimed for income tax purposes is computed by use of accelerated methods. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures for equipment renewals which extend the life of an asset are capitalized. Included in property, plant and equipment at September 30, 1995, are assets with a net book value of approximately $5.3 million which are not currently being used in the business. In managements opinion, the carrying values of such assets are realizable. Income Taxes At September 30, 1995 and September 24, 1994, deferred income tax balances represent the estimated future tax effects of temporary differences between the financial reporting basis and the tax basis of certain assets and liabilities. In fiscal 1993, the provision for deferred income taxes represents the tax effect of income and expense items reported in one period for financial statement purposes and in another period for tax reporting purposes. See Note 11. Environmental Remediation and Compliance Environmental remediation costs are accrued, except to the extent capitalizable, when incurrence of such costs is probable and the costs can be reasonably estimated. Environmental compliance costs include maintenance and operating costs associated with pollution control facilities, costs of ongoing monitoring programs, permit costs and other similar costs. Such costs are expensed as incurred. Postemployment Benefits In the first quarter of fiscal 1995, the Company adopted the provisions of Statement of Financial Accounting Standards No. 112, Employers Accounting for Postemployment Benefits (Statement 112). The impact on the Companys financial statements from the adoption of Statement 112 was not material. Recently Issued Accounting Standards In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121 (Statement 121) on accounting for the impairment of long-lived assets to be held and used. Statement 121 also establishes accounting standards for long-lived assets that are to be disposed. Statement 121 is required to be applied prospectively for assets to be held and used. The initial application of Statement 121 to assets held for disposal is required to be reported as the cumulative effect of a change in accounting principle. The Company is required to adopt Statement 121 no later than fiscal 1997. The Company has not yet determined when it will adopt Statement 121 and the impact, if any, that the adoption will have on its financial position or results of operations. In October 1995, the FASB issued Statement No. 123 (Statement 123) establishing financial accounting and reporting standards for stock-based employee compensation plans. Statement 123 encourages the use of the fair value based method to measure compensation cost for stock-based employee compensation plans, however, it also continues to allow the intrinsic value based method of accounting as prescribed by APB Opinion No. 25, which is currently used by the Company. If the intrinsic value based method continues to be used, Statement 123 requires pro forma disclosures of net income and earnings per share, as if the fair value based method of accounting had been applied. The fair value based method requires compensation cost be measured at the grant date based upon the value of the award and recognized over the service period, which is normally the vesting period. The Company is required to adopt Statement 123 no later than fiscal 1997. The Company has not yet determined when it will adopt Statement 123 or the valuation method it will use. Fiscal Year-End The Companys fiscal year ends on the last Saturday of September. Fiscal year 1995 contains fifty-three weeks and fiscal years 1994 and 1993 contain fifty-two weeks. Earnings Per Share Earnings per share are calculated using the weighted average number of shares outstanding during the period. The effect of common stock equivalents arising from stock options and warrants on the computation of earnings per share is not significant. Note 2: Sale of Subsidiary On October 6, 1993, the Company sold all of the assets and liabilities of its wholly-owned subsidiary, Kentucky Electric Steel Corporation (KES), to a newly formed public company in exchange for $45.6 million in cash and 400,000 shares (approximately 8%) of the newly formed public company. In addition, the Company received $6.8 million in cash from the new entity in satisfaction of a dividend declared by KES prior to the sale. The sale of KES resulted in a pre-tax gain of $35.3 million. After giving effect to the elimination of the pre-tax gain of $35.3 million, the related tax effect of $13.8 million and $0.1 million of net income of KES for the eleven days of fiscal 1994 prior to sale, the Companys pro forma net loss before cumulative effect of a change in accounting principle for the fiscal year ended September 24, 1994 was $10.2 million, or a $.74 loss per share. Note 3: Other Assets Other assets at September 30, 1995 and September 24, 1994 includes approximately $8.6 million and $10.5 million, respectively, in costs associated with land near Newport, Kentucky, for use as development property which is listed for sale and marketable equity securities totaling $3.6 million and $4.6 million, respectively. Other assets at September 30, 1995 and September 24, 1994 also includes approximately $6.5 million and $2.4 million, respectively, in deferred financing costs. Note 4: Accrued Liabilities Accrued liabilities consist of the following: (In thousands) 1995 1994 Accrued payroll and payroll taxes $ 7,113 $ 5,032 Accrued interest 4,084 4,072 Accrued environmental remediation 4,514 4,563 Accrued income taxes 32 711 Other 6,424 4,903 $22,167 $ 19,281
Note 5: Long-term Debt and Credit Facility Long-term debt of the Company consists of the following: (In thousands) 1995 1994 13.5% Senior Secured Notes due July 15, 2003, interest due semi- annually, secured by property, plant and equipment (net of unamortized discount of $8,398) $122,698 $ - Term loans due a non-bank financial institution, interest ranging from 7.99% to 12.54%, repaid in fiscal 1995 - 73,751 Senior Secured Notes due various insurance companies, interest at 10.65%, repaid in fiscal 1995 - 32,729 11% Subordinated Convertible Debentures, due in annual installments from October, 2000 through 2005 29,000 29,000 Term loans due various states and municipalities, interest ranging from 3% to 11%, due in varying quarterly installments through 2010, secured by junior mortgages on property, plant and equipment 10,166 11,613 Other 6,536 6,560 168,400 153,653 Less - Current portion (1,872) (15,543) $166,528 $138,110
In July, 1995 the Company completed a public offering (Offering) for the sale of $131.1 million aggregate principal amount of 13.5% Senior Secured Notes due 2003 (Notes) together with warrants (Warrants) to purchase an aggregate of approximately 1,534,000 shares of the Companys common stock at $4.00 per share. Proceeds from the sale of the Notes and Warrants of approximately $120.8 million, after underwriting discount and before expenses, together with available cash on hand, were used to retire a substantial portion of the Companys outstanding indebtedness, including borrowings under its lines of credit. Through July 1998, the Company may redeem up to 40% of the principal amount of the Notes with the net proceeds of a public offering of common stock at a price of 113.5% of par, provided that at least $75.0 million principal amount of the Notes remain outstanding after redemption. The Notes may be redeemed at the option of the Company, at any time, in whole or in part, beginning in 2000, at declining premiums plus accrued interest. The Indenture relating to the Notes contains a number of restrictive covenants including, among other things, limitations on the ability of the Company to incur additional indebtedness; create liens; make certain restricted payments, including dividends; engage in certain transactions with affiliates; engage in sale and leaseback transactions; dispose of assets; issue or sell stock of its subsidiaries; enter into agreements that restrict the ability of its subsidiaries to pay dividends and make distributions; engage in mergers, consolidations and transfers of substantially all of the Companys assets; and make certain investments, loans and advances. Contemporaneously with the Offering, the Company entered into a new $45.0 million revolving credit facility (Credit Facility) and terminated its previous revolving credit agreements. Borrowings are secured by inventory and accounts receivable and interest accrues at a rate per annum of (a) the sum of the alternate base rate (which is the higher of prime rate or 0.5% over the federal funds rate) plus 1% with respect to domestic rate loans or (b) the sum of the Eurodollar rate (based on LIBOR) plus 2.75% with respect to Eurodollar rate loans. Borrowings are due on demand and are limited to defined percentages of eligible inventory and accounts receivable. The Credit Facility contains financial covenants including maintenance of minimum net worth, minimum interest coverage ratios, maximum ratios of indebtedness to net worth, and minimum current ratio and working capital requirements. The Credit Facility also includes restrictions upon dividends, investments, capital expenditures, indebtedness and the sale of certain assets. At September 30, 1995, approximately $5.0 million of the Credit Facility was utilized to collateralize various letters of credit and $40.0 million was available for borrowing. The Credit Facility expires in fiscal 1998. Pursuant to the Companys debt agreements, it is currently prohibited from paying dividends to its shareholders. In connection with the retirement of long-term indebtedness in the fourth quarter of fiscal 1995, the Company incurred prepayment costs and wrote off unamortized debt issuance costs, which resulted in an extraordinary charge of $5.2 million, net of applicable income tax benefit of $2.8 million, or $.38 per share. The Company also has outstanding 11% Subordinated Convertible Debentures, which are unsecured obligations of the Company and are convertible into common shares of the Company at a price of $17.00 per share, or approximately 1,706,000 shares. Interest is payable quarterly. The Debentures are redeemable by the Company at 110% of par. Annual long-term debt maturities are $1.9 million in fiscal 1996, $2.5 million in fiscal 1997, $3.6 million in fiscal 1998, $2.3 in fiscal 1999 and $0.7 million in fiscal 2000. As of September 30, 1995 and September 24, 1994, the weighted average interest rate on outstanding notes payable was 6.0% and 9.0%, respectively. Note 6: Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of financial instruments: Cash, cash equivalents and short-term investments - The carrying amount approximates fair value because of the short maturity of those instruments. Other investments - Other investments, consisting of marketable equity securities totaling $3.6 million, are reported in other assets and are carried at market value. Notes payable - The carrying amount approximates fair value because of the short maturity. Long-term debt - The fair value of the Companys Senior Secured Notes is based upon their trading price as of September 30, 1995. All other long-term debt was estimated by calculating the present value of the remaining interest and principal payments on the debt to maturity. The present value computation uses a discount rate equal to Treasury rates with similar terms at the end of the reporting period plus or minus the spread between the Treasury rates and the rate negotiated on the debt at the inception of the loan. The carrying amount and fair value of the Companys financial instruments are as follows. 1995 1994 Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value Cash, cash equivalents and short-term investments $ 11,251 $ 11,251 $ 44,476 $44,476 Other investments 3,650 3,650 4,600 4,600 Notes payable 509 509 28,872 28,872 Long-term debt 168,400 172,021 153,653 154,649
Note 7: Preferred Stock The Companys authorized stock includes 2,000,000 shares of Class A Preferred Stock, issuable in one or more series. The rights, preferences, privileges and restrictions of any series of Class A Preferred Stock, the number of shares constituting any such series and the designation thereof, are subject to determination by the Board of Directors. Four hundred thousand shares of the Class A Preferred Stock has been designated as Series A Junior Participating Preferred Stock, par value $10 per share, in connection with the Shareholders Protection Rights Plan (Plan) adopted in fiscal 1989. Pursuant to the Plan, one Preferred Stock Purchase Right (Right) is attached to each outstanding share of common stock of the Company. The Plan includes provisions which are intended to protect shareholders against certain unfair and abusive takeover attempts by anyone acquiring or tendering for 30% or more of the Companys common stock. The Company may redeem the Rights for one cent per Right at any time before a 30% position has been acquired. The Rights will expire in November 1998. Note 8: Stock Options and Warrants The Company has Employee Incentive Stock Option Plans which provide for the issuance of shares of common stock of the Company upon exercise of options granted to certain employees. Under the terms of these plans, options have been granted at fair market value at the grant date and are exercisable on a pro rata basis over a period of nine years beginning one year after the date of grant. At September 30, 1995, options outstanding are priced in a range from $3.25 to $14.125 per share. Of the options expired in fiscal 1994, 295,030 options expired in connection with the sale of KES. A summary of transactions in the plans for fiscal 1995 and 1994 follows: 1995 1994 Options outstanding, beginning of year 1,048,705 1,185,525 Options granted 10,000 289,050 Options expired (69,675) (369,725) Options exercised - (56,145) Options outstanding, end of year 989,030 1,048,705 Options exercisable, end of year 607,955 509,525 Available for grant 514,535 488,580
In May 1995, the Board of Directors adopted the NS Group, Inc. 1995 Stock Option and Stock Appreciation Rights Plan (1995 Plan) as a successor plan to a similar plan adopted in 1988. Under the 1995 Plan, the Company may grant to key employees options to purchase (or stock appreciation awards corresponding to) an aggregate of 750,000 shares of the Companys common stock. Terms of the grants made under the 1995 Plan are determined by the Stock Option Committee of the Board of Directors. A total of 202,400 options were granted in fiscal 1995 under the 1995 Plan at an exercise price of $4.375, the market price on the date of the grant. The 1995 Plan is subject to shareholder approval. At September 30, 1995, options outstanding under both of the Companys non-qualified plans are priced in a range from $3.75 to $13.43 per share. Grant prices have ranged from 64% to 110% of the market price at the date of grant. A summary of transactions in the plans for fiscal 1995 and 1994 follows: 1995 1994 Options outstanding beginning of year 475,625 366,760 Options granted 202,400 135,085 Options expired - (26,220) Options exercised - - Options outstanding, end of year 678,025 475,625 Options exercisable, end of year 153,400 106,700 Available for grant 571,975 24,375
The Company has common stock warrants outstanding, issued in connection with the sale of the Companys Senior Secured Notes. The warrants are exercisable for approximately 1,534,000 shares of the Companys common stock at a price of $4.00 per share and expire July 15, 2003. The Company also has common stock warrants outstanding which were issued in connection with the financing of the Koppel acquisition. These warrants are exercisable for approximately 772,000 shares of the Companys common stock, at a price of $8.00 per share and expire October 4, 2000. Note 9: Commitments and Contingencies The Company has various commitments for the purchase of materials, supplies and energy arising in the ordinary course of business. The Company is subject to various claims, lawsuits and administrative proceedings arising in the ordinary course of business with respect to commercial, product liability and other matters, which seek remedies or damages. 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 Companys consolidated financial position, results of operations or cash flows. The Company is subject to federal, state and local environmental laws and regulations, including, among others, the Resource Conservation and Recovery Act (RCRA), the Clean Air Act, the 1990 Amendments to the Clean Air Act (the 1990 Amendments), the Clean Water Act and all regulations promulgated in connection therewith, including, among others, 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 similar 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 resulting from 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. The Company also has on its property at Newport a permitted hazardous waste disposal facility. In March 1995, Koppel and the EPA signed a Consent Order relating to an April 1990 RCRA facility assessment (the Assessment) completed by the EPA and the Pennsylvania Department of Environmental Resources. The Assessment was performed in connection with a permit application pertaining to a landfill that is adjacent to the Koppel facilities. The Assessment identified potential releases of hazardous constituents at or adjacent to the Koppel facilities prior to the Companys acquisition of the Koppel facilities. The Consent Order establishes a schedule for investigating, monitoring, testing and analyzing the potential releases. Contamination documented as a result of the investigation will require cleanup measures and certain remediation has begun. Pursuant to various indemnity provisions in agreements entered into at the time of the Companys acquisition of the Koppel facilities, certain parties have agreed to indemnify the Company against various known and unknown environmental matters. While such parties have not at this time acknowledged full responsibility for potential costs under the Consent Order, the Company believes that the indemnity provisions provide for it to be fully indemnified against all matters covered by the Consent Order, including all associated costs, claims and liabilities. In two separate incidents occurring in fiscal 1993 and 1992, radioactive substances were accidentally melted at Newport, resulting in the contamination of the melt shops electric arc furnace emission control facility, or baghouse facility. The occurrences of the accidental melting of radioactive materials have not resulted in any notice of violations from federal or state environmental regulatory agencies. The losses and costs incurred in 1993, net of insurance claims, resulted in an extraordinary charge of $1.1 million, net of applicable income tax benefit of $0.7 million, or an $.08 loss per share. The Company is investigating and evaluating various issues concerning storage, treatment and disposal of the radiation contaminated baghouse dust; however a final determination as to method of treatment and disposal, cost and further regulatory requirements cannot be made at this time. Depending on the ultimate timing and method of treatment and disposal, which will require appropriate federal and state regulatory approval, the actual cost of disposal could substantially exceed current estimates and the Companys insurance coverage. The Company expects to recover and has recorded a $2.3 million receivable relating to insurance claims for the recovery of disposal costs which will be filed with the Companys insurance company at the time such disposal costs are incurred. As of September 30, 1995, claims recorded in connection with disposal costs exhaust available insurance coverage. Based on current knowledge, management believes the recorded gross reserves of $4.4 million for disposal costs pertaining to these incidents are adequate. Subject to the uncertainties concerning the Consent Order and the storage and disposal of the radiation contaminated dust, the Company believes that it is currently in compliance in all material respects with all applicable environmental regulations. Regulations under the 1990 Amendments to the Clean Air Act that will pertain to the Companys operations are currently not expected to be promulgated until 1997 or later. The Company cannot predict the level of required capital expenditures or operating costs resulting from future environmental regulations such as those forthcoming as a result of the 1990 Amendments. However, the Company believes that while the 1990 Amendments may require additional expenditures, such expenditures will not have a material impact on the Companys business or consolidated financial position for the foreseeable future. Capital expenditures for the next twelve months relating to environmental control facilities are not expected to be material, however, such expenditures could be influenced by new or revised environmental regulations and laws. As of September 30, 1995, the Company had environmental remediation reserves of $4.5 million, of which $4.4 million pertain to accrued disposal costs for radiation contaminated baghouse dust. As of September 30, 1995, the possible range of estimated losses related to the environmental contingency matters discussed above in excess of those accrued by the Company is $0 to $3.0 million; however, with respect to the Consent Order, the Company cannot estimate the possible range of losses should the Company ultimately not be indemnified. 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 Companys consolidated financial position, results of operations or cash flows. However, the Company cannot predict with certainty that new information or developments with respect to the Consent Order or its other environmental contingency matters, individually or in the aggregate, will not have a material adverse effect on the Companys consolidated financial position, results of operations or cash flows. Note 10: Profit Sharing Plans The Company has established various profit sharing plans at the operating companies which are based on the earnings of the respective companies. Generally, the plans require mandatory contributions at a specified percentage of pretax profits (with a guaranteed minimum based on hours worked) for the bargaining unit employees, and allow for a discretionary contribution set by the Board of Directors for salaried employees. Expense for contributions was approximately $0.9 million, $0.5 million and $1.2 million in fiscal years 1995, 1994 and 1993, respectively. Note 11: Income Taxes Effective September 26, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes (Statement 109). Prior to adoption of Statement 109, deferred tax expense was based on items of income and expense that were reported in different years in the financial statements and tax returns and were measured at the tax rate in effect in the year the difference originated. Under Statement 109, deferred tax liabilities and assets are based upon differences in the basis of assets and liabilities for financial statements and tax returns and are determined based on the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The cumulative effect of the change in accounting increased fiscal 1994 net income by $1.7 million, or $.12 per share. The provision (credit) for income taxes, including $2.8 million and $0.7 million allocated to extraordinary items in fiscal 1995 and 1993, respectively, consists of the following: (In thousands) 1995 1994 1993 Current: Federal $(3,044) $5,100 $(2,000) State - 323 (851) $(3,044) $5,423 (2,851) Deferred: Federal (3,066) 739 (1,526) State (230) 1,220 333 (3,296) $1,959 (1,193) Provision (credit) for income taxes $(6,340) $7,382 $(4,044)
The income tax provision (credit) differs from the amount computed by applying the statutory federal income tax rate to income (loss), including extraordinary items, before income taxes for the following reasons: (In thousands) 1995 1994 1993 Income tax provision (credit) at statutory tax rate of 35% in fiscal 1995 and 1994 and 34% in fiscal 1993 $(5,808) $6,606 $(3,752) Change in taxes resulting from: State income taxes, net of federal effect (150) 1,003 (342) Dividend income exclusion (61) (200) (6) Other, net (321) (27) 56 Provision (credit) for income taxes $(6,340) $7,382 $(4,044)
The following represents the components of deferred tax liabilities and assets at September 30, 1995 and September 24, 1994. A valuation allowance has not been recorded against deferred tax assets as it is estimated that such deferred tax assets will be realized through a reduction of taxes otherwise payable upon the reversal of existing taxable temporary differences. (In thousands) 1995 1994 Deferred tax liabilities: Property, plant and equipment $27,646 $27,774 Other items 2,196 2,222 29,842 29,996 Deferred tax assets: Reserves and accruals 3,880 3,904 Net operating tax loss carryforward 18,003 11,690 Alternative minimum tax and other tax credit carryforwards 4,480 7,629 Other items 1,907 1,905 28,270 25,128 Net deferred tax liability $ 1,572 $ 4,868
For federal income tax purposes, the Company has alternative minimum tax credit carryforwards of approximately $4.1 million, which are not limited by expiration dates, and other tax credit carryforwards of approximately $0.4 million, which expire beginning in 2000. The Company also has net operating tax loss carryforwards of approximately $51.4 million, which expire beginning in 2007. The components of the credit for deferred income taxes for fiscal 1993 are as follows: (In thousands) 1993 Excess of tax over book depreciation $ 4,097 Koppel start-up costs deferred for income tax purposes 177 Reserves and accruals not currently deductible (299) Alternative minimum tax and other tax credit carryforwards $1,684 Net operating tax loss carryforward $(7,034) Other, net 182 Total $(1,193)
Note 12: Related Party Transactions One of the Companys directors/shareholders has a controlling interest in a company which purchases certain reject and limited service tubular products from Newport. Sales to this customer were approximately $16.0 million, $11.0 million and $10.9 million for fiscal years 1995, 1994, and 1993, respectively. Trade receivables from this customer were $0.7 million and $1.0 million at the end of fiscal 1995 and 1994, respectively. Note 13: Business Segment Information The Company operates primarily in two separate business segments: Specialty Steel Products - Includes welded tubular steel products and hot rolled coils manufactured at a mini-mill located near Newport, Kentucky; seamless tubular steel products, special bar quality products and semi-finished steel products manufactured at a mini-mill located in western Pennsylvania and pipe finishing operations located in Baytown, Texas and near Tulsa, Oklahoma. Adhesive Products - Includes industrial adhesives manufactured principally at plants in Cincinnati, Ohio and Nashville, Tennessee. The operations of both 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 Specialty Steel Products segment. The following table sets forth selected financial information by business segment for fiscal 1995, 1994 and 1993. Depreci- Opera- ation ting Identi- and Capital Net Income fiable Amorti- Expen- 1995 Sales (Loss) Assets zation ditures (In thousands) Specialty steel products $335,883 $10,428 $250,711 $20,862 $13,245 Adhesives products 35,469 1,248 13,011 449 485 Corporate assets and allo- cations - (3,870) 34,775 - - Total consoli- dated $371,352 $ 7,806 $298,497 $21,311 $13,730 1994 Specialty steel products $270,441 $ 2,909 $246,295 $18,373 $11,380 Adhesives products 32,939 1,150 12,486 416 380 Corporate assets and allocations - (3,370) 56,546 - - Total consoli- dated $303,380 $ 689 $315,327 $18,789 $11,760 1993 Specialty steel products $325,007 $13,379 $271,968 $18,691 $ 5,798 Adhesives products 28,075 1,059 12,228 402 282 Corporate assets and allocations - (2,766) 33,046 - - Total consoli- dated $353,082 $11,672 $317,242 $19,093 $ 6,080
Note 14: Quarterly Financial Data (Unaudited) Quarterly results of operations for 1995 and 1994 are as follows: (In thousands, except per share amounts) First Second Third Fourth 1995 Quarter Quarter Quarter Quarter Net sales $93,489 $97,055 $94,804 $86,004 Gross profit 11,490 10,145 10,592 1,855 Income (loss) before extra- ordinary item 75 447 529 (6,107) Net income (loss) 75 447 529 (11,307) Income (loss) per common share before extraordinary item .01 .03 .04 (.44) Net income (loss) per common share .01 .03 .04 (.82) 1994 Net sales $71,959 $66,012 $80,807 $84,602 Gross profit 7,791 1,831 7,203 8,394 Income (loss) before cumulative effect of a change in accounting principle 20,026 (5,583) (1,990) (960) Net income (loss) 21,741 (5,583) (1,990) (960) Income (loss) per common share before cumulative effect of a change in accounting principle 1.46 (.40) (.14) (.07) Net income (loss) per common share 1.58 (.40) (.14) (.07)
During the fiscal 1995 fourth quarter, the Company experienced numerous unexpected operational problems, principally at the Companys welded tubular facilities at Newport. Newports melt shop incurred an unusual number of unplanned outages during the quarter related to equipment breakdowns, lightning strikes and power curtailments due to weather conditions. As a result, steel production volume was significantly affected, limiting availability of steel to Newports hot strip mill and pipe mills. The excessive downtime throughout all of Newports operations resulted in low operating efficiencies, increased maintenance costs and lost sales opportunities during the quarter. Also impacting the quarter at Newport was a write-down of scrap inventory resulting from year end physical inventory counts. Shipments of Newports tubular products totaled 74,400 tons in the fourth quarter of fiscal 1995 compared to 78,700 tons in the third quarter of fiscal 1995 and 83,800 tons in the fourth quarter of fiscal 1994. For the same periods, average selling prices for all of Newports welded tubular products were $440, $457 and $429 per ton, respectively. The fiscal 1995 fourth quarter was also impacted by a decline in shipments of SBQ products from the Companys Koppel facilities, due to softening in market demand. SBQ shipments totaled 33,800 tons in the fourth quarter of fiscal 1995 compared to 45,100 tons in the third quarter of fiscal 1995 and 36,000 tons in the fourth quarter of fiscal 1994. For the same periods, average selling prices for SBQ products were $503, $503, and $441 per ton, respectively. In connection with a fiscal 1995 fourth quarter refinancing, the Company incurred prepayment costs and wrote off unamortized debt issuance costs, which resulted in an extraordinary charge of $5.2 million, net of applicable income tax benefit of $2.8 million, or $.38 per share. Fiscal 1994 second quarter results were negatively affected by a decline in welded tubular shipments that resulted primarily from customers resistance to announced price increases. The Company adjusted its welded tubular selling prices in response to the decline and volume recovered in the third quarter of fiscal 1994. In addition, fiscal 1994 second quarter results were negatively impacted by severe winter weather conditions. The sale of KES increased fiscal 1994 first quarter net income by $21.5 million. In addition, in the fiscal 1994 first quarter, the Company recorded the cumulative effect of the adoption of FAS No. 109, "Accounting for Income Taxes", which increased net income by $1.7 million. Note 15: Summarized Financial Information The Companys Senior Secured Notes are unconditionally guaranteed in full, jointly and severally, by each of the Companys subsidiaries (Subsidiary Guarantors), each of which is wholly-owned. Separate financial statements of the Subsidiary Guarantors are not presented because they are not deemed material to investors. The following is summarized financial information of the Subsidiary Guarantors as of September 30, 1995 and September 24, 1994 and for each of the three years in the period ended September 30, 1995. All significant intercompany accounts and transactions between the Subsidiary Guarantors have been eliminated. September 30, September 24, (In thousands) 1995 1994 Current assets $111,371 $125,108 Noncurrent assets 167,863 176,895 Current liabilities 50,933 88,230 Payable to parent $169,079 $031,327 Other noncurrent liabilities 9,779 102,893 Total noncurrent liabilities $178,858 $134,220 Fiscal Year Ended (In thousands) 1995 1994 1993 Net sales $371,352 $303,380 $353,082 Gross profit 34,082 25,219 42,496 Income (loss) before extraordinary items and cumulative effect of a change in accounting principle (2,040) 14,689 (1,363) Net income (loss) (2,040) 14,689 (2,458)
REPORT OF MANAGEMENT The accompanying financial statements have been prepared by the management of NS Group, Inc., in conformity with generally accepted accounting principles and, in the judgment of management, present fairly and consistently the Companys consolidated financial position and results of operations. These statements necessarily include amounts that are based on managements best estimates and judgments. The financial information contained elsewhere in this annual report is consistent with that contained in the consolidated financial statements. In fulfilling its responsibilities for the integrity of financial information, management maintains accounting systems and related controls. These controls provide reasonable assurance, at appropriate costs, that assets are safeguarded against losses and that financial records are reliable for use in preparing financial statements. These systems are enhanced by written policies, an organizational structure that provides division of responsibilities and careful selection and training of qualified people. In connection with their annual audit, independent public accountants perform an examination in accordance with generally accepted auditing standards, which includes a review of the system of internal accounting control and an expression of an opinion that the consolidated financial statements are fairly presented. The Board of Directors, through its Audit Committee composed solely of non-employee directors, reviews the Companys financial reporting and accounting practices. The independent public accountants meet regularly with and have access to this Committee with or without management present to discuss the results of their audit work. Clifford R. Borland Chairman of the Board and Chief Executive Officer John R. Parker Vice President, Treasurer and Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To NS Group, Inc. We have audited the accompanying consolidated balance sheets of NS Group, Inc. (a Kentucky corporation) and subsidiaries as of September 24, 1994 and September 25, 1993, and the related consolidated statements of income, common shareholders equity and cash flows for each of the three years in the period ended September 24, 1994. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NS Group, Inc. and subsidiaries as of September 24, 1994 and September 25, 1993, and the results of their operations and their cash flows for each of the three years in the period ended September 24, 1994 in conformity with generally accepted accounting principles. As explained in Note 12 to the consolidated financial statements, the Company changed its method of accounting for income taxes effective September 26, 1993. Cincinnati, Ohio October 31, 1994 ARTHUR ANDERSEN LLP CONSOLIDATED HISTORICAL SUMMARY (Dollars in thousands, except per share amounts) 1995 1994 1993 1992 1991 1990 1989 1988* 1987 1886 1985 1984 1983 1982 1981* Summary of Operations Net sales $371,352 $303,380 $353,082 $281,242 $212,471 $249,871 $219,414 $239,175 $157,201 $ 66,320 $ 70,221 $ 73,426 $ 44,592 $ 61,982 $ 41,644 Operating income (loss) 7,806 689 11,672 1,401 (18,177) 19,370 18,469 36,668 14,252 (2,879) 3,649 11,140 3,797 14,441 13,429 Operating income margin 2.1% .2% 3.3% .5% (8.6)% 7.8% 8.4% 15.3% 9.1% (4.3)% 5.2% 15.2% 8.5% 23.3% 32.2% Net income (loss) before extraordi- nary items (5,056) 13,208 (5,896) (13,358) (20,603) 13,047 12,773 20,238 3,673 (5,939) (302) 6,651 1,247 6,334 5,844 Net income (loss) (10,256) 13,208 (6,991) (15,900) (20,603) 13,047 12,773 17,493 6,665 (5,939) (2,317) 7,269 1,247 6,334 5,844 Income (loss) per share before extra- ordinary items (.36) .96 (.44) (.99) (1.53) .97 .95 1.73 .38 (.61) (.03) .69 .13 .65 .63 Net income (loss) per share (.74) .96 (.52) (1.18) (1.53) .97 .95 1.49 .69 (.61) (.24) .75 .13 .65 .63 Dividends per common share - - - .06 .12 .11 .05 - - - - - - - - Weighted average shares outstanding (000's) 13,809 13,789 13,553 13,483 13,449 13,419 13,387 11,690 9,621 9,688 9,687 9,686 9,685 9,685 9,685 Shareholders of record 323 313 332 327 315 233 179 115 - - - - - - - Other Financial and Statistical Data Working capital $ 65,877 $ 45,202 $ 39,060 $ 40,676 $ 48,411 $ 64,858 $ 55,714 $ 76,683 $ 26,993 $ 12,978 $ 24,173 $ 16,020 $ 7,065 $ 15,199 $ 14,664 Capital expenditures 13,730 11,760 6,080 4,148 112,573 45,011 28,081 3,340 2,838 13,297 7,222 12,642 10,751 7,302 252 Depreciation and amortization 21,311 18,789 19,093 18,711 15,725 6,879 6,080 6,585 6,614 6,103 5,395 2,756 2,493 2,286 779 Total assets 298,497 315,327 317,242 319,079 329,889 220,856 177,292 153,525 105,094 86,184 87,020 77,874 54,569 50,379 55,247 Long-term debt 168,400 153,653 165,188 173,072 179,653 70,165 29,192 24,489 49,163 57,392 45,737 37,000 27,467 29,667 30,017 Common shareholders' equity 68,110 76,464 62,622 68,574 85,149 107,226 95,490 83,327 19,628 13,126 19,068 21,389 14,117 12,870 6,536 Book value per share 4.93 5.54 4.57 5.08 6.33 7.98 7.13 6.23 2.06 1.35 1.97 2.21 1.46 1.33 .67 Current ratio 2.15 1.50 1.45 1.55 1.79 2.90 2.30 3.47 1.97 1.82 2.96 1.99 1.60 3.04 1.82 Debt-to-equity ratio 2.47 2.01 2.64 2.52 2.11 .65 .31 .29 2.50 4.37 2.40 1.73 1.95 2.31 4.59 Steel mill shipments (tons) Tubular products 440,000 370,000 385,000 292,000 215,000 285,000 209,000 262,000 235,000 133,000 165,000 178,000 111,000 123,000 74,000 Special bar quality products and other 216,000 191,000 363,000 299,000 212,000 239,000 262,000 255,000 138,000 - - - - - - Employees 1,728 1,568 1,995 1,770 1,705 1,479 1,457 1,336 1,192 719 536 514 448 523 561
*Represents a 5 1/2 month period, the Company's start-up year. **The Company's stock began trading following an initial public offering on March 4, 1988. Stock Market Information NS Group, Inc. is listed on the New York Stock Exchange, trading symbol, NSS. At the end of fiscal 1995, the number of NS Group shareholders of record totaled 323. Stock Price Fiscal 1995 High Low 1st Quarter $ 6 3/4 $ 4 2nd Quarter 5 1/4 3 3/4 3rd Quarter 4 5/8 3 3/8 4th Quarter 4 1/2 2 7/8 Fiscal 1994 High Low 1st Quarter $ 9 1//2 $ 5 7/8 2nd Quarter 7 3/4 6 1/4 3rd Quarter 7 7/8 4 7/8 4th Quarter 7 5 7/8
EX-21 4 EXHIBIT 21 SUBSIDIARIES OF NS GROUP, INC. (all are wholly-owned) State of Name Incorporation Erlanger Tubular Corporation . . . . Oklahoma Imperial Adhesives, Inc. . . . . . . Ohio Koppel Steel Corporation . . . . . . Pennsylvania Newport Steel Corporation . . . . . Kentucky Northern Kentucky Management, Inc. . Kentucky Northern Kentucky Air, Inc. . . . . Kentucky EX-23 5 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included or incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements, Files Nos. 33-24182, 33-24183, 33-51899, 33-28995, 33- 37454, 33-39695 and 33-64675. Cincinnati, Ohio ARTHUR ANDERSEN LLP December 15, 1995 EX-27 6
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995, INCLUDED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. U.S. DOLLARS SEP-30-1995 SEP-25-1994 SEP-30-1995 YEAR 1 4,838 6,413 46,428 1,021 44,716 123,322 276,262 120,887 298,497 57,445 166,528 51,741 0 0 16,369 298,497 371,352 371,352 337,270 337,270 0 0 20,796 (8,596) (3,540) (5,056) 0 (5,200) 0 (10,256) (.74) (.74)
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