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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, 2006
 COMMISSION FILE NUMBER 1-9838
 NS GROUP, INC.
  Kentucky
    
    61-0985936(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 530 West Ninth Street, Newport, Kentucky 41071
 (859) 292-6809
 þ o
  þ o o
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NS GROUP, INC.
Index
 PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Statements of Income
    
    
    3Condensed Consolidated Balance Sheets
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4.
    
    Controls and Procedures
    
    
    21PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    22Item 1A.
    
    Risk Factors
    
    
    22Item 2(c)
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 6.
    
    Exhibits
    
    
    22Signatures
    
    
    22Exhibit Index
    
    
    23EX-12.1EX-31.1EX-31.2EX-32.1EX-32.2
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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 NS GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (In thousands, except per share amounts) (Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005Net sales
    
    $
    190,458
    
    
    $
    139,024Cost of products sold
    
    
    130,669
    
    
    
    110,561Gross profit
    
    
    59,789
    
    
    
    28,463Selling, general and administrative expenses
    
    
    5,841
    
    
    
    5,873Operating income
    
    
    53,948
    
    
    
    22,590Investment income
    
    
    1,773
    
    
    
    239Interest expense
    
    
    (145
    )
    
    
    (159
    )Other, net
    
    
    87
    
    
    
    37Income before income taxes
    
    
    55,663
    
    
    
    22,707Provision for income taxes
    
    
    21,150
    
    
    
    3,374Net income
    
    $
    34,513
    
    
    $
    19,333Net income per common share -Basic
    
    $
    1.54
    
    
    $
    0.88Diluted
    
    $
    1.53
    
    
    $
    0.86Weighted average shares outstanding -Basic
    
    
    22,433
    
    
    
    22,062Diluted
    
    
    22,613
    
    
    
    22,529
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NS GROUP, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands)
 March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash and equivalents
    
    $
    168,999
    
    
    $
    145,124Accounts receivable, less allowances
of $1,789 and $1,563, respectively
    
    
    78,947
    
    
    
    59,658Inventories
    
    
    138,197
    
    
    
    136,635Operating supplies and prepaid expenses
    
    
    12,844
    
    
    
    11,534Deferred income taxes
    
    
    7,885
    
    
    
    7,885Total current assets
    
    
    406,872
    
    
    
    360,836Property, plant and equipment, net
    
    
    51,172
    
    
    
    48,515Other noncurrent assets
    
    
    4,538
    
    
    
    4,611Total assets
    
    $
    462,582
    
    
    $
    413,962LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    42,543
    
    
    $
    41,385Accrued liabilities and other
    
    
    20,412
    
    
    
    23,973Accrued income taxes
    
    
    26,449
    
    
    
    10,563Deferred revenue
    
    
    17,338
    
    
    
    17,407Current portion of long-term debt
    
    
    36
    
    
    
    36Total current liabilities
    
    
    106,778
    
    
    
    93,364Long-term debt
    
    
    366
    
    
    
    375Deferred income taxes
    
    
    1,770
    
    
    
    1,770Other noncurrent liabilities
    
    
    10,791
    
    
    
    10,610Total liabilities
    
    
    119,705
    
    
    
    106,119Shareholders equity:Preferred stock, no par value, 2,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock, no par value, 40,000 shares authorized,
25,129 shares issued
    
    
    294,044
    
    
    
    293,936Treasury stock, at cost, 2,670 and 2,709 shares, respectively
    
    
    (26,030
    )
    
    
    (26,413
    )Unearned compensation
    
    
    (491
    )
    
    
    (564
    )Accumulated other comprehensive income
    
    
    26
    
    
    
    29Retained earnings
    
    
    75,328
    
    
    
    40,855Total shareholders equity
    
    
    342,877
    
    
    
    307,843Total liabilities and shareholders equity
    
    $
    462,582
    
    
    $
    413,962
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NS GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)(Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005CASH FLOWS  OPERATING ACTIVITIESNet income
    
    $
    34,513
    
    
    $
    19,333Adjustments to reconcile net income to net cash flows
provided by operating activities:Depreciation and amortization
    
    
    1,457
    
    
    
    1,266Amortization of deferred finance costs
    
    
    73
    
    
    
    72Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (19,289
    )
    
    
    (4,330
    )Inventories
    
    
    (1,562
    )
    
    
    (2,524
    )Other current assets
    
    
    (1,310
    )
    
    
    471Accounts payable
    
    
    2,218
    
    
    
    (2,966
    )Accrued liabilities
    
    
    (3,380
    )
    
    
    (3,962
    )Accrued income taxes
    
    
    15,886
    
    
    
    2,749Deferred revenue
    
    
    (69
    )
    
    
    255Other, net
    
    
    116
    
    
    
    40Net cash flows provided by operating activities
    
    
    28,653
    
    
    
    10,404CASH FLOWS  INVESTING ACTIVITIESPurchases of property, plant and equipment
    
    
    (5,175
    )
    
    
    (755
    )Net cash flows used by investing activities
    
    
    (5,175
    )
    
    
    (755
    )CASH FLOWS  FINANCING ACTIVITIESRepayments of long-term debt
    
    
    (9
    )
    
    
    (10
    )Proceeds from stock option exercises
    
    
    342
    
    
    
    3,292Tax benefit from stock-based compensation
    
    
    64
    
    
    
    Net cash flows provided by financing activities
    
    
    397
    
    
    
    3,282Increase in cash and equivalents
    
    
    23,875
    
    
    
    12,931Cash and equivalents at beginning of period
    
    
    145,124
    
    
    
    30,944Cash and equivalents at end of period
    
    $
    168,999
    
    
    $
    43,875Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    3
    
    
    $
    2Cash paid during the period for income taxes
    
    $
    5,200
    
    
    $
    625
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
   Reclassifications
  Use of Estimates
  Stock-Based Compensation
  6




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Recently Issued Accounting Standards
  Note 2: STOCK BASED COMPENSATION
     7




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Three MonthsEnded(In thousands, except per share amounts)
    
    March 31, 2005Net income  as reported
    
    $
    19,333Add: Stock-based employee compensation
included in reported net income, net of
related tax effects
    
    
    27Less: Stock-based employee compensation
expense determined under the fair value
method for all awards, net of related tax effects
    
    
    (196
    )Net income  pro forma
    
    $
    19,164Diluted income per share  as reported
    
    $
    0.86Effect of stock-based employee
compensation expense determined under the fair
value method for all awards, net of related tax effects
    
    
    (0.01
    )Diluted income per share  pro forma
    
    $
    0.85
   8




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WeightedAverageRemainingWeighted
    
    
    Contractual
    
    
    AggregateAverage
    
    
    Term
    
    
    Intrinsic ValueShares
    
    
    Exercise Price
    
    
    (in years)
    
    
    (in thousands)Outstanding, beginning of period
    
    
    259,241
    
    
    $
    14.44Granted
    
    
    
    
    
    
    Exercised
    
    
    (39,218
    )
    
    
    8.72Expired/Cancelled
    
    
    (3,167
    )
    
    
    19.82Outstanding, end of period
    
    
    216,856
    
    
    
    15.39
    
    
    
    6.9
    
    
    $
    6,645Exercisable, end of period
    
    
    62,678
    
    
    
    12.22
    
    
    
    6.1
    
    
    
    2,119
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(In thousands)Cost of sales
    
    $
    6.0Selling, general and administrative
    
    
    38.3Stock-based compensation
expense before income taxes
    
    
    44.3Income tax benefit
    
    
    (16.7
    )Total stock-based compensation
expense after income taxes
    
    $
    27.6
 Note 3: EARNINGS PER SHARE
  Three Months EndedMarch 31,(In thousands)
    
    2006
    
    2005Number of common shares outstanding at period-end
    
    
    22,459
    
    
    
    22,214Effect of using weighted average common shares outstanding
    
    
    (26
    )
    
    
    (152
    )Weighted average basic common shares outstanding
    
    
    22,433
    
    
    
    22,062Dilutive effect of common stock options and restricted
stock units
    
    
    180
    
    
    
    467Weighted average diluted common shares outstanding
    
    
    22,613
    
    
    
    22,529Potentially issuable shares
    
    
    238
    
    
    
    559
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Note 4: SEGMENT AND CONCENTRATIONS INFORMATION
  Three Months EndedMarch 31,(In thousands)
    
    2006
    
    
    2005Seamless products
    
    $
    132,455
    
    
    $
    79,152Welded products
    
    
    58,003
    
    
    
    59,872$
    190,458
    
    
    $
    139,024
 Concentrations
    Note 5: INVENTORIES
 March 31,
    
    
    December 31,(In thousands)
    
    2006
    
    
    2005Raw materials
    
    $
    30,090
    
    
    $
    33,970Semi-finished and finished products
    
    
    108,107
    
    
    
    102,665$
    138,197
    
    
    $
    136,635
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Note 6: REVOLVING CREDIT FACILITY
   Note 7: COMMITMENTS AND CONTINGENCIES
  Environmental
     12




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Other
  Note 8: EMPLOYEE BENEFIT PLANS
  Three Months Ended March 31,Pension
    
    
    Health(In thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    96
    
    
    $
    99
    
    
    $
    5
    
    
    $
    5Interest cost
    
    
    48
    
    
    
    40
    
    
    
    5
    
    
    
    5Recognized actuarial loss
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7$
    146
    
    
    $
    140
    
    
    $
    17
    
    
    $
    17
 Note 9: PRODUCT WARRANTIES
   (In thousands)
    
    2006
    
    
    2005Balance, January 1
    
    $
    1,833
    
    
    $
    2,051Accruals for warranties
    
    
    319
    
    
    
    1,736Warrenty settlements
    
    
    (320
    )
    
    
    (857
    )Balance, March 31
    
    $
    1,832
    
    
    $
    2,930
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    OVERVIEW
 Our Products and Facilities
   Economic and Industry-Wide Factors that Affect our Business
 Demand for Our Products
  14




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Three Months EndedMarch 31,2006
    
    2005Average natural gas price per mcf
    
    $
    8.98
    
    
    $
    6.27Average U.S. rig count
    
    
    1,521
    
    
    
    1,283Domestic OCTG shipments (millions of tons)
    
    
    0.7
    
    
    
    0.7OCTG imports (millions of tons)
    
    
    0.5
    
    
    
    0.3OCTG inventories (millions of tons at period-end)
    
    
    2.1
    
    
    
    1.7Inventory tons per rig (at period-end)
    
    
    1,315
    
    
    
    1,299
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Imports
  
    
    currency exchange rates;
    
    overall world-wide demand for OCTG;
    
    freight costs;
    
    the trade practices of foreign governments and producers; and
    
    the presence or absence of antidumping, countervailing duty or other U.S.
government orders that raise the cost or impose limits on imports.
   Costs of Our Products
  
    
    supply and demand factors, both domestic and global;
    
    freight costs and transportation availability;
    
    inventory levels of brokers and distributors;
    
    the level of imports and exports; and
    
    general economic conditions.
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NS Group Purchased Steel Scrap
Average Cost Per Net Ton
 
  Average Price Per Ton of Steel Coil
 
    17




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Results of Operations First Quarter 2006 Compared to First Quarter 2005
 Net Sales
 Three Months Ended
    
    
    ChangeMarch 31,
    
    
    2006 vs 2005($ in thousands)
    
    2006
    
    
    2005
    
    
    Amount
    
    
    %Net salesSeamless products
    
    $
    132,455
    
    
    $
    79,152
    
    
    $
    53,303
    
    
    
    67.3Welded products
    
    
    58,003
    
    
    
    59,872
    
    
    
    (1,869
    )
    
    
    (3.1
    )$
    190,458
    
    
    $
    139,024
    
    
    $
    51,434
    
    
    
    37.0Revenue per ton (tubular)Seamless products
    
    $
    1,729
    
    
    $
    1,467
    
    
    $
    262
    
    
    
    17.9Welded products
    
    $
    1,045
    
    
    $
    1,075
    
    
    $
    (30
    )
    
    
    (2.8
    )Tubular tons shippedSeamless products
    
    
    75,300
    
    
    
    53,000
    
    
    
    22,300
    
    
    
    42.1Welded products
    
    
    55,500
    
    
    
    55,700
    
    
    
    (200
    )
    
    
    (0.4
    )130,800
    
    
    
    108,700
    
    
    
    22,100
    
    
    
    20.3Average rig count
    
    
    1,521
    
    
    
    1,283
    
    
    
    238
    
    
    
    18.6
  Gross Profit
 Three Months Ended
    
    ChangeMarch 31,
    
    2006 vs 2005($ in thousands)
    
    2006
    
    2005
    
    Amount
    
    %Gross profit
    
    $
    59,789
    
    
    $
    28,463
    
    
    $
    31,326
    
    
    
    110.1Gross profit %
    
    
    31.4
    
    
    
    20.5
    
    
    
    10.9
  Selling, General and Administrative Expenses
 Three Months Ended
    
    ChangeMarch 31,
    
    2006 vs 2005($ in thousands)
    
    2006
    
    2005
    
    Amount
    
    %Selling, general and administrative
    
    $
    5,841
    
    
    $
    5,873
    
    
    $
    (32
    )
    
    
    (0.5
    )
  18




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Investment Income and Interest Expense
   Income Taxes
  LIQUIDITY AND CAPITAL RESOURCES
 Overview
   Working Capital
  Operating Cash Flows
   19




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Investing Cash Flows
   Financing Cash Flows
  Contractual Obligations and Other Cash Requirements
  Critical Accounting Policies and Estimates
   20




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Recently Issued Accounting Standards
  OTHER MATTERS
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures.
 Changes in Internal Controls.
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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 (c)
    
    On October 21, 2005, our Board of Directors approved a share
repurchase program for up to 2.25 million shares of our common stock.
Repurchases may be made by us from time to time in open market
purchases or through privately negotiated transactions through
December 31, 2006. There were no shares repurchased under this
program during the quarter ended March 31, 2006. As of March 31, 2006,
the maximum number of shares remaining to be purchased under this
program is 2,124,600.
 
 ITEM 6. EXHIBITS
 (a)
    
    (1) Exhibits  Reference is made to the Index to Exhibits, which is included herein as part of this report
 
 SIGNATURES
  NS GROUP, INC.Date: May 4, 2006
    
    
    
    By:  /s/René J. RobichaudRené J. Robichaud, President and ChiefExecutive Officer and Director(Principal Executive Officer)Date: May 4, 2006
    
    
    
    By:  /s/Thomas J. DepenbrockThomas J. Depenbrock, Vice President -Finance, Treasurer and Chief Financial Officer(Principal Financial Officer)Date: May 4, 2006
    
    
    
    By:  /s/ Gerard J. BrinkmanGerard J. Brinkman,Corporate Controller(Principal Accounting Officer)
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INDEX TO EXHIBITS
 Number
    
    Description3.1(a)
    
    Amended and Restated Articles of Incorporation of the Company,
filed as Exhibit 3.1 to Amendment No. 1 to the Company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 the Company, dated July 30, 2003,
filed as Exhibit 3.2 to the Companys Form 10-Q for the fiscal
quarter ended June 30, 2003, File No. 1-9838, and incorporated
herein by this reference.4.1
    
    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.12.1
    
    Computation of Ratio of Earnings to Fixed Charges, filed herewith.31.1
    
    Certification of Chief Executive Officer pursuant to Exchange Act
Rule 13a-14(a), filed herewith.31.2
    
    Certification of Chief Financial Officer pursuant to Exchange Act
Rule 13a-14(a), filed herewith.32.1
    
    Certification Chief Executive Officer Pursuant to 18 U.S.C. Section
1350 and Exchange Act Rule 13a-14(b), furnished herewith.32.2
    
    Certification Chief Financial Officer Pursuant to 18 U.S.C. Section
1350 and Exchange Act Rule 13a-14(b), furnished herewith.
 23