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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
x SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 24, 1994
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 [X]
Based on the closing sales price of November 28, 1994, as reported in The
Wall Street Journal, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $42.5 million.
[Cover page 1 of 2 pages]
The number of shares outstanding of the registrant's Common Stock, no
par value, was 13,809,413 at November 28, 1994.
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
24, 1994 ("1994 Annual Report To Shareholders"). Part III also
incorporates certain information by reference from the Company's Proxy
Statement dated December 20, 1994 for the Annual Meeting of Shareholders
on February 16, 1995.
[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. Additional information pertaining to this
transaction is incorporated herein by reference from Note 2 to the
Consolidated Financial Statements included in the 1994 Annual Report to
Shareholders, such relevant portion filed herewith under Exhibit 13,
under the caption "Consolidated Financial Statements."
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 is Note 14 to the Consolidated
Financial Statements included in the 1994 Annual Report to Shareholders
such relevant portion filed herewith under Exhibit 13, under the caption
"Consolidated Financial Statements" 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 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.
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.
The demand for domestic OCTG products is primarily 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.
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. 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.
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
a 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. In the past, the Company
typically limited its production of hot rolled coils to the amount
required to supply its welded pipe mills for conversion into welded
tubular products. However, as a result of recent strong demand for hot
rolled coils, the Company has begun to utilize its excess melting and
rolling capacity to produce hot rolled coils for direct sale to third
parties. 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.
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 welded OCTG products destined for the
southwest region by barge, and with the addition of Baytown, the Company
will be shipping substantially all of its seamless OCTG product destined
for the southwest by barge as well.
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 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 cases ask 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. The cases
are being handled by the International Trade Administration of the United
States Department of Commerce, which is investigating the existence and
extent of dumping and subsidization, and by the United States
International Trade Commission which is assessing whether dumping and
subsidization have caused material injury to the United States OCTG
industry. In August 1994, the International Trade Commissioners voted
unanimously that there was reasonable indication of material injury which
warrants further investigation of the petitions. The existence and
extent of unfair trade practices could be determined as early as late
January 1995, and preliminary tariffs could be imposed at that time.
Final determinations regarding unfair trade practices and any injury
caused thereby are expected in the summer of 1995. While the Company
cannot predict the outcome of the cases at this time, the Company
believes that a favorable ruling could decrease foreign shipments of OCTG
products and increase the volume and selling price of the Company's
shipments.
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
1995 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 has no
reason to believe that the utility contract expiring at Koppel in 1995
will not be renewed upon substantially similar terms.
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 900 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 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 four
manufacturing sites, a warehouse in Puerto Rico, and a number of public
warehouses across the United States.
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's specialty steel and adhesives operations are subject
to various federal, state and local environmental laws and regulations,
including, among others, the Clean Air Act, the 1990 Amendments to the
Clean Air Act (the 1990 Amendments), the Clean Water Act and the Resource
Conservation and Recovery Act (RCRA) 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. 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 recycles it through a waste recycling firm using EPA-
approved processes. The Company also has on its property at Newport a
permitted hazardous waste disposal facility. In the event of a release
of a hazardous substance generated by the Company, the Company could be
responsible for the remediation of contamination associated with such
release.
During the fourth quarter of fiscal 1993, Newport shut down its melt
shop operations for 19 days when it was discovered that a radioactive
substance was accidentally melted, resulting in the contamination of the
melt shop's electric arc furnace emission control facility, or "baghouse
facility". A similar incident, having occurred in the third quarter of
fiscal 1992, shut down Newport's melt shop facilities for 23 days. The
source of the radiation in these incidents was contained in incoming
shipments of steel scrap, and was not detected by monitors that check
incoming steel scrap. In response, the Company has installed additional
state-of-the-art radiation detection systems in various locations
throughout the Newport plant.
The Company incurred estimated losses as a result of the extended
outages and costs to restore the melt shop and related facilities back to
operation, including estimated costs to dispose of the radiation
contaminated baghouse dust, of $7.2 million and $4.1 million in fiscal
1993 and 1992, respectively. The Company has recovered $3.5 million
through insurance and expects to recover and has recorded as a receivable
an additional $2.3 million in insurance claims for the fiscal 1993
incident. No recovery has been made nor recorded for the fiscal 1992
incident and the Company is assessing the possibility of legal remedies
against certain parties. The losses and costs attributable to these
incidents, 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, in fiscal 1993 and an extraordinary charge of
$2.5 million, net of applicable income tax benefit of $1.6 million, or a
$.19 loss per share, in fiscal 1992. To date, the occurrence of the
accidental melting of radioactive materials has not resulted in any
notice of violations from federal or state environmental regulatory
agencies.
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. As of September 24,
1994, claims recorded in connection with disposal costs substantially
exhaust available insurance coverage. Based on current knowledge,
management believes the recorded reserves of $4.4 million for disposal
costs pertaining to these incidents are adequate and the ultimate outcome
will not have a material adverse effect on the Company's consolidated
financial position. The ultimate effect of these matters on the
Company's consolidated results of operations cannot be predicted because
any such effect depends on the amount and timing of charges to operations
resulting from new information as it becomes available.
In September 1994, the Company received a proposed Consent Agreement
from the Environmental Protection Agency (EPA) 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 RCRA Part B permit pertaining to a
landfill that is adjacent to the Koppel facilities and owned by Babcock &
Wilcox Company (B&W), the former owner of the Koppel facilities. The
Assessment identified potential releases of hazardous constituents into
the environment from numerous Solid Waste Management Units (SWMU's) and
Areas of Concern (AOC's). The SWMU's and AOC's identified during the
Assessment and the EPA's follow-up investigations are located at and
adjacent to the Company's Koppel facilities. The proposed Consent
Agreement establishes a schedule for investigating, monitoring, testing
and analyzing the potential releases. Contamination documented as a
result of the investigation may require cleanup measures. Pursuant to
various agreements entered into among the Company, B&W and PMAC, Ltd.
(PMAC) at the time of the Company's acquisition of the Koppel facilities,
B&W and PMAC agreed to indemnify the Company against various known and
unknown environmental matters. While reserving its rights against B&W,
PMAC has accepted full financial responsibility for the matters covered
by the proposed Consent Agreement other than with respect to a 1987
release of hazardous constituents (the 1987 Release) that the Company
believes could represent the most significant component of any potential
cleanup, and other than with respect to hazardous constituents generated
by Koppel after its acquisition by the Company, if any. B&W, PMAC and
Koppel are in dispute as to whether the indemnification provisions
related to the 1987 Release expire in October 1995. Although B&W has not
acknowledged responsibility for any cleanup measures that may be required
as a result of any investigation (other than with respect to the 1987
Release, in the event certain actions are taken by the EPA prior to
October 1995), B&W and PMAC have agreed to jointly retain an
environmental consultant to assist in negotiating the Consent Agreement
and to conduct the required investigation. Prior to the completion of
the site analysis to be performed in connection with any Consent
Agreement, the Company cannot predict the expected cleanup cost for the
SWMU's and AOC's covered by the proposed Consent Agreement. The Company
believes that it is entitled to full indemnity for all of the matters
covered by the proposed Consent Agreement from B&W and/or PMAC. Pursuant
to its contractual arrangements with PMAC, the Company has a right of
offset against $15 million principal amount of Subordinated Convertible
Debentures due October 2000 through 2005 issued to PMAC which are held in
escrow to secure PMAC's indemnification obligations to the Company.
Subject to the uncertainties concerning the proposed Consent
Agreement and the storage and disposal of the radiation contaminated
baghouse dust, the Company believes it is in compliance in all material
respects with all applicable environmental regulations. Regulations
resulting from the 1990 Amendments that will pertain to the Company's
electric arc furnace operations are currently not expected to be
promulgated until 1997 or later. The Company cannot predict the level of
required capital expenditures 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 Company's
environmental control facilities are anticipated to total approximately
$1.0 million through fiscal 1997, however such expenditures could be
influenced by new and revised environmental laws and regulations.
Employees
As of September 24, 1994, the Company had 1,568 employees, of whom
384 were salaried and 1,184 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 1995 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 40 acres of
real estate upon which is located a tubular processing
facility. The facility is located adjacent to accessible 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; Kalamazoo, Michigan; Lynchburg,
Virginia; Nashville, Tennessee - The Company owns
approximately seven acres of property in Cincinnati, Ohio,
five acres of property in Kalamazoo, Michigan, 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; the Kalamazoo property consists of one 24,000 square
foot building; 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 40 acres of
partially developed land near Newport, Kentucky, acquired in
fiscal 1989, for use as investment property.
Information regarding encumbrances on the Company's properties is
incorporated herein by reference from Note 5 to the Consolidated
Financial Statements, included in the 1994 Annual Report to Shareholders,
such relevant portion filed herewith under Exhibit 13, under the caption
"Consolidated Financial Statements."
Capacity Utilization
The Company's capacity utilization for fiscal 1994 was as follows:
Rated Capacity
Facility (in tons) Tons Produced Percent
Koppel facilities
Melt shop ............... 400,000 278,300 69.6%
Bar mill ................ 200,000 169,900 85.0%
Seamless tube mill ...... 200,000 100,900 50.5%
Newport facilities
Melt shop ............... 700,000 367,300 52.5%
Hot strip rolling mill .. 750,000 353,200 47.1%
Welded pipe mills ....... 580,000 269,900 46.5%
ITEM 3. LEGAL PROCEEDINGS
In September 1994, the Company received a proposed Consent Agreement
from the EPA. See "Environmental Matters."
Newport is a co-defendant in a claim for breach of implied warranty
in the United States District Court for the Southern District of Texas
arising from the failure of two joints of welded pipe during testing of
an off-shore pipeline. The plaintiff is seeking damages in excess of $5
million for costs associated with replacing the entire pipeline and lost
production revenues. The Company believes that it has meritorious
defenses to this claim, although no assurances can be given as to the
outcome of this case. Insurance may be available for a portion, but not
all, of any award for damages.
In addition, the Company is subject to various other 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. The Company believes it has meritorious
defenses with respect to these claims and litigation and that the
ultimate disposition of any of the proceedings to which the Company is
currently a party will not have a material adverse effect on its
consolidated financial position. There can be no assurance, however, as
to the ultimate disposition of these matters.
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
NS Group, Inc. is listed on the New York Stock Exchange, trading
symbol, NSS.
Stock Price
Fiscal 1994 High Low
First Quarter $ 9 1/2 $ 5 7/8
Second Quarter 7 3/4 6 1/4
Third Quarter 7 1/8 4 7/8
Fourth Quarter 7 5 7/8
Fiscal 1993 High Low
First Quarter $ 5 $ 3 1/2
Second Quarter 6 3/8 3 5/8
Third Quarter 8 7/8 5
Fourth Quarter 10 3/4 7 5/8
Additional information pertaining to dividends is incorporated
herein by reference from Note 5 to the Consolidated Financial Statements
included in the 1994 Annual Report to Shareholders, such relevant portion
filed herewith under Exhibit 13, under the caption "Consolidated
Financial Statements".
As of November 28, 1994, there were approximately 310 record holders
of Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference from the 1994 Annual Report to
Shareholders are Note 2 to the Consolidated Financial Statements and
selected financial data, such relevant portions filed herewith under
Exhibit 13, under the captions "Consolidated Financial Statements" and
"Consolidated Historical Summary", respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated herein by reference from the 1994 Annual Report to
Shareholders, such relevant portion filed herewith under Exhibit 13,
under the caption "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 1994 Annual Report to
Shareholders, such relevant portion filed herewith under Exhibit 13,
under the caption "Consolidated Financial Statements."
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 20, 1994 for the Annual Meeting of Shareholders on
February 16, 1995, under the caption "I. Election of Directors" -
"Nominees for Election as Directors"; "Committees of the Board"; and
"Executive Compensation".
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's Proxy Statement
dated December 20, 1994 for the Annual Meeting of Shareholders on
February 16, 1995, under the caption "I. Election 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 20, 1994 for the Annual Meeting of Shareholders on
February 16, 1995, "Securities 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 20, 1994 for the Annual Meeting of Shareholders on
February 16, 1995, under the caption "I. Election of Directors" -
"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 1994 Annual Report to
Shareholders for the fiscal year ended September 24, 1994, are
incorporated by reference in Item 8:
- Consolidated Statements of Income
- 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 Schedules - The following
schedules are included herein:
- Report of Independent Public Accountants on Financial
Statement Schedules
- Schedule I - Marketable Securities - Other Investments
- Schedule V - Property, Plant and Equipment
- Schedule VI - Accumulated Depreciation and Amortization
of Property, Plant and Equipment
- Schedule VIII - Valuation and Qualifying Accounts
- Schedule IX - Short-Term Borrowings
- Schedule X - Supplementary Income Statement Information
(a) 3. Exhibits
Reference is made to the Index to Exhibits, which is
incorporated herein by reference.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended September 24, 1994.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
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
October 31, 1994. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The
schedules listed in Item 14(a) 2 are the responsibility of the Company's
management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state 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
October 31, 1994
SCHEDULE I
NS GROUP, INC. AND SUBSIDIARIES
___________________
MARKETABLE SECURITIES - OTHER INVESTMENTS
(Dollars in thousands)
Amount at
Which Shown
Market in Balance
Type of Investment Cost Value Sheet
At September 25, 1993
Fixed Rate Obligations:
Corporate notes......................... $ 527 $ 503 $ 503
Variable Rate Preferred Stocks............ 1,000 1,000 1,000
U.S. Treasury Securities.................. 1,954 1,954 1,954
Total short-term investments at
September 25, 1993.................... $ 3,481 $ 3,457 $ 3,457
At September 24, 1994
Fixed Rate Obligations:
Corporate notes......................... $ 527 $ 500 $ 500
Variable Rate Preferred Stocks:
Utilities
Duke Power Company .................. 1,500 1,500 1,500
Houston Industries, Inc. ............ 1,500 1,500 1,500
Kansas City Power & Light Company ... 1,500 1,500 1,500
Virginia Electric & Power Company ... 1,500 1,500 1,500
Other Utilities ..................... 6,000 6,000 6,000
Financial
Northern Trust Corp. ................ 1,500 1,500 1,500
Konica Capital....................... 1,000 1,000 1,000
Transamerica Corporation............. 1,500 1,500 1,500
Other Financial...................... 6,000 6,000 6,000
Industrial.............................. 3,000 3,000 3,000
Other Variable Rate Investments:
Provident Institutional Funds
Tempcash Fund..................... 11,995 11,995 11,995
Other............................... 2,576 2,576 2,576
Total short-term investments at
September 24, 1994................... $40,098 $40,071 $40,071
SCHEDULE V
NS GROUP, INC. AND SUBSIDIARIES
______________________
PROPERTY, PLANT AND EQUIPMENT
(Dollars in thousands)
Balance at Balance
Beginning Additions at End
Classification of Year at Cost Retirements Other(a) of Year
For the Year Ended
September 26, 1992:
Land and land improvements.. $ 8,320 $ 50 $ (122) $ - $8,248
Buildings................... 17,788 1,251 (23) - 19,016
Machinery and equipment..... 226,498 4,900 (1,863) - 229,535
Construction in progress.... 6,046 (2,053)(b) - - 3,993
$258,652 $ 4,148 $(2,008) $ - $260,792
For the Year Ended
September 25, 1993:
Land and land improvements.. $ 8,248 $ 186 $ (12) $ - $ 8,422
Buildings................... 19,016 121 - - 19,137
Machinery and equipment..... 229,535 6,404 1,767) - 234,172
Construction in progress.... 3,993 (631)(b) - - 3,362
$260,792 $ 6,080 $(1,779) $ - $265,093
For the Year Ended
September 24, 1994:
Land and land improvements.. $ 8,422 $ 1,210 $ - $ (682) $ 8,950
Buildings................... 19,137 756 (283) (719) 18,891
Machinery and equipment..... 234,172 9,389 (3,993) (8,185) 231,383
Construction in progress.... 3,362 405 (b) - (270) 3,497
$265,093 $ 11,760 $(4,276) $(9,856) $262,721
_____________________________
(a) Reductions due to the sale of subsidiary.
(b) Net change in construction in progress for the year.
SCHEDULE VI
NS GROUP, INC. AND SUBSIDIARIES
___________________
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(Dollars in thousands)
[CAPTION]
Additions
Balance at Charged to Balance
Beginning Costs and at End
Classification of Year Expenses Retirements Other(a) of Year
For the Year Ended
September 26, 1992:
Land and land improvements.. $ 602 $ 189 $ - $ - $ 791
Buildings................... 2,213 444 (1) - 2,656
Machinery and equipment..... 53,772 17,485 (380) - 70,877
$56,587 $18,118 $ (381) $ - $ 74,324
For the Year Ended
September 25, 1993:
Land and land improvements.. $ 791 $ 197 $ - $ - $ 988
Buildings................... 2,656 1,015 - - 3,671
Machinery and equipment..... 70,877 16,928 (837) - 86,968
$74,324 $18,140 $ (837) $ - $ 91,627
For the Year Ended
September 24, 1994:
Land and land improvements.. $ 988 $ 192 $ - $ (22) $ 1,158
Buildings................... 3,671 434 (217) (134) 3,754
Machinery and equipment..... 86,968 17,409 (3,659) (3,448) 97,270
$91,627 $18,035 $(3,876) $(3,604) $102,182
_____________________________
(a) Reductions due to the sale of subsidiary.
SCHEDULE VIII
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 28, 1991....... $ 1,138 $ 97
Additions:
Charged to costs and expenses.. 632 1,903
Deductions:
Net charges of nature for which
reserves were created......... ( 463) (1,792)
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
_______________________
(1) Deducted from accounts receivable
SCHEDULE IX
NS GROUP, INC. AND SUBSIDIARIES
____________________
SHORT-TERM BORROWINGS
(Dollars in thousands)
[CAPTION]
Maximum
Amount Average Weighted
Weighted Outstanding Amount Average
Balance Average at Month-end Outstanding Interest
Category of Aggregate at End Interest During During Rate During
Short-Term Borrowings(1) of Year Rate the Year the Year(2) the Year(2)
For the Year Ended
September 26, 1992:
Lines of credit.... $20,279 7.29% $31,744 $24,127 7.62%
Other notes........ 402 5.58 608 297 5.58
$20,681 7.26 $32,352 $24,424 7.59
For the Year Ended
September 25, 1993:
Lines of credit.... $26,229 7.30% $29,729 $25,333 7.30%
Other notes........ 738 5.58 1,137 533 5.58
$26,967 7.27 $30,866 $25,866 7.27
For the Year Ended
September 24, 1994:
Lines of credit.... $28,197 9.05% $33,353 $29,011 7.89%
Other notes........ 675 5.29 855 490 5.58
$28,872 8.96 $34,208 $29,501 7.86
____________________________
(1) Short-term borrowings were under various bank line of credit agreements
and short-term demand notes which are used to finance various insurance
contracts.
(2) Computed on a monthly weighted average basis.
SCHEDULE X
NS GROUP, INC. AND SUBSIDIARIES
__________________
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Dollars in thousands)
Charged to
Costs and
Item Expenses
For the Year Ended September 26, 1992:
Maintenance and repairs.............................. $23,904
For the Year Ended September 25, 1993:
Maintenance and repairs.............................. $21,703
For the Year Ended September 24, 1994:
Maintenance and repairs.............................. $21,249
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 9, 1994 By: /s/Clifford R. Borland
Clifford R. Borland, President
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 9, 1994 By: /s/Clifford R. Borland
Clifford R. Borland, President,
Chief Executive Officer and Director
Date: December 9, 1994 /s/John R. Parker
John R. Parker, Vice President and
Treasurer, Principal Financial
Officer
Date: December 9, 1994 /s/Thomas J. Depenbrock
Thomas J. Depenbrock
Corporate Controller
Date: December 9, 1994 /s/Ronald R. Noel
Ronald R. Noel, Director
Date: December 9, 1994 /s/John B. Lally
John B. Lally, Director
Date: December 9, 1994 /s/Patrick J. B. Donnelly
Patrick J. B. Donnelly, Director
Date: December 9, 1994 /s/R. Glen Mayfield
R. Glen Mayfield, Director
INDEX TO EXHIBITS
Number Description
3(a) Amended and Restated Articles of Incorporation of Registrant,
filed as Exhibit 3(a) to Registrant's Form 10-K for the fiscal
year ended September 30, 1989, File No. 1-9838, and
incorporated herein by this reference
3(b) Amended and Restated By-Laws of Registrant, dated November 14,
1991, filed as Exhibit 3(b) to Registrant's Form 10-K for the
fiscal year ended September 28, 1991, File No. 1-9838, and
incorporated herein by this reference
4(a) Note Agreement dated as of November 15, 1989 and amended as of
October 3, 1990, between Newport Steel Corporation and the
Purchasers named therein and related agreements, filed as
Exhibit 4(a) to Registrant's Form 10-K for the fiscal year
ended September 30, 1989, File No. 1-9838, and incorporated
herein by this reference; Second and Third Amendment
Agreements, dated May 11, 1992 and November 24, 1992,
respectively, filed as Exhibit 4(a) to Registrant's Form 10-K
for the fiscal year ended September 26, 1992, File No. 1-9838,
and incorporated herein by this reference; Fourth Amendment
Agreement dated February 8, 1993, filed as Exhibit 4(a) to
Registrant's Form 10-Q for the quarterly period ended March 27,
1993, File No. 1-9838, and incorporated herein by this
reference; and Fifth Amendment Agreement dated August 17, 1994,
filed herewith
4(b) Form of 11% Subordinated Convertible Debenture due 2005, filed
as Exhibit 4.1 to Registrant's Current Report on Form 8-K dated
October 18, 1990, File No. 1-9838, and incorporated herein by
this reference
4(c) Form of Warrant dated October 4, 1990, filed as Exhibit 4.2 to
Registrant's Current Report on Form 8-K dated October 18, 1990,
File No. 1-9838, and incorporated herein by this reference; and
First Amendment to Warrant dated September 26, 1992, filed as
Exhibit 4(c) to Registrant's Form 10-K for the fiscal year
ended September 26, 1992, File No. 1-9838, and incorporated
herein by this reference
4(d) Loan Agreement dated as of October 4, 1990 between Koppel Steel
Corporation and General Electric Capital Corporation, filed as
Exhibit 4.3 to Registrant's Current Report on Form 8-K dated
October 18, 1990, File No. 1-9838, and incorporated herein by
this reference; amendment dated September 27, 1991, filed as
Exhibit 4(d) to Registrant's Form 10-K for the fiscal year
ended September 28, 1991, File No. 1-9838, and incorporated
herein by this reference; Second Amendment to Loan Agreement
dated September 26, 1992, filed as Exhibit 4(d) to Registrant's
Form 10-K for the fiscal year ended September 26, 1992, File
No. 1-9838, and incorporated herein by this reference; and
Third Amendment to Loan Agreement, dated September 24, 1993,
filed herewith
No other long-term debt instrument issued by the Registrant
exceeds 10% of the consolidated total assets of the Registrant
and its subsidiaries. The Registrant will furnish to the
Commission upon request copies of such instruments and related
agreements.
10(a) Registrant's Amended Employee Incentive Stock Option Plan,
filed as Exhibit 10(a) to Registrant's Form 10-K for the fiscal
year ended September 30, 1989, File No. 1-9838, and
incorporated herein by this reference
10(b) Registrant's Executive Bonus Plan, filed as Schedule B to
Exhibit 10.4 to Registrant's Registration Statement on Form S-
18, File No. 2-90643, and incorporated herein by this reference
10(c) Registrant's Non-Qualified Stock Option and Stock Appreciation
Rights Plan of 1988, filed as Exhibit 1 to Registrant's Proxy
Statement dated January 13, 1989, File No. 1-9838, and
incorporated herein by this reference
10(d) Rights Agreement dated as of November 17, 1988 between
Registrant and Pittsburgh National Bank, filed as Exhibit 1 to
Registrant'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
Registrant's Form 10-Q dated May 29, 1994, File No. 1-9838, and
incorporated herein by this reference.
10(e) Registrant's 1993 Incentive Stock Option Plan, filed as Exhibit
1 to Registrant's Proxy Statement dated December 22, 1992, File
No. 1-9838, and incorporated herein by this reference
10(f) 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(g) 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
the Registrant's Form 10-K for the fiscal year ended September
25, 1993, File No. 1-9838, and incorporated herein by this
reference
10(h) Registration Rights Agreement dated October 6, 1993 among
Kentucky Electric Steel, Inc., NS Group, Inc. and NSub I, Inc.
filed as Exhibit 10(i) to the Registrant's Form 10-K for the
fiscal year ended September 25, 1993, File No. 1-9838, and
incorporated herein by this reference
13 Excerpted portion of the 1994 Annual Report to Shareholders
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)