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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 SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 25, 1999
COMMISSION FILE NUMBER 1-9838
NS GROUP, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-0985936
(State or other jurisdiction (I.R.S. Employer
of 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:
Title of each class Name of each exchange on
Common Stock, no par value which registered
Preferred Stock Purchase Rights New York Stock Exchange
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 [ ]
Based on the closing sales price of November 29, 1999, as
reported in The Wall Street Journal, the aggregate market
value of the voting stock held by non-affiliates of the
registrant was approximately $174.4 million.
The number of shares outstanding of the registrant's
Common Stock, no par value, was 21,492,708 at November 29,
1999.
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 25, 1999 ("1999 Annual Report").
Part III also incorporates certain information by reference
from the Company's Proxy Statement dated December 20, 1999 for
the Annual Meeting of Shareholders on February 10, 2000
("Proxy").
Table of Contents
PART I
Page
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote
of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 13
Item 6. Selected Consolidated Financial Data 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 13
PART III
Item 10. Directors and Executive Officers of the
Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial
Owners and Management 14
Item 13. Certain Relationships and Related
Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 15
The matters discussed or incorporated by reference in
this Report on Form 10-K that are forward-looking statements
(as defined in the Private Securities Litigation Reform Act of
1995) involve risks and uncertainties. These risks and
uncertainties may cause the actual results or performance of
the Company to differ materially from any future results or
performance expressed or implied by such forward-looking
statements. Reference is made to the introductory paragraph
of "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the 1999
Annual Report and incorporated herein by reference and to
Exhibit 99.1 to this Form 10-K for a discussion of risks and
uncertainties.
PART I
ITEM 1. BUSINESS
The Company was incorporated in Kentucky in 1980. As used
herein, the terms "Company" and "NS Group" refer to NS Group,
Inc. and its wholly-owned subsidiaries - Newport Steel
Corporation (Newport or Welded), Koppel Steel Corporation
(Koppel or Seamless), Erlanger Tubular Corporation (Erlanger),
Imperial Adhesives, Inc. (Imperial) and Northern Kentucky
Management, Inc.
NS Group conducts business in three industry segments:
the energy products segment, the industrial products segment -
special bar quality (SBQ) products and the industrial products
segment -adhesives. Incorporated herein by reference from the
1999 Annual Report is the segment data included in
"Management's Discussion and Analysis of Financial Condition
and Result of Operations" and "Note 2 to the Consolidated
Financial Statements", which contains additional information
pertaining to industry segment data.
Energy Products Segment
General
The Company is a producer of tubular steel products used
in the energy industry. Products produced by the Company
include welded and seamless tubular goods, primarily used in
oil and natural gas drilling and production operations,
referred to as oil country tubular goods (OCTG); and welded
and seamless line pipe, used in the transmission of oil,
natural gas and other fluids.
OCTG products are produced in numerous sizes, weights,
grades and end finishes. The Company manufactures most of its
OCTG products to American Petroleum Institute ("API")
specifications. The grade of pipe used in a particular
application depends on technical requirements for strength,
corrosion resistance and other performance qualities. OCTG
products are generally classified into groupings of "carbon"
and "alloy" grades. Carbon grades of OCTG products have less
yield strength than alloy grades and are therefore generally
used in shallower oil and natural gas wells than alloy grades.
Carbon and alloy grades of OCTG products are manufactured by
both welded and seamless producers. Welded products are
produced by processing flat rolled steel into strips that are
cold-formed, welded, heat-treated or seam-annealed and end-
finished with threads and couplings. Seamless products are
produced by individually heating and piercing solid steel
billets into pipe and then end finishing the pipe into OCTG
products in a manner similar to welded pipe. The seamless
manufacturing process involves higher costs than the welded
process and, as a result, seamless products are generally
priced higher than comparably sized welded products.
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 and
globally. The level of drilling activity is largely a
function of the current and anticipated prices of oil and
natural gas. In addition, shipments by domestic producers of
OCTG products are influenced by the levels of inventory held
by producers, distributors and end users as well as the level
of foreign imports of OCTG products. The average number of
oil and natural gas drilling rigs in operation in the United
States was 602 in fiscal 1999, 905 in fiscal 1998, and 906 in
fiscal 1997. Demand for the Company's OCTG products in fiscal
1999 declined significantly from fiscal 1998. The decline was
attributable to decreased domestic drilling activity coupled
with excess industry-wide inventories.
U.S. domestic shipments (excluding exports) of OCTG
products in fiscal 1999, 1998 and 1997 were 915,000 tons, 1.8
million tons, and 2.5 million tons, respectively.
Demand for line pipe is only partially dependent on oil
and natural 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.
Overall, total shipments by domestic line pipe producers
(excluding exports) were 1.9 million tons in fiscal 1999, 1.9
million tons in fiscal 1998, and 1.6 million tons in fiscal
1997. Total domestic shipments of line pipe product 16 inches
in diameter and smaller, the product sizes that the Company
produces, were 709,000 tons in fiscal 1999, 879,000 tons in
fiscal 1998 and 852,000 tons in fiscal 1997.
Since 1995, the U.S. government has been imposing duties
on imports of various OCTG products from certain foreign
countries in response to antidumping and countervailing duty
cases filed by several U.S. steel companies. The duties
primarily pertain to the import of seamless OCTG products and
are subject to annual review by the U.S. Department of
Commerce through 2000. Also, the Company, together with
certain other line pipe producers, recently filed petitions
with the U.S. government seeking relief from imports of welded
and seamless line pipe products. The Company cannot predict
the U.S. government's actions regarding these petitions or any
other future actions regarding import duties or other trade
restrictions on imports of OCTG and line pipe products.
Products
The Company's welded OCTG products are used primarily as
casing in oil and natural gas wells during drilling
operations. 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. 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 in both a plain end (unthreaded) product as well
as a threaded and coupled product in both carbon and alloy
grades. The Company's welded tubular products range in size
from 4.5 to 16.0 inches in outside diameter.
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. Production tubing is
placed within the well 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 similarly sized welded
products, seamless production tubing and casing are better
suited for use in hostile drilling environments such as deeper
wells or off-shore drilling because of their greater strength
and durability. The majority of the Company's seamless OCTG
product sales are of production tubing in sizes ranging from
1.9 inches to 5 inches in outside diameter.
The Company's line pipe products are used primarily 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. Line pipe products are
coated and shipped as a plain end product. The majority of
the Company's line pipe sales are of welded products.
The Company's OCTG products are inspected and tested to
ensure that they meet or exceed API specifications. Products
that do not meet specification are classified as less than
prime products and are sold at substantially reduced prices.
In addition, the Company also sells a limited amount of
other products, including standard pipe, piling and hot rolled
coil.
Markets and Distribution
The Company sells its energy related tubular products to
its customers through an in-house sales force. 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 primary geographic markets for
the Company's seamless OCTG products have been the southwest
United States and various foreign markets, including offshore
applications. The Company has historically marketed its
welded OCTG products in the east, central and southwest
regions of the United States. In these areas, shallow oil and
natural gas drilling and exploration activity utilize welded
tubular products.
Customers
The Company has approximately 185 tubular 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.
Line pipe products are also used by gas utility and
transmission companies. Substantially all of the Company's
OCTG products are sold to domestic distributors. Line pipe
products are sold to both domestic distributors and directly
to end users. The Company has long-standing relationships
with many of its larger customers; however, the Company
believes that it is not dependent on any one customer and that
it could, over time, replace lost sales attributable to any
one customer. In fiscal 1999, no one customer accounted for
more than 10% of total net sales.
Competition
The markets for the Company's tubular products are highly
competitive and cyclical. The Company's principal
competitors in its primary markets include domestic and
foreign integrated producers, mini-mills and welded tubular
product processing companies. The Company believes that the
principal competitive factors affecting its business are
price, quality and customer service.
In the welded OCTG and line pipe market, the Company
competes against certain manufacturers who purchase hot rolled
coils for further processing into welded OCTG and line pipe
products. The cost of finished tubular products for these
manufacturers is largely dependent on the market price of hot
rolled coils. Depending on market demand for hot rolled
coils, these tubular manufacturers may purchase hot rolled
coils at a lower or higher cost than the Company's cost to
manufacture hot rolled coils. Increases or decreases in
imports of hot rolled coils can also impact the market price
for hot rolled coils.
The Company's principal domestic competitors in the
welded tubular market are Lone Star Steel Company, Maverick
Tube Corporation, LTV Corporation and IPSCO Steel, Inc. In
the small diameter seamless OCTG market in which the Company
competes, its principal competitors include the USS/Kobe Steel
Company and a number of foreign producers.
Manufacturing
The Company manufactures welded tubular products at its
facilities located near Newport, Kentucky and manufactures
seamless tubular products at its facilities located in
Ambridge, Pennsylvania. During fiscal 1999, the Company made
capital investments of $26.6 million ($31.2 million in fiscal
1998) in its energy products business segment to increase
productivity and expand product range. The rated annual
capacities of the Company's welded and seamless tubular
facilities are 570,000 tons and 250,000 tons, respectively.
Capacity utilization of the welded tubular facilities during
fiscal 1999 was 41% and capacity utilization for the seamless
tubular facilities during fiscal 1999 was 27%.
The Company processes and finishes its tubular products
at facilities located at (i) the Port of Catoosa, near Tulsa,
Oklahoma, (ii) Baytown, Texas, located near Houston, Texas;
and (iii) the Seamless facilities located in Ambridge,
Pennsylvania. The finishing processes include upsetting,
which is a forging process that thickens tube ends; heat
treating, which is a furnace operation designed to strengthen
the steel; straightening; non-destructive testing; coating for
rust prevention; and threading.
All of the Company's tube-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, which is a lower cost alternative to rail and truck
shipping.
The Company manufactures its tubular products in a mini-
mill environment. The term mini-mill connotes a smaller,
relatively low cost mill that typically uses steel scrap as
its basic raw material and offers a limited range of products.
At the Company's Welded and Seamless facilities, steel scrap
is melted in electric arc furnaces and poured into continuous
casting systems. A hot strip rolling mill converts continuous
cast slabs into hot rolled coils at the Welded facility. Hot
rolled coils are slit and formed into welded tubular products
at two welded pipe-making facilities. At the Seamless
facility, billets are reheated to form tube rounds which are
pierced and rolled to specific size and wall thickness. The
Company believes that its mini-mill operations can produce hot
rolled coil (which are used to manufacture welded tubular
products) and billets (which are used to manufacture seamless
tubular products) at a cost lower than the cost to purchase
those items over the term of our markets' cycles.
In February 1999, the Company completed the installation
of a new ultra-high powered AC electric arc furnace at its
Welded facility that replaced three older, less efficient
furnaces. The new furnace is expected to increase
productivity and significantly reduce unit operating costs.
As of October, 1999, the furnace was operating at
approximately 55% of its expected production capabilities.
The Welded and Seamless melt shops rated annual
capacities are 700,000 tons and 450,000 tons, respectively.
Capacity utilization in fiscal 1999 was 37% for the welded
facility and 48% for the Seamless facility.
Raw Materials and Supplies
The primary raw material used in the energy products
segment 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 in the domestic steel
industry may 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-
briquetted iron.
The Company's melt shop facilities consume significant
amounts of electricity. The Company currently purchases its
electricity from utility companies located near its mini-mill
facilities pursuant to various contracts. The contracts
provide for unlimited power demand and discounted 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.
Industrial Products Segment - Special Bar Quality Products
General
The bar product market represents the second largest
segment of the steel market. Total fiscal 1999 shipments by
domestic producers of hot rolled bar (which include the
Company's SBQ products) were approximately 7.4 million tons.
Bar products are generally categorized into merchant bar
quality products and SBQ products. SBQ products are used for
a wide variety of industrial applications including
automotive, metal-working fabrication, construction, farm
equipment, heavy machinery and trucks and off-road vehicles.
The Company competes in relatively small segments of the SBQ
market. Unlike the majority of SBQ products, which are
primarily used by passenger car manufacturers, heavy SBQ
products such as those produced by the Company are primarily
used in the manufacture of heavy industrial products.
Special Bar Quality Products
The Company manufactures products for a specialized niche
of the SBQ products market at its Koppel facility in sizes
ranging from 2.875 to 6.0 inches in diameter. The Company
produces its SBQ products from continuous cast blooms that
enable substantial size reduction in the bloom during
processing and provides greater 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.
The Company's SBQ products are ISO 9002 certified. The demand
for the Company's SBQ products is cyclical in nature and is
sensitive to general economic conditions.
Markets and Distribution
The Company sells its SBQ products to approximately 50
customers located generally within 400 miles of its Koppel,
Pennsylvania facilities.
Customers
The Company sells its SBQ products to service centers,
cold finishers, forgers and original equipment manufacturers.
Competition
The Company competes with a number of SBQ manufacturers,
including CSC Industries, Inc., Republic Technologies, Inc.,
Ispat Inland, Inc., Qualitech, Inc., Mac Steel Division of
Quanex Corporation, North Star Steel Company, Inc. and the
Timkin Company.
Manufacturing
The SBQ products mill utilizes the Koppel facility's melt
shop to produce 9 inch square blooms. Blooms are reheated and
passed through a series of rolls in the bar mill, where they
are reshaped into round bars. SBQ products are available in
both carbon and alloy grades in sizes measuring 2.875 to 6
inches in diameter. The bar mill's rated annual capacity is
200,000 tons and it operated at 71% of capacity in fiscal
1999.
Industrial Products Segment - Adhesives Products
General
The Company manufactures custom water-borne, solvent-
borne and hot-melt adhesives and footwear finishes. These
products are manufactured at plants located in Cincinnati,
Ohio and Nashville, Tennessee.
Products and Markets
The Company maintains approximately 700 active formulae
for the manufacture of water-borne, solvent-borne and hot-melt
adhesives products and approximately 500 active formulae for
the manufacture of footwear finishes. The Company's multiple
product lines are used primarily in product assembly
applications in the footwear, foam bonding, marine and
recreational vehicles, consumer packaging, construction,
furniture, and transportation industries. The Company's
industrial adhesives products are marketed throughout the
United States and Caribbean basin through an in-house sales
force as well as independent sales representatives. Products
are distributed from the Company's manufacturing sites and a
number of public warehouses across the United States and in
Puerto Rico.
Competition
Competition in the industrial adhesives industry includes
several major producers, as well as numerous small and mid-
sized companies comparable to Imperial. The Company competes
on the basis of price, product performance and customer
service and believes that its diversity and ability to develop
applications to meet customer specific needs allows it to
compete effectively with substantially all adhesives
producers.
Manufacturing Process
The Company's adhesives products are manufactured by
combining and mixing predetermined quantities of raw
materials. The raw materials are measured according to
specific formulae and mixed in numerous specially designed
industrial mixers. Raw materials are available from multiple
sources and consist primarily of petrochemical-based
materials. Pricing of raw materials generally follows trends
in the petrochemical markets. The physical properties of
finished formulae are measured and monitored by a statistical
process control system. The Company works closely with its
customers to develop adhesives applications designed to meet
their specific product requirements.
Environmental Matters
The Company is subject to federal, state and local
environmental laws and regulations, including, among others,
the Resource Conservation and Recovery Act (RCRA), the Clean
Air Act, the 1990 Amendments to the Clean Air Act and the
Clean Water Act, and all regulations promulgated in connection
therewith. Such laws and regulations include those concerning
the discharge of contaminants as air emissions or waste water
effluents and the disposal of solid and/or hazardous wastes,
such as electric arc furnace dust. As such, the Company is
from time to time involved in administrative and judicial
proceedings and administrative inquiries related to
environmental matters.
As with other steel mills in the industry, the Company's
steel mini-mills produce dust which contains lead, cadmium and
chromium, and is classified as a hazardous waste. The Company
currently collects the dust produced by its electric arc
furnace operations through emission control systems and
contracts with a company for treatment and disposal of the
dust at an EPA-approved facility.
In two separate incidents occurring in fiscal 1993 and
1992, radioactive substances were accidentally melted at
Newport, resulting in the contamination of a quantity of
electric arc furnace dust. The Company has contracted with a
company to dispose of the dust at an EPA-approved facility.
The project is expected to be completed by the second quarter
of fiscal 2000. The Company believes disposal costs will not
exceed its gross environmental remediation reserves of $5.3
million. In connection with these incidents, the Company has
an insurance receivable outstanding of $1.6 million as of
September 25, 1999.
Subject to the uncertainties concerning the storage of
the radiation contaminated dust, the Company believes that it
is currently in compliance in all material respects with
all applicable environmental regulations. The Company cannot
predict the level of required capital expenditures or
operating costs that may result from compliance with future
environmental regulations.
Capital expenditures for the next twelve months relating
to environmental control facilities are expected to be
approximately $0.8 million; however, such expenditures
could be influenced by new or revised environmental
regulations and laws or new information or developments with
respect to the Company's operating facilities.
As of September 25, 1999, the Company had environmental
remediation reserves of $5.4 million attributable primarily to
the accrued disposal costs for radiation
contaminated dust. Based upon its evaluation of available
information, management does not believe that any of the
environmental contingency matters discussed above are
likely, individually or in the aggregate, to have a material
adverse effect upon the Company's consolidated financial
position, results of operations or cash flows. However, the
Company cannot predict with certainty that new information or
developments with respect to its environmental contingency
matters, individually or in the aggregate, will not have a
material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.
Employees
As of September 25, 1999, the Company had 1,619
employees, of whom 389 were salaried and 1,230 were hourly.
Substantially all of the Company's hourly employees are
represented by the United Steelworkers of America under
contracts expiring in 2000 for Erlanger; 2001 for Imperial and
2002 for the Welded and Seamless operations.
ITEM 2. PROPERTIES
The Company's principal operating properties are listed
below. The Company believes its facilities are adequate and
suitable for its present level of operations.
Location and Properties
Energy Products Segment
Newport, Kentucky - The Company owns approximately 250
acres of real estate upon which is located a melt shop, hot
strip mill, two welded pipe mills, a barge facility, machine
and fabricating shops and storage and repair facilities
aggregating approximately 675,000 square feet, as well as
administrative offices. The facilities are also located
adjacent to rail lines.
Tulsa, Oklahoma - The Company leases approximately 36
acres of real estate upon which is 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.
Koppel, Pennsylvania - The Company owns approximately 160
acres of real estate upon which are located a melt shop,
machine and fabricating shops, storage and repair facilities
and administrative offices aggregating approximately 500,000
square feet. The facilities are located adjacent to rail
lines. The melt shop and administrative offices support the
Seamless operations and the industrial products segment for
SBQ products.
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. The facilities
are located adjacent to rail lines and river barge facilities.
Baytown, Texas - The Company owns approximately 55 acres of
real estate upon which are located a tubular processing
facility and barge facilities. Located on the property are
eight buildings aggregating approximately 82,000 square feet
which house the various finishing operations.
Industrial Products Segment-SBQ
Koppel, Pennsylvania - The Company owns approximately 67
acres of real estate upon which are located a bar mill,
machine and fabricating shops and storage repair facilities
aggregating approximately 400,000 feet. The melt shop and
administrative offices support the energy products Seamless
operations and the SBQ products operations.
Industrial Products Segment-Adhesives
Cincinnati, Ohio and Nashville, Tennessee - The Company
owns approximately seven acres of property in Cincinnati,
Ohio; and 3.1 acres in Nashville, Tennessee for use in its
adhesives and finishes operations. The Cincinnati properties
contain five buildings aggregating approximately 150,000
square feet. The Nashville property contains one building
aggregating approximately 60,000 square feet.
Other
Newport, Kentucky - The Company owns approximately 19
acres of partially developed land near Newport, Kentucky,
which is held as investment property and is listed for sale.
Information regarding encumbrances on the Company's
properties is included in Note 5 to the Consolidated Financial
Statements of the 1999 Annual Report, and is incorporated
herein by reference.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various claims, lawsuits and
administrative proceedings arising in the ordinary course of
business with respect to workers compensation, health care and
product liability coverages (each of which is self-insured to
certain levels), as well as commercial and other matters.
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 1999 Annual
Report, "Corporate and Shareholder Information - Stock Market
Information" and "Corporate and Shareholder Information -
Stock Price" and Note 5 to the Consolidated Financial
Statements.
As of November 29, 1999 there were approximately 229
record holders of Common Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Incorporated herein by reference from the 1999 Annual
Report, "Consolidated Financial Summary".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Incorporated herein by reference from the 1999 Annual
Report, "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Incorporated herein by reference from the 1999 Annual
Report, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources" and Notes 4, 5 and 6 to the Consolidated Financial
Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference from the 1999 Annual
Report, "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 Proxy under the
caption "Proposals of the Board, Item 1 - Election of
Directors," "Securities Ownership of Management, footnote
(6)"; "The Board of Directors, Board Committees and Meeting
Attendance"; and "Securities Ownership of Management, Section
16(a) Beneficial Ownership Reporting Compliance".
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Proxy under the
caption "Compensation of Directors"; and "Compensation of
Executive Officers".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated herein by reference from the Proxy under
the caption "Securities Ownership of Management" and
"Securities Ownership of Certain Beneficial Owners".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Proxy under the
caption "Compensation of Executive Officers, Compensation
Committee Interlocks and Insider Participation" and "Certain
Relationships and Related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8
(a) 1. Consolidated Financial Statements -
Audited consolidated financial statements required by this
item are incorporated by reference and listed in Part II, Item
8.
2. Consolidated Financial Statement
Schedule - The financial statement schedule required to be
filed as a part of this report is included herein:
- Report of Independent Public Accountants on Financial
Statement Schedule
- Schedule II - Valuation and Qualifying Accounts
3. Exhibits - Reference is made to the Index
to Exhibits, which is included herein as part of this report.
(b) Reports on Form 8-K
Current Report on Form 8-K dated July 15, 1999 and
filed July 16, 1999 reporting under Item 5 the announcement of
the appointment of a director.
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 1, 1999. 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.
/s/Arthur Andersen LLP
Cincinnati, Ohio ARTHUR ANDERSEN LLP
November 1, 1999
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 28, 1996 $ 757 $ 341
Additions:
Charged to costs and expenses 1,050 7,414
Deductions:
Net charges of nature for which
reserves were created (1,095) (7,124)
BALANCE, September 27, 1997 $ 712 $ 631
Additions:
Charged to costs and expenses 1,319 5,143
Deductions:
Net charges of nature for which
reserves were created (1,279) (5,622)
BALANCE, September 26, 1998 $ 752 $ 152
Additions:
Charged to costs and expenses
Deductions: 1,598 2,502
Net charges of nature for which
reserves were created (1,513) (2,400)
BALANCE, September 25, 1999 $ 837 $ 254
(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 10, 1999 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 10, 1999 /s/Clifford R. Borland
Clifford R. Borland
Chief Executive Officer
and Director
Date: December 10, 1999 /s/Rene J. Robichaud
Rene J. Robichaud,
President, Chief Operating
Officer and Director
Date: December 10, 1999 /s/John R. Parker
John R. Parker,
Vice President,
Treasurer and Chief
Financial Officer
(Principal Financial Officer)
Date: December 10, 1999 /s/Thomas J. Depenbrock
Thomas J. Depenbrock
Vice President and
Corporate Controller
(Principal Accounting Officer)
Date: December 10, 1999 /s/Ronald R. Noel
Ronald R. Noel
Vice President and Director
Date: December 10, 1999 /s/Paul C. Borland, Jr.
Paul C. Borland, Jr.,
Director
Date: December 10, 1999 /s/Patrick J. B. Donnelly
Patrick J. B. Donnelly,
Director
Date: December 10, 1999 /s/John B. Lally
John B. Lally, Director
Date: December 10, 1999 /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 as Exhibit 3.2 to Company's Form 10-K
for the fiscal year ended September 30, 1995, File No. 1-9838,
and incorporated herein by this reference
Exhibit 4.1 through 4.17 were filed as exhibits
under their respective Exhibit numbers to the Company'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 Warrant Agreement between the Company and The
Huntington National Bank, as warrant agent, filed as Exhibit
4.22 to the Company's Form 10-Q for the quarterly period ended
July 1, 1995, File No. 1-9838, and incorporated herein by this
reference
4.19 Credit Agreement between the Company and Bank of
America National Trust and Savings Association, dated July 31,
1998, filed as Exhibit 4.20 to the Company's Form 10-K for the
fiscal year ended September 26, 1998, File No. 1-9838, and
incorporated herein by this reference; and Amendment No. 1
dated March 25, 1999, filed as Exhibit 4.20 to the Company's
Form 10-Q for the quarterly period ended March 27, 1999, File
No. 1-9838, and incorporated herein by this reference
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 the
Company's Proxy Statement dated January 13, 1989, File No. 1-
9838, and incorporated herein by this reference*
10.4 Rights Agreement dated November 17, 1998 between the
Company and Registrar and Transfer Company, filed as Exhibit 1
to the Company's Form 8-K dated November 5, 1998, File No. 1-
9838, and incorporated herein by this reference
10.5 Company's 1993 Incentive Stock Option Plan, filed as
Exhibit 1 to the Company's Proxy Statement dated December 22,
1992, File No. 1-9838, and incorporated herein by this
reference*
10.6 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 the Company's Form 10-K for fiscal year
ended September 25, 1993, File No. 1-9383, and incorporated
herein by this reference
10.7 Form of Warrant dated October 4, 1990, filed as
Exhibit 4.2 to the 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 the Company's Form 10-K for the fiscal year
ended September 26, 1992, File No. 1-9838, and incorporated
herein by this reference
10.8 Company's Amended and Restated 1995 Stock Option and
Stock Appreciation Rights Plan, filed as Exhibit A to the
Company's Proxy Statement dated December 21, 1998, File No. 1-
9838, and incorporated herein by this reference*
10.9 Form of Change of Control Severance Agreement, filed
herewith*
10.10 Form of Salary Continuation Agreement, filed
herewith*
10.11 Employment Agreement between the Company and Ren, J.
Robichaud, dated June 21, 1999, filed herewith*
13 1999 Annual Report to Shareholders (not deemed
"filed" except for portions which are expressly incorporated
by reference), filed herewith
21 Subsidiaries of Registrant, filed herewith
23 Consent of Independent Public Accountants, filed
herewith
24 Power of Attorney (contained on Signature Page)
27 Financial Data Schedule, filed herewith
27.1 Restated Financial Data Schedule, filed herewith
27.2 Restated Financial Data Schedule, filed herewith
27.3 Restated Financial Data Schedule, filed herewith
99.1 Risk Factors, filed herewith
* Indicates management contracts or compensatory plans or
arrangements in which one or more directors or executive
officers of the Company participates or is a party.