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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
Commission file number 1-9340
REEBOK INTERNATIONAL LTD.
_________________________________________________________________
(Exact name of registrant as specified in its charter)
Massachusetts 04-2678061
_____________________________________ __________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Technology Center Drive, Stoughton, Massachusetts 02072
_________________________________________________________________
(Address of principal executive offices) (Zip Code)
(617) 341-5000
_________________________________________________________________
(Registrant's telephone number, including area code)
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 ( )
The number of shares outstanding of registrant's common stock,
par value $.01 per share, at May 9, 1994, was 82,685,515 shares.
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REEBOK INTERNATIONAL LTD.
INDEX
PART I. FINANCIAL INFORMATION:
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 1994 and 1993,
and December 31, 1993 . . . . . . . . . . . . . . 2-3
Consolidated Statements of Income - Three Months ended
March 31, 1994 and 1993 . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1994 and 1993 . . . 5-6
Notes to Consolidated Financial Statements . . . . 7
Item 2
Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . 8-11
Part II. OTHER INFORMATION:
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . 12
Items 2-3 Not Applicable . . . . . . . . . . . . . . . . . 12
Item 4 Submission of Matters to a Vote of Security Holders 12
Item 5 Not Applicable . . . . . . . . . . . . . . . . . 13
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . 13
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REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1994 1993* 1993
__________ __________ ____________
(Unaudited)
(amounts in thousands)
Current assets:
Cash and cash equivalents $ 65,989 $ 152,727 $ 79,347
Accounts receivable, net
of allowance for doubtful
accounts (1994, $48,938;
March 1993, $46,066;
December 1993, $46,455) 615,462 556,819 457,399
Inventory 512,623 356,740 514,027
Deferred income taxes 59,892 76,975 54,784
Prepaid expenses 27,911 21,391 21,558
__________ __________ __________
Total current assets 1,281,877 1,164,652 1,127,115
__________ __________ __________
Property and equipment, net 134,169 129,554 130,607
Non-current assets:
Intangibles, net of
amortization 96,156 101,282 94,262
Net assets of businesses held
for sale - 37,520 -
Deferred income taxes - - 1,250
Other 32,792 17,105 38,477
__________ __________ __________
128,948 155,907 133,989
__________ __________ __________
$1,544,994 $1,450,113 $1,391,711
========== ========== ==========
* Certain amounts have been reclassified to permit comparisons.
The accompanying notes are an integral part of the consolidated
financial statements.
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REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
March 31, December 31,
1994 1993* 1993
__________ __________ ____________
(Unaudited)
(amounts in thousands, except share data)
Current liabilities:
Notes payable to banks $ 45,105 $ 47,072 $ 23,852
Commercial paper 62,000 - -
Current maturities of long-
term debt 3,263 3,022 3,009
Accounts payable 150,253 155,209 138,188
Accrued expenses 143,590 142,620 143,784
Income taxes payable 109,737 99,354 81,240
Dividends payable 6,197 6,624 6,285
___________ ___________ ___________
Total current liabilities 520,145 453,901 396,358
___________ ___________ ___________
Long-term debt, net of
current maturities 133,373 136,226 134,207
Deferred income taxes 71 264 -
Minority interest 16,192 10,490 14,529
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01;
authorized 250,000,000 shares;
issued 1994, 118,894,897;
issued March 31, 1993,
124,167,091; issued December
31, 1993, 119,902,298 1,189 1,242 1,199
Additional paid-in capital 232,431 396,079 266,890
Retained earnings 1,257,768 1,061,760 1,198,190
Less 36,210,902 shares in
treasury at cost (603,241) (603,241) (603,241)
Unearned compensation (3,128) (538) (3,276)
Foreign currency translation
adjustment (9,806) (6,070) (13,145)
___________ ___________ ___________
875,213 849,232 846,617
___________ ___________ ___________
$1,544,994 $1,450,113 $1,391,711
=========== =========== ===========
* Certain amounts have been reclassified to permit comparisons.
The accompanying notes are an integral part of the consolidated
financial statements.
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REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
(Unaudited)
Three Months Ended
March 31,
______________________
1994 1993*
____ ____
Net sales $ 857,366 $ 825,220
Other income (expense) 253 (1,213)
___________ ___________
857,619 824,007
Costs and expenses:
Cost of sales 519,844 489,839
Selling expenses 153,121 146,876
General and administrative
expenses 70,598 65,566
Amortization of intangibles 1,136 2,463
Minority interest 2,682 3,426
Interest expense 5,237 4,966
Interest income (1,111) (959)
___________ ___________
751,507 712,177
___________ ___________
Income before income taxes 106,112 111,830
Income taxes 40,323 44,061
___________ ___________
Net income $ 65,789 $ 67,769
=========== ===========
Net income per common share $ .77 $ .74
=========== ===========
Dividends per common share $ .075 $ .075
=========== ===========
Weighted average common and
common equivalent shares
outstanding 85,320 91,082
=========== ===========
* Certain amounts have been reclassified to permit comparisons.
The accompanying notes are an integral part of the consolidated
financial statements.
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REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
____________________
1994 1993*
____ ____
(amounts in thousands)
Cash flows from operating activities:
Net income $ 65,789 $ 67,769
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Depreciation and amortization 7,098 7,869
Amortization of intangibles 1,136 2,463
Minority interest, net of dividends paid 1,902 2,932
Amortization of unearned compensation 148 73
Deferred income taxes (3,577) (3,190)
Changes in operating assets and
liabilities, exclusive of those arising
from business acquisitions:
Accounts receivable (153,609) (136,006)
Inventory 3,631 79,435
Prepaid expenses (6,264) 2,638
Other 1,833 (702)
Accounts payable 8,245 7,588
Accrued expenses (628) 11,877
Income taxes payable 28,012 9,612
__________ ___________
Total adjustments (112,073) (15,411)
__________ ___________
Net cash (used for) provided by operating
activities (46,284) 52,358
__________ ___________
Cash flows from investing activity:
Payments to acquire property and
equipment (8,757) (7,944)
__________ ___________
Net cash used for investing activity (8,757) (7,944)
__________ ___________
* Certain amounts have been reclassified to permit comparisons.
The accompanying notes are an integral part of the consolidated
financial statements.
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REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
_____________________
1994 1993
____ ____
(amounts in thousands)
Cash flows from financing activities:
Net borrowings of notes payable to banks $ 20,516 $ 41,901
Proceeds from issuance of commercial paper 62,000 -
Net borrowings (repayments) of long-term debt (1,732) 19,072
Proceeds from issuance of common stock to
employees 2,774 1,600
Dividends paid (6,299) (6,721)
Repurchases of common stock (37,243) (53,591)
_________ __________
Net cash provided by financing
activities 40,016 2,261
_________ __________
Effect of exchange rate changes on cash
and cash equivalents 1,667 666
_________ __________
Net increase (decrease) in cash and cash
equivalents (13,358) 47,341
_________ __________
Cash and cash equivalents at beginning of period 79,347 105,386
_________ __________
Cash and cash equivalents at end of period $ 65,989 $152,727
========= ==========
Supplemental disclosures of cash flow information:
1994 1993
____ ____
Cash paid during the period for:
Interest $ 7,615 $ 7,051
Income taxes 11,826 34,094
The accompanying notes are an integral part of the consolidated
financial statements.
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REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
______________________________
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three months ended
March 31, 1994 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1994. For
further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1993.
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REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following table shows the percentage which amounts in the
Consolidated Statements of Income bear to net sales:
Percentage of Net Sales
________________________
Three Months Ended
March 31,
__________________
1994 1993
____ ____
Net sales 100.0% 100.0%
Other income (expense) (.0) (.2)
______ ______
100.0 99.8
Costs and expenses:
Cost of sales 60.6 59.4
Selling expenses 17.9 17.8
General and administrative
expenses 8.2 7.9
Amortization of intangibles .1 .3
Minority interest .3 .4
Interest expense .6 .6
Interest income (.1) (.1)
______ ______
87.6 86.3
______ ______
Income before income taxes 12.4 13.5
Income taxes 4.7 5.3
______ ______
Net income 7.7% 8.2%
====== ======
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REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OPERATING RESULTS
_________________
First Quarter 1994 Compared to First Quarter 1993
___________________________________________________
Net sales for the quarter ended March 31, 1994 increased by
$32.1 million, 3.9% over the level reported for the first quarter
of 1993. The Reebok Division's worldwide sales were $744.0
million, an increase of 3.3% from $720.5 million in 1993. Reebok
U.S. footwear sales increased 2.8% to $368.0 million from $358.0
million in 1993. The increase in Reebok Division's U.S. footwear
sales is attributed to increases in the outdoor, classics,
Preseason and walking categories, which were partially offset by
decreases in the basketball and children's categories. The
Reebok Division's U.S. apparel sales increased by 10.4% to $34.5
million from $31.2 million in 1993. The Reebok Division's
International sales (including footwear and apparel) were $341.5
million in 1994, an increase of 3.1% from $331.3 million in 1993,
primarily due to improved sales in the United Kingdom, Canada,
and several smaller European countries partially offset by
decreases in sales in France, Germany and Japan. The improvement
in sales was reduced by changes in foreign exchange rates which
had a negative effect on the Reebok Division's International net
sales of $10.7 million, or 3.2%.
Rockport sales increased by 4.3% to $71.2 million from $68.3
million in 1993. This increase is due to an increase in the
number of pairs shipped. Avia sales increased by 15.7% to $42.1
million from $36.4 million in 1993. The increase in Avia's net
sales is due to increases in both domestic and international net
sales. The increase in net sales in the U.S. is due to increases
in the walking and cross training categories.
Other income (expense) increased in the first quarter due
mainly to recognized gains on foreign exchange transactions in
1994 compared to recognized losses in 1993.
The decrease in gross margin from 40.6% in 1993 to 39.4% in
1994 is mainly due to higher markdowns in the first quarter of
1994.
Selling expenses increased slightly as a percentage of sales
from 17.8% in 1993 to 17.9% in 1994 primarily due to increased
endorsements and sports promotions in the Reebok Division and
increased advertising in the United States offset by lower
advertising expenditures internationally.
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General and administrative expenses increased as a
percentage of sales from 7.9% in 1993 to 8.2% in 1994 partly due
to increased investments in information systems, which is
expected to continue over the next few years, as well as higher
general and administrative expenses in some of the newer
international markets.
Amortization of intangibles decreased due to the fact that
many of the intangibles acquired upon the acquisition of Rockport
in 1986 had a useful life of seven years or less.
Minority interest represents the minority shareholder's
proportionate share of the net income of the Company's Japanese
and Spanish subsidiaries.
The effective tax rate decreased from 39.4% in 1993 to 38.0%
in 1994 due to a change in the geographic mix of worldwide income
partially offset by an increase in the U.S. federal tax rate.
Year-to-year earnings per share comparisons benefited from
the share repurchase programs announced in July 1992 and July
1993. Weighted average common shares outstanding for the quarter
ended March 31, 1994 declined to 85.3 million shares, compared to
91.1 million shares for the first quarter of 1993.
LIQUIDITY AND SOURCES OF CAPITAL
________________________________
The Company's financial position remains strong. Working
capital increased by $51.0 million, or 7.2% from the same period
a year ago, primarily due to increases in inventory and accounts
receivable offset by decreases in cash and increases in short-
term borrowings. The current ratio at March 31, 1994 was 2.5 to
1, as compared to 2.8 to 1 at December 31, 1993 and 2.6 to 1 at
March 31, 1993.
Accounts receivable increased from March 31, 1993 by $58.6
million, or 10.5%, due to a slight deterioration in days sales
outstanding as well as the later timing in the quarter of sales.
Inventory increased by $155.9 million from March 31, 1993,
reflecting increases in all divisions, largely due to increased
order levels. In addition, the increases in the Reebok Division
as well as in Avia are partially due to an effort to more evenly
load factory orders to reduce factory costs and improve on-time
delivery.
During the twelve months ended March 31, 1994, cash and cash
equivalents decreased by $86.7 million, and outstanding
borrowings increased by $57.4 million, while $193.6 million of
common stock was repurchased. Cash used for operations during
1994's first quarter was $46.3 million. Cash generated from
operations, together with the Company's financing sources, is
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expected to adequately finance all of the Company's current and
planned cash requirements, including the remaining $98.5 million
available in the Company's share repurchase program. By March
31, 1994, the Company had repurchased 9,735,100 shares at an
average price of $30.96 since the share repurchase programs began
in July 1992.
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Reference is made to Item 3. Legal Proceedings in the Company's
Annual Report on Form 10-K dated February 15, 1994 for a
description of Byron A. Donzis v. Reebok International Ltd. et
al., Stutz Motor Car of America, Inc. v. Reebok International
Ltd., and Marshall Verano v. Reebok International Ltd.
Items 2 - 3
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 3,
1994. At the Annual Meeting, the following proposals were
approved:
1. Four Class I members of the Board of Directors were elected
by shareholders as follows (there were no abstentions nor broker
non-votes):
Number of Number of
Name of Votes Cast Votes
Director FOR WITHHELD
________ __________ _________
Jill Elikann Barad 69,660,083 432,270
John H. Duerden 69,677,872 414,481
Geoffrey Nunes 69,660,067 432,286
John A. Quelch 69,658,840 433,513
2. An amendment to the 1987 Employee Stock Purchase Plan to
increase from 1,000,000 to 2,000,000 the number of shares of
Common Stock authorized for issuance was approved by a vote of
60,063,113 FOR, 2,122,454 AGAINST, 529,616 ABSTAIN and 7,377,170
BROKER NON-VOTES.
3. The 1994 Equity Incentive Plan was approved by a vote of
50,856,577 FOR, 11,293,342 AGAINST, 565,264 ABSTAIN and 7,377,170
BROKER NON-VOTES.
4. The Equity and Deferred Compensation Plan for Directors was
approved by a vote of 56,054,557 FOR, 6,441,567 AGAINST, 219,059
ABSTAIN and 7,377,170 BROKER NON-VOTES.
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Item 5
Not applicable
Item 6
(a) Exhibits:
11. Statement Re Computation of Per Share Earnings
(b) Report on Form 8-K: There were no reports on Form 8-K
filed during the quarter ended March 31, 1994.
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SIGNATURE
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.
Dated: May 10, 1994
REEBOK INTERNATIONAL LTD.
BY: /s/ PAUL R. DUNCAN
__________________________
Paul R. Duncan
Executive Vice President
and Chief Financial Officer
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REEBOK INTERNATIONAL LTD.
(Amounts in Thousands, Except Per Share Data)
Exhibit 11 - Statement RE: Computation of Per Share Earnings
Three Months Ended
March 31,
_________________
1994 1993
____ ____
Primary
_____________________________________
Average shares outstanding 83,288 88,677
Net effect of dilutive stock options 2,032 2,405
_______ _______
Total 85,320 91,082
======= =======
Net income $65,789 $67,769
======= =======
Per share amount $ 0.77 $ 0.74
======= =======
Fully Diluted
_____________________________________
Average shares outstanding 83,288 88,677
Net effect of dilutive stock options 2,155 2,405
_______ _______
Total 85,443 91,082
======= =======
Net income $65,789 $67,769
======= =======
Per share amount $ 0.77 $ 0.74
======= =======
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