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 June 30, 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 August 8, 1994, was 82,074,129
shares.
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REEBOK INTERNATIONAL LTD.
INDEX
PART I. FINANCIAL INFORMATION:
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 1994 and
1993, and December 31, 1993 . . . . . . . . . . 2-3
Consolidated Statements of Income - Three and Six
Months ended June 30, 1994 and 1993 . . . . . . 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 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 . . . . . 8-12
Part II. OTHER INFORMATION:
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . 13
Items 2-5 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
June 30, December 31,
1994 1993* 1993
__________ __________ ___________
(Unaudited)
(amounts in thousands)
Current assets:
Cash and cash equivalents $ 68,290 $ 107,981 $ 79,347
Accounts receivable, net
of allowance for doubtful
accounts (1994, $51,014;
June 1993, $46,577;
December 1993, $46,455) 564,157 499,937 457,399
Inventory 564,646 418,439 514,027
Deferred income taxes 64,992 78,937 54,784
Prepaid expenses 30,061 19,265 21,558
__________ __________ __________
Total current assets 1,292,146 1,124,559 1,127,115
__________ __________ __________
Property and equipment, net 139,117 129,444 130,607
Non-current assets:
Intangibles, net of
amortization 95,669 98,670 94,262
Net assets of businesses
held for sale - 35,771 -
Deferred income taxes - - 1,250
Other 36,072 20,341 38,477
__________ __________ __________
131,741 154,782 133,989
__________ __________ __________
$1,563,004 $1,408,785 $1,391,711
========== ========== ==========
* Certain amounts have been reclassified to permit comparisons.
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REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
June 30, December 31,
1994 1993* 1993
__________ __________ __________
(Unaudited)
(amounts in thousands, except share data)
Current liabilities:
Notes payable to banks $ 37,141 $ 7,578 $ 23,852
Commercial paper 20,000 - -
Current portion of
long-term debt 3,433 4,124 3,009
Accounts payable 134,677 127,862 138,188
Accrued expenses 165,604 190,738 143,784
Income taxes payable 124,826 95,679 81,240
Dividends payable 6,191 6,515 6,285
__________ __________ __________
Total current liabilities 491,872 432,496 396,358
__________ __________ __________
Long-term debt, net of
current portion 135,898 136,961 134,207
Deferred income taxes - 201 -
Minority interest 17,784 10,927 14,529
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01;
authorized 250,000,000 shares;
issued 1994, 118,604,381;
issued June 30, 1993,
122,702,063; issued December 31,
1993, 119,902,298 1,186 1,227 1,199
Additional paid-in capital 223,298 343,284 266,890
Retained earnings 1,302,585 1,096,263 1,198,190
Less 36,210,902 shares in
treasury at cost (603,241) (603,241) (603,241)
Unearned compensation (3,286) (465) (3,276)
Foreign currency translation
adjustment (3,092) (8,868) (13,145)
__________ __________ __________
917,450 828,200 846,617
__________ __________ __________
$1,563,004 $1,408,785 $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 Six Months Ended
June 30, June 30,
____________________ ___________________
1994 1993* 1994 1993*
____ ____ ____ ____
Net sales $ 776,753 $ 657,613 $1,634,119 $1,482,833
Other income (expense) (1,299) 287 (1,046) (926)
_________ _________ __________ __________
775,454 657,900 1,633,073 1,481,907
Costs and expenses:
Cost of sales 468,979 390,331 988,823 880,170
Selling, general and
administrative expenses 218,900 192,885 442,619 405,327
Amortization of intangibles 1,078 2,469 2,214 4,932
Minority interest 999 634 3,681 4,060
Interest expense 4,005 6,924 9,242 11,890
Interest income (777) (1,731) (1,888) (2,690)
_________ _________ __________ __________
693,184 591,512 1,444,691 1,303,689
_________ _________ __________ __________
Income before income taxes 82,270 66,388 188,382 178,218
Income taxes 31,262 25,360 71,585 69,421
_________ _________ __________ __________
Net income $ 51,008 $ 41,028 $ 116,797 $ 108,797
========= ========= ========== ==========
Net income per common share $ .60 $ .46 $ 1.38 $ 1.21
========= ========= ========== ==========
Dividends per common share $ .075 $ .075 $ .15 $ .15
========= ========= ========== ==========
Weighted average common and
common equivalent shares
outstanding 84,407 89,351 84,863 90,177
========= ========= ========== ==========
* 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)
Six Months Ended
June 30,
________________
1994 1993
____ ____
(amounts in thousands)
Cash flows from operating activities:
Net income $ 116,797 $ 108,797
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 15,862 13,619
Amortization of intangibles 2,214 4,932
Minority interest, net of dividends paid 2,872 3,193
Amortization of unearned compensation 296 146
Deferred income taxes (8,596) (5,090)
Changes in operating assets and
liabilities, exclusive of those arising
from business acquisitions:
Accounts receivable (94,474) (83,942)
Inventory (38,401) 14,281
Prepaid expenses (7,927) 4,529
Other (1,641) (4,458)
Accounts payable (11,274) (16,531)
Accrued expenses 21,666 58,780
Income taxes payable 41,609 7,436
__________ __________
Total adjustments (77,794) (3,105)
__________ __________
Net cash provided by operating activities 39,003 105,692
__________ __________
Cash flows from investing activity:
Payments to acquire property and
equipment (20,095) (13,084)
__________ __________
Net cash used for investing activity (20,095) (13,084)
__________ __________
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REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
___________________
1994 1993
____ ____
(amounts in thousands)
Cash flows from financing activities:
Net borrowings of notes payable to banks $ 11,728 $ 2,850
Proceeds from issuance of commercial paper 20,000 -
Net borrowings of long-term debt 190 19,290
Proceeds from issuance of common stock to
employees 5,962 4,928
Dividends paid (12,496) (13,355)
Repurchases of common stock (49,873) (109,729)
________ _________
Net cash used for financing activities (24,489) (96,016)
________ _________
Effect of exchange rate changes on cash
and cash equivalents (5,476) 6,003
________ _________
Net increase (decrease) in cash and
cash equivalents (11,057) 2,595
________ _________
Cash and cash equivalents at beginning of period 79,347 105,386
________ _________
Cash and cash equivalents at end of period $ 68,290 $ 107,981
======== =========
Supplemental disclosures of cash flow information:
1994 1993
____ ____
Cash paid during the period for:
Interest $ 9,213 $ 11,378
Income taxes 27,999 60,851
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 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 six months ended June
30, 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 Six Months Ended
June 30, June 30,
__________________ _________________
1994 1993 1994 1993
____ ____ ____ ____
Net sales 100.0% 100.0% 100.0% 100.0%
Other income (expense) (.2) - (.1) (.1)
______ ______ ______ ______
99.8 100.0 99.9 99.9
Costs and expenses:
Cost of sales 60.4 59.3 60.5 59.4
Selling, general and
administrative expenses 28.2 29.3 27.1 27.3
Amortization of intangibles .1 .4 .1 .3
Minority interest .1 .1 .2 .3
Interest expense .5 1.1 .6 .8
Interest income (.1) (.3) (.1) (.2)
______ ______ ______ ______
89.2 89.9 88.4 87.9
______ ______ ______ ______
Income before income taxes 10.6 10.1 11.5 12.0
Income taxes 4.0 3.9 4.4 4.7
______ ______ ______ ______
Net income 6.6% 6.2% 7.1% 7.3%
====== ====== ====== ======
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REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OPERATING RESULTS
_________________
Second Quarter 1994 Compared to Second Quarter 1993
__________________________________________________________
Net sales for the quarter ended June 30, 1994 increased
$119.1 million, 18.1% over the level reported for the second
quarter of 1993. The Reebok Division's Worldwide sales were
$661.6 million, an increase of 16.7% from $566.7 million in
1993. Reebok U.S. footwear sales increased 11.3% to $361.8
million from $325.0 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 children's and men's
fitness categories. The Reebok Division's U.S. apparel sales
increased by 21.9% to $34.6 million from $28.4 million. The
Reebok Division's international sales (including footwear and
apparel) were $265.3 million in 1994, an increase of 24.4% from
$213.3 million in 1993, primarily due to improved sales in most
European countries except France and most of the rest of the
world.
Rockport sales increased by 19.9% to $75.4 million from $62.9
million in 1993. This increase is due to an increase in the
number of pairs shipped. Avia sales increased by 41.7% to
$39.8 million from $28.1 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 mainly to increases in the walking and cross training
categories.
The change in other expense from 1993's second quarter is due
mainly to increased losses on foreign exchange transactions.
The decrease in gross margin from 40.6% in 1993 to 39.6% in
1994 is due to lower margins in the Reebok Division's
International business as a result of the poor economic
conditions in certain countries. This decrease was partially
offset by slightly increased margins in the Reebok Division's
U.S. footwear business.
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Selling, general and administrative expenses decreased as a
percent of sales from 29.3% in 1993 to 28.2% in 1994, primarily
due to lower advertising spending in 1994's second quarter as a
result of the Company's strategy of concentrating advertising
for the first six months of 1994 in the February/March time
period. This decreased advertising spending was slightly
offset by increased investments in information systems. These
investments are expected to continue over the next few years.
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.
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 June 30, 1994 declined to 84.4 million shares,
compared to 89.4 million shares for the second quarter of 1993.
First Six Months 1994 Compared to First Six Months 1993
_______________________________________________________
Net sales for the six months ended June 30, 1994, increased
$151.3 million, 10.2% over the level reported for the first six
months of 1993. The Reebok Division's worldwide sales were
$1.406 billion, an increase of 9.2% from $1.287 billion in
1993. Reebok U.S. footwear sales increased 6.8% to $729.7
million from $683.0 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 offset
by decreases in the children's and basketball categories. The
Reebok Division's U.S. apparel sales increased by 15.8% to
$69.0 million from $59.6 million in 1993. The Reebok
Division's International sales (including footwear and apparel)
were $606.8 million in 1994, an increase of 11.4% from $544.6
million in 1993, primarily due to increases in most European
countries except France and most other parts of the world.
Rockport sales increased by 11.8% to $146.6 million from
$131.2 million in 1993. This increase is due to an increase in
the number of pairs shipped. Avia sales increased by 27.0% to
$81.9 million from $64.5 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 mainly to increases in the walking and cross training
categories.
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The decrease in gross margin from 40.6% in 1993 to 39.5% in
1994 is due to lower margins in the Reebok Division's
International business as a result of the poor economic
conditions in certain countries. The decrease was partially
offset by slightly increased margins in the Reebok Division's
U.S. footwear business.
Selling, general and administrative expenses decreased as a
percent of sales from 27.3% in 1993 to 27.1% in 1994, primarily
due to lower advertising spending in 1994. This decreased
advertising spending was slightly offset by increased
investments in information systems. These investments are
expected to continue over the next few years.
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 39.0% 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 six
months ended June 30, 1994 declined to 84.9 million shares,
compared to 90.2 million shares for the first six months of
1993.
LIQUIDITY AND SOURCES OF CAPITAL
________________________________
The Company's financial position remains strong. Working
capital increased by $108.2 million, or 15.6% from the same
period a year ago. The current ratio at June 30, 1994 was 2.6
to 1, as compared to 2.8 to 1 at December 31, 1993 and 2.6 to 1
at June 30, 1993.
Accounts receivable increased from June 30, 1993 by $64.2
million, or 12.8%, due to the increase in sales offset by a
slight improvement in days sales outstanding. Inventory
increased by $146.2 million from June 30, 1993, reflecting
increases in all divisions, largely due to increased order
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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 June 30, 1994, cash and cash
equivalents decreased by $39.7 million, and outstanding
borrowings increased by $47.8 million, while $134.2 million of
common stock was repurchased. Cash provided by operations
during 1994's first six months was $39.0 million. Cash
generated from operations, together with the Company's
financing sources, is expected to adequately finance all of the
Company's current and planned cash requirements, including the
remaining $85.9 million available in the Company's share
repurchase program. By June 30, 1994, the Company had
repurchased 10,139,900 shares at an average price of $30.98
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 - 5
Not applicable
Item 6
(a) Exhibits:
11. Statement Re Computation of Per Share Earnings
(b) Reports on Form 8-K: There were no reports on Form 8-K
filed during the quarter ended June 30, 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: August 8, 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)
<TABLE>
Exhibit 11 - Statement RE: Computation of Per Share Earnings
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
__________________ ________________
1994 1993 1994 1993
____ ____ ____ ____
<S> <C> <C> <C> <C>
Primary
________________________________
Average shares outstanding 82,626 87,135 82,957 87,906
Net effect of dilutive stock options 1,781 2,216 1,906 2,271
_______ _______ ________ ________
Total 84,407 89,351 84,863 90,177
======= ======= ======== ========
Net income $51,008 $41,028 $116,797 $108,797
======= ======= ======== ========
Per share amount $ 0.60 $ 0.46 $ 1.38 $ 1.21
======= ======= ======== ========
Fully Diluted
________________________________
Average shares outstanding 82,626 87,135 82,957 87,906
Net effect of dilutive stock options 1,781 2,216 1,968 2,310
_______ _______ ________ ________
Total 84,407 89,351 84,925 90,216
======= ======= ======== ========
Net income $51,008 $41,028 $116,797 $108,797
======= ======= ======== ========
Per share amount $ 0.60 $ 0.46 $ 1.38 $ 1.21
======= ======= ======== ========
</TABLE>
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