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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
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 No.)
530 WEST NINTH STREET, NEWPORT, KENTUCKY 41071
(Address of principal executive offices)
Registrant's telephone number, including area code (859) 292-6809
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
At May 9, 2003, there were 20,674,981 shares outstanding of the Company's common
stock.
NS GROUP, INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations............ 3
Condensed Consolidated Balance Sheets...................... 4
Condensed Consolidated Statements of Cash Flows............ 5
Notes to Condensed Consolidated Financial Statements....... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 19
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................... 27
Item 4. Controls and Procedures.................................... 27
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........ 28
Item 6. Exhibits and Reports on Form 8-K........................... 28
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts) (Unaudited)
Three Months Ended
March 31,
2003 2002
---------- ----------
Net sales $ 50,475 $ 38,848
Costs of products sold 55,773 47,081
---------- ---------
Gross loss (5,298) (8,233)
Selling, general and administrative expenses 4,478 4,322
---------- ---------
Operating loss (9,776) (12,555)
Investment income (loss) (116) 751
Interest expense (1,361) (2,596)
Other income, net 38 93
---------- ---------
Loss before income taxes (11,215) (14,307)
Provision for income taxes - -
---------- ---------
Net loss $ (11,215) $ (14,307)
========== =========
Net loss per common share - basic and diluted $ (0.54) $ (0.69)
========== =========
Weighted average shares outstanding
Basic and diluted 20,657 20,646
See notes to condensed consolidated financial statements.
3
NS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, December 31,
2003 2002
--------- ------------
ASSETS
Current assets
Cash and equivalents $ 22,523 $ 29,357
Accounts receivable, net 27,795 12,653
Inventories 60,724 55,874
Operating supplies and other 11,259 12,082
----------- ------------
Total current assets 122,301 109,966
Property, plant and equipment, net 49,223 51,651
Long-term investments 1,417 3,848
Other assets 5,307 5,416
Assets held for sale 9,413 9,413
----------- ------------
Total assets $ 187,661 $ 180,294
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 22,222 $ 8,600
Accrued liabilities and other 24,326 20,162
Current portion of restructuring liabilities 4,578 4,656
Current portion of long-term debt 33,654 33,555
----------- ------------
Total current liabilities 84,780 66,973
Long-term debt 473 482
Deferred income taxes 332 332
Other long-term liabilities 8,326 8,124
Common shareholders' equity
Common stock, no par value 282,999 282,935
Treasury stock, at cost (35,502) (35,572)
Common stock options and warrants 790 759
Accumulated other comprehensive income (loss) 144 (328)
Accumulated deficit (154,681) (143,411)
----------- ------------
Common shareholders' equity 93,750 104,383
----------- ------------
Total liabilities and shareholders' equity $ 187,661 $ 180,294
=========== ============
See notes to condensed consolidated financial statements.
4
NS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
Three Months Ended
March 31,
2003 2002
---------- -----------
CASH FLOWS - OPERATING ACTIVITIES
Net loss $ (11,215) $ (14,307)
Adjustments to reconcile net loss to cash flows
used by operating activities:
Depreciation and amortization 2,526 2,805
Amortization of debt discount and finance costs 139 302
Loss (gain) on sales of securities 313 (107)
Changes in operating assets and liabilities:
Accounts receivable, net (15,142) 3,267
Inventories (4,850) (6,623)
Other current assets 948 1,552
Accounts payable 13,622 6,176
Accrued liabilities 4,164 (1,331)
Restructuring liabilities (78) (67)
Other, net 302 -
---------- -----------
Cash used by operating activities (9,271) (8,333)
---------- -----------
CASH FLOWS - INVESTING ACTIVITIES
Purchases of property, plant and equipment (191) (404)
Net long-term investment activity 2,558 5,155
Other - (27)
---------- -----------
Cash provided by investing activities 2,367 4,724
---------- -----------
CASH FLOWS - FINANCING ACTIVITIES
Repayments of long-term debt (9) (8)
Proceeds from issuance of common stock 105 11
Additions to cost of treasury shares (26) -
Payment of deferred finance costs - (642)
---------- -----------
Cash flows provided (used) by financing activities 70 (639)
---------- -----------
Decrease in cash and equivalents (6,834) (4,248)
Cash and equivalents at beginning of period 29,357 74,856
---------- -----------
Cash and equivalents at end of period $ 22,523 $ 70,608
========== ===========
Supplemental disclosure of cash flows information -
Cash paid during the period for interest $ 2,287 $ 4,645
Cash paid (recovered) during the period for income taxes $ (560) $ -
See notes to condensed consolidated financial statements.
5
NS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of NS
Group, Inc. and its wholly-owned subsidiaries (collectively referred to as "the
Company"), Newport Steel Corporation (Newport), Koppel Steel Corporation
(Koppel), Erlanger Tubular Corporation (Erlanger), and Northern Kentucky
Management, Inc. All significant intercompany balances and transactions have
been eliminated. Certain prior period amounts have been reclassified to conform
to the current period presentation. Such reclassifications do not affect
previously reported results of operations.
The accompanying condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America for interim financial information and with the rules
and regulations of the Securities and Exchange Commission (SEC). Accordingly,
they do not include all of the information and footnotes for complete financial
statements as required by accounting principles generally accepted in the United
States of America. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation have
been included in the financial statements. Operating results for an interim
period are not necessarily indicative of the results that may be expected for a
full year. Reference should be made to NS Group, Inc.'s Annual Report on Form
10-K for the year ended December 31, 2002 for additional footnote disclosure,
including a summary of significant accounting policies.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America, requires that
management make certain estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those recorded estimates.
LOSS PER SHARE
Basic loss per share is computed by dividing net loss by the
weighted-average number of common shares outstanding for the period. Diluted
loss per share reflects the potential dilution from securities that could result
in additional common shares being issued which, for the Company, are comprised
of stock options and warrants.
6
Securities that could potentially result in dilution of basic loss per
share, through the issuance of 1.9 million of the Company's common shares for
the quarter ended March 31, 2003, and 2.2 million of the Company's common shares
for the quarter ended March 31, 2002, were not included in the computation of
diluted earnings per share because to do so would be antidilutive.
STOCK-BASED COMPENSATION
As allowed under SFAS No. 123, "Accounting for Stock-Based Compensation"
(SFAS No.123), the Company accounts for stock-based compensation using the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
Stock options granted in periods prior to 2003 were exercisable at prices equal
to the fair market value of the Company's common stock on the dates the options
were granted; accordingly, no compensation expense has been recognized for the
stock options granted. There were no stock option grants in the first quarter of
2003. The fair values of the granted options are determined using the
Black-Scholes option pricing model using assumptions that are evaluated and
revised, as necessary, to reflect market conditions and experience.
If the Company accounted for stock-based compensation using the fair value
recognition provisions of SFAS No. 123, net loss and diluted loss per share
would have been increased to the pro forma amounts indicated below:
Three Months Ended
March 31,
(in thousands, except per share amounts) 2003 2002
----------- -----------
Net loss as reported $ (11,215) $ (14,307)
Deduct: Stock-based employee
compensation expense determined under the
fair value method for all awards, net of related
tax effects (792) (921)
----------- -----------
Pro forma net loss $ (12,007) $ (15,228)
=========== ===========
Loss per share:
Diluted - as reported $ (0.54) $ (0.69)
Diluted - pro forma $ (0.58) $ (0.74)
7
NOTE 2: RESTRUCTURING LIABILITIES AND ASSETS HELD FOR SALE
In 2001, the Company completed certain restructuring initiatives involving
certain operations of its businesses. The Company discontinued the manufacturing
of hot-rolled coils at its welded tubular facilities in Wilder, Kentucky and
exited the special bar quality (SBQ) business that was operated from its Koppel,
Pennsylvania facility. As a result of these actions, in March 2001, the Company
recorded restructuring charges of $56.2 million, including $42.8 million of
asset impairment losses and $12.8 million of accruals for estimated employee
related costs and facilities closing costs.
Following is a summary of accrued restructuring liabilities and activity
for the three months ended March 31, 2003:
(in thousands) Current Noncurrent Total
-------- ---------- ------
Balance, December 31, 2002 $ 4,656 $ 2,013 $ 6,669
Cash payments (78) - (78)
------- ---------- --------
Balance, March 31, 2003 $ 4,578 $ 2,013 $ 6,591
======= ========== ========
The liabilities are the estimated costs to settle operating contracts and
payments for environmental remediation and landfill closure costs. The current
restructuring liabilities are expected to be paid in 2003, but the timing of any
payments depends on the results of contract settlements and the progress of
remediation work related to the landfill closure. The non-current liabilities
are primarily related to post-closure maintenance and monitoring costs of the
landfill over the next thirty years, and are included in Other Long-term
Liabilities in the condensed consolidated balance sheet. The Company has $2.8
million of investments being held in a trust account to fund the costs of the
closed landfill.
The idled assets of the restructured operations, consisting of machinery
and equipment and related inventories of spare parts and supplies, are
classified as Assets Held for Sale on the Company's condensed consolidated
balance sheet. An independent broker is actively marketing the assets; however,
there were no sales of these assets during the quarter ended March 31, 2003.
8
NOTE 3: COMPREHENSIVE INCOME (LOSS)
The Company's other comprehensive income (loss) consists of unrealized
gains and losses on available-for-sale securities. Comprehensive losses for the
periods were as follows:
Three Months Ended
March 31,
(in thousands) 2003 2002
--------- ---------
Net loss $ (11,215) $ (14,307)
Net unrealized gains 472 373
--------- ---------
Comprehensive loss $ (10,743) $ (13,934)
========= =========
NOTE 4: BUSINESS SEGMENT INFORMATION
The Company reports its operations in one reportable segment - the Energy
Products segment. The Energy Products segment consists primarily of welded and
seamless tubular products used in oil and natural gas drilling and production
operations (oil country tubular goods, or OCTG); and welded and seamless line
pipe used in the transmission of oil, natural gas and other fluids. The Energy
Products segment reflects the aggregation of the Company's welded and seamless
business units that have similar products and services, manufacturing processes,
customers and distribution channels, and are consistent with both internal
management reporting and resource and budgetary allocations.
Three customers accounted for 19%, 15% and 15%, respectively, of the Energy
Products segment's sales for the three months ended March 31, 2003, and two of
the same customers each accounted for 17% of the segment's sales in the three
months ended March 31, 2002.
9
All corporate selling, general and administrative expenses are fully
allocated to the Energy Products segment. In previous periods, the Company
reported corporate allocations separately from the operating results of its
segments but now believes that the current presentation method better depicts
the operations of its business. Corporate assets consist primarily of cash,
investments and assets held for sale.
Three Months Ended
March 31,
(in thousands) 2003 2002
---------- ----------
Net sales
Welded products $ 23,108 $ 17,408
Seamless products 27,367 21,440
----------- ----------
$ 50,475 $ 38,848
=========== ==========
March 31, December 31,
2003 2002
---------- ------------
Assets
Energy Products $ 146,698 $ 128,739
Corporate 40,963 51,555
----------- ----------
$ 187,661 $ 180,294
=========== ==========
NOTE 5: INVENTORIES
Inventories consist of the following:
March 31, December 31,
(in thousands) 2003 2002
---------- ------------
Raw materials $ 17,381 $ 20,108
Semi-finished and
finished products 43,343 35,766
----------- ----------
$ 60,724 $ 55,874
=========== ==========
10
NOTE 6: CREDIT FACILITY AND LONG-TERM DEBT
The Company has a $50.0 million revolving credit facility that expires in
March 2007. The facility has a borrowing formula that is based upon eligible
inventory and accounts receivable, subject to certain reserves and satisfaction
of certain conditions to each draw under the facility. Interest rates on the
facility vary according to the amount of loans outstanding and range from the
prime rate plus 0.50% to prime plus 1.25% with respect to domestic rate loans,
and from the LIBOR rate plus 2.00% to LIBOR plus 2.75% with respect to LIBOR
rate loans. The facility contains various representations and warranties and
operating and other covenants. At March 31, 2003, there were no outstanding
loans under the facility; however, $4.8 million of letters of credit were issued
against the credit line for collateral on self-insured workers compensation
claims. The facility is secured by a first priority lien on all inventories,
accounts receivable and related intangibles of the Company. As of March 31,
2003, the Company had approximately $22.8 million in borrowing availability
under the facility, based on eligible receivable and inventory balances and net
of outstanding letters of credit on such date. Reference is made to Note 9:
Subsequent Event.
NOTE 7: SHELF REGISTRATION
In July 2002, the Company filed a universal shelf registration statement
with the Securities and Exchange Commission (SEC) for the issuance and the sale
from time to time to the public of up to $100 million in securities, including
debt, preferred stock, common stock and warrants. The SEC declared the
registration statement effective in September 2002. The Company may sell the
securities in one or more separate offerings in amounts, at prices and on terms
to be determined at the time of sale. No securities have been sold pursuant to
the shelf registration. If and when the Company offers any securities under this
registration statement, the Company will prepare and make available a prospectus
supplement that includes the specific terms of the securities being offered.
NOTE 8: COMMITMENTS AND CONTINGENCIES
The Company has various commitments for the purchase of materials, supplies
and energy arising in the ordinary course of business.
Legal Matters
The Company is subject to various claims, lawsuits and administrative
proceedings arising in the ordinary course of business with respect to
environmental matters, workers' compensation, health care and product liability
coverages (each of which is self-insured to certain levels), as well as
commercial and other matters. The Company accrues for the cost of such matters
when the incurrence of such costs is probable and can be reasonably estimated.
Based upon its evaluation of available information, management does not believe
that any such matters will have, individually or in the aggregate, a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.
11
In March 2001, in connection with its restructuring, Newport closed its
electric arc furnace operation and as such, ceased using oxygen and argon that
was provided under a supply agreement with Air Products and Chemicals, Inc.
("Air Products"). On December 31, 2001, Air Products filed a civil action
against Newport and NS Group, Inc. in the United States District Court for the
Eastern District of Pennsylvania, Civil Action No. 01-7227, seeking damages for
breach of contract. On August 5, 2002, the action against NS Group, Inc. was
dismissed without prejudice; however, the action against Newport is still
pending. Based on current information, the Company believes that the resolution
of this matter will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
Environmental Matters
The Company is subject to federal, state and local environmental laws and
regulations, including, among others, the Resource Conservation and Recovery Act
(RCRA), the Clean Air Act, the 1990 Amendments to the Clean Air Act and the
Clean Water Act, and all regulations promulgated in connection therewith. Such
laws and regulations include those concerning the discharge of contaminants as
air emissions or waste water effluents and the disposal of solid and/or
hazardous wastes such as electric arc furnace dust. As such, the Company is from
time to time involved in administrative and judicial proceedings and
administrative inquiries related to environmental matters.
The Company operates a steel mini-mill at its Koppel, Pennsylvania facility
that produces dust that contains lead, cadmium and chromium, and is classified
as a hazardous waste. Dust produced by its electric arc furnace is collected
through emission control systems and recycled at EPA-approved facilities.
In October 2002, the United States Environmental Protection Agency (EPA)
issued a Notice of Violation (NOV) to Newport for certain alleged violations
dating from 1998 to April 2000 of its Clean Air Act emission permit for
Newport's electric arc furnace that was installed in 1999 and shuttered in early
2001. The NOV alleges that the permit issued to Newport in June 1998 was based
upon an incorrect analysis as to potential emissions, and thus represented a
violation of the Clean Air Act. In November 2002, the United States Department
of Justice (DOJ) notified Newport that it was preparing to file a civil action
in the United States District Court for the Eastern District of Kentucky for the
alleged Clean Air Act violations set forth in the October 2002 NOV and for
certain alleged violations of the Clean Water Act and RCRA at Newport. In April
2003, Newport was informed by the EPA that the DOJ does not intend to pursue a
civil action against Newport for the alleged violations. Newport believes that
it has defenses against these allegations and intends to pursue resolution with
the EPA. The Company believes resolution of these claims will not have a
material adverse effect on its consolidated financial position, results of
operations or cash flows. However, there can be no assurance that the Company
will reach a settlement with the EPA.
12
The Company has a hazardous waste landfill on its property in Wilder,
Kentucky, which it no longer utilizes. In connection with the March 2001
restructuring actions, in which the Company closed Newport's melt shop and hot
strip mill operations, the Company accrued the estimated costs for closure and
post-closure care of the landfill. These costs were included in restructuring
charges in the first quarter of 2001. The Company received final approval of its
closure/post-closure plan from the Kentucky Division of Waste Management in
December 2002. The Company expects the closure of the landfill will be completed
by the end of 2003.
In late 2001, the EPA designated Imperial Adhesives, Inc., a former
subsidiary of the Company, as one of a number of potentially responsible parties
(PRP) under the Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA) at an environmental remediation site. The EPA has contended that
any company linked to a CERCLA site is potentially liable for costs under the
legal doctrine of joint and several liability. This environmental remediation
site involves a municipal waste disposal facility owned and operated by an
independent operator. A preliminary study of the site is in its early stages.
Consequently, it is too early to determine the Company's liability exposure. The
Company believes, however, that the reasonably foreseeable resolution of this
matter will not have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.
At March 31, 2003 and December 31, 2002, the Company had accrued $5.2
million for environmental remediation obligations. 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 on the Company's consolidated
financial position, results of operations or cash flows. However, the Company
cannot predict with certainty that new information or developments with respect
to its environmental contingency matters, individually or in the aggregate, will
not have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.
NOTE 9: SUBSEQUENT EVENT
On May 5, 2003, the Company redeemed $17.0 million of its $33.8 million
principal amount 13 1/2% senior secured notes due in July 2003. The Company
completed the redemption at par plus accrued interest and funded it from
existing cash and borrowings under the Company's credit facility. As of May 5,
2003, the Company had outstanding loans of $13.4 million under the revolving
credit facility, approximately $13.5 million of additional borrowing
availability and $13.4 million of cash and investments.
13
NOTE 10: SUPPLEMENTARY INFORMATION - CONDENSED CONSOLIDATING FINANCIAL
STATEMENTS
The Company's senior secured notes are unconditionally guaranteed in full,
jointly and severally, by each of the Company's subsidiaries (Subsidiary
Guarantors), each of which is wholly owned. Set forth below are the condensed
consolidating financial statements of NS Group, Inc. and the Subsidiary
Guarantors. The Subsidiary Guarantors include all subsidiaries of the Company
(Newport Steel Corporation, Koppel Steel Corporation, Erlanger Tubular
Corporation and Northern Kentucky Management, Inc.).
The following condensed consolidating financial statements present the
results of operations, financial position and cash flows of (1) NS Group, Inc.
(Parent), reflecting investments in its consolidated subsidiaries under the
equity method of accounting, (2) the guarantor subsidiaries of the Parent and
(3) the eliminations necessary to arrive at the information for the Parent on a
consolidated basis. Income tax expense (benefit) is allocated among the
consolidating entities based upon taxable income (loss) within the companies.
These condensed consolidating financial statements should be read in conjunction
with the accompanying consolidated financial statements of NS Group. All
significant intercompany accounts and transactions have been eliminated.
14
NS GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(In thousands) Guarantor
For the three months ended March 31, 2003 Parent Subsidiaries Eliminations Consolidated
- ----------------------------------------- ----------- ------------ ------------ ------------
Net sales $ - $ 50,475 $ - $ 50,475
Costs of products sold - 55,773 - 55,773
Selling, general and administrative expenses - 4,478 - 4,478
----------- ---------- -------- ---------
Operating loss - (9,776) - (9,776)
Equity in losses of subsidiaries (8,394) - 8,394 -
Investment income (loss) (147) 31 - (116)
Interest expense (1,353) (8) - (1,361)
Intercompany interest, net 3,036 (3,036) - -
Other income, net 20 18 - 38
----------- ---------- -------- ---------
Loss before income taxes (6,838) (12,771) 8,394 (11,215)
Provision (benefit) for income taxes 4,377 (4,377) - -
----------- ---------- -------- ---------
Net loss $ (11,215) $ (8,394) $ 8,394 $ (11,215)
=========== ========== ======== =========
(In thousands) Guarantor
For the three months ended March 31, 2002 Parent Subsidiaries Eliminations Consolidated
- ----------------------------------------- ----------- ------------ ------------ ------------
Net sales $ - $ 38,848 $ - $ 38,848
Costs of products sold - 47,081 - 47,081
Selling and administrative expenses - 4,322 - 4,322
----------- ---------- -------- ---------
Operating loss - (12,555) - (12,555)
Equity in losses of subsidiaries (10,788) - 10,788 -
Investment income 707 44 - 751
Interest expense (2,593) (3) - (2,596)
Intercompany interest, net 4,107 (4,107) - -
Other income, net 70 23 - 93
----------- ---------- -------- ---------
Loss before income taxes (8,497) (16,598) 10,788 (14,307)
Provision (benefit) for income taxes 5,810 (5,810) - -
----------- ---------- -------- ---------
Net loss $ (14,307) $ (10,788) $ 10,788 $ (14,307)
=========== ========== ======== =========
15
NS GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2003
Guarantor
(in thousands) Parent Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------
Cash and cash equivalents $ 22,490 $ 33 $ - $ 22,523
Accounts receivable, net 73 27,722 - 27,795
Inventories - 60,724 - 60,724
Other current assets 1,547 9,712 - 11,259
---------- ---------- ---------- ----------
Total current assets 24,110 98,191 - 122,301
Property, plant & equipment, net - 49,223 - 49,223
Long-term investments 1,417 - - 1,417
Investment in subsidiaries (99,416) - 99,416 -
Intercompany, net 210,011 - (210,011) -
Other assets 2,641 2,666 - 5,307
Assets held for sale - 9,413 - 9,413
---------- ---------- ---------- ----------
Total assets $ 138,763 $ 159,493 $ (110,595) $ 187,661
========== ========== ========== ==========
Accounts payable $ - $ 22,222 $ - $ 22,222
Accrued liabilities and other 4,748 19,578 - 24,326
Current portion of restructuring liabilities - 4,578 - 4,578
Current portion of long-term debt 33,620 34 - 33,654
---------- ---------- ---------- ----------
Total current liabilities 38,368 46,412 84,780
Long-term debt - 473 - 473
Intercompany, net - 210,011 (210,011) -
Deferred income taxes 332 - - 332
Other long-term liabilities 6,313 2,013 - 8,326
Common shareholders' equity 93,750 (99,416) 99,416 93,750
---------- ---------- ---------- ----------
Total liabilities and shareholders' equity $ 138,763 $ 159,493 $ (110,595) $ 187,661
========== ========== ========== ==========
16
NS GROUP, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2002
Guarantor
(in thousands) Parent Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------
Cash and cash equivalents $ 29,307 $ 50 $ - $ 29,357
Accounts receivable, net 208 12,445 - 12,653
Inventories - 55,874 - 55,874
Other current assets 2,647 9,435 - 12,082
---------- ---------- ---------- ----------
Total current assets 32,162 77,804 - 109,966
Property, plant & equipment, net - 51,651 - 51,651
Long-term investments 3,848 - - 3,848
Investment in subsidiaries (91,054) - 91,054 -
Intercompany, net 202,658 - (202,658) -
Other assets 2,750 2,666 - 5,416
Assets held for sale - 9,413 - 9,413
---------- ---------- ---------- ----------
Total assets $ 150,364 $ 141,534 $ (111,604) $ 180,294
========== ========== ========== ==========
Accounts payable $ - $ 8,600 $ - $ 8,600
Accrued liabilities and other 6,017 14,145 - 20,162
Accrued restructuring liabilities - 4,656 - 4,656
Current portion of long-term debt 33,521 34 - 33,555
---------- ---------- ---------- ----------
Total current liabilities 39,538 27,435 - 66,973
Long-term debt - 482 - 482
Intercompany, net 202,658 (202,658) -
Deferred income taxes 332 - - 332
Other long-term liabilities 6,111 2,013 - 8,124
Common shareholders' equity 104,383 (91,054) 91,054 104,383
---------- ---------- ---------- ----------
Total liabilities and shareholders' equity $ 150,364 $ 141,534 $ (111,604) $ 180,294
========== ========== ========== ==========
17
NS GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands) Guarantor
For the three months ended March 31, 2003 Parent Subsidiaries Eliminations Consolidated
- ----------------------------------------- --------- ------------ ------------ ------------
Net Cash from Operating Activities $ (9,454) $ 183 $ - $ (9,271)
--------- -------- -------- --------
Cash Flows from Investing Activities:
Purchases of property, plant & equipment - (191) - (191)
Net long-term investment activity 2,558 - - 2,558
--------- -------- -------- --------
Net cash from investing activities 2,558 (191) - 2,367
--------- -------- -------- --------
Cash Flows from Financing Activities:
Repayments of long term debt - (9) - (9)
Additions to treasury shares (26) - (26)
Proceeds from issuance of common stock 105 - - 105
--------- -------- -------- --------
Net cash from financing activities 79 (9) - 70
--------- -------- -------- --------
Net decrease in cash and equivalents (6,817) (17) - (6,834)
Cash and equivalents - beginning of period 29,307 50 - 29,357
--------- -------- -------- --------
Cash and equivalents - end of period $ 22,490 $ 33 $ - $ 22,523
========= ======== ======== ========
Supplemental disclosure of cash flows information -
Cash paid during the period for interest $ 2,279 $ 8 $ 2,287
Cash paid (recovered) during the period for income taxes $ (560) $ - $ (560)
(in thousands) Guarantor
For the three months ended March 31, 2002 Parent Subsidiaries Eliminations Consolidated
- ----------------------------------------- --------- ------------ ------------ ------------
Net Cash from Operating Activities $ (8,682) $ 349 $ - $ (8,333)
--------- -------- -------- --------
Cash Flows from Investing Activities:
Purchases of property, plant & equipment - (404) - (404)
Net long-term investment activity 5,155 - - 5,155
Other (27) - - (27)
--------- -------- -------- --------
Net cash from investing activities 5,128 (404) - 4,724
--------- -------- -------- --------
Cash Flows from Financing Activities:
Repayments of long term debt - (8) - (8)
Payments of financing costs (642) - - (642)
Proceeds from issuance of common stock 11 - - 11
--------- -------- -------- --------
Net cash from financing activities (631) (8) - (639)
--------- -------- -------- --------
Net decrease in cash and equivalents (4,185) (63) - (4,248)
Cash and equivalents - beginning of period 72,206 2,650 - 74,856
--------- -------- -------- --------
Cash and equivalents - end of period $ 68,021 $ 2,587 $ - $ 70,608
========= ======== ======== ========
Supplemental disclosure of cash flows information -
Cash paid during the period for interest $ 4,642 $ 3 $ 4,645
18
NS GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We make forward-looking statements in this report that represent our
expectations or beliefs about future events and financial performance. You can
identify these statements by forward-looking words such as "expect", "believe",
"anticipate", "goal", "plan", "intend", "estimate", "may", "will", or similar
words. Forward-looking statements are subject to known and unknown risks,
uncertainties and assumptions, including:
- world-wide and domestic supplies of and demand for natural gas and
oil;
- fluctuations in industry-wide tubular inventory levels;
- domestic and foreign competitive pressures;
- the level of imports and the presence or absence of governmentally
imposed trade restrictions;
- steel coil and steel scrap price volatility;
- manufacturing efficiencies;
- costs of compliance with environmental regulations;
- asserted and unasserted claims;
- general economic conditions; and
- other risks and uncertainties described in various sections of the
Company's recent filings with the Securities and Exchange Commission
(SEC) under the Securities Act of 1933 and the Securities Act of 1934,
including those set forth in Exhibit 99.1 "Risk Factors" to the
Company's Annual Report on Form 10-K for the year ended December 31,
2002.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this report might not occur. In addition, actual results
could differ materially from those suggested by the forward-looking statements.
Accordingly, you should not place undue reliance on the forward-looking
statements, which speak only as of the date on which they are made. We may not
update these forward-looking statements, even though our situation may change in
the future, unless we are obligated under federal securities laws to update and
disclose material developments related to previously disclosed information. We
qualify all of our forward-looking statements by these cautionary statements.
For a more complete understanding of our business activities and financial
results, you should read the following analysis of financial condition and
results of operations together with the unaudited condensed consolidated
financial statements included in this report.
19
RESULTS OF OPERATIONS
OVERVIEW / OUTLOOK
Demand for our 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, among other things, dependent
on the current and anticipated supply and demand for oil and natural gas. Oil
and natural gas prices are volatile and can have a substantial effect upon
drilling levels and resulting demand for our energy related products. In
addition, shipments by domestic producers of OCTG products may be positively or
negatively affected by the amount of inventory held by producers, distributors
and end users, as well as by imports of OCTG products.
The average number of oil and natural gas drilling rigs in operation in the
United States is referred to as "rig count". In response to strong oil and
natural gas prices, rig count has risen steadily throughout the first quarter of
2003, reaching a high of 962 rigs in March 2003, and has continued to rise to
1,021 on May 9, 2003. Currently, we believe the fundamentals for our business
suggest a steadily improving environment for 2003. We expect natural gas prices
to remain at a high level, which we believe will encourage increased drilling
levels.
The average rig count for the three months ended March 31, 2003 was 897, an
increase of 10.2% from the 814 average rigs during the comparable period of
2002. The rig count was steadily declining during the first quarter of 2002,
reaching a low of 750 rigs in March 2002.
According to published industry reports, imports of OCTG products in the
first three months of 2003 accounted for an estimated 20% of the total domestic
market compared to 27% for the first quarter of 2002.
In November 2001, the United States International Trade Commission (ITC)
reported injury from various imported steel products under Section 201 and
recommended to the President of the United States a wide-scale program of quotas
and duties. However, the ITC recommendation for quotas and duties did not
include imports of oil country tubular goods and, as a result, we expect to
continue to experience high levels of competition from imports.
On March 5, 2002, the President of the United States announced his remedy
decision in response to the ITC's Section 201 investigation on steel imports.
Under the remedy decision, effective March 21, 2002, tariff rates of 30%, 24%
and 18% will be applied to imports of hot-rolled coil for the next three years,
respectively. Imports from Canada, Mexico, and certain other countries are
exempt from the tariffs. The tariffs have the effect of increasing the cost of
imported hot-rolled coils, which, in turn, increases the cost of domestic
hot-rolled coils. Increases in our steel costs have adversely affected, and will
continue to adversely affect, our financial results if we are not able to
successfully raise the price of our products to compensate for the increased
costs.
20
Since 1995, the U.S. government has been imposing duties on imports of
various OCTG products from Argentina, Italy, Japan, Korea and Mexico in response
to antidumping and countervailing duty cases filed by several U.S. companies. In
June 2001, the ITC voted to continue these duties for five more years; various
appeals have been filed and are pending.
We cannot predict the U.S. government's future actions regarding duties and
tariffs on imports or other trade restrictions on imports of OCTG and line pipe
products.
Since June 2001, when we completed restructuring initiatives involving
certain operations of our businesses, we have operated two business units that
are aggregated into one reportable segment - the Energy Products segment. Our
Energy Products segment includes tubular steel products that are used in the
energy industry. These products include welded and seamless tubular goods,
primarily used in oil and natural gas drilling and production operations. These
products are referred to as oil country tubular goods, or OCTG. We also produce
welded and seamless line pipe products, which are used in the transmission of
oil and natural gas, as well as a limited amount of other tubular products.
You should read Note 4 to the unaudited condensed consolidated financial
statements included in this report for additional business segment financial
information.
FIRST QUARTER 2003 COMPARED WITH FIRST QUARTER 2002
We reported a net loss of $11.2 million, or a $0.54 loss per diluted share,
in the three months ended March 31, 2003, compared to a net loss of $14.3
million, or $0.69 per diluted share, in the first quarter of 2002.
21
The Company's net sales, gross loss, operating loss and tons shipped for
the three months ended March 31, 2003 and 2002 are summarized in the following
table:
Three Months Ended Change
(dollars in thousands) March 31, 2003 vs 2002
------------------------ -----------------
2003 2002 $ %
---------- ---------- ---------- ----
Net sales
Welded products $ 23,108 $ 17,408 $ 5,700 32.7
Seamless products 27,367 21,440 5,927 27.6
---------- ---------- ---------- ----
$ 50,475 $ 38,848 $ 11,627 29.9
========== ========== ========== ====
Gross loss $ (5,298) $ (8,233) $ 2,935 35.6
---------- ---------- ---------- ----
Operating loss $ (9,776) $ (12,555) $ 2,779 22.1
---------- ---------- ---------- ----
Tons shipped -
Welded products 53,600 40,700 12,900 31.7
Seamless products 35,400 25,300 10,100 39.9
---------- ---------- ---------- ----
89,000 66,000 23,000 34.8
========== ========== ========== ====
Average revenue per ton
Welded products $ 431 $ 427 $ 4 0.9
Seamless products $ 773 $ 848 $ (75) (8.8)
NET SALES
The increase in net sales was attributable to the increases in shipments of
both welded and seamless products partially offset by an 8.8% decrease in
average revenue per ton for our seamless products.
The increase in shipments was experienced in both our welded and seamless
energy products and was caused by a higher consumption of OCTG products in light
of increased drilling activity during the first quarter of 2003 as compared to
the first quarter of 2002.
The decrease in the average revenue per ton for our seamless tubular
products resulted primarily from a change in product mix toward lower priced
products.
GROSS AND OPERATING LOSSES
The reductions in both our gross and operating losses in 2003, as compared
with the prior year period, was primarily the result of the higher level of
shipments of our products, partially offset by a slight increase in purchased
steel coil and scrap costs. Our gross margins also improved in the first quarter
of 2003, as compared with the first quarter of 2002, because of higher
absorption of fixed costs due to higher operating levels in the first three
months of 2003 than in the comparable period in 2002.
22
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the quarter ended March
31, 2003, were $4.5 million, $0.2 million higher than the comparable quarter in
2002.
INTEREST EXPENSE
Interest expense for the quarter ended March 31, 2003, was $1.2 million
lower than the comparable quarter in 2002 because of the early repayment of
$35.0 million of our senior secured notes in July 2002.
INVESTMENT INCOME (LOSS)
The net investment loss of $0.1 million for the three months ended March
31, 2003, includes $0.3 million of realized losses on sales of investments. The
decrease in investment income from the 2002 amount is the result of lower
invested balances at lower interest rates.
INCOME TAXES
We exhausted our federal income tax refund capability in 1999, and
accordingly, tax benefits from operating losses are offset by valuation
allowances, resulting in no net federal tax benefit being recorded for losses.
23
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 2003 was $37.5 million compared to $43.0
million at December 31, 2002. The working capital decrease was primarily due to
our use of cash to fund operating losses for the period. The current ratio was
1.4 to 1 at March 31, 2003 compared to 1.6 to 1 at December 31, 2002.
OPERATING CASH FLOWS
Major uses of cash from operating activities were for a $15.1 million
increase in accounts receivable, a $4.9 million increase in inventories,
partially offset by increases of $13.6 million and $4.2 million in accounts
payable and accrued liabilities, respectively. Accounts receivable balances
increased as the result of increased sales in the latter part of the first
quarter of 2003 as compared to the low levels at the end of 2002. We added to
our inventory levels in the first quarter of 2003 to meet anticipated increased
customer demand in the second quarter of 2003. Accounts payable increased as the
result of higher production levels during the quarter. Accrued liabilities
increased principally as the result of a $3.4 million increase in deferred
revenue, partially offset by a lower balance of accrued interest because of
interest payment dates.
INVESTING CASH FLOWS
Cash flows from investing activities were $2.4 million for the three months
ended March 31, 2003. Sales of investments resulted in proceeds of $2.6 million
during the period. We made capital investments of $0.2 million in the first
three months of 2003 and we currently estimate capital spending for 2003 to be
approximately $2.0 million, primarily for maintenance capital.
FINANCING CASH FLOWS
We have a $50.0 million revolving credit facility that expires in March
2007. The facility has a borrowing formula that is based upon eligible inventory
and accounts receivable, subject to certain reserves and satisfaction of certain
conditions to each draw under the facility. Interest rates on the facility vary
according to the amount of loans outstanding and range from the prime rate plus
0.50% to prime plus 1.25% with respect to domestic rate loans, and from the
LIBOR rate plus 2.00% to LIBOR plus 2.75% with respect to LIBOR rate loans. The
facility contains various representations and warranties and operating and other
covenants. The facility is secured by a first priority lien on all inventories,
accounts receivable and related intangibles of the Company. There were no
outstanding loans under the facility as of March 31, 2003; however, in April
2003, we borrowed against this facility in connection with our redemptive call
for a portion of our senior notes. As of March 31, 2003, we had approximately
$22.8 million in borrowing availability under the agreement, based on eligible
receivable and inventory balances and net of $4.8 million of outstanding letters
of credit on such date.
24
At March 31, 2003, we had outstanding $33.8 million in principal amount of
our 13 1/2 % senior secured notes due July 15, 2003. On April 2, 2003, we made
an early redemption call for $17.0 million of these notes. On May 5, 2003, we
completed the redemption at par plus accrued interest and funded it using
existing cash balances and borrowings under our revolving credit facility. As of
May 5, 2003, we had outstanding loans of $13.4 million under the revolving
credit facility, $13.5 million of borrowing availability, and $13.4 million of
cash and investments. We are currently evaluating new financing proposals with
potential lenders to increase our financial liquidity; however, we believe we
will have sufficient resources to meet the senior notes obligation from current
sources of liquidity.
In July 2002 we filed a universal shelf registration statement for the
issuance and sale from time to time to the public of up to $100 million in
securities, including debt, preferred stock, common stock and warrants. The SEC
declared the shelf registration effective in September 2002. See Notes 6 and 7
in the accompanying financial statements for more information on the credit
facility and shelf registration. No securities have been sold under this
registration statement.
We believe that our existing cash and investments, along with our available
borrowing capacity and cash generated from operations, will be sufficient to
satisfy anticipated cash requirements for at least the next twelve months.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those
related to allowance for bad debts, inventories, investments, long-lived assets,
income taxes, customer claims, product liability, restructuring liabilities,
environmental contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that we believe are reasonable under
the circumstances. Actual results may differ from these estimates under
different assumptions or conditions. The critical accounting policies we believe
affect our more significant judgments and estimates used in the preparation of
our consolidated financial statements are included in Item 7. "Management's
Discussion and Analysis of Financial Condition And Results of Operations" of the
Company's Form 10-K for the year ended December 31, 2002, and have not changed
materially since that time.
25
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2002, the FASB issued SFAS No. 145, "Rescission of SFAS No. 4, 44,
and 64, Amendment of SFAS No.13, and Technical Corrections". SFAS 145 requires
gains and losses on early extinguishment of debt to not be classified as
extraordinary items as previously required under SFAS 4. SFAS 145 further
requires any gain or loss on extinguishment of debt that was classified as an
extraordinary item in prior periods presented to be reclassified. We adopted
SFAS 145 effective January 1, 2003, and will reclassify any losses on early
extinguishments of debt recognized in prior periods to interest expense.
In November 2002, the EITF reached a consensus on Issue No. 00-21,"Revenue
Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides guidance
on how to account for arrangements that involve the delivery or performance of
multiple products, services and/or rights to use assets. The provisions of EITF
Issue No. 00-21 will apply to revenue arrangements entered into in 2003. We
believe that adoption of EITF Issue No. 00-21 will not have a material effect on
our results of operations, cash flows and financial condition.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. We have never utilized such entities and therefore the
adoption of FIN 46 will not have a material effect on our results of operations,
cash flows and financial condition.
OTHER MATTERS
EMPLOYEES
Substantially all of our hourly employees are represented by the United
Steelworkers of America. The collective bargaining agreement with employees at
our Erlanger facility was to expire in May 2003. Management and the negotiating
committee for the hourly employees covered by the collective bargaining
agreement at Erlanger presented a new contract agreement to the employees and it
was ratified on May 3, 2003. The new agreement is for a term of thirty-six
months.
OTHER
You should read Note 8 to the notes to condensed consolidated financial
statements for information pertaining to commitments and contingencies.
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have not used derivative financial instruments for any purpose during
the three months ended March 31, 2003 and 2002, including trading or speculating
on changes in interest rates, or commodity prices of materials.
Purchased steel, in the form of hot-rolled coils and steel scrap,
represents the largest portion of our cost of goods sold. The price and
availability of steel coils and scrap that we use in our manufacturing processes
are highly competitive and volatile. Various factors, most of which are beyond
our control, affect the supply and price of steel coils and scrap. We believe
that changes in steel coil and scrap costs have had a significant impact on our
earnings, and we expect that future changes will continue to significantly
impact our earnings.
We are exposed to market risk for changes in interest rates for borrowings
under our revolving credit facility that we used for the first time in April
2003. Borrowings under the credit facility bear interest at variable rates, and
the fair value of the borrowings are not significantly affected by changes in
market interest rates.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of the Company's
management, including our President and Chief Executive Officer, along with our
Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, our President and Chief Executive Officer along with our
Chief Financial Officer concluded that our disclosure controls and procedures
are effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in our
periodic SEC filings.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
we carried out this evaluation.
27
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits - Reference is made to the Index to Exhibits, which is
incorporated herein by reference.
b) Reports on Form 8-K
Current Report on Form 8-K dated January 17, 2003 reporting under Item
5 the Company's notice to its directors and executive officers
informing them of a blackout period with respect to trading of any
equity securities of NS Group, Inc.
Current Report on Form 8-K dated January 22, 2003 reporting under Item
9 the Company's press release announcing its estimate of earnings for
the fourth quarter of 2002.
Current Report on Form 8-K dated February 4, 2003 reporting under Item
9 the Company's press release regarding the dates and times of NS
Group, Inc.'s conference call reporting the results for the year ended
December 31, 2002.
Current Report on Form 8-K dated February 10, 2003 reporting under
Item 9 the Company's earnings press release for the year ended
December 31, 2002
Current Report on Form 8-K dated March 5, 2003 reporting under Item 9
the Company's materials in the form of a slide show presentation
and/or printed charts to various individual and institutional
investors commencing March 5, 2003.
Current Report on Form 8-K dated March 11, 2003 reporting under Item 9
the Company's March 11, 2003 notice to its directors and executive
officers informing them that the previously announced blackout period,
relating to a change in the Company's 401(k) plan provider, has ended
as of March 11, 2003.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NS GROUP, INC.
Date: May 12, 2003 By: /s/ Rene J. Robichaud
-------------------------------------------
Rene J. Robichaud
President and Chief Executive Officer
Date: May 12, 2003 By: /s/ Thomas J. Depenbrock
-------------------------------------------
Thomas J. Depenbrock
Vice President, Treasurer and
Chief Financial Officer
29
CERTIFICATIONS
I, Rene J. Robichaud, certify that:
1. I have reviewed this quarterly report on Form 10-Q of NS Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12, 2003 By: /s/ Rene J. Robichaud
-------------------------------------------
Rene J. Robichaud
President and Chief Executive Officer
30
CERTIFICATIONS
I, Thomas J. Depenbrock, certify that:
1. I have reviewed this quarterly report on Form 10-Q of NS Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12 2003 By: /s/ Thomas J. Depenbrock
-------------------------------------------
Thomas J. Depenbrock
Vice President and Chief Financial Officer
31
INDEX TO EXHIBITS
Number Description
- ------ -----------
3.1(a) Amended and Restated Articles of Incorporation of Registrant, filed as
Exhibit 3.1 to Amendment No. 1 to Registrant's Form S-1 dated January
17, 1995, File No. 33-56637, and incorporated herein by this reference.
3.1(b) Articles of Amendment to the Amended and Restated Articles of
Incorporation, dated November 4, 1998, filed as Exhibit 3.1 to the
Company's Form 10-Q for the quarter ended September 30, 2001, File No.
1-9838, and incorporated herein by this reference.
3.2 Amended and Restated By-Laws of Registrant, dated November 4, 1999,
filed as Exhibit 3.2 to Company's Form 10-Q for the fiscal quarter
ended January 1, 2000, File No. 1-9838, and incorporated herein by
this reference.
12.1 Computation of Ratio of Earnings to Fixed Charges, filed herewith.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 Of the Sarbanes-Oxley Act of 2002 filed herewith.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 Of the Sarbanes-Oxley Act of 2002 filed herewith.
32