##### Table of Contents



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 September 30, 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
 o þ




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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 (Unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4.
    
    Controls and Procedures
    
    
    29Part II  Other InformationItem 1.
    
    Legal Proceedings
    
    
    30Item 1A.
    
    Risk Factors
    
    
    30Item 2(c).
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 6.
    
    Exhibits
    
    
    32Signatures
    
    
    33Index To Exhibits
    
    
    34EX-12.1EX-31.1EX-31.2EX-32.1EX-32.2
 2




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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 Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    184,061
    
    
    $
    139,863
    
    
    $
    566,867
    
    
    $
    446,710Cost of products sold
    
    
    138,354
    
    
    
    99,878
    
    
    
    404,945
    
    
    
    332,466Gross profit
    
    
    45,707
    
    
    
    39,985
    
    
    
    161,922
    
    
    
    114,244Selling, general and administrative expenses
    
    
    10,726
    
    
    
    4,730
    
    
    
    23,404
    
    
    
    16,366Operating income
    
    
    34,981
    
    
    
    35,255
    
    
    
    138,518
    
    
    
    97,878Investment income
    
    
    1,280
    
    
    
    892
    
    
    
    5,142
    
    
    
    1,538Interest expense
    
    
    (142
    )
    
    
    (142
    )
    
    
    (428
    )
    
    
    (477
    )Other, net
    
    
    88
    
    
    
    175
    
    
    
    265
    
    
    
    246Income before income taxes
    
    
    36,207
    
    
    
    36,180
    
    
    
    143,497
    
    
    
    99,185Provision for income taxes
    
    
    13,759
    
    
    
    5,424
    
    
    
    54,529
    
    
    
    11,875Net income
    
    $
    22,448
    
    
    $
    30,756
    
    
    $
    88,968
    
    
    $
    87,310Earnings per common share:Basic
    
    $
    1.00
    
    
    $
    1.37
    
    
    $
    3.96
    
    
    $
    3.92Diluted
    
    $
    0.99
    
    
    $
    1.35
    
    
    $
    3.94
    
    
    $
    3.86Weighted average shares outstanding:Basic
    
    
    22,498
    
    
    
    22,434
    
    
    
    22,468
    
    
    
    22,252Diluted
    
    
    22,610
    
    
    
    22,707
    
    
    
    22,576
    
    
    
    22,614
  3




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NS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS  (in thousands)
 September 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    76,982
    
    
    $
    145,124Accounts receivable, less allowances
of $1,666 and $1,563, respectively
    
    
    74,615
    
    
    
    59,658Inventories
    
    
    171,648
    
    
    
    136,635Operating supplies and prepaid expenses
    
    
    13,493
    
    
    
    11,534Prepaid income taxes
    
    
    8,430
    
    
    
    Deferred income taxes
    
    
    8,332
    
    
    
    7,885Total current assets
    
    
    353,500
    
    
    
    360,836Property, plant and equipment, net
    
    
    79,970
    
    
    
    48,515Goodwill
    
    
    4,559
    
    
    
    Intangibles, net
    
    
    69,658
    
    
    
    Other noncurrent assets
    
    
    4,453
    
    
    
    4,611Total assets
    
    $
    512,140
    
    
    $
    413,962LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    50,974
    
    
    $
    41,385Accrued liabilities and other
    
    
    25,493
    
    
    
    23,973Accrued income taxes
    
    
    6,231
    
    
    
    10,563Deferred revenue
    
    
    14,060
    
    
    
    17,407Current portion of long-term debt
    
    
    
    
    
    
    36Total current liabilities
    
    
    96,758
    
    
    
    93,364Long-term debt
    
    
    
    
    
    
    375Deferred income taxes
    
    
    3,418
    
    
    
    1,770Other long-term liabilities
    
    
    11,456
    
    
    
    10,610Total liabilities
    
    
    111,632
    
    
    
    106,119Shareholders equity:Preferred stock, no par value, 2,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock, no par value, 40,000 shares authorized,
25,283 and 25,129 shares issued, respectively
    
    
    296,363
    
    
    
    293,372Treasury stock, at cost, 2,612 and 2,709 shares, respectively
    
    
    (25,666
    )
    
    
    (26,413
    )Accumulated other comprehensive income
    
    
    28
    
    
    
    29Retained earnings
    
    
    129,783
    
    
    
    40,855Total shareholders equity
    
    
    400,508
    
    
    
    307,843Total liabilities and shareholders equity
    
    $
    512,140
    
    
    $
    413,962
  4




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NS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (in thousands) (Unaudited)
 Nine Months EndedSeptember 30,2006
    
    
    2005CASH FLOWS  OPERATING ACTIVITIESNet income
    
    $
    88,968
    
    
    $
    87,310Adjustments to reconcile net income to net cash flows
provided by operating activities:Depreciation and amortization
    
    
    4,549
    
    
    
    4,065Amortization of intangible assets
    
    
    942
    
    
    
    Stock-based compensation
    
    
    1,944
    
    
    
    314Deferred income taxes
    
    
    1,201
    
    
    
    (3,000
    )Amortization of deferred finance costs
    
    
    218
    
    
    
    217Changes in operating assets and liabilities, excluding
acquired items:Accounts receivable, net
    
    
    (2,991
    )
    
    
    (10,390
    )Inventories
    
    
    (2,133
    )
    
    
    268Other current assets
    
    
    (1,959
    )
    
    
    (1,581
    )Accounts payable
    
    
    4,583
    
    
    
    (2,996
    )Accrued liabilities
    
    
    1,906
    
    
    
    (907
    )Deferred revenue
    
    
    (6,510
    )
    
    
    5,156Income taxes payable
    
    
    (13,718
    )
    
    
    10,432Other, net
    
    
    955
    
    
    
    8Net cash flows provided by operating activities
    
    
    77,955
    
    
    
    88,896CASH FLOWS  INVESTING ACTIVITIESPurchases of property, plant and equipment
    
    
    (24,002
    )
    
    
    (6,077
    )Acquisition of business
    
    
    (123,439
    )
    
    
    Purchases of short-term investments
    
    
    
    
    
    
    (10,933
    )Maturity of short-term investments
    
    
    
    
    
    
    4,946Proceeds from sales of assets held for sale
    
    
    
    
    
    
    955Net cash flows used by investing activities
    
    
    (147,441
    )
    
    
    (11,109
    )CASH FLOWS  FINANCING ACTIVITIESRepayments of long-term debt
    
    
    (411
    )
    
    
    (30
    )Proceeds from option exercises
    
    
    1,001
    
    
    
    6,339Tax benefit from stock-based compensation
    
    
    956
    
    
    
    Additions to cost of treasury shares
    
    
    (202
    )
    
    
    (104
    )Net cash flows provided by financing activities
    
    
    1,344
    
    
    
    6,205Increase (decrease) in cash and cash equivalents
    
    
    (68,142
    )
    
    
    83,992Cash and cash equivalents at beginning of period
    
    
    145,124
    
    
    
    30,944Cash and cash equivalents at end of period
    
    $
    76,982
    
    
    $
    114,936Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    6
    
    
    $
    7Cash paid during the period for income taxes
    
    $
    64,792
    
    
    $
    3,975
  5




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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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Goodwill and Other Intangible Assets
   .
 Recently Issued Accounting Standards
    7




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Note 2: PENDING MERGER
  Note 3: ACQUISITION
    8




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(in thousands)Current assets
    
    $
    44,845Property, plant and equipment
    
    
    10,817Intangible assets
    
    
    70,600Goodwill
    
    
    4,559Total assets acquired
    
    
    130,821Current liabilities assumed
    
    
    (7,382
    )Net assets acquired
    
    $
    123,439
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(in thousands, except per share amounts)
    
    2006
    
    2005
    
    2006
    
    2005Net sales
    
    $
    188,896
    
    
    $
    149,906
    
    
    $
    602,850
    
    
    $
    479,445Net income
    
    $
    21,821
    
    
    $
    29,256
    
    
    $
    89,742
    
    
    $
    86,691Earnings per common
share:Basic
    
    $
    0.97
    
    
    $
    1.30
    
    
    $
    3.99
    
    
    $
    3.90Diluted
    
    $
    0.97
    
    
    $
    1.29
    
    
    $
    3.98
    
    
    $
    3.83
  Note 4: STOCK-BASED COMPENSATION
   9




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(In thousands, except per share amounts)
    
    Three Months
    
    
    Nine MonthsNet income  as reported
    
    $
    30,756
    
    
    $
    87,310Add: Stock-based employee compensation
included in reported net income, net of
related tax effects
    
    
    62
    
    
    
    139Less: Stock-based employee compensation
expense determined under the fair value
method for all awards, net of related tax effects
    
    
    (197
    )
    
    
    (543
    )Net income  pro forma
    
    $
    30,621
    
    
    $
    86,906Diluted earnings per common share  as reported
    
    $
    1.35
    
    
    $
    3.86Effect of stock-based employee
compensation expense determined under the fair
value method for all awards, net of related tax effects
    
    
    
    
    
    
    (0.02
    )Diluted earnings per common share  pro forma
    
    $
    1.35
    
    
    $
    3.84
  10




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2006
    
    2005Dividend yield
    
    None
    
    NoneVolatility
    
    
    54
    %
    
    
    65
    %Risk-free interest rate
    
    
    5.0
    %
    
    
    4.0
    %Expected life in years
    
    
    5
    
    
    
    6
  Weighted AverageRemainingWeighted Average
    
    Contractual Term
    
    Aggregate IntrinsicShares
    
    Exercise Price
    
    (in years)
    

Value (in thousands)Outstanding, beginning of period
    
    
    259,241
    
    
    $
    14.44Granted
    
    
    126,415
    
    
    
    53.54Exercised
    
    
    (90,304
    )
    
    
    11.09Forfeited/cancelled
    
    
    (9,708
    )
    
    
    28.47Outstanding, end of period
    
    
    285,644
    
    
    
    32.32
    
    
    
    8.0
    
    
    $
    9,206Options exercisable, end of period
    
    
    103,664
    
    
    $
    12.83
    
    
    
    5.9
    
    
    $
    5,361
     Weighted AverageGrant DateShares
    
    Fair ValueNonvested, beginning of period
    
    
    38,400
    
    
    $
    19.48Granted
    
    
    154,272
    
    
    
    53.70Vested
    
    
    (10,498
    )
    
    
    12.10Forfeited
    
    
    (860
    )
    
    
    28.39Nonvested, end of period
    
    
    181,314
    
    
    
    48.98
 11




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(In thousands)Cost of products sold
    
    $
    82Selling, general and administrative expenses
    
    $
    1,862Income tax benefit
    
    $
    734Total stock-based compensation expense after income taxes
    
    $
    1,210
 Note 5: EARNINGS PER SHARE
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(In thousands)
    
    2006
    
    2005
    
    2006
    
    2005Number of common shares
outstanding at period-end
    
    
    22,671
    
    
    
    22,528
    
    
    
    22,671
    
    
    
    22,528Effect of using weighted average
common shares outstanding
    
    
    (173
    )
    
    
    (94
    )
    
    
    (203
    )
    
    
    (276
    )Weighted average basic common
shares outstanding
    
    
    22,498
    
    
    
    22,434
    
    
    
    22,468
    
    
    
    22,252Dilutive effect of common stock
options and nonvested
restricted stock
    
    
    112
    
    
    
    273
    
    
    
    108
    
    
    
    362Weighted average diluted common
shares outstanding
    
    
    22,610
    
    
    
    22,707
    
    
    
    22,576
    
    
    
    22,614Potentially issuable shares
    
    
    296
    
    
    
    301
    
    
    
    287
    
    
    
    450Number of potentially issuable
shares
excluded from diluted
common
shares outstanding
    
    
    278
    
    
    
    
    
    
    
    134
    
    
    
    
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Note 6: SEGMENT AND CONCENTRATIONS INFORMATION
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Seamless
    
    $
    113,472
    
    
    $
    91,032
    
    
    $
    376,341
    
    
    $
    276,863Welded
    
    
    65,503
    
    
    
    48,831
    
    
    
    185,440
    
    
    
    169,847Premium connections
    
    
    12,948
    
    
    
    
    
    
    
    12,948
    
    
    
    Intercompany eliminations
    
    
    (7,862
    )
    
    
    
    
    
    
    (7,862
    )
    
    
    $
    184,061
    
    
    $
    139,863
    
    
    $
    566,867
    
    
    $
    446,710
 Concentrations
     Note 7: INVENTORIES
  September 30,
    
    
    December 31,(In thousands)
    
    2006
    
    
    2005Raw materials
    
    $
    64,305
    
    
    $
    33,970Semi-finished and finished products
    
    
    107,343
    
    
    
    102,665$
    171,648
    
    
    $
    136,635
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Note 8: INTANGIBLE ASSETS
  AmortizationSeptember 30,
    
    
    Period(in thousands)
    
    2006
    
    
    (in years)Indefinite-lived intangibles:Tradename
    
    $
    6,200
    
    
    NAAmortized intangibles:Customer relationships
    
    
    41,200
    
    
    
    10Patents
    
    
    23,100
    
    
    
    15License agreements
    
    
    100
    
    
    
    564,400Less accumulated amortization
    
    
    (942
    )63,458Intangibles, net
    
    $
    69,658
  Note 9: REVOLVING CREDIT FACILITY
    14




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Note 10: COMMITMENTS AND CONTINGENCIES
  Environmental
      15




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Other
  Note 11: EMPLOYEE BENEFIT PLANS
  Three Months Ended September 30,Pension
    
    
    Health(In thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    95
    
    
    $
    99
    
    
    $
    5
    
    
    $
    5Interest cost
    
    
    48
    
    
    
    40
    
    
    
    5
    
    
    
    5Recognized actuarial loss
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    Amortization of
transition obligation
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7$
    146
    
    
    $
    140
    
    
    $
    17
    
    
    $
    17
 Nine Months Ended September 30,Pension
    
    
    Health(In thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    287
    
    
    $
    298
    
    
    $
    15
    
    
    $
    16Interest cost
    
    
    143
    
    
    
    120
    
    
    
    15
    
    
    
    15Recognized actuarial loss
    
    
    8
    
    
    
    3
    
    
    
    
    
    
    
    Amortization of
transition obligation
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    21$
    438
    
    
    $
    421
    
    
    $
    51
    
    
    $
    52
 Note 12: PRODUCT WARRANTIES
  16




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Balance, beginning of period
    
    $
    1,961
    
    
    $
    3,165
    
    
    $
    1,833
    
    
    $
    2,051Accruals during the period
    
    
    1,208
    
    
    
    (58
    )
    
    
    1,991
    
    
    
    2,115Settlements made during
the period
    
    
    (340
    )
    
    
    (429
    )
    
    
    (995
    )
    
    
    (1,488
    )Balance, end of period
    
    $
    2,829
    
    
    $
    2,678
    
    
    $
    2,829
    
    
    $
    2,678
  Note 13: SUBSEQUENT EVENT
  17




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    OVERVIEW
 Our Products
   Recent Developments
 Pending Merger
  18




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Acquisition
  Economic and Industry-Wide Factors that Affect our Business
 Demand for Our Products
   Three Months Ended September 30,
    
    Nine Months Ended September 30,2006
    
    2005
    
    2006
    
    2005Average natural gas price per mcf
    
    $
    6.58
    
    
    $
    8.49
    
    
    $
    7.45
    
    
    $
    7.16Average total U.S. rig count
    
    
    1,721
    
    
    
    1,432
    
    
    
    1,626
    
    
    
    1,351Average U.S. rig count over 15,000 feet(1)
    
    
    211
    
    
    
    196
    
    
    
    208
    
    
    
    188Average directional/horizontal rig count(1)
    
    
    697
    
    
    
    539
    
    
    
    657
    
    
    
    507Average Gulf of Mexico rigs under
contract(1)
    
    
    91
    
    
    
    94
    
    
    
    87
    
    
    
    93Domestic
OCTG shipments
(millions of tons)
    
    
    0.7
    
    
    
    0.7
    
    
    
    2.2
    
    
    
    2.1OCTG
imports
(millions of tons)
    
    
    0.5
    
    
    
    0.5
    
    
    
    1.5
    
    
    
    1.2OCTG
inventories
(millions of tons at period-end)
    
    
    
    
    
    
    
    
    
    
    2.1
    
    
    
    2.1Inventory
tons per rig
(at period-end)
    
    
    
    
    
    
    
    
    
    
    1,204
    
    
    
    1,441
 Source: Baker Hughes, Preston Pipe and Tube Report, New York Mercantile Exchange,
Smith International, Inc. and Company estimates
 
 (1)
    
    Rig counts are subsets of average total U.S. rig counts. 19




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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.
 20




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Results of Operations  Third Quarter 2006 Compared to Third Quarter 2005
 Net Sales
 Three Months Ended
    
    
    ChangeSeptember 30,
    
    
    2006 vs. 20052006
    
    
    2005
    
    
    Amount
    
    
    %Net sales (in thousands)Seamless products
    
    $
    113,472
    
    
    $
    91,032
    
    
    $
    22,440
    
    
    
    24.7Welded products
    
    
    65,503
    
    
    
    48,831
    
    
    
    16,672
    
    
    
    34.1Premium connections
    
    
    12,948
    
    
    
    
    
    
    
    12,948
    
    
    
    Intercompany eliminations
    
    
    (7,862
    )
    
    
    
    
    
    
    (7,862
    )
    
    
    $
    184,061
    
    
    $
    139,863
    
    
    $
    44,198
    
    
    
    31.6Revenue per ton (tubular)Seamless products
    
    $
    1,690
    
    
    $
    1,625
    
    
    $
    65
    
    
    
    4.0Welded products
    
    $
    1,091
    
    
    $
    1,007
    
    
    $
    84
    
    
    
    8.3Tubular tons shippedSeamless products
    
    
    65,500
    
    
    
    55,600
    
    
    
    9,900
    
    
    
    17.8Welded products
    
    
    60,100
    
    
    
    48,500
    
    
    
    11,600
    
    
    
    23.9Intercompany eliminations
    
    
    (4,700
    )
    
    
    
    
    
    
    (4,700
    )
    
    
    120,900
    
    
    
    104,100
    
    
    
    16,800
    
    
    
    16.1Average U.S. rig count
    
    
    1,721
    
    
    
    1,432
    
    
    
    289
    
    
    
    20.2
  Gross Profit
 Three Months Ended
    
    ChangeSeptember 30,
    
    2006 vs. 2005($ in thousands)
    
    2006
    
    2005
    
    Amount
    
    %Gross profit
    
    $
    45,707
    
    
    $
    39,985
    
    
    $
    5,722
    
    
    
    14.3Gross profit %
    
    
    24.8
    
    
    
    28.6
    
    
    
    (3.8
    )
  22




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Selling, General and Administrative Expenses
 Three Months Ended
    
    ChangeSeptember 30,
    
    2006 vs. 2005($ in thousands)
    
    2006
    
    2005
    
    Amount
    
    %Selling, general and
administrative
    
    $
    10,726
    
    
    $
    4,730
    
    
    $
    5,996
    
    
    
    126.77
  Investment Income, Interest Expense, Other, Net
   Income Taxes
  23




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##### Table of Contents



Results of Operations  First Nine Months 2006 Compared to First Nine Months 2005
 Net Sales
 Nine Months Ended
    
    
    ChangeSeptember 30,
    
    
    2006 vs. 20052006
    
    
    2005
    
    
    Amount
    
    
    %Net sales (in thousands)Seamless products
    
    $
    376,341
    
    
    $
    276,863
    
    
    $
    99,478
    
    
    
    35.9Welded products
    
    
    185,440
    
    
    
    169,847
    
    
    
    15,593
    
    
    
    9.2Premium connections
    
    
    12,948
    
    
    
    
    
    
    
    12,948
    
    
    
    Intercompany eliminations
    
    
    (7,862
    )
    
    
    
    
    
    
    (7,862
    )
    
    
    $
    566,867
    
    
    $
    446,710
    
    
    $
    120,157
    
    
    
    26.9Revenue per ton (tubular)Seamless products
    
    $
    1,699
    
    
    $
    1,589
    
    
    $
    110
    
    
    
    6.9Welded products
    
    $
    1,075
    
    
    $
    1,053
    
    
    $
    22
    
    
    
    2.1Tubular tons shippedSeamless products
    
    
    216,400
    
    
    
    172,300
    
    
    
    44,100
    
    
    
    25.6Welded products
    
    
    172,600
    
    
    
    161,300
    
    
    
    11,300
    
    
    
    7.0Intercompany eliminations
    
    
    (4,700
    )
    
    
    
    
    
    
    (4,700
    )
    
    
    384,300
    
    
    
    333,600
    
    
    
    50,700
    
    
    
    15.2Average U.S. rig count
    
    
    1,626
    
    
    
    1,351
    
    
    
    275
    
    
    
    20.4
  Gross Profit
 Nine Months Ended
    
    ChangeSeptember 30,
    
    2006 vs. 2005($ in thousands)
    
    2006
    
    2005
    
    Amount
    
    %Gross profit
    
    $
    161,922
    
    
    $
    114,244
    
    
    $
    47,678
    
    
    
    41.7Gross profit %
    
    
    28.6
    
    
    
    25.6
    
    
    
    3.0
  24




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##### Table of Contents



Selling General and Administrative Expenses
 Nine Months Ended
    
    ChangeSeptember 30,
    
    2006 vs. 2005($ in thousands)
    
    2006
    
    2005
    
    Amount
    
    %Selling, general and
administrative
    
    $
    23,404
    
    
    $
    16,366
    
    
    $
    7,038
    
    
    
    43.0
  Investment Income, Interest Expense, Other, Net
   Income Taxes
  LIQUIDITY AND CAPITAL RESOURCES
 Overview
   Merger
  25




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##### Table of Contents



Working Capital
  Operating Cash Flows
   Investing Cash Flows
   Financing Cash Flows
  Contractual Obligations and Other Cash Requirements
  26




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##### Table of Contents



Amendment to Revolving Credit Facility
  Critical Accounting Policies and Estimates
   RECENTLY ISSUED ACCOUNTING STANDARDS
   27




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##### Table of Contents



OTHER MATTERS
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
     28




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##### Table of Contents



Item 4.
    
    Controls and Procedures
 Disclosure Controls and Procedures.
 Changes in Internal Controls.
  29




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##### Table of Contents



PART
II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
 General
  Litigation Related to the Merger
  
 Item 1A.
    
    Risk Factors
  Failure to complete the merger could negatively affect the stock price and the future business
and financial results of our Company.
  30




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##### Table of Contents



If we fail to successfully integrate the operations of Ultra, the combined company may not
realize the potential benefits of the acquisition.
  
    
    failure to successfully manage relationships with customers, partners, and vendors;
    
    difficulties in successfully integrating the management, sales force, and employees of Ultra;
    
    challenges encountered in managing additional geographically dispersed operations;
    
    loss of key management personnel and employees; and
    
    diversion of the attention of management from other primary business matters.
 If we have to write off a significant amount of goodwill and other intangible assets, our
earnings will be negatively affected.
  31




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##### Table of Contents



We May Not Be Able To Adequately Protect Or Enforce Our Intellectual Property Rights, Which
Could Harm Our Competitive Position.
  
 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 September 30, 2006. As of September 30, 2006,
the maximum number of shares remaining to be purchased under this
program is 2,124,600.The Merger Agreement prohibits us from buying back our common stock.
 
 Item 6.
    
    Exhibits
  32




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##### Table of Contents



SIGNATURES
  NS GROUP, INC.Date: November 8, 2006
    By:
    /s/ René J. RobichaudRené J. Robichaud, President andChief Executive Officer and
Director
(Principal Executive Officer)Date: November 8, 2006
    By:
    /s/ Thomas J. DepenbrockThomas J. Depenbrock, Vice President
Finance, Treasurer and Chief
Financial Officer
(Principal Financial Officer)Date: November 8, 2006
    By:
    /s/ Gerard J. BrinkmanGerard J. BrinkmanCorporate Controller
(Principal Accounting Officer) 33




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##### Table of Contents



INDEX TO EXHIBITS
 Number
    
    Description2.1
    
    Agreement and Plan of Merger, dated as of September 10, 2006, among
NS Group, Inc., IPSCO Inc. and PI Acquisition Company, filed as
Exhibit 2.1 to the Companys Form 8-K dated September 11, 2006,
File No. 1-9838, and incorporated herein by this reference.3.1(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.4.1(a)
    
    Amendment No. 1 to the 1998 Rights Agreement, dated as of September
10, 2006, between NS Group, Inc. and Registrar and Transfer
Company, filed as Exhibit 4.1 to the Companys Form 8-K dated
September 11, 2006, 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 Pursuant to 18 U.S.C. Section 1350 and Exchange Act
Rule 13a-14(b), furnished herewith.32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350 and Exchange Act
Rule 13a-14(b), furnished herewith.
 34