SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 (IRS Employer
incorporation or organization) Identification No.)
100 Technology Center Drive, Stoughton, Massachusetts 02072
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (617)
341-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of Name of each exchange
each class on which registered
__________ _____________________
Common Stock, par value, $.01 per share New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
and (2) has been subject to such filing requirements for the past
90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 20, 1995, the aggregate market value of the
registrant's voting stock held by non-affiliates of the
registrant was approximately $2,426,145,742.
As of March 20, 1995, 80,455,789 shares of the registrant's
Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement dated March 30, 1995 for the
Annual Meeting of Shareholders to be held on May 2, 1995 (certain
parts as indicated herein in Part III).
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PART I
Item 1. Business.
Reebok International Ltd., a Massachusetts corporation
organized on July 26, 1979, engages primarily in the design and
marketing of sports and fitness products, including footwear and
apparel, as well as the design and marketing of footwear and
apparel for non-athletic "casual" use. The Company has two major
business groups: the Reebok Division, which is primarily
responsible for the Company's REEBOK brand, and the Specialty
Business Group, which is responsible for the Company's other
major
brands and non-athletic products, including Boks (R) casual
footwear, the GREG NORMAN brand, the Company's subsidiaries, AVIA
Group International, Inc. ("Avia") and The Rockport Company, Inc.
("Rockport"), as well as REEBOK golf products and Reebok's retail
operations. (Reebok International Ltd. is referred to herein,
together with its subsidiaries, as "Reebok" or the "Company"
unless the context requires otherwise.)
During calendar year 1994, net income for the Company
increased by 13.9% to $254.5 million, or $3.02 per share, from
$223.4 million, or $2.53 per share, for the year ended December
31, 1993, while net sales increased by 13.4%, from $2.894 billion
to $3.280 billion. Net income in 1993 was affected by after-tax
charges totaling $7.0 million which were taken in the third
quarter of 1993 in connection with the sales by the Company of
two of its subsidiaries, Boston Whaler, Inc. and Ellesse U.S.A.,
Inc.
On October 4, 1994, the Company's Board of Directors
authorized the repurchase of up to $200 million in Reebok common
stock in open market or privately negotiated transactions. This
authorization was in addition to the $200 million share
repurchase programs announced in July, 1992 and July, 1993,
pursuant to which the Company has repurchased 12,459,300 shares
at an aggregate price of approximately $399.2 million through
March 20, 1995. This new repurchase will be added to the
authorization remaining for the 1993 program, leaving
approximately $200.8 million authorized for future purchases as
of March 20, 1995.
The following is a discussion of the business of each of the
Company's operating units.
REEBOK DIVISION
The Reebok Division is responsible for designing, producing
and marketing sports and fitness footwear, apparel and
accessories that combine the attributes of athletic performance
along with style, including footwear for basketball, running,
soccer, tennis, track and field, volleyball, football, baseball,
aerobics, cross training and walking activities, as well as
athletic apparel and accessories. The Division also produces
authentic outdoor performance footwear under the REEBOK brand to
appeal to outdoor enthusiasts as well as to young people. In
addition, the Division produces children's footwear sold under
the REEBOK brand, a collection of footwear for infants and
toddlers sold under the WEEBOK brand, and WEEBOK (R) apparel and
accessories which are produced and sold through a licensee. The
Division has recently expanded its product scope through the
development and marketing of related sports and fitness products,
such as sports and fitness videos,
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programming and equipment. Additionally, to enhance brand
awareness and gain credibility for its technologies, the Company
has a strategic licensing program pursuant to which the Company's
technologies and/or trademarks are licensed to third parties for
sporting goods and related products.
The Reebok Division has targeted as its primary customer
base athletes and others who believe that technical and other
performance features are the critical attributes of athletic
footwear and apparel. As part of its commitment to offer leading
athletic footwear technologies, the Division engages in product
research, development and design activities in the Company's
Stoughton, Massachusetts headquarters and in its various Far East
offices.
Technology
Reebok continued to place a strong emphasis on technology in
1994, highlighted by further development of THE PUMP (TM)
inflatable technology, an integrated system of one or more
inflatable chambers that are adjustable to help provide custom
fit and support in footwear and other products, and its evolution
to the INSTAPUMP (TM) technology. INSTAPUMP inflatable
technology from Reebok brings the features and benefits of THE
PUMP technology to lightweight performance shoes through use of
an INSTAPUMP inflator containing a carbon dioxide cartridge used
to inflate the chambers instantly. In 1994, cleated shoes
incorporating INSTAPUMP technology were worn by Reebok athletes
in the Super Bowl and basketball shoes incorporating INSTAPUMP
technology were worn by Reebok endorser Shaquille O'Neal of the
Orlando Magic and by other professional and collegiate basketball
players. Basketball and tennis shoes incorporating INSTAPUMP
technology were first available at retail stores in Spring 1994.
Running shoes incorporating INSTAPUMP technology were available
at retail in Fall 1994.
In 1994, Reebok continued its emphasis on HEXALITE (R)
technology and the exclusively licensed DYNAMIC CUSHIONING (R)
technology. The HEXALITE technology, introduced by Reebok in
1989, is a lightweight, flexible, compressible and resilient
honeycomb structure designed to provide lightweight cushioning as
a midsole component. The DYNAMIC CUSHIONING system utilizes
compressible rearfoot and forefoot chambers formed in the outsole
connected by an air transmission duct to provide cushioning.
Reebok recently introduced the DynaMaX (TM) technology system, an
enhanced development of the DYNAMIC CUSHIONING technology, which
utilizes a dynamic air flow system in the midsole to provide heel
and forefoot cushioning and comfort. Footwear for the walking
category which incorporates DynaMaX (TM) technology is expected
to be introduced at retail in Fall 1995. In 1994, the Company
also continued its emphasis on GRAPHLITE (R) technology, a
lightweight, high strength composite material in the midsole and
outsole used to create a lightweight shoe that does not sacrifice
stability or strength.
Marketing and Promotional Activities
The Reebok Division devotes substantial resources to
advertising its products to a variety of audiences through
television, radio and print media. A substantial advertising
program was pursued in 1994 with advertisements directed toward
both the trade and the ultimate consumer of REEBOK products. The
major advertising campaigns in 1994 included the Shoot/Slam/Pass
campaign which featured Shaquille O'Neal of the Orlando Magic,
which
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was aimed at enhancing the Company's performance image in
basketball and promoting its signature line of SHAQ (TM)
basketball shoes and apparel, a campaign featuring Shawn Kemp
which promoted The Kamikaze (TM) shoe, a PRESEASON campaign
featuring Reebok endorsers Frank Thomas and Emmitt Smith which
was aimed at promoting Reebok's PRESEASON (R) footwear, the "One
World" campaign featuring several of the Company's international
soccer endorsers for the 1994 World Cup soccer games, and the
"Reebok Believes in the Athlete in All of Us" campaign featuring
Olympic figure skater Nancy Kerrigan, Olympic track and field
star Sandra Farmer-Patrick and U.S. National soccer team player
Julie Foudy.
Substantial and increased resources were devoted to
promotional activities in 1994, including endorsement agreements
with athletes, teams, leagues and sports federations, event
sponsorships, in-store promotions and point-of-sale materials.
The Division continued its strategic push into the sports market,
gaining increased visibility on playing fields and sports arenas
worldwide through endorsement arrangements with such athletes as
Shaquille O'Neal, with whom Reebok introduced a major signature
line of footwear, apparel and accessories featuring his
distinctive logo. Other endorsements in basketball come from
professional players such as Dominique Wilkins, Kenny Anderson,
Shawn Kemp, Dee Brown, Steve Smith and Muggsy Bogues. In
addition, Reebok signed an endorsement agreement with Glenn
Robinson in 1995.
To promote the sale of its cross training footwear, Reebok
used endorsements by prominent athletes such as Emmitt Smith and
Frank Thomas. To promote its cleated baseball and football
shoes, the Company signed endorsement contracts with several
hundred Major League Baseball and National Football League
players, including numerous players in both the 1994 and 1995
Super Bowl games.
In January, 1995, Reebok entered into a major multi-year
agreement with National Football League Properties under which
Reebok has been designated a "Pro Line" licensee for the U.S. and
international markets with the right to produce and market
sideline apparel bearing NFL team logos. REEBOK NFL Pro Line
apparel is expected to be available at retail stores beginning in
Fall 1995. In addition, pursuant to this agreement, beginning
next season, the coaching staff and players of the San Francisco
49ers, Detroit Lions, Seattle Seahawks, and New Orleans Saints
will wear REEBOK (R) sideline apparel and Reebok will produce
uniforms for the Detroit Lions. This agreement compliments the
other agreements which Reebok has with the NFL and NFL
Properties, including its agreement with the NFL under which
Reebok is one of only three official athletic footwear licensees
and has the right to have up to ten players on each team during
each game wear REEBOK footwear displaying the Company's logos and
to use NFL uniforms and logos in its advertising and promotions.
Reebok also entered into an agreement in 1994 with NFL Properties
which permitted it to place INSTAPUMP (TM) inflation stations on
the sidelines during the 1994 and 1995 Super Bowl games. This
agreement provides for Reebok to be one of three league-wide
sponsors, and the exclusive apparel supplier, of the World
Football League, which will include six European football teams
that will begin play in Spring 1995.
In soccer, Reebok has endorsement contracts with Ryan Giggs
of Manchester United, Dennis Bergkamp of Inter-Milan and the
Dutch national team which competed in the 1994 World Cup, Jurgen
Klinsmann of the Tottenham Hotspurs and Gabriel Batistuta of
Argentina. Tennis promotions included teaching programs for
inner-city youth and
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endorsement contracts with well-known professionals including
Michael Stich, Michael Chang, Todd Martin, Pat Rafter, Arantxa
Sanchez-Vicario and Malivai Washington. Promotional efforts in
running included endorsement contracts with such well-known
runners as Moses Kiptanui, Elena Meyers, Sonia O'Sullivan, Arturo
Barrios, Sandra Farmer-Patrick and Suzy Hamilton.
The Division also continued its promotional efforts in the
fitness area. Reebok fitness products and programming are
featured on the Cable Health Network, a new 24-hour cable
network, pursuant to a programming agreement. Aerobic
promotional activities in 1994 focused on the STEP REEBOK (R)
Program, a step training workout that is performed on an
adjustable platform, and endorsements by aerobics experts, such
as Denise Austin and Gin Miller. In addition, in 1994 Reebok
continued to promote the SLIDE REEBOK (TM) lateral motion
training device, which provides a lateral motion training
workout, through endorsements by decathlete Dave Johnson and
figure skater Nancy Kerrigan. In the walking category, the
Company promoted its BODYWALK (SM) and WALK REEBOK (SM) fitness
programs.
To gain further visibility for the REEBOK brand, Reebok has
entered into a number of sponsorships. Reebok is the official
footwear and apparel sponsor of the Russian Olympic Committee and
the approximately 25 individual associated Russian sport
federations through 1996. The Company also has agreements under
which it is the official athletic footwear and activewear sponsor
of the International Amateur Athletic Federation through 1995,
the official sponsor, through 1995, of the International Ice
Hockey Federation and the International Triathlon Union, the
official athletic footwear and apparel sponsor of the U.S.
Gymnastics Federation, the official activewear and apparel
sponsor of the Brazil and Ecuador soccer federations through 1995
and the Uruguay soccer federation through 1998, and the official
sponsor of the U.K., French and German national soccer teams. In
addition, Reebok was a worldwide sponsor of the 1994 Goodwill
Games.
Reebok also had a major presence in the 1994 Winter Olympic
games with Reebok endorsers such as Nancy Kerrigan and its
sponsorship of the Russian Olympic Committee. In addition,
players for the 12 national ice hockey teams competing in the
Olympics wore REEBOK ice hockey uniforms. In 1994, Reebok signed
an agreement with the National Broadcasting Corporation under
which it will be an official sponsor of NBC's broadcast of the
1996 Summer Olympic games in Atlanta. In addition, Reebok has
signed sponsorship agreements with the National Olympic
Committees of Jamaica, Poland, Ireland, Brazil, Russia, New
Zealand, and South Africa and the track and field federations of
China, Holland and Sweden, which will give it a major presence at
the 1996 Summer Olympic games.
U.S. Operations
The Reebok Division's U.S. operations unit is responsible
for all footwear and apparel products sold in the United States
by the Division. Sales of footwear in the United States
(including sales of REEBOK outdoor products, golf footwear
products and Boks (R) footwear) totalled approximately $1.410
billion in 1994, compared to $1.271 billion in 1993. REEBOK
brand apparel sales in the U.S. in 1994 totalled approximately
$150.1 million, compared to approximately $125.4 million in 1993.
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In the U.S., the Reebok Division principally uses an
employee sales force for its product lines. The U.S. national
sales staff and locally based sales employees are supported by
field service representatives employed by Reebok who travel to
assist in retail merchandising efforts and provide information to
consumers and retailers regarding the features of the Company's
products. There are also a number of promotional personnel who
coordinate events and promotions at a "grass roots" level to help
enhance the image of the REEBOK brand.
The Division's U.S. distribution strategy emphasizes
high-quality retailers and seeks to avoid lower-margin mass
merchandisers and discount outlets. REEBOK (R) footwear is
distributed primarily through specialty athletic retailers,
sporting goods stores and department stores. Distribution of the
Company's apparel line is predominantly through pro shops, health
clubs and department, sporting goods and specialty stores.
International Operations
The Reebok Division's international sales are coordinated
from headquarters located in London, England which is where the
Reebok Division's regional operations responsible for Western and
Eastern Europe, the Middle East, Africa and India are also
located. There are additional regional offices in Hong Kong,
which is responsible for Far East operations, and in Santiago,
Chile, which is responsible for Latin American operations. The
Canadian operations of the Division are managed through a wholly
owned subsidiary headquartered outside of Toronto, Canada. The
Division markets REEBOK products internationally through wholly
owned subsidiaries in Austria, Belgium, Canada, France, Germany,
The Netherlands, Italy, Poland, Russia, Switzerland and the
United Kingdom and majority owned subsidiaries in Japan, China,
South Korea, Spain and South Africa. Acquisition of the Belgian
distributor took place as of January 1994. Acquisition of a
controlling interest in the South Korean distributor took place
in June 1994. Acquisition of the Swiss distributor took place in
November 1994. In December 1994, Reebok formed a wholly owned
Polish subsidiary to act as its distributor in Poland. In
November 1994, Reebok's majority owned joint venture commenced
operations in the People's Republic of China. In addition,
Reebok is in the process of establishing a majority owned
subsidiary in India to distribute its products in that country;
the Indian distributor is expected to commence operations in late
1995. In January 1995, the Company sold its interest in its
Chile distributor, although the Company continues to distribute
its products through this distributor. REEBOK products are also
marketed internationally through 29 independent distributors and
minority owned joint ventures. The Company or its wholly owned
U.K. subsidiary holds partial ownership interests in 11 of these
international distributors, with its percentage of ownership
ranging from 20 to 35 percent. Through this international
distribution network products bearing the REEBOK brand are
actively marketed internationally in approximately 120 countries
and territories. The Division's International operations unit
also has small design staffs which assist in the design of REEBOK
footwear and apparel.
In 1994, Reebok re-entered the South African market through
a distributor which Reebok owns in partnership with a local group
of South Africans, who hold a minority equity interest. Reebok's
South African distributor has pledged to contribute 6% of its
pre-tax earnings to local charities for community activities.
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During 1994, the contribution of the Division's
International operations unit to overall sales of REEBOK products
(including REEBOK outdoor products, golf products and the Boks
casual line) increased to $1.253 billion from $1.083 billion in
1993 due to Reebok's increased market share in a growing world
market for athletic and casual footwear and apparel. These sales
figures do not, however, reflect the full wholesale value of all
REEBOK products sold outside the United States in 1994 because
some of the Division's distributors are not subsidiaries and thus
their sales to retailers are not included in the calculation of
the Division's international sales. If the full wholesale value
of all international sales of REEBOK products are included, total
sales of REEBOK products outside the United States represent
approximately $1.536 billion in wholesale value, consisting of
approximately 37 million pairs of shoes totalling approximately
$1.196 billion in wholesale value of footwear sold outside the
United States in 1994 (compared with approximately 33 million
pairs totalling approximately $1.08 billion in 1993) and
approximately $340 million in wholesale value of REEBOK apparel
sold outside the United States in 1994 (compared with
approximately $278 million in 1993).
SPECIALTY BUSINESS GROUP
The Company established the Specialty Business Group to
provide a focus for the Company's other major brands and
non-athletic products and to pursue more aggressively markets
outside Reebok's primary focus. The Specialty Business Group
includes the ROCKPORT brand, the Boks (R) casual footwear line,
the GREG NORMAN brand, as well as the Company's Avia subsidiary.
The Group is also responsible for the Company's golf products and
its retail operations.
Boks (R) Products
The Boks (R) line of casual footwear combines the Company's
athletic heritage with fashionable styling and a comfortable fit.
It is designed to appeal to the younger generation and to compete
in the non-athletic footwear market. The Boks line is sold
predominantly through department stores, shoe stores and
specialty stores. Boks footwear products are sold principally
through an employee sales force.
GREG NORMAN Brand
The Company also produces a collection of footwear and
apparel marketed under the GREG NORMAN (TM) name and logo, as
well as a REEBOK line of golf products. Golf products are
distributed principally at on-course pro-shops, golf specialty
stores and certain department and sporting goods stores and are
sold principally by independent sales representatives.
Rockport
The Company's Rockport subsidiary, headquartered in
Marlboro, Massachusetts, designs, develops and markets
lightweight and comfortable casual, dress, outdoor performance
and fitness walking shoes for men and women. Rockport has been a
leader in the development of biomechanically designed shoes that
are structured specifically for the walking motion of the foot.
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Net sales of ROCKPORT products increased by approximately
$31.8 million in 1994, to $314.5 million from $282.7 million in
1993. In 1994, Rockport focused on the growth of its woman's
casual footwear business.
Rockport markets its products to authorized retailers
throughout the United States through a locally based employee
sales staff. Internationally, Rockport markets its products
through over 20 locally based distributors in approximately 26
foreign countries and territories. A majority of the
international distributors are either subsidiaries of the Company
or joint venture partners or independent distributors which also
sell REEBOK brand products.
Rockport distributes its products predominantly through
selected higher-quality national and local shoe store chains,
department stores, independent shoe stores, specialty clothing
stores and outdoor outfitters, emphasizing retailers that provide
substantial point-of- sale assistance and carry a full product
line. Rockport also has a concept store at Quincy Market in
Boston. Rockport has not pursued mass merchandisers or discount
outlets for the distribution of its products.
Traditionally, Rockport's marketing has emphasized the
comfort, design, and performance aspects of its footwear. Its
marketing activities include advertising and public relations,
sales training clinics, technical brochures and a variety of
promotional activities at the retail level, as well as
sponsorship of walking events and educational and medical
programs on walking. Rockport's marketing efforts in 1994
focused on increasing consumer awareness of the performance
aspects of the ROCKPORT product line through its sponsorship of
the 1993/1994 Whitbread Round the World Race and the Leadville
Trail 100, a one hundred mile marathon race run at approximately
two miles above sea level.
Avia
Avia designs, develops and markets athletic footwear and
apparel under the AVIA (R) brand. Net sales for Avia increased
from $131.0 million in 1993 to $152.6 million in 1994. Avia has
focused its marketing efforts and resources on consumers who seek
performance products in the categories of aerobics, cross
training, tennis, basketball, outdoor, running and walking. In
1994, the TINLEY (TM) brand was transferred from Reebok to Avia.
Avia regards the TINLEY brand as a key part of its enhanced
apparel offerings. Avia now markets and sells activewear for men
and women and technical apparel and bodywear for women under the
AVIA brand and its technical apparel for men under the TINLEY
brand.
Avia continues to use its F M (R) technology, introduced in
1992, which is designed to provide cushioning and increase
comfort. In 1995, Avia will introduce its Advanced Cantilever
System (ACS), designed to improve cushioning and stability, which
was developed as a significant update on Avia's patented
CANTILEVER (R) sole. Avia conducts ongoing research activities
at its research, design and development facility in Beaverton,
Oregon, the site of Avia's corporate headquarters. The Company
believes that Avia's technical capabilities have been, and will
continue to be, important to its success.
In 1994, Avia altered certain of its international
distribution arrangements. Avia dissolved its wholly owned
subsidiaries in the United Kingdom and Germany, through which
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it previously distributed its products, and now distributes its
products in those countries through wholly owned subsidiaries of
the Company. In addition, in 1994, Avia began distribution of
its products in Australia through the Company's distributor in
this market. In Spain, Portugal, and France, Avia distributes
its products through a joint venture with the local distributor.
In other international markets, Avia distributes its products
through a network of independent distributors. Avia's
distribution arrangements with independent distributors cover
approximately 50 foreign countries and territories.
Avia's principal retail accounts are specialty athletic
footwear stores, general sporting goods stores, shoe stores and
department stores. Avia seeks to ensure that its products are
distributed only to those retailers that reflect the high quality
and performance image of its footwear. Avia operates a number of
factory direct retail stores and plans to open additional stores
in 1995.
Avia believes that purchasers of its products combine sports
and fitness participation into their daily lives and value
functionality and performance as key product features. Avia's
new marketing campaign "Real Stuff for Real People" is aimed at
reaching these consumers. Avia's new marketing efforts include
advertising on radio and in print and other media, national and
local retail and event promotions, point-of-purchase displays and
product endorsements by leading athletes. Avia also widely
distributes sample products and product literature to key sports
and fitness participants, including coaches, instructors and
prominent athletes.
Retail Stores and Other Properties
The Company operates over 50 factory direct stores which
sell footwear, apparel and accessories bearing the REEBOK,
WEEBOK, Boks, GREG NORMAN and ROCKPORT trademarks. The Company
intends to continue to open additional factory direct stores,
although its policy is to locate and operate these retail outlets
in such a way as to minimize disruption to its normal channels of
distribution.
The Company also has REEBOK (R) "concept" stores located in
Boston, Massachusetts, in Santa Monica, California, and in New
York City. The Company envisions its concept stores as a model
for innovative retailing of its products and as a potential
proving ground for testing new products and
marketing/merchandising techniques. The stores sell a wide
selection of current, in-line REEBOK (R), WEEBOK (R), Boks (R)
and GREG NORMAN (TM) footwear and apparel. Internationally,
there are a number of REEBOK retail stores owned by the Company,
its subsidiaries or its independent distributors. The Company
opened a retail store in Moscow, Russia in Spring 1993 and in St.
Petersburg, Russia in February 1994. In addition, Reebok opened
a retail store in Johannesburg, South Africa in June 1994 in
connection with its re-entry into that market. Reebok dedicated
retail shops are expected to be an important means of launching
the brand in new markets such as China and India and in other
international markets.
Avia and Rockport also operate retail stores. See
discussion of those companies above.
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In 1992, Reebok entered into a partnership to develop and
build a REEBOK (SM) sports and fitness complex in New York City.
The sports and fitness club will feature a wide array of fitness
equipment, facilities and services in a luxurious atmosphere.
The club will utilize approximately 125,000 square feet and will
occupy 5 floors of the new Lincoln Square project. A REEBOK (R)
concept store will also be located in the building. The club is
scheduled for completion in 1995.
LICENSING AND EQUIPMENT
The Company has continued to expand its strategic trademark
and technology licensing programs begun in 1991. These programs
are designed to pursue opportunities for licensing the Company's
trademarks, patents and other intellectual property to third
parties for sporting goods and related products. The licensing
programs are focused on enhancing the reputation of the Company's
brands and technologies, advancing their growth and introducing
them into selective new markets. The Company has pursued
strategic alliances with licensees who Reebok believes are
leaders and innovators in their product categories and who share
Reebok's commitment to offering superior, innovative products.
The Company believes that its licensing programs reinforce
Reebok's reputation as a market leader.
In 1994, the Company's licensee, Sport Maska, Inc. continued
sales of CCM ice hockey and in-line skates with INSTAPUMP (TM)
technology, and the Company's licensee, Bell Sports, continued
sales of its line of bicycle helmets using THE PUMP (TM)
technology.
Pursuant to the Company's trademark licensing program,
Champion Glove Manufacturing Co., Inc. established a separate
division called Reebok Athletic Glove, which designs,
manufactures and markets a full line of athletic gloves,
including baseball batting gloves, football gloves, running
gloves, court/racquetball gloves, fitness/weightlifting gloves,
cycling gloves, and soccer goalkeeper gloves, all featuring the
REEBOK trademark and Reebok's Performance Logo. In 1994, the
Company's licensees, Sun Sport Optics, Inc. and the Renaissance
Group, began selling a collection of REEBOK (R) sports
performance sunglasses. In addition, basketballs with the
BLACKTOP (R) and ABOVE THE RIM (R) trademarks were sold by Sports
by Design and a line of gymnastic apparel based on the uniforms
worn by the U.S. Gymnastic team was sold under the REEBOK
trademark by Tighe Industries.
In 1994, the Company also licensed the REEBOK trademark to
Polygram International who, together with Reebok, will produce,
market and sell a line of REEBOK (R) fitness videos.
In the equipment area, the Company continued sales of its
STEP REEBOK (R) platform and SLIDE REEBOK (TM) lateral motion
training device.
The Company also licensed its WEEBOK (R) trademark in 1994
to the Haddad Organization for infant and toddler apparel and
accessories and to Baby Optics for a line of infant and toddler
sunglasses.
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MANUFACTURING
Virtually all of the Company's products are produced by
independent manufacturers, almost all of which are outside the
United States, except that some of the Company's apparel and some
of the component parts used in the Company's footwear are sourced
in the United States. Each of the Company's operating units
generally contracts with its manufacturers on a purchase order
basis, subject in most cases to the terms of a formal
manufacturing agreement between the Company and such
manufacturers. All contract manufacturing is performed in
accordance with detailed specifications furnished by the
operating unit, subject to strict quality control standards, with
a right to reject products that do not meet specifications. To
date, the Company has not encountered any significant problem
with product rejection or customer returns. The Company
generally considers its relationships with its contract
manufacturers to be good.
Footwear and Apparel
In 1994, the Company continued to place increased levels of
production in China and Indonesia. China, Indonesia, Thailand
and South Korea were the Company's primary sources for such
footwear, accounting for approximately 29%, 28%, 14%, and 9%,
respectively, of the Company's total footwear production during
1994. The Company's largest manufacturer, which has several
factory locations, accounted for approximately 6% of the
Company's total footwear production in 1994.
Reebok's wholly-owned Hong Kong subsidiary, and a network of
related parties in China, Indonesia, Thailand, Taiwan, South
Korea and the Philippines, provide quality assurance, quality
control, and inspection services with respect to footwear
purchased by the Reebok Division's U.S. and International
operations. In addition, this network of related parties inspect
certain components and materials purchased by unrelated
manufacturers for use in footwear production. The network of
related parties also facilitates the shipment of footwear from
the shipping point to point of destination, as well as arranging
for the issuance to the unrelated footwear manufacturers of
letters of credit, which are the primary means used to pay
manufacturers for finished products. The Company's apparel group
utilizes the services of independent third parties, as well as
the Company's Hong Kong subsidiary and its network of related
parties in the Far East, to assist in the placement, inspection
and shipment of apparel and accessories orders internationally.
Production of apparel in the United States is through independent
contractors which are retained and managed by the Company's
apparel group. Avia utilizes the services of an independent
buying agent to assist in the placement, inspection and shipment
of footwear orders in South Korea. ROCKPORT products are
produced by independent contractors which are retained and
managed through country managers employed by Rockport. The
remainder of the Company's order placement, quality control and
inspection work abroad is handled by a combination of employees
and independent contractors in the various countries in which its
products are made.
The principal materials used in the Company's footwear
products are leather, nylon, rubber, ethylvinyl acetate and
polyurethane. Most of these materials can be obtained from a
number of sources, although a loss of supply could temporarily
disrupt production. Some of the component parts for the
Company's THE PUMP (TM) and INSTAPUMP (TM) technologies are
10
<PAGE>
obtained from a single source, at the Company's election, in
order to protect the confidentiality of such technologies. The
Company believes that such component parts could be obtained from
other sources, if necessary. If, however, the source of supply
for such component parts were changed, a temporary disruption to
production could result. The principal materials used in the
Company's apparel products are nylon, cotton, fleece and spandex.
These materials can be obtained from a number of sources.
The footwear products of the Company that are manufactured
overseas and shipped to the United States for sale are subject to
U.S. Customs duties. Duties on the footwear products imported by
the Company range from 6% to 37.5% (plus a unit charge in some
cases of 90 cents), depending on whether the principal component
is leather or some other material and on the construction. The
Company and its subsidiaries are in discussions with the U.S.
Customs Service and certain foreign customs services about
customs duty for certain past importations. However, the Company
does not expect to incur any material additional liability as a
consequence of any such discussions.
As with its international sales operations, the Company's
footwear and apparel production operations are subject to the
usual risks of doing business abroad, such as import duties,
quotas and other threats to free trade, foreign currency
fluctuations and restrictions, labor unrest and political
instability. See "TRADE POLICY" below. The Company believes
that it has the ability to develop, over time, adequate
substitute sources of supply for the products obtained from
present foreign suppliers. If, however, events should prevent
the Company from acquiring products from its suppliers in
Indonesia, China or Thailand, or significantly increase the cost
to the Company of such products, the Company's operations could
be seriously disrupted until alternative suppliers were found,
with a significant negative financial impact.
TRADE POLICY
For several years, imports from China to the U.S., including
footwear, have been threatened with higher tariff rates, either
through statutory action or intervention by the Executive Branch,
due to concern over China's trade policies, human rights, and
foreign weapons sales practices. In February 1995, the U.S.
threatened substantially higher duty rates on a broad list of
imports from China as a result of China's trade policies.
However, this issue has been resolved and such duties were not
imposed.
The European Union ("EU") imposed import quotas on footwear
from China in 1994. The effect of such quota scheme on Reebok
has not been significant because only a small portion of REEBOK
footwear sold in the EU is produced in China and because Reebok
has taken steps to prepare for imposition of such quotas.
Moreover, the quota scheme provides an exemption for certain
higher-priced special technology athletic footwear, which is
available for most REEBOK and AVIA products. In 1995, this quota
scheme is expected to continue, but with an expanded exemption
which will allow continued supply of the European market.
The EU initiated a dumping case during 1995 against footwear
from China, Indonesia and Thailand. However, a broad exception
for athletic footwear has been incorporated in such action
significantly reducing the potential exposure to the Company.
Nevertheless, if
11
<PAGE>
dumping duties are imposed, certain of the Company's product
lines could be affected adversely, although it does not believe
that its products will be more severely restricted than those of
its major competitors. Moreover, any such duties are unlikely to
be imposed before the second quarter of 1996.
Various other countries have taken steps to restrict
footwear imports, which actions affect the Company as well as
other footwear importers. Although such actions have in some
cases had an adverse effect on the Company's sales in such
countries, they have not had a material adverse effect on the
Company as a whole.
PRINCIPAL PRODUCTS
Sales of the following categories of products contributed
more than 10% to the Company's total consolidated revenue in the
years indicated: 1994, footwear (approximately 88%) and apparel
(approximately 12%); 1993, footwear (approximately 88%) and
apparel (approximately 11%); 1992, footwear (approximately 89%).
TRADEMARKS AND OTHER PROPRIETARY RIGHTS
The Company believes that its trademarks, especially the
REEBOK and ROCKPORT trademarks, are of great value, and the
Company is vigilant in protecting them from counterfeiting or
infringement. Loss of the REEBOK or ROCKPORT trademark rights
could have a serious impact on the Company's business.
The Company also believes that its technologies and designs
are of great value and the Company is vigilant in procuring
patents and enforcing its patents and other proprietary rights in
the United States and in other countries. See Item 3. Legal
Proceedings.
WORKING CAPITAL ARRANGEMENTS
The Company has various arrangements with numerous banks
which provide an aggregate of approximately $762 million of
uncommitted facilities, substantially all of which are available
to the Company's foreign subsidiaries. Of this amount, $211
million is available for short-term borrowings and bank
overdrafts, with the remainder available for letters of credit
for inventory purchases. At December 31, 1994, approximately
$331 million was outstanding for open letters of credit for
inventory purchases, in addition to $63.8 million in notes
payable to banks.
On November 1, 1994, the Company replaced its existing $175
million credit agreement with a $200 million credit agreement
which expires on October 31, 1995 and a $100 million loan
agreement which expires on October 31, 1999.
The Company can also issue up to $125 million of commercial
paper which is supported to the extent available by a portion of
its new $200 million revolving credit agreement. As of December
31, 1994, the Company had no commercial paper obligations
outstanding.
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Under a medium-term note program, the Company may also issue
medium term notes or other senior debt securities in an aggregate
principal amount up to $150 million under an Indenture dated
September 15, 1988, as amended and restated by a First
Supplemental Indenture dated January 22, 1993. No indebtedness
is currently outstanding under this program.
SEASONALITY
Sales by the Company of athletic and casual footwear tend to
be seasonal in nature, with the strongest sales occurring in the
third quarter. Apparel sales also generally vary during the
course of the year, with the greatest demand occurring during the
spring and fall seasons.
SINGLE CUSTOMER
Foot Locker, a specialty athletic chain of retail stores
with various affiliates, is the largest customer of the Company,
although it accounted for less than 10% of the Company's net
sales in 1994.
BACKLOG
The Company's backlog of orders at December 31, 1994 (many
of which are cancelable by the purchaser), totalled approximately
$1.125 billion, compared to $1.022 billion as of December 31,
1993. The Company expects that all of these orders will be
shipped in 1995. The backlog position is not necessarily
indicative of future sales because the ratio of future orders to
"at once" shipments may vary from year to year.
COMPETITION
Competition in sports and fitness footwear and apparel
sales is intense. Competitors
include a number of sports and fitness footwear and apparel
companies, such as Nike, Adidas and others. Competition is very
strong in each of the sports and fitness footwear market
segments, with new entrants and established companies providing
challenges in every category.
The casual footwear market into which the ROCKPORT (R) and
Boks (R) product lines fall is also highly competitive. Some
competitors are highly specialized, while others have varied
product lines, and some maintain their own retail outlets. The
Company believes that Rockport has a strong position in the
walking shoe market. Competition in this area, however, has
intensified as the activity of walking has grown in popularity
and as athletic shoe companies have entered the market.
The Company's other product lines also continue to confront
strong competition. The REEBOK (R), AVIA (R), and TINLEY (TM)
apparel lines compete with well-known brands such as Nike and
Adidas. Rockport's DRESSPORTS (R) line competes with leading
makers of dress shoes.
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<PAGE>
Competition in each of the markets for the Company's
products is manifested in a variety of ways, including price,
quality, brand image and ability to meet delivery commitments to
retailers. The intensity of the competition faced by the various
operating units of the Company and the rapid changes in
technology and consumer preference that can occur in the footwear
and apparel markets constitute significant risk factors in the
Company's operations.
EMPLOYEES
As of December 31, 1994, the Company had approximately 6500
employees in all operating units. None of these employees is
represented by a labor union. The Company has never suffered a
material interruption of business caused by labor disputes with
employees. Management considers employee relations to be good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Financial information pertaining to the Company's foreign
and domestic operations is set forth in note 14 to the Financial
Statements included in Item 8 and presented as a separate section
of this report.
Executive Officers of the Registrant
The following information is submitted as to the executive
officers of the Company:
NAME AGE OFFICE HELD
Paul B. Fireman 51 President, Chief Executive
Officer and Chairman of
the Board of Directors
Paul R. Duncan 54 Executive Vice President,
Chief Financial Officer and
Director
John H. Duerden 54 Executive Vice President,
Joint President and Chief
Operations Officer of the
Reebok Division and Director
Robert Meers 51 Executive Vice President,
President of the Specialty
Business Group and Director
Angel R. Martinez 39 Executive Vice President,
President and Chief Executive
Officer of The Rockport
Company
Roberto F. Muller 51 Executive Vice President,
Joint President and Chief
Marketing Officer of the
Reebok Division
Kenneth I. Watchmaker 52 Executive Vice President,
Finance and Systems, Reebok
Division
John B. Douglas III 41 Senior Vice President, Law and
Human Resources and General
Counsel
14
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Officers hold office until the first meeting of the Board of
Directors following the annual meeting of stockholders, or
special meeting in lieu thereof, and thereafter until their
respective successors are chosen and qualified.
Paul B. Fireman is the founder of the Company and has served
as its Chief Executive Officer since the Company's founding in
1979 and its Chairman of the Board since 1986. Mr. Fireman
served as President of the Company from 1979 to 1987 and was
appointed again to that position in 1989. Mr. Fireman has been a
director since 1979.
Paul R. Duncan was appointed Executive Vice President and
Chief Financial Officer of the Company in February 1990. Mr.
Duncan, who joined the Company in May 1985 as Senior Vice
President and Chief Financial Officer, has been a director of the
Company since March 1989.
John H. Duerden was appointed Joint President and Chief
Operations Officer of the Reebok Division, with responsibility
for global sales, finance, operations and production in September
1994. He has been an Executive Vice President of the Company
since February 1994 and a director of the Company since June
1991. Mr. Duerden was previously President of the Reebok
International Operations group of the Reebok Division from
September 1992 until January 1994. Prior to that, Mr. Duerden
was President of the Reebok Division from February 1990 to
September 1992 and President of the Reebok International Division
from October 1988 to February 1990.
Robert Meers became an Executive Vice President of the
Company in February, 1994, with responsibility, as President of
the Company's Specialty Business Group, for the Company's
subsidiaries Rockport and Avia, Boks casual footwear, the GREG
NORMAN Brand, REEBOK golf products and Reebok's retail
operations. Mr. Meers has been a director of the Company since
February, 1993. Previously, Mr. Meers was President, U.S.
Operations of the Reebok Division from November 1990 to January
1993 and President, U.S. and Canadian Operations of the Reebok
Division from January 1993 until January 1994. Mr. Meers was
Senior Vice President, Sales and Marketing of the Company from
July 1990 to November 1990. Mr. Meers served as Senior Vice
President, Sales of The Rockport Company, Inc. from December 1988
to July 1990.
Angel R. Martinez was appointed President and Chief
Executive Officer of The Rockport Company in August 1994. He has
been an Executive Vice President of the Company since February
1994. Prior to that, Mr. Martinez was the President of the
Fitness Division of the Company from September 1992 to January
1994 and prior to that he was Vice President for Business
Development of the Company for several years.
Roberto F. Muller was appointed Joint President and Chief
Marketing Officer of the Reebok Division, responsible for product
marketing, marketing services and design and development in
January 1995. He has been an Executive Vice President of the
Company since February 1994. He joined the Company in February
1992 as President of the Company's Sports Division. Prior to
joining Reebok, Mr. Muller was President, Chief Executive Officer
and Founder of Phoenix Integrated, Inc., a footwear company.
15
<PAGE>
Kenneth I. Watchmaker was appointed Executive Vice President
of the Company in February 1994, with responsibility for finance
and management information systems. Prior to that, he was
Executive Vice President, Operations and Finance, Reebok Division
from July 1992, when he joined the Company. Prior to joining
Reebok, Mr. Watchmaker was the partner in charge of audit
services in the Boston office of Ernst & Young.
John B. Douglas III became Senior Vice President and General
Counsel of the Company, in February 1994. In June, 1994, he was
given responsibility for the Company's human resources
department. Prior to that, he had been Vice President and
General Counsel of the Company since 1986.
Item 2. Properties.
The Company leases most of the properties that are used in
its business. Its corporate headquarters and the offices of the
Reebok Division and its U.S. Operations are located in office
facilities in Stoughton, Massachusetts. At its corporate
headquarters the Company occupies under lease approximately
255,000 square feet of space. The Company signed a six-year
lease in July 1989, with two three-year renewal options, for its
principal facility at its corporate headquarters. In 1994, this
lease was amended to extend the initial term of the lease until
June 30, 1996 and to give Reebok an interim renewal option to
extend the lease for an additional six months or one year after
the initial term, with two additional three-year renewal options
thereafter. This facility and two other smaller facilities, one
of which is leased and the other of which was purchased by the
Company in November 1994, at the Company's corporate headquarters
are located approximately one mile from the Reebok Division's
U.S. Operations group's principal warehouse and distribution
center in Stoughton, which is owned by the Company and which
contains approximately 450,000 total square feet of usable space.
The Company is currently exploring various alternative solutions
to address its need for additional space at its corporate
headquarters. In 1994, the Company purchased a building in Avon,
Massachusetts containing approximately 400,000 square feet of
space which it uses as a warehouse. The Company also leases
approximately 330,000 square feet of space in Memphis, Tennessee
which it uses as a warehouse and distribution center.
In 1993, Rockport purchased its corporate headquarters
facility in Marlboro, Massachusetts, containing approximately
80,000 square feet of floor space. In 1992, Rockport purchased
approximately 140 acres of land in Lancaster, Massachusetts on
which it is constructing a distribution center scheduled for
completion in 1995. Rockport has a lease for approximately
241,000 square feet of space for use as a warehouse in
Leominster, Massachusetts which expires on December 31, 1995.
Avia extended its lease of a 194,000 square foot
distribution facility in Wilsonville, Oregon, which now expires
in 1999. Avia also has a lease ending in 2003 for a 56,146
square foot facility in Beaverton, Oregon, where its corporate
headquarters and research, design and development facility are
located.
In June 1993, the Company's wholly owned U.K. subsidiary,
Reebok International Limited, entered into a fifteen-year lease
for the corporate headquarters of the Company's International
operations in Stockley Park, London. The lease is for
approximately 37,000
16
<PAGE>
square feet of usable space, with a renewal option for a term of
up to fourteen years mandated by law. This lease is guaranteed
by the Company.
The Company's wholly owned Canadian distribution subsidiary,
Reebok Canada, Inc., leases an approximately 145,000 square foot
office/warehouse facility in Aurora, Ontario pursuant to a lease
which expires in 1998.
The Company and its subsidiaries own and lease other
warehouses, offices, showrooms and retail and other facilities in
the United States and in various foreign countries to meet their
space requirements. Except as otherwise indicated, the Company
believes that these arrangements are satisfactory to meet its
needs.
Item 3. Legal Proceedings.
On February 5, 1993, a lawsuit was filed by Byron A. Donzis
("Donzis") against the Company and its then wholly owned
subsidiary Ellesse U.S.A., Inc., entitled Byron A. Donzis v.
Reebok International Ltd. et al., Civil Action No. 93-10260H in
the United States District Court for the District of
Massachusetts. A second related lawsuit, entitled Donzis
Laboratories, Inc., et al. v. Reebok International Ltd. et al.,
Civil Action No. 93-11761H, was filed on August 10, 1993 in the
United States District Court for the District of Massachusetts.
These two cases have been consolidated. Both complaints allege,
among other things, that the Company breached an agreement with
Donzis and misappropriated trade secrets in connection with the
development of the Company's THE PUMP (TM) technology and its
procurement of U.S. Patent No. 5,158,767 for the basic THE PUMP
(TM) technology. The Complaint requests a declaratory judgment
stating that Donzis is the owner/inventor of U.S. Patent No.
5,158,767, an assignment of such patent rights to Donzis,
injunctive relief, recovery of profits received by the Company,
punitive damages, treble damages, costs and attorneys' fees. The
Company intends to vigorously defend this lawsuit. The Company
believes that the lawsuits are without merit, and further
believes that it is unlikely that any subsequent outcome would
have a material adverse effect on the financial condition of the
Company.
On July 1, 1993, a lawsuit was filed by Stutz Motor Car of
America, Inc. ("Stutz") against the company, entitled Stutz Motor
Car of America, Inc. v. Reebok International Ltd., Case Number
BC074579 in the Central District of Los Angeles County Superior
Court. The case was removed to the United States District Court
for the Central District of California and was assigned Civil
Action No. 93-4433LGB. The present complaint alleges, among
other things, fraud, misappropriation and conversion, unfair
competition, tortious interference with prospective economic
advantage in connection with the development of the Company's THE
PUMP (TM) technology, and patent infringement. The complaint
requests compensatory damages, punitive damages, costs and
attorneys' fees. The Company intends to vigorously defend this
lawsuit. The Company believes that the lawsuit is without merit,
and further believes that it is unlikely that any subsequent
outcome would have a material adverse effect on the financial
condition of the Company.
A lawsuit was filed against the Company on February 7, 1994
in California Superior Court (a class action entitled Marshall
Varano v. Reebok International Ltd., Case No. 67348) challenging
the Company's resale pricing practices in California under
California state law
17
<PAGE>
and seeking unspecified damages, including treble damages,
injunctive relief and costs. Reebok intends to vigorously defend
this lawsuit and believes that it is unlikely that the outcome of
the lawsuit would have a material adverse effect on the financial
condition of the Company.
Item 4. Submission of Matters to a Vote of Securities Holders.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Company's common stock is quoted on the New York Stock
Exchange under the symbol RBK. The following table, derived from
data supplied by the NYSE, sets forth the quarterly high and low
sale prices during 1993 and 1994.
_________________________________________________________________
1994 1993
High Low High Low
First Quarter 35 3/4 29 3/4 38 32 7/8
Second Quarter 34 1/8 28 3/8 38 5/8 26 7/8
Third Quarter 38 5/8 29 1/8 28 3/8 23
Fourth Quarter 40 1/4 35 5/8 32 1/8 23 3/4
====== ====== ====== ======
The number of record holders of the Company's common stock at
December 31, 1994 was 8,302. Information regarding dividends is
set forth under the heading "Quarterly Results of Operations" in
the Supplementary Data included in Item 8 and presented as a
separate section of this report.
18
<PAGE>
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Amounts in thousands, except per share data
_______________________________________________________________________________
Year ended December 31 1994 1993 1992 1991 1990
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Net sales $3,280,418 $2,893,900 $3,022,627 $2,734,474 $2,159,243
Income before income
taxes 408,472 363,247 257,964 389,886 294,835
Net income 254,478 223,415 114,818 234,711 176,606
Net income per common
share 3.02 2.53 1.24 2.37 1.54
Cash dividends per
common share .30 .30 .30 .30 .30
Weighted average common
and common equivalent
shares outstanding 84,311 88,348 92,697 98,958 114,654
========== ========== ========== ========== ==========
</TABLE>
Balance Sheet Data
<TABLE>
<CAPTION>
Amounts in thousands
_______________________________________________________________________________
December 31 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Working capital $ 831,856 $ 730,757 $ 682,342 $ 564,072 $ 705,303
Total assets 1,649,461 1,391,711 1,345,346 1,422,283 1,392,076
Long-term debt 131,799 134,207 116,037 169,613 104,647
Stockholders' equity 990,505 846,617 838,656 823,537 996,729
========= ========== ========== ========== ==========
Financial data for 1993 include a special charge
($7,037 after-tax) related to the sale of
Ellesse U.S.A., Inc. and Boston Whaler, Inc.
Financial data for 1992 includes special charges
($135,439 after-tax) principally related to the
write-down of the Company's subsidiary, Avia
Group International, Inc., to estimated fair
value and estimated losses from the planned
sales of Ellesse U.S.A., Inc. and Boston Whaler,
Inc., and after-tax gains of $17,967 from the
sale of investments.
19
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Operating Results 1994
Net sales for the year increased by 13.4%, or $386.5 million,
to $3.280 billion in 1994 from $2.894 billion in 1993. The
Reebok Division's worldwide sales were $2.813 billion, an
increase of 13.4% from $2.48 billion in 1993. This increase was
due to growth in Reebok U.S. footwear and apparel sales as well
as International sales. Reebok U.S. footwear sales increased
10.9% to $1.410 billion from $1.271 billion in 1993. The
increase in Reebok Division's U.S. footwear sales was attributed
to increases in the outdoor, Classics, PRESEASON, cleated and
walking categories, which were partially offset by decreases in
the children's and basketball categories. The Reebok Division's
U.S. apparel sales increased by 19.7% to $150.1 million from
$125.4 million in 1993. The Reebok Division's International
sales (including both footwear and apparel) were $1.253 billion
in 1994, an increase of 15.7% from $1.083 billion in 1993,
primarily due to increases in all countries except for France and
the Netherlands which experienced small decreases in sales.
Changes in foreign exchange rates increased Reebok Division's
International net sales by $9.3 million, or .9%.
Rockport sales reached a record level of $314.5 million in
1994, a 11.3% increase from $282.7 million in 1993. This
increase was due to an increase in the number of pairs shipped
both in the U.S. and internationally. Avia sales increased by
16.5% to $152.6 million from $131.0 million in 1993. The
increase in Avia's net sales was due to increases in both
domestic and international net sales, primarily attributed to
increases in the walking and cross training categories.
Other income increased mainly due to increased income from
partially-owned distributors as well as recognized gains of $.5
million on foreign exchange transactions in 1994 compared to
recognized losses of $4.6 million in 1993.
The decrease in gross margin from 40.6% in 1993 to 40.1% in
1994 was 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 increased as a
percentage of sales from 26.6% in 1993 to 27.1% in 1994 due in
part to the continuing increased investments in information
systems as well as higher distribution costs mainly associated
with the opening of a new apparel distribution facility in
Memphis, Tennessee. The increased investments in information
systems are expected to continue over the next few years.
Net income in 1994 was higher than net income in 1993
partially as a result of an additional pre-tax special charge of
$8.5 million related to the completion of the sales of
20
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Boston Whaler, Inc. ("Boston Whaler") and Ellesse U.S.A., Inc
("Ellesse"), which charge was recorded in 1993. This special
charge was in addition to losses previously recorded in December
1992, when the Company announced its intention to sell these
businesses.
Amortization of intangibles decreased because many of the
intangible assets attributable to the acquisition of Rockport in
1986 had a useful life of seven years or less and became fully
amortized in 1993.
Minority interest represents minority shareholders'
proportionate share of the net income of the Company's Japanese,
Spanish and South African subsidiaries.
Interest expense decreased in 1994 due to interest paid in
1993 on certain prior years state tax matters, as well as lower
average interest rates. Similarly, interest income decreased in
1994 due to interest received in 1993 from the successful
settlement of certain state tax matters.
The effective tax rate decreased from 38.5% in 1993 to 37.7%
in 1994 due primarily to a geographic change in the mix of
worldwide income.
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 year
ended December 31, 1994 declined to 84.3 million shares, compared
to 88.3 million shares for the year ended December 31, 1993.
The Company's footwear and apparel production operations are
subject to the usual risks of doing business abroad, such as
import duties, quotas and other threats to free trade, foreign
currency fluctuations, labor unrest and political instability.
The Company believes that it has the ability to develop, over
time, adequate substitute sources of supply for the products
obtained from present foreign suppliers. If, however, events
should prevent the Company from acquiring products from its
suppliers in Indonesia, China or Thailand, or significantly
increase the cost to the Company of such products, the Company's
operations could be seriously disrupted until alternative
suppliers were found, with a significant negative financial
impact.
In this regard, the European Union ("EU") imposed import
quotas on footwear from China in 1994. The effect of such quota
scheme on the Company has not been significant because only a
small portion of REEBOK footwear sold in the EU is produced in
China and because the Company has taken steps to prepare for
imposition of such quotas. Moreover, the quota scheme provides
an exemption for certain higher-priced special technology
athletic footwear, which is available for most REEBOK and AVIA
products. In 1995, this quota scheme is expected to continue,
but with an expanded exemption which will allow continued supply
of the European market.
21
<PAGE>
The EU initiated a dumping case during 1995 against footwear
from China, Indonesia and Thailand. However, a broad exception
for athletic footwear has been incorporated in such action
significantly reducing the potential exposure to the Company.
Nevertheless, if dumping duties are imposed, certain of the
Company's product lines could be affected adversely, although it
does not believe that its products will be more severely
restricted than those of its major competitors. Moreover, any
such duties are unlikely to be imposed before the second quarter
of 1996.
Various other countries have taken steps to restrict footwear
imports, which actions affect the Company as well as other
footwear importers. Although such actions have in some cases had
an adverse effect on the Company's sales in such countries, they
have not had a material adverse effect on the Company as a whole.
Operating Results 1993
Net sales for the year decreased by 4.3%, or $128.7 million,
to $2.894 billion in 1993 from $3.023 billion in 1992. On a pro
forma basis, excluding the 1992 results of operations of Boston
Whaler and Ellesse (both of which were sold and were excluded
from 1993 results), net sales for the year decreased by $49.6
million or 1.7%.
The Reebok Division's worldwide sales were $2.48 billion in
1993, a decrease of 2.3% from $2.54 billion in 1992. This
decrease was due entirely to the Reebok Division's U.S. footwear
sales which decreased 12.6% to $1.271 billion in 1993 from $1.455
billion in 1992, partially offset by an increase in U.S. apparel
sales and international sales. The decline in the Reebok
Division's U.S. footwear sales was attributed mainly to volume
decreases in the walking, basketball, aerobics and Boks footwear
categories, as well as the negative impact of the Company's
Centennial resale pricing program (adopted effective January 1,
1993) on sales of certain Reebok footwear products. 1992's sales
level for footwear and apparel reflected a reclassification of
$17.2 million from footwear to apparel for Weebok and golf
apparel. The Reebok Division's U.S. apparel sales increased by
62.6% to $125.4 million in 1993 from $77.1 million in 1992. The
Reebok Division's International sales (including both footwear
and apparel) were $1.083 billion in 1993, an increase of 7.5%
from $1.008 billion in 1992, due primarily to improved sales in
the United Kingdom, Germany, several smaller European countries,
Canada and South America, and acquisition of a majority interest
in the Company's Spanish distributor effective January 1, 1993.
Changes in foreign exchange rates had a negative effect on the
Reebok Division's International net sales of $65.1 million, or
6.5%.
Rockport sales reached a record level of $282.7 million in
1993, a 5.7% increase from $267.4 million in 1992. The increase
was due to an increase in the number of pairs of footwear shipped
both in the U.S. and internationally. Avia sales decreased in
1993 by 3.8% to $131.0 million from $136.2 million in 1992. The
decrease in net sales at Avia was due to declines in both
domestic and international net sales. The decline in domestic
net sales was mainly due to lower volume in the tennis and
basketball categories, partially offset
22
<PAGE>
by volume increases in the walking and cross training categories.
The decline in international net sales volume was partly
attributed to a change in the Canadian distribution from a wholly
owned subsidiary to an independent distributor which changed the
recording of Canadian sales from a wholesale basis to a royalty
basis. International sales were also affected by a volume
decrease in Avia's Germany subsidiary, offset by volume increases
in sales to independent distributors.
The decrease in other income was mainly due to the inclusion
in 1992 of a non- recurring pre-tax gain of $29.6 million on the
sale of CML Group, Inc. ("CML") common stock. The common stock
was acquired from the exercise of warrants which were obtained as
part of the Company's 1989 purchase of Boston Whaler. In
addition, recognized losses on foreign exchange transactions in
1993 compared to recognized gains in 1992 reduced other income by
$6.2 million.
Gross margin increased as a percentage of sales from 40.1% in
1992 to 40.6% in 1993. This improvement was due entirely to the
exclusion in 1993 of the operating results of businesses held for
sale, which generally carried lower gross margins. This
improvement was offset in part by lower margins in the Reebok
Division's U.S. footwear operations, mainly because of higher
markdowns.
Selling, general and administrative expenses decreased as a
percentage of sales from 26.7% in 1992 to 26.6% in 1993. This
decrease was due to lower advertising expenditures partially
offset by increased endorsements and sports promotions in the
Reebok Division. The decrease was also offset by the Reebok
Division's International operations, which generally carry higher
general and administrative costs, representing a larger
proportion of sales volume and the fixed nature of many of the
expenses classified as general and administrative costs.
During 1993, the Company recorded an additional pre-tax
special charge of $8.5 million related to the sales of Boston
Whaler and Ellesse, which were completed during the third
quarter. This special charge was in addition to the special
charges previously recorded in December 1992, when the Company
announced its intention to sell these businesses.
Amortization of intangibles decreased due to the write-down
of the carrying value of Avia in the fourth quarter of 1992.
Minority interest represents the minority shareholders'
proportionate share of the net income of the Company's Japanese
and Spanish subsidiaries. Minority interest increased in 1993
due in part to the acquisition of a 51% interest in Reebok's
Spanish distributor as of January 1, 1993.
Interest expense increased in 1993 due to the higher average
borrowing levels throughout the year. Interest income increased
due to interest received from the successful settlement of
certain prior years' state tax matters.
23
<PAGE>
The effective tax rate for the twelve months ended December
31 decreased from 55.5% in 1992 to 38.5% in 1993. 1992's
effective tax rate was abnormally high because of certain special
charges which are not deductible for tax purposes. The Company's
1993 tax rate is more in line with the Company's future
expectations. The decrease in the tax rate in 1993 was also
caused in part by a change in the geographic mix of worldwide
income partially offset by an increase in the U.S. federal tax
rate.
The higher level of net income in 1993 as compared with 1992
was a result primarily of a plan adopted by the Company during
December 1992 which resulted in after-tax charges totaling $135.4
million ($1.46 per share). Under the plan, the Company announced
its intention to dispose of two subsidiaries, Boston Whaler and
Ellesse, a write-down of the carrying value of its Avia
subsidiary, and certain office relocation charges. The effect of
the special charge was reduced by the after-tax gain of $18.0
million ($.19 per share) on the sale of common stock of CML
obtained as part of the Company's 1989 purchase of Boston Whaler.
The Boston Whaler sale was completed on July 30, 1993 and the
Ellesse sale was completed on September 28, 1993. In connection
with the sales, the Company recorded an additional after-tax
special charge of $7.0 million in addition to the special charge
recorded in 1992. Income from operations (without the effect of
the special charge) for 1993 was $2.61 per share compared to
$2.51 per share in 1992 (after excluding the effect of the
special charge and the gain on the sale of CML common stock). If
the special charge had taken place as of the beginning of 1992,
then income from operations in 1992 would have been about $.18
per share higher.
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 year
ended December 31, 1993 were 88.3 million, compared to 92.7
million for the year ended December 31, 1992.
Operating Results 1992
Net sales for the year reached a record level of $3.023
billion, 10.5% above the level reported for 1991. Reebok U.S.
footwear sales increased 10.2% to $1.472 billion. Reebok
International sales reached $1.008 billion, an increase of 21.0%.
These increases in sales were mainly due to an increase in the
number of pairs shipped. The effect of changes in foreign
exchange rates did not have a material impact on the change in
net sales. Reebok U.S. apparel sales increased by 13.5% to $59.9
million. Rockport sales increased by 6.4% to $267.4 million.
Avia sales decreased by 15.4% to $136.2 million. Ellesse sales
declined by 45.7% to $34.2 million. Boston Whaler sales were
$45.0 million, an 18.7% increase.
Other income in 1992 included a gain of $29.6 million ($18.0
million after-tax) on the sale of CML common stock. The common
stock was acquired from the exercise of warrants which were
obtained as part of the Company's 1989 purchase of Boston Whaler.
24
<PAGE>
The small improvement in gross margin percentage was the net
result of several trends in 1992. Higher gross margins arose as
a result of favorable overall foreign currency exchange rates and
as a result of Avia and Ellesse sales, which carried lower gross
margins, representing a smaller portion of the total business in
1992. These higher margins were largely offset by lower gross
margins in Reebok U.S. footwear sales caused by a change in mix
of products sold to items with lower margins.
Selling, general and administrative expenses increased as a
percentage of sales from 24.4% in 1991 to 26.7% in 1992. This
increase was primarily due to increased advertising and marketing
costs in the Reebok Division as well as increased distribution
costs in the Reebok International Division.
Interest income decreased in 1992 due to the lower interest
rates on investments as well as lower average cash balances in
1992 resulting from the repayment of borrowings incurred in
connection with the share repurchase from Pentland in 1991 and
the use of cash for the Company's share repurchase program
announced in July 1992. Interest expense decreased due to the
lower debt levels, as well as the impact of lower borrowing rates
in 1992.
The effective tax rate for the twelve months ended December
31 increased from 39.8% in 1991 to 55.5% in 1992. This increase
was caused by certain special charges which were not deductible
for tax purposes.
The decrease in net income for the year resulted primarily
from special charges recorded by the Company during December 1992
which resulted in non-recurring after-tax charges totaling $135.4
million ($1.46 per share). The Company's plan included offering
for sale the Company's Boston Whaler and Ellesse subsidiaries; a
write-down of the carrying value of its Avia subsidiary; the
planned consolidation of the Reebok performance apparel operation
to San Diego, where it was combined with the operations of the
ABOVE THE RIM and TINLEY apparel brands; and the move of the
Reebok Division's International Operations group's headquarters
to London from Bolton, England. The plan permitted the Company
to focus its efforts and resources on building its core brands.
The effect of the special charges was reduced by the after-tax
gain of $18.0 million ($.19 per share) on the sale of common
stock of CML obtained as part of the Company's 1989 purchase of
Boston Whaler. Income from operations (without the effect of the
special charge and the sale of CML common stock) for 1992 was
$2.51 per share compared to $2.37 per share in 1991. Income from
operations in 1992 included about $.18 per share of losses from
the operations of Boston Whaler, Ellesse and Avia which will not
occur in future years because of the special plan which was put
in place in the fourth quarter of 1992.
Backlog
The Company's backlog of customer orders at December 31, 1994
was approximately 10.1% higher than the prior year levels. The
backlog position is not necessarily indicative of
25
<PAGE>
future sales because the ratio of future orders to "at once"
shipments may vary from year to year.
Liquidity and Sources of Capital
The Company's financial position remains strong. Working
capital increased by $101.1 million, or 13.8% from the same
period a year ago. The current ratio at December 31, 1994 was
2.6 to 1 as compared to 2.8 to 1 at December 31, 1993.
Accounts receivable increased from December 31, 1993 by $75.1
million, or 16.4%, which was in line with the sales increase for
the fourth quarter of 1994. Inventory increased by $110.6
million from December 31, 1993, reflecting increases in most
divisions. The increase in inventory in 1994 exceeded the amount
which historically would be needed to support sales growth by
about $40 million. About $15 million of this was due to a change
in the Company's strategy regarding the number of factory-direct
stores, and a similar increase is expected in 1995 (after which
this increased amount will level off). Most of the remaining
disproportionate increase was due to the 1994 sales of certain of
the Company's foreign subsidiaries being below plan in 1994.
On October 4, 1994 the Board of Directors authorized the
repurchase of up to an additional $200 million in Reebok common
stock in open market or privately-negotiated transactions. This
authorization was in addition to the $200 million repurchase
programs adopted by the Company in July 1992 and in July 1993.
Since the start of the program in 1992 the Company has
repurchased 11,833,400 shares at an average price of $ 31.81 per
share as of December 31, 1994; at December 31, 1994,
approximately $223.6 million remained authorized for future
purchases.
During the twelve months ended December 31, 1994, cash and
cash equivalents increased by $4.6 million, and outstanding
borrowings increased by $39.8 million, while $112.1 million of
common stock was repurchased. Notes payable increased to support
working capital needs in foreign subsidiaries. Net cash provided
by operating activities during 1994 was $172.6 million, compared
to $142.5 million and $187.6 million for the years ended December
31, 1993 and 1992, respectively. Cash generated from operations,
together with the Company's existing credit lines and other
financing sources, is expected to adequately finance all of the
Company's current and planned cash requirements, including the
remaining $223.6 million in share repurchases.
Lawsuits arise during the normal course of business. The
Company does not expect the outcome of any existing litigation to
have a significant impact on future results of operations.
The Company enters into forward currency exchange contracts
to hedge its exposure for merchandise purchased in U.S. dollars
that will be sold to customers in other currencies. Realized and
unrealized gains and losses on these contracts are included in
net income except
26
<PAGE>
that gains and losses on contracts which hedge specific foreign
currency commitments are deferred and accounted for as a part of
the transaction.
The Company also uses forward currency exchange contracts to
hedge significant intercompany assets and liabilities denominated
in other than the functional currency. Contracts used to hedge
intercompany balances are marked to market and the resulting
transaction gain or loss is included in the determination of net
income. Foreign currency gains or losses included in net income
for the years ended December 31, 1994, 1993 and 1992 were not
significant.
At December 31, 1994, the Company had forward currency
exchange contracts, all having maturities of less than one year,
with a notional amount aggregating $306 million. Deferred gains
on these contracts at December 31, 1994 and 1993, approximated $2
million and $2.9 million, respectively.
Effects of Changing Prices
The Company has generally been able to adjust selling prices
and control expenses in the environment of cost escalation that
has existed in the recent past. Product purchases require
relatively short lead times (4 - 6 months) and the Company sells
a large part of its product for future delivery on similar lead
times, which generally permits a matching of committed costs with
committed revenues. The Company anticipates that this matching
ability will continue.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item is submitted as a
separate section of this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this Item with respect to the
Registrant's directors is incorporated herein by reference from
the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on May 2, 1995, which will be filed with
the Securities Exchange Commission on or before March 30, 1995
(the "1995 Proxy Statement"), under the headings "Information
with respect to Nominees", "Executive Compensation" and
"Transactions with Management and Affiliates". Information
called for by this Item with respect to the
27
<PAGE>
registrant's executive officers is set forth under "Executive
Officers of Registrant" in Item 1 of this report.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein
by reference from the 1995 Proxy Statement under the headings
"Compensation of Directors", "Executive Compensation", "Employee
Agreements" and "Compensation Committee Interlocks and Insider
Participation".
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this Item is incorporated herein
by reference from the 1995 Proxy Statement under the heading
"Beneficial Ownership of Shares".
Item 13. Certain Relationships and Related Transactions.
The information required by this Item is incorporated herein
by reference from the 1995 Proxy Statement under the heading
"Transactions with Management and Affiliates".
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a)(1) and (2) List of Financial Statements and Financial
Statement Schedules.
1. Financial Statements
The following consolidated financial statements are included
in Item 8 and presented as a separate section of this report:
Form 10-K
Page
Consolidated Balance Sheets at
December 31, 1994 and 1993 F-2
For each of the three years ended
December 31, 1994, 1993 and 1992:
Consolidated Statements of
Income F-3
28
<PAGE>
Page
Consolidated Statements of
Stockholders' Equity F-4
Consolidated Statements of
Cash Flows F-5
Notes to Consolidated
Financial Statements F-6 - F-15
2. Financial Statement Schedule
The following consolidated financial statement schedule of
Reebok International Ltd. is included in Item 14(d) and presented
as a separate section of this report:
Form 10-K
Page
______
Schedule II - Valuation and Qualifying
Accounts F-18
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
(a)3. Exhibits
Listed below are all the Exhibits filed as part of this
report. Certain Exhibits are incorporated by reference from
documents previously filed by the Company with the Securities and
Exchange Commission pursuant to Rule 12b-32 under the Securities
Exchange Act of 1934, as amended.
Exhibit
(3) Articles of incorporation and by-laws.
3.1 Restated Articles of Organization of the Company, as
amended 1
3.2 By-laws, as amended 5, 7, 9
29
<PAGE>
(4) Instruments defining the rights of security holders,
including indentures.
4.1 Indenture, dated September 15, 1988, between Reebok
International Ltd. and Citibank N.A., as Trustee 4
4.2 First Supplemental Indenture, dated as of January 22,
1993, between Reebok International Ltd. and Citibank
N.A., as Trustee 13
4.3 Common Stock Rights Agreement dated as of June 14, 1990
between the Company and The First National Bank of
Boston, as Rights Agent, as amended 8, 10, 11
(10) Material Contracts.
10.1 Distributorship Agreement between Reebok International
Limited and the Company 2
10.2 Trademark License Agreement between Reebok International
Limited and the Company 2
10.3 Continuing Letter of Credit Agreement, dated August 1,
1989, between the Company and State Street Bank and
Trust Company; and Letter Agreement between The Rockport
Company, Inc. and Norwest Bank, Master Security
Agreement for Irrevocable Documentary Letters of Credit
and Guarantee of the Company, all dated August 1, 1989 7
10.4 Credit Facility Agreement between Reebok International
Limited and Citibank dated November 7, 1991 12
10.5 Lease Agreement dated March 1, 1988 between Reebok
International Ltd. and North Stoughton Industrial Park
Development Trust 5
10.6 Amendments to Lease Agreement dated March 1, 1988
between Reebok International Ltd. and North Stoughton
Industrial Park Development Trust
10.7 Purchase and Sale Agreement between Reebok International
Ltd. and Pentland Group plc dated March 8, 1991 9
10.8 Agreements with various banks in Hong Kong reflecting
arrangements for letter of credit facilities 9
10.9 Third Amended and Restated Master Agreement between the
Company and Bank of America Oregon dated as of July 1,
1993, as amended
30
<PAGE>
10.10 $200,000,000 Credit Agreement and $100,000,000 Loan
Agreement, each dated as of November 1, 1994, among
the Company, the Lenders named therein and Credit
Suisse as Administrative Agent and Arranger 14
Management Contracts and Compensatory Plans.
10.11 Reebok International Ltd. 1994 Equity Incentive Plan
10.12 Reebok International Ltd. Equity and Deferred
Compensation Plan for Directors
10.13 Reebok International Ltd. 1985 Stock Option Plan,
as amended 12
10.14 Reebok International Ltd. 1987 Stock Option Plan
for Directors, as amended 13
10.15 Reebok International Ltd. 1987 Stock Bonus Plan 3
10.16 Reebok International Ltd. Excess Benefits Plan 9
10.17 Stock Option Agreement with Paul B. Fireman 9
10.18 Split-Dollar Life Insurance Agreement with Paul B.
Fireman 12
10.19 Contingent Severance Agreement with Paul R. Duncan 7
10.20 Employment Agreement with John H. Duerden 12
10.21 Contingent Severance Agreement with John H. Duerden 7
10.22 Change of Control Agreement with John B. Douglas
III 13
10.23 Employment Agreement with Kenneth Watchmaker 13
10.24 Change of Control Agreement with Kenneth Watchmaker
13
10.25 Supplemental Retirement Program for Kenneth
Watchmaker 13
10.26 Employment Agreement with Roberto Muller 15
10.27 Contingent Severance Agreement with Angel Martinez 15
10.28 Lease with Angel Martinez 15
(11) Statement Re Computation of Per Share Earnings.
(12) Statement Re Computation of Ratio of Earnings to Fixed
Charges.
31
<PAGE>
(21) Subsidiaries.
21.1 List of Subsidiaries of the Company
(23) Consents of experts and counsel.
23.1 The consent of Ernst & Young LLP
(b) Reports on Form 8-K.
None.
(c) Exhibits.
The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a
separate section of this report.
(27) Financial Data Schedule
___________________________________
1 Filed as an Exhibit to Reebok International Ltd. Form 10-K
dated March 30, 1987 and incorporated by reference herein.
2 Filed as an Exhibit to Registration Statement No. 2-98367 and
incorporated by reference herein.
3 Filed as an Exhibit to Reebok International Ltd. Form 10-K
dated March 28, 1988 and incorporated by reference herein.
4 Filed as an Exhibit to Reebok International Ltd. Form 8-K
filed on September 29, 1988 and incorporated by reference
herein.
5 Filed as an Exhibit to Reebok International Ltd. Form 10-K
dated March 30, 1989 and incorporated by reference herein.
6 Filed as an Exhibit to Reebok International Ltd. Form 8-K
filed on March 8, 1990 and incorporated by reference herein.
7 Filed as an Exhibit to Reebok International Ltd. Form 10-K
dated March 26, 1990 and incorporated by reference herein.
8 Filed as an Exhibit to Reebok International Ltd. Form 8-A
filed on July 31, 1990 and incorporated by reference herein.
32
<PAGE>
9 Filed as an Exhibit to Reebok International Ltd. Form 10-K
dated March 28, 1991 and incorporated by reference herein.
10 Filed as an Exhibit to Reebok International Ltd. Form 8
Amendment to Registration Statement on Form 8-A filed on
April 4, 1991 and incorporated by reference herein.
11 Filed as an Exhibit to Reebok International Ltd. Form 8
Amendment to Registration Statement on Form 8-A filed on
December 13, 1991 and incorporated by reference herein.
12 Filed as an Exhibit to Reebok International Ltd. Form 10-K
dated March 27, 1992 and incorporated by reference herein.
13 Filed as an Exhibit to Reebok International Ltd. Form 10-K
dated March 26, 1993 and incorporated by reference herein.
14 Filed as an Exhibit to Reebok International Ltd. Form 10-Q
for the quarter ended September 30, 1994 and incorporated by
reference herein.
15 Filed as an Exhibit to Reebok International Ltd. Form 10-K
dated February 15, 1994 and incorporated by reference herein.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
REEBOK INTERNATIONAL LTD.
BY: /S/ PAUL R. DUNCAN
__________________________
Paul R. Duncan
Executive Vice President
and Chief Financial
Officer
Dated: March 30, 1995
34
<PAGE>
Pursuant to the requirements of the Securities Act of 1934,
this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
/S/ PAUL FIREMAN
______________________________
Paul Fireman
Director, Chairman of the Board
and President
(Chief Executive Officer)
/S/ PAUL R. DUNCAN
______________________________
Paul R. Duncan
Executive Vice President and Chief Financial Officer
(Chief Financial and Accounting Officer)
Director
/S/ JOHN H. DUERDEN
______________________________
John H. Duerden
Executive Vice President
Director
/S/ ROBERT MEERS
______________________________
Robert Meers
Executive Vice President
Director
/S/ JILL E. BARAD
______________________________
Jill E. Barad
Director
/S/ DANIEL E. GILL
______________________________
Daniel E. Gill
Director
/S/ WILLIAM F. GLAVIN
______________________________
William F. Glavin
Director
35
<PAGE>
/S/ BERTRAM M. LEE, SR.
______________________________
Bertram M. Lee, Sr.
Director
/S/ RICHARD G. LESSER
______________________________
Richard G. Lesser
Director
/S/ WILLIAM M. MARCUS
______________________________
William M. Marcus
Director
/S/ GEOFFREY NUNES
______________________________
Geoffrey Nunes
Director
/S/ JOHN A. QUELCH
______________________________
John A. Quelch
Director
Dated: March 30, 1995
36
<PAGE>
ITEMS 8, 14(C) AND (D)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
37
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Stockholders
Reebok International Ltd.
Stoughton, Massachusetts
We have audited the accompanying balance sheets of Reebok
International Ltd. and subsidiaries as of December 31, 1994 and
1993, and the related statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended
December 31, 1994. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These
financial statements ad schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Reebok International Ltd. and subsidiaries
at December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
January 31, 1995
F-1
<PAGE>
REEBOK INTERNATIONAL LTD.
Consolidated Balance Sheets
</TABLE>
<TABLE>
<CAPTION>
Amounts in thousands, except share data
__________________________________________________________________________________________
December 31 1993 1992
____ ____
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 83,936 $ 79,347
Accounts receivable, net of allowance for doubtful
accounts (1994, $44,862; 1993, $46,455) 532,475 457,399
Inventory 624,625 514,027
Deferred income taxes 66,456 54,784
Prepaid expenses 29,952 21,558
_________ _________
Total current assets 1,337,444 1,127,115
_________ _________
Property and equipment, net 164,848 130,607
Non-current assets:
Intangibles, net of amortization 96,196 94,262
Deferred income taxes 2,910 1,250
Other 48,063 38,477
_________ _________
147,169 133,989
_________ _________
$1,649,461 $1,391,711
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 63,837 $ 23,852
Current portion of long-term debt 5,190 3,009
Accounts payable 170,622 138,188
Accrued expenses 157,479 143,784
Income taxes payable 102,392 81,240
Dividends payable 6,068 6,285
_________ _________
Total current liabilities 505,588 396,358
_________ _________
Long-term debt, net of current portion 131,799 134,207
Minority interest 21,569 14,529
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01; authorized 250,000,000
shares; issued 117,155,611 shares in 1994, 119,902,298
shares in 1993 1,172 1,199
Additional paid-in capital 167,953 266,890
Retained earnings 1,428,058 1,198,190
Less 36,210,902 shares in treasury at cost (603,241) (603,241)
Unearned compensation (2,598) (3,276)
Foreign currency translation adjustment (839) (13,145)
_________ _________
990,505 846,617
_________ _________
$1,649,461 $1,391,711
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
REEBOK INTERNATIONAL LTD.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Amounts in thousands, except per share data
__________________________________________________________________________________________
Year ended December 31 1994 1993 1992
____ ____ ____
<S> <C> <C> <C>
Net sales $3,280,418 $2,893,900 $3,022,627
Other income 7,165 33 39,719
_________ _________ _________
3,287,583 2,893,933 3,062,346
_________ _________ _________
Costs and expenses:
Cost of sales 1,966,138 1,719,869 1,809,304
Selling, general and administrative
expenses 889,590 769,744 807,078
Special charges - 8,449 155,000
Amortization of intangibles 4,345 10,052 16,587
Minority interest 8,896 8,261 1,787
Interest expense 16,515 25,021 20,080
Interest income (6,373) (10,710) (5,454)
_________ _________ _________
2,879,111 2,530,686 2,804,382
Income before income taxes 408,472 363,247 257,964
Income taxes 153,994 139,832 143,146
_________ _________ _________
Net income $ 254,478 $ 223,415 $ 114,818
========= ========= =========
Net income per common share $ 3.02 $ 2.53 $ 1.24
========= ========= =========
Dividends per common share $ 0.30 $ 0.30 $ 0.30
========= ========= =========
Weighted average common and common
equivalent shares outstanding 84,311 88,348 92,697
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
REEBOK INTERNATIONAL LTD.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Dollar amounts in thousands
__________________________________________________________________________________________
COMMON STOCK ADDITIONAL
PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS
______ _____ __________ ________
<S> <C> <C> <C> <C>
Balance, December 31, 1991 127,184,410 $1,272 $502,962 $913,002
Net income 114,818
Adjustment for foreign currency
translation
Issuance of shares to certain employees 33,058 1 1,020
Amortization of unearned compensation
Shares repurchased and retired (2,337,100) (23) (70,179)
Shares issued under employee stock
purchase plans 152,310 1 3,164
Shares issued upon exercise of stock
options 541,613 5 7,724
Income tax reductions relating to
exercise of stock options 3,365
Dividends declared (27,205)
___________ _____ _______ _________
Balance, December 31, 1992 125,574,291 1,256 448,056 1,000,615
Net income 223,415
Adjustment for foreign currency
translation
Issuance of shares to certain employees 102,400 1 2,956
Amortization of unearned compensation
Shares repurchased and retired (6,235,100) (62) (193,959)
Shares issued under employee stock
purchase plans 149,977 1 3,493
Shares issued upon exercise of stock
options 310,730 3 4,648
Income tax reductions relating to
exercise of stock options 1,696
Dividends declared (25,840)
___________ _____ _______ _________
Balance, December 31, 1993 119,902,298 1,199 266,890 1,198,190
Net income 254,478
Adjustment for foreign currency
translation
Issuance of shares to certain employees 19,293 611
Amortization of unearned compensation
Shares repurchased and retired (3,261,200) (33) (112,105)
Shares retired (16,000) (462)
Shares issued under employee stock
purchase plans 158,965 2 4,082
Shares issued upon exercise of stock
options 352,255 4 6,172
Income tax reductions relating to
exercise of stock options 2,765
Dividends declared (24,610)
___________ _____ _______ _________
Balance, December 31, 1994 117,155,611 $1,172 $167,953 $1,428,058
=========== ===== ======= =========
</TABLE>
<TABLE>
<CAPTION>
FOREIGN
CURRENCY
TREASURY UNEARNED TRANSLATION
STOCK COMPENSATION ADJUSTMENT
________ ____________ ___________
<S> <C> <C> <C>
Balance, December 31, 1991 $(603,241) $ (74) $ 9,616
Net income
Adjustment for foreign currency translation (17,035)
Issuance of shares to certain employees (1,021)
Amortization of unearned compensation 484
Shares repurchased and retired
Shares issued under employee stock purchase
plans
Shares issued upon exercise of stock options
Income tax reductions relating to exercise
of stock options
Dividends declared
_________ _____ _______
Balance, December 31, 1992 (603,241) (611) (7,419)
Net income
Adjustment for foreign currency translation (5,726)
Issuance of shares to certain employees (2,957)
Amortization of unearned compensation 292
Shares repurchased and retired
Shares issued under employee stock purchase
plans
Shares issued upon exercise of stock options
Income tax reductions relating to exercise
of stock options
Dividends declared
_________ ______ _______
Balance, December 31, 1993 (603,241) (3,276) (13,145)
Net income
Adjustment for foreign currency translation 12,306
Issuance of shares to certain employees (611)
Amortization of unearned compensation 827
Shares repurchased and retired
Shares retired 462
Shares issued under employee stock purchase
plans
Shares issued upon exercise of stock options
Income tax reductions relating to exercise
of stock options
Dividends declared
________ ______ ______
Balance, December 31, 1994 $(603,241) $(2,598) $ (839)
======== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
REEBOK INTERNATIONAL LTD.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Amounts in thousands
__________________________________________________________________________________________
Year ended December 31 1994 1993 1992
____ ____ ____
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $254,478 $223,415 $114,818
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 32,228 25,209 27,214
Amortization of intangibles 4,345 10,052 16,587
Minority interest 8,896 8,261 1,787
Amortization of unearned compensation 827 292 484
Deferred income taxes (13,332) 17,470 (38,190)
Special charges - 8,449 155,000
Gain on sale of CML common stock - - (29,648)
Changes in operating assets and liabilities,
exclusive of those arising from business
acquisitions:
Accounts receivable (64,786) (44,682) (27,598)
Inventory (81,948) (84,020) (39,135)
Prepaid expenses (7,752) 2,023 7,945
Other (15,789) (23,012) 10,402
Accounts payable and accrued expenses 35,211 6,035 (33,068)
Income taxes payable 20,236 (6,959) 21,006
_______ _______ _______
Total adjustments (81,864) (80,882) 72,786
_______ _______ _______
Net cash provided by operating activities 172,614 142,533 187,604
_______ _______ _______
Cash flows from investing activities:
Payments to acquire property and equipment (61,839) (26,628) (36,513)
Proceeds from sale of CML common stock - - 31,648
Payments for business acquisitions, net of
cash acquired (4,297) (10,321) (3,958)
Proceeds from sale of businesses held for sale - 36,500 -
_______ _______ _______
Net cash used for investing activities (66,136) (449) (8,823)
_______ _______ _______
Cash flows from financing activities:
Net borrowings (repayments) of notes payable to banks 37,148 19,961 (5,930)
Proceeds from issuance of common stock to employees 13,025 9,841 14,259
Dividends paid (24,827) (26,276) (27,300)
Repayments of long-term debt (2,585) (4,351) (78,748)
Proceeds from long-term debt - 20,000 -
Repurchases of common stock (112,138) (194,021) (70,202)
_______ _______ _______
Net cash used for financing activities (89,377) (174,846) (167,921)
_______ _______ _______
Effect of exchange rate changes on cash (12,512) 6,723 9,809
_______ _______ _______
Net increase (decrease) in cash and cash equivalents 4,589 (26,039) 20,669
Cash and cash equivalents at beginning of year 79,347 105,386 84,717
_______ _______ _______
Cash and cash equivalents at end of year $ 83,936 $ 79,347 $105,386
======= ======= =======
Supplemental disclosures of cash flow information:
Interest paid $ 19,135 $ 24,348 $ 20,900
Income taxes paid 135,060 132,456 148,783
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
REEBOK INTERNATIONAL LTD.
Notes to Consolidated Financial Statements
Dollar amounts in thousands, except per share data
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
The Company and its subsidiaries design and market sports and
fitness products, including footwear and apparel, as well as
footwear and apparel for non-athletic "casual" use, under various
trademarks, including REEBOK, WEEBOK, THE PUMP, INSTAPUMP, Boks,
the GREG NORMAN Logo, AVIA, ROCKPORT, and TINLEY.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany
transactions and accounts are eliminated in consolidation.
RECOGNITION OF REVENUES
Sales are recognized upon shipment of products.
ADVERTISING
Advertising production costs are expensed the first time the
advertisement is run. Media (TV and print) placement costs are
expensed in the month the advertising appears. Advertising
expense (excluding cooperative advertising) amounted to $133,004,
$125,027 and $158,980 for the years ended December 31, 1994, 1993
and 1992, respectively.
CASH EQUIVALENTS
Cash equivalents are defined as highly liquid investments with
maturities of three months or less at date of purchase.
INVENTORY VALUATION
Inventory, substantially all finished goods, is recorded at the
lower of cost (first-in, first-out method) or market.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is
computed principally on the straight line method over the assets'
estimated useful lives. Leasehold improvements are amortized
over the shorter of the lease term or the estimated useful lives
of the assets.
INTANGIBLES
Excess purchase price over the fair value of assets acquired is
amortized using the straight line method over periods ranging
from 5 to 40 years. Other intangibles are amortized using the
straight line method over periods ranging from 3 to 40 years.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of most of the Company's foreign
subsidiaries are translated at current exchange rates. Revenues,
costs and expenses are translated at the average exchange rates
for the period. Translation adjustments resulting from changes
in exchange rates are reported as a separate component of
stockholders' equity. Other foreign currency
transaction gains and losses are included in the determination
of net income.
F-6
<PAGE>
For those foreign subsidiaries operating in a highly inflationary
economy or having the U.S. dollar as their functional currency,
net nonmonetary assets are translated at historical rates and net
monetary assets are translated at current rates. Translation
adjustments are included in the determination of net income.
INCOME TAXES
The Company accounts for income taxes in accordance with FASB
Statement No. 109 "Accounting for Income Taxes" ("Statement
109"). Tax provisions and credits are recorded at statutory
rates for taxable items included in the consolidated statements
of income regardless of the period for which such items are
reported for tax purposes. Deferred income taxes are recognized
for temporary differences between financial statement and income
tax bases of assets and liabilities for which income tax benefits
will be realized in future years.
NET INCOME PER COMMON SHARE
Net income per common share is computed based on the weighted
average number of common and common equivalent shares outstanding
for the period.
RECLASSIFICATION
Certain amounts in prior years have been reclassified to conform
to the 1994 presentation.
2. SPECIAL CHARGES
In December 1992, the Company's Board of Directors approved a
plan which included offering for sale the Company's Boston
Whaler, Inc. ("Boston Whaler") and Ellesse U.S.A., Inc.
("Ellesse") subsidiaries, a write-down of the carrying value of
its Avia subsidiary, the planned consolidation and relocation of
its performance apparel operation and certain other office
relocations. In connection therewith, the Company recorded a
$155,000 pre-tax special charge in 1992 for estimated costs and
losses to be incurred. The sale of Boston Whaler was completed
on July 30, 1993 and the sale of Ellesse was completed on
September 28, 1993. In connection with the sales, the Company
recorded an additional pre-tax special charge in 1993 of $8,449.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
_________________________________________________________________
December 31 1994 1993
____ ____
Land $ 32,243 $ 27,994
Buildings 60,440 41,709
Machinery and equipment 156,046 124,568
Leasehold improvements 34,506 25,355
_______ _______
283,235 219,626
Less accumulated depreciation
and amortization 118,387 89,019
_______ _______
$164,848 $130,607
======= =======
F-7
<PAGE>
4. INTANGIBLES
Intangibles consist of the following:
_________________________________________________________________
December 31 1994 1993
____ ____
Excess of purchase price over fair
value of assets acquired (net of
accumulated amortization of
$128,545 in 1994 and $126,316 in 1993) $ 49,811 $ 45,808
Other intangible assets:
Purchased technology 52,827 52,827
Company tradename and trademarks 50,104 50,019
Other 13,693 13,731
_______ _______
116,624 116,577
Less accumulated amortization 70,239 68,123
_______ _______
46,385 48,454
_______ _______
$ 96,196 $ 94,262
======= =======
5. SHORT-TERM BORROWINGS
The Company has various arrangements with numerous banks which
provide an aggregate of approximately $762,000 of uncommitted
facilities, substantially all of which are available to the
Company's foreign subsidiaries. Of this amount, $211,000 is
available for short-term borrowings and bank overdrafts, with the
remainder available for letters of credit for inventory
purchases. In addition to amounts reported as notes payable to
banks, approximately $331,000 was outstanding for open letters of
credit for inventory purchases at December 31, 1994.
On November 1, 1994, the Company replaced its existing $175,000
credit agreement with a $200,000 credit agreement which expires
on October 31, 1995 and a $100,000 loan agreement which expires
on October 31, 1999. These agreements, to the extent available,
support the Company's commercial paper program under which it can
issue up to $125,000.
The weighted average interest rate on notes payable to banks was
4.9% and 5.6% at December 31, 1994 and 1993, respectively.
6. LEASING ARRANGEMENTS
The Company leases various offices, warehouses, retail store
facilities and certain of its data processing and warehouse
equipment under lease arrangements expiring between 1995 and
2008. Minimum annual rentals for the five years subsequent to
December 31, 1994 and in the aggregate are as follows:
F-8
<PAGE>
_________________________________________________________________
1995 $ 29,049
1996 20,966
1997 15,073
1998 12,803
1999 10,154
2000 and thereafter 21,302
_______
Total minimum lease obligations $109,347
=======
Total rent expense for all operating leases amounted to $29,167,
$23,868 and $20,496 for the years ended December 31, 1994, 1993
and 1992, respectively.
7. LONG-TERM DEBT
Long-term debt consists of the following:
_________________________________________________________________
December 31 1994 1993
____ ____
9.75% debentures due September 15, 1998,
with interest payable semiannually on
March 15 and September 15 $ 99,645 $ 99,549
Medium-term notes, bearing interest at
rates approximating 6%, due February
11, 1998, with interest payable
semiannually on February 15 and
August 15 20,000 20,000
Bank and other notes payable 17,344 17,667
_______ _______
136,989 137,216
Less current portion 5,190 3,009
_______ _______
$131,799 $134,207
======= =======
Maturities of long-term debt during the five-year period ending
December 31, 1999 are $5,190 in 1995, $4,316 in 1996, $3,758 in
1997, $123,313 in 1998, and $88 in 1999.
Land and buildings, having a net book value of $24,168 at
December 31, 1994, are pledged as collateral for certain bank
notes payable.
8. EMPLOYEE BENEFIT PLANS
The Company sponsors defined contribution retirement plans
covering substantially all of its domestic employees and certain
employees of its foreign subsidiaries. Contributions are
determined at the discretion of the Board of Directors.
Aggregate contributions made by the Company to the plans and
charged to operations in 1994, 1993 and 1992 were $13,660,
$11,833 and $8,536 respectively.
9. STOCK PLANS
The Company has various stock option plans which provide for the
grant of options to purchase shares of the Company's common stock
to key employees, other persons or entities who make significant
contributions to the success of the Company, and eligible members
of the Company's Board of Directors. The Board of Directors
approved the 1994 Equity Incentive Plan on December
F-9
<PAGE>
15, 1993 which replaced three of the Company's existing stock
option and stock bonus plans. Under this new Equity Incentive
Plan, options may be incentive stock options or "non-qualified
options" under applicable provisions of the Internal Revenue
Code. The exercise price of any stock option granted may not be
less than fair market value at the date of grant except in
certain limited circumstances. The exercise period cannot exceed
ten years from the date of grant. The vesting schedule for
options granted under the 1994 Equity Incentive Plan is
determined by the Compensation Committee of the Board of
Directors. With respect to the Plan for Directors, grants vest
in equal annual installments over three years.
The following schedule summarizes the changes in stock options
during the three years ended December 31, 1994:
<TABLE>
<CAPTION>
_______________________________________________________________________________
NUMBER OF SHARES UNDER OPTION
_____________________________
INCENTIVE NON-QUALIFIED OPTION
STOCK OPTIONS STOCK OPTIONS PRICE PER SHARE
<S> <C> <C> <C>
Outstanding at December 31, 1991 3,516 5,848,755 1.42-30.63
Granted - 544,000 21.38-39.77
Exercised (3,516) (538,097) 1.42-20.46
Cancelled - (343,520) 10.63-31.25
_________ _________
Outstanding at December 31, 1992 - 5,511,138 8.75-39.77
Granted - 1,605,800 11.38-41.74
Exercised - (310,730) 8.75-27.63
Cancelled - (399,240) 11.38-33.25
_________ _________
Outstanding at December 31, 1993 - 6,406,968 8.75-41.74
Granted - 212,797 28.88-38.88
Exercised - (352,255) 8.75-33.25
Cancelled - (387,935) 11.38-41.74
________ _________
Outstanding at December 31, 1994 - 5,879,575 8.75-39.77
======== ========= ===========
</TABLE>
At December 31, 1994 and 1993, options to purchase 3,241,684 and
2,485,340 shares of common stock were exercisable, and 4,351,514
and 5,785,355 options, respectively, were available for future
grants under the Company's stock option plans.
The 1994 Equity Incentive Plan also provides for the Company to
grant restricted stock to key employees, and other persons or
entities who make significant contributions to the success of the
Company. The vesting schedule for restricted stock granted under
this Plan is determined by the Compensation Committee of the
Board of Directors.
The Company has two employee stock purchase plans. Under the
1987 Employee Stock Purchase Plan eligible employees are granted
options to purchase shares of the Company's common stock through
voluntary payroll deductions during two option periods, running
from January 1 to June 30 and from July 1 to December 31, at the
lower of 85% of market value at the beginning or end of each
period. The number of options granted to each employee under
this plan is limited to a fair market value of $12.5 during each
option period. Under the 1992 Employee Stock Purchase Plan, for
certain foreign based employees, eligible employees are granted
options to purchase shares of the Company's common stock during
two option periods, running from January 1 to June 30 and from
July 1 to December 31, at the market price at the beginning of
the period. The option becomes exercisable 90 days following the
date of grant and expires on the last day of the option period.
F-10
<PAGE>
During 1994, 1993 and 1992, respectively, 158,965, 149,977, and
152,310 shares were issued pursuant to these plans.
In June 1990, the Company adopted a shareholders' rights plan and
declared a dividend distribution of one common stock purchase
right ("Right") for each share of common stock outstanding. Each
Right entitles the holder to purchase one share of the Company's
common stock at a price of $60 per share, subject to adjustment.
The Rights will be exercisable only if a person or group of
affiliated or associated persons acquires beneficial ownership of
10% or more of the outstanding shares of the Company's common
stock or commences a tender or exchange offer that would result
in a person or group owning 10% or more of the outstanding common
stock, or in the event that the Company is subsequently acquired
in a merger or other business combination. When the Rights
become exercisable, each holder would have the right to purchase,
at the then-current exercise price, common stock of the surviving
company having a market value of two times the exercise price of
the Right. The Company can redeem the Rights at $.01 per Right
at any time prior to expiration on June 14, 2000.
At December 31, 1994, 11,176,621 shares of common stock were
reserved for issuance under the Company's various stock plans and
92,121,330 shares were reserved for issuance under the
shareholders' rights plan.
10. ACQUISITION OF COMMON STOCK
On October 4, 1994, the Board of Directors authorized the
repurchase of up to an additional $200,000 in Reebok common stock
in open market or privately-negotiated transactions. This
authorization was in addition to the $200,000 share repurchase
programs adopted by the Company in July 1992 and July 1993. As
of December 31, 1994, the Company had approximately $223,600
available for future repurchases of common stock under these
programs.
11. FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company to
estimate the fair value of its financial instruments:
Cash and cash equivalents and notes payable to banks: the
carrying amounts reported in the balance sheet approximate fair
value. Long term-debt: the fair value of the Company's corporate
bonds is estimated based on quoted market prices. The fair value
of other long-term debt is estimated using discounted cash flow
analyses, based on the Company's incremental borrowing rates for
similar types of borrowing arrangements. Unrealized gains or
losses on foreign currency exchange contracts: the fair value of
the Company's foreign currency exchange contracts is estimated
based on current foreign exchange rates.
The carrying amounts and fair value of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
_______________________________________________________________________________
Carrying Fair
Amount Value
________ _____
December 31 1994 1993 1994 1993
____ ____ ____ ____
<S> <C> <C> <C> <C>
Long-term debt $136,989 $137,216 $139,842 $146,504
Unrealized gains (losses) on
foreign currency exchange
contracts (2,152) 1,662 (179) 4,516
F-11
<PAGE>
The Company enters into forward currency exchange contracts to
hedge its exposure for merchandise purchased in U.S. dollars that
will be sold to customers in other currencies. Realized and
unrealized gains and losses on these contracts are included in
net income except that gains and losses on contracts which hedge
specific foreign currency commitments are deferred and accounted
for as a part of the transaction.
The Company also uses forward currency exchange contracts to
hedge significant intercompany assets and liabilities denominated
in other than the functional currency. Contracts used to hedge
intercompany balances are marked to market and the resulting
transaction gain or loss is included in the determination of net
income. Foreign currency gains or losses included in net income
for the years ended December 31, 1994, 1993 and 1992 were not
significant.
At December 31, 1994, the Company had forward currency exchange
contracts, all having maturities of less than one year, with a
notional amount aggregating $306 million. Deferred gains on
these contracts at December 31, 1994 and 1993, approximated $2
million and $2.9 million, respectively.
12. OTHER INCOME
Other income in 1992 included a gain of $29,648 resulting from
the sale of 1,161,403 shares of common stock of CML acquired upon
the exercise of a warrant obtained as part of the October 1989
purchase of Boston Whaler.
13. INCOME TAXES
The components of income before income taxes are as follows:
_________________________________________________________________
1994 1993 1992
____ ____ ____
Domestic $171,166 $141,428 $ 22,453
Foreign 237,306 221,819 235,511
_______ _______ _______
$408,472 $363,247 $257,964
======= ======= =======
The provision for income taxes consists of the following:
_________________________________________________________________
1994 1993 1992
____ ____ ____
Current:
Federal $ 66,879 $ 39,725 $ 68,456
State 16,607 14,082 15,588
Foreign 83,840 68,555 97,292
_______ _______ _______
167,326 122,362 181,336
_______ _______ _______
Deferred:
Federal (3,038) 16,244 (23,868)
State (303) (310) (1,100)
Foreign (9,991) 1,536 (13,222)
_______ _______ _______
(13,332) 17,470 (38,190)
_______ _______ _______
$153,994 $139,832 $143,146
======= ======= =======
In 1992, deferred tax credits attributable to special charges
approximated $16,200.
F-12
<PAGE>
Undistributed earnings of the Company's foreign subsidiaries
amounted to approximately $316,099, $215,559 and $161,421 at
December 31, 1994, 1993 and 1992, respectively. Those earnings
are considered to be indefinitely reinvested and, accordingly, no
provision for U.S. federal and state income taxes has been
provided thereon. Upon distribution of those earnings in the
form of dividends or otherwise, the Company would be subject to
both U.S. income taxes and foreign withholding taxes, less an
adjustment for applicable foreign tax credits. Determination of
the amount of U.S. income tax liability that would be incurred is
not practicable because of the complexities associated with its
hypothetical calculation; however, unrecognized foreign tax
credits would be available to reduce some portion of any U.S.
income tax liability.
Income taxes computed at the federal statutory rate differ from
amounts provided as follows:
_________________________________________________________________
1994 1993 1992
____ ____ ____
Tax at statutory rate 35.0% 35.0% 34.0%
State taxes, less federal tax effect 2.6 2.5 3.7
Effect of tax rates of foreign
subsidiaries and joint ventures (1.3) (.8) 2.1
Amortization of intangibles .5 .6 .8
Special charges - - 13.9
Other, net .9 1.2 1.0
____ ____ ____
Provision for income taxes 37.7% 38.5% 55.5%
===== ===== =====
Effective January 1, 1993, the Company adopted Statement 109.
Under Statement 109, the liability method is used in accounting
for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. Prior to
the adoption of Statement 109, income tax expense was based on
items of income and expense that were reported in different years
in the financial statements and tax returns and were measured at
the tax rate in effect in the year the difference originated.
As permitted by Statement 109, the Company did not to restate the
financial statements of any prior years. The effect of the
change on net income for 1993 was not material.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes.
Deferred taxes are attributable to the following temporary
differences at December 31:
_________________________________________________________________
1994 1993
____ ____
Inventory $34,757 $27,595
Accounts receivable 27,825 26,252
Other - net 6,784 2,187
______ ______
$69,366 $56,034
====== ======
F-13
<PAGE>
14. OPERATIONS BY GEOGRAPHIC AREA
Sales to unaffiliated customers, net income and identifiable
assets by geographic area are summarized below:
_________________________________________________________________
1994 1993 1992
____ ____ ____
Sales:
United States $1,974,904 $1,775,496 $1,982,153
United Kingdom 506,658 434,249 414,745
Europe 502,029 465,770 425,451
Other countries 296,827 218,385 200,278
_________ _________ _________
$3,280,418 $2,893,900 $3,022,627
========= ========= =========
Net income:
United States $126,916 $ 98,692 $ (852)
United Kingdom 62,949 65,734 75,112
Europe 28,290 34,575 24,964
Other countries 36,323 24,414 15,594
------- ------- -------
$254,478 $223,415 $114,818
========= ========= =========
Identifiable assets:
United States $ 963,462 $ 916,962 $ 929,495
United Kingdom 282,795 152,206 172,012
Europe 221,771 146,541 95,384
Other countries 181,433 176,002 148,455
--------- --------- ---------
$1,649,461 $1,391,711 $1,345,346
========= ========= =========
There are various differences between income before income taxes
for domestic and foreign operations as shown in Note 13 and net
income shown above.
15. CONTINGENCIES
On February 5, 1993, a lawsuit was filed against the Company and
its then wholly owned subsidiary Ellesse U.S.A., Inc., in the
United States District Court for the District of Massachusetts.
A second related lawsuit was filed on August 10, 1993 in the
United States District Court for the District of Massachusetts.
These two cases have been consolidated. Both complaints allege,
among other things, that the Company breached an agreement with
the plaintiff and misappropriated trade secrets in connection
with the development of the Company's THE PUMP inflatable
technology and its procurement of its patent for the basic THE
PUMP technology. The complaint requests a declaratory judgment
stating that the plaintiff is the owner/inventor of the Company's
THE PUMP patent, an assignment of the Company's patent, recovery
of the Company's profits and other substantial damages from the
Company.
On July 1, 1993, a lawsuit was filed against the Company in the
Central District of Los Angeles County Superior Court and
subsequently moved to the United States District Court for the
District of California. The complaint alleges, among other
things, fraud, misappropriation and conversion, unfair
competition, tortious interference with prospective economic
advantage in connection with the development of the Company's THE
PUMP technology and patent infringement. The complaint requests
compensatory damages, punitive damages, costs and attorneys'
fees.
F-14
<PAGE>
On February 7, 1994, a lawsuit was filed against the Company in
California Superior Court challenging the Company's resale
pricing practices in California under California state law and
seeking unspecified damages, including treble damages, injunctive
relief and costs.
The Company intends to vigorously defend these lawsuits and
believes that these lawsuits are without merit, and further
believes that it is unlikely any subsequent outcome would have a
material adverse effect on the financial condition of the
Company.
F-15
<PAGE>
Quarterly Results of Operations
</TABLE>
<TABLE>
<CAPTION>
Amounts in thousands, except per share data
___________________________________________________________________________
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Net sales $857,366 $776,753 $937,148 $709,151
Gross profit 337,522 307,774 375,330 293,654
Net income 65,789 51,008 84,655 53,026
Net income per common share .77 .60 1.01 .64
Cash dividends per common share .075 .075 .075 .075
Year ended December 31, 1993
Net sales $825,220 $657,613 $808,493 $602,574
Gross profit 335,381 267,282 322,644 248,724
Net income 67,769 41,028 63,933 50,685
Net income per common share .74 .46 .74 .59
Cash dividends per common share .075 .075 .075 .075
Net income for the third quarter of 1993 includes an after-tax
special charge of $7,037 ($.08 per share).
F-16
<PAGE>
Report of Management
FINANCIAL STATEMENTS
The management of Reebok International Ltd. and its subsidiaries
has prepared the accompanying financial statements and is
responsible for their integrity and fair presentation. The
statements, which include amounts that are based on management's
best estimates and judgments, have been prepared in conformity
with generally accepted accounting principles and are free of
material misstatement. Management has also prepared other
information in the annual report and is responsible for its
accuracy and consistency with the financial statements.
INTERNAL CONTROL SYSTEM
Reebok International Ltd. and its subsidiaries maintain a system
of internal control over financial reporting, which is designed
to provide reasonable assurance to the Company's management and
Board of Directors as to the integrity and fair presentation of
the financial statements. Management continually monitors the
system of internal control for compliance, and actions are taken
to correct deficiencies as they are identified. Even an
effective internal control system, no matter how well designed,
has inherent limitations--including the possibility of the
circumvention or overriding of controls--and therefore can
provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in
conditions, internal control system effectiveness may vary over
time.
The Company maintains an internal auditing program that monitors
and assesses the effectiveness of the internal controls system
and recommends possible improvements thereto. The Company's
accompanying financial statements have been audited by Ernst &
Young LLP, independent auditors, whose audit was made in
accordance with generally accepted auditing standards and
included a review of the system of internal accounting controls
to the extent necessary to determine the audit procedures
required to support their opinion on the consolidated financial
statements. Management believes that, as of December 31, 1994,
the Company's system of internal control is adequate to
accomplish the objectives discussed herein.
Reebok International Ltd.,
/S/ PAUL FIREMAN
Paul Fireman
Chairman
President and Chief Executive Officer
/S/ PAUL R. DUNCAN
Paul R. Duncan
Executive Vice President and Chief Financial Officer
F-17
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
REEBOK INTERNATIONAL LTD.
(Amounts in thousands)
Balance at Charged to Charged to Deductions Balance at
Beginning Costs and Other From End of
DESCRIPTION of Period Expenses Accounts Allowances (a) Period
------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $46,455 $6,691 $8,284 $44,862
YEAR ENDED DECEMBER 31, 1993
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts 43,224 8,562 5,331 46,455
YEAR ENDED DECEMBER 31, 1992
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts 44,751 13,854 15,381 43,224
(a) Uncollectible accounts written off, net of recoveries
</TABLE>
F-18
<PAGE>
EXHIBIT INDEX
EXHIBIT LOCATION
3.1 Restated Articles of Organization Incorporated by
of the Company, as amended reference
3.2 By-laws, as amended Incorporated by
reference
4.1 Indenture, dated September 15, 1988, Incorporated by
between Reebok International Ltd. reference
and Citibank N.A., as Trustee
4.2 First Supplemental Indenture, Incorporated by
dated as of January 22, 1993, reference
between Reebok International Ltd.
and Citibank N.A., as Trustee
4.3 Common Stock Rights Agreement dated Incorporated by
as of June 14, 1990 between the reference
Company and The First National Bank
of Boston, as Rights Agent, as amended
10.1 Distributorship Agreement between Incorporated by
Reebok International Limited and reference
the Company
10.2 Trademark License Agreement between Incorporated by
Reebok International Limited and the reference
Company
10.3 Continuing Letter of Credit Agreement, Incorporated by
dated August 1, 1989, between the reference
Company and State Street Bank and
Trust Company; and Letter Agreement
between The Rockport Company, Inc.
and Norwest Bank, Master Security
Agreement for Irrevocable Documentary
Letters of Credit and Guarantee of the
Company, all dated August 1,1989
10.4 Credit Facility Agreement between Incorporated by
Reebok International Limited and reference
Citibank dated November 7, 1991
10.5 Lease Agreement dated March 1, 1988 Incorporated by
between Reebok International Ltd. and reference
North Stoughton Industrial Park
Development Trust
<PAGE>
EXHIBIT INDEX
EXHIBIT LOCATION
10.6 Amendments to Lease Agreement Filed herewith
dated March 1, 1988 between
Reebok International Ltd. and
North Stoughton Industrial Park
Development Trust
10.7 Purchase and Sale Agreement between Incorporated by
Reebok International Ltd. and Pentland reference
Group plc dated March 8, 1991
10.8 Agreements with various banks in Hong Incorporated by
Kong reflecting arrangements for letter reference
of credit facilities
10.9 Third Amended and Restated Master Filed herewith
Agreement between the Company and
Bank of America Oregon dated as
of July 1, 1993, as amended
10.10 $200,000,000 Credit Agreement and Incorporated by
$100,000,000 Loan Agreement, each reference
dated as of November 1, 1994, among
the Company, the Lenders named therein
and Credit Suisse as Administrative
Agent and Arranger
10.11 Reebok International Ltd. 1994 Equity Filed herewith
Incentive Plan
10.12 Reebok International Ltd. Equity and Filed herewith
Deferred Compensation Plan for Directors
10.13 Reebok International Ltd. 1985 Stock Incorporated by
Option Plan, as amended reference
10.14 Reebok International Ltd. 1987 Stock Incorporated by
Option Plan for Directors, as amended reference
10.15 Reebok International Ltd. 1987 Stock Incorporated by
Bonus Plan reference
10.16 Reebok International Ltd. Excess Incorporated by
Benefits Plan reference
10.17 Stock Option Agreement with Paul Incorporated by
B. Fireman reference
<PAGE>
EXHIBIT INDEX
EXHIBIT Location
10.18 Split-Dollar Life Insurance Agreement Incorporated by
with Paul B. Fireman reference
10.19 Contingent Severance Agreement with Incorporated by
Paul R. Duncan reference
10.20 Employment Agreement with John H. Incorporated by
Duerden reference
10.21 Contingent Severance Agreement with Incorporated by
John H. Duerden reference
10.22 Change of Control Agreement with Incorporated by
John B. Douglas III reference
10.23 Employment Agreement with Kenneth Incorporated by
Watchmaker reference
10.24 Change of Control Agreement with Incorporated by
Kenneth Watchmaker reference
10.25 Supplemental Retirement Program for Incorporated by
Kenneth Watchmaker reference
10.26 Employment Agreement with Roberto Incorporated by
Muller reference
10.27 Contingent Severance Agreement with Incorporated by
Angel Martinez reference
10.28 Lease with Angel Martinez Incorporated by
reference
11. Statement Re Computation of Per Filed herewith
Share Earnings
12. Statement Re Computation of Ratio Filed herewith
of Earnings to Fixed Charges
21.1 List of Subsidiaries of the Company Filed herewith
23.1 The consent of Ernst & Young LLP Filed herewith
27. Financial Data Schedule Filed herewith
<PAGE>
EXHIBIT 10.6
LEASE AMENDMENT NO. 4
This Lease Amendment No. 4 entered into the 8th day of
April, 1994 by and between LEWIS HEAFITZ, Trustee of North
Stoughton Industrial Park Development Trust ("Landlord") and
Reebok International Limited ("Tenant").
Reference is made to a certain Lease between Landlord and
Tenant dated March 1, 1988, as amended (the "Lease"), relating to
the leased premises located at 100 Technology Center, Stoughton,
Massachusetts.
In consideration of the mutual promises contained herein,
Landlord and Tenant do hereby agree to further amend the Lease as
follows:
1. Section 2.3 of the Lease is amended by deleting the
first sentence thereof and inserting in lieu thereof
the following:
"SECTION 2.3 Original Lease Term; Option Terms.
The original term of this Lease shall be for the period
of seven (7) years commencing on July 1, 1989 and
ending June 30, 1996, unless sooner terminated as
hereinafter provided."
2. Section 3.1 of the Lease is amended by deleting the
first sentence thereof and inserting in lieu thereof
the following two sentences:
"SECTION 3.1 Annual Rent. The Tenant shall pay
to the Landlord for each Lease Year during the first
six (6) years of the Original Lease Term, without set
off or deduction whatsoever and without demand, Annual
Rent (based upon a rate of $18.00 per rentable square
foot per year) in the amount of Three Million Five
Hundred Thirty-Nine Thousand One Hundred Seventy-Two
Dollars ($3,539,172.00) payable at the rate of Two
Hundred Ninety-Four Thousand Nine Hundred Thirty-One
Dollars ($294,931.00) per month. The Tenant shall pay
to the Landlord for the Lease Year commencing July 1,
1995 and ending June 30, 1996, without set off or
deduction whatsoever and without demand, Annual Rent
(based upon a rate of $17.00 per rentable square foot
per year) in the amount of Three Million Three Hundred
Forty-Two Thousand Five Hundred Fifty-Seven Dollars
($3,342,557.00) payable at the rate of Two Hundred
Seventy-Eight Thousand Five Hundred Forty-Six Dollars
($278,546.00) per month."
3. This Lease Amendment No. 4 is subject to the parties
obtaining the written consent of Metropolitan Life
Insurance Company to this Amendment within thirty (30)
days from the date hereof.
Except as amended herein, the Lease is hereby ratified and
confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment to Lease as an instrument under seal on the day and the
year first written above.
TENANT: LANDLORD:
REEBOK INTERNATIONAL LIMITED NORTH STOUGHTON INDUSTRIAL
PARK DEVELOPMENT TRUST
/s/ PAUL FIREMAN /s/ LEWIS HEAFITZ
Title: Chairman LEWIS HEAFITZ, Trustee and not
Hereunto duly authorized individually
-2-
<PAGE>
LEASE AMENDMENT NO. 5
This Lease Amendment No. 5 entered into this 9th day of
Sept., 1994 by and between Lewis Heafitz, Trustee of North
Stoughton Industrial Park Development Trust ("Landlord") and
Reebok International Limited ("Tenant") relating to the premises
located at 100 Technology Center Drive, Stoughton, Massachusetts
("Premises").
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and
sufficiency of which is hereby acknowledged, Landlord and Tenant
hereby agree to further amend the Lease as follows:
1. Section 2.3 of the Lease (as amended by Lease Amendment No.
4 dated April 8, 1994) is hereby amended and restated in its
entirety to read as follows:
"Section 2.3 Original Lease Term; Option Terms. The
original term of this Lease shall be for the period of seven
(7) years commencing on July 1, 1989 (the "Commencement
Date") and ending June 30, 1996, unless sooner terminated as
hereinafter provided. Provided Tenant is not in default
hereunder beyond any period allowed for the cure thereof,
Tenant may extend the Original Lease Term for the Interim
Option Term, which right and option may be exercised by
Tenant giving Landlord written notice thereof not less than
fifteen (15) months before the end of the Original Lease
Term, whereupon this Lease will be so extended on all the
same terms and conditions of this Lease except as such terms
and conditions apply to the amount of Basic Annual Rent,
which amount is as determined in Section 3.2. The Interim
Option Term shall be a period of either six (6) months or
one (1) year as elected by the Tenant and as set forth in
the Notice hereinabove required.
Provided Tenant is not in default hereunder beyond any
period allowed for the cure thereof, Tenant may extend the
Interim Option Term for the First Option Term which right
and option may be exercised by Tenant giving Landlord
written notice thereof not less than nine (9) months before
the end of the Interim Option Term whereupon the term will
be so extended on all the same terms and conditions of this
Lease except as such terms and conditions apply to the
amount of Basic Annual Rent, which amount is as determined
in Section 3.2. For all purposes of this Lease the term
"First Option Term" shall be three (3) years commencing on
the expiration of the Interim Option Term.
Provided Tenant is not in default hereunder beyond any
period allowed for the cure thereof, Tenant may extend the
First Option Term for the Second Option Term, which right
and option may be exercised by Tenant giving Landlord
written notice thereof not less than nine (9) months before
the end of the First Option Term, whereupon this Lease will
be so extended on all the same terms and conditions of this
Lease except as such terms and conditions apply to the
amount of Basic Annual Rent, which amount is as determined
in Section 3.2, and except also that there shall be no
further option terms.
2. Section 3.2 of the Lease is hereby amended by adding
the following sentence thereto:
"The Annual Rent payable by the Tenant to the Landlord
during the Interim Option Term shall be at the rate of
Three Million Five Hundred Thirty-Nine Thousand One
Hundred Seventy-Two Dollars ($3,539,172.00) per annum
(based upon a rate of Eighteen Dollars ($18.00) per
rentable sq. ft.), payable at the rate of Two Hundred
Ninety-Four Thousand Nine Hundred Thirty-One Dollars
($294,931.00) per month.
3. Section 3.2 of the Lease is further amended to make it
clear that in the first sentence thereof the annual rent provided
in Section 3.1 shall be the annual rent payable during the first
six (6) years of the Original Lease Term.
4. This Lease Amendment No. 5 is subject to the parties
obtaining the written consent of Metropolitan Life Insurance
Company to this Amendment within thirty (30) days from the date
hereof.
Except as amended herein, the Lease is hereby ratified and
confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment to Lease as an instrument under seal as of the 9th day
of September, 1994.
TENANT: LANDLORD:
REEBOK INTERNATIONAL LIMITED NORTH STOUGHTON INDUSTRIAL
PARK DEVELOPMENT TRUST
By:/s/ KENNETH WATCHMAKER /s/ LEWIS HEAFITZ
Title: Exec. V.P. Lewis Heafitz, Trustee and
not individually
-2-
EXHIBIT 10.9
THIRD AMENDED AND RESTATED MASTER AGREEMENT
Date: As of July 1, 1993
Recitals:
A. On or as of June 26, 1990, Security Pacific Bank Oregon, an
Oregon banking corporation now known as Bank of America Oregon
(the "Bank"), and Reebok International Ltd., a corporation
organized under the laws of the Commonwealth of Massachusetts
("Reebok"), entered in an agreement (the "Master Agreement")
relating to certain credit and financial accommodations which the
Bank proposed to enter into from time to time with Avia Group
International, Inc., a corporation organized under the laws of
the state of Delaware ("Avia") and Avia's subsidiaries on a basis
discretionary to the Bank. Avia is a wholly-owned subsidiary of
Reebok. Capitalized terms which are not defined herein, but which
are defined in the Master Agreement, shall have the same meaning
as in the Master Agreement. Such credit extensions and financial
accommodations involved the issuance of Commercial Letters of
Credit and Standby Letters of Credit and advances pursuant to a
Note for multi-currency advances in Japanese Yen and Canadian
Dollars. On or as of June 26, 1991, the Bank and Reebok entered
into a First Amended and Restated Agreement (the "First Restated
Agreement") amending the Master Agreement in certain respects.
The Bank and Reebok desire to further amend the Master Agreement
and are therefore entering into this Third Amended and Restated
Master Agreement (the "Third Restated Agreement").
B. In connection with the First Restated Agreement, Avia executed
and delivered to the Bank its promissory note (the "First
Replacement Avia Note") dated June 27, 1991 providing for
discretionary advances in Japanese Yen or Canadian Dollars in an
aggregate principal amount not to exceed the United States dollar
equivalent of $7,000,000. As of June 26, 1992, there were no
outstanding unpaid advances under the First Replacement Avia
Note. The Bank and Reebok have terminated the credit relationship
evidenced by the First Replacement Avia Note.
C. In connection with the Master Agreement, Avia executed and
delivered to the Bank a SPACIFICS Master Continuing Commercial
Letter of Credit Agreement (the "SPACIFICS" Agreement").
Effective as of March 5, 1993 Avia executed and delivered to the
Bank a MicroTrade(R) Service Agreement (the "MicroTrade
Agreement"), Reebok consented to the execution of this Agreement
with the Bank by letter dated April 6, 1993. The MicroTrade
Agreement replaces in its entirety the SPACIFICS Agreement.
PAGE 1 - THIRD AMENDED AND RESTATED MASTER AGREEMENT
<PAGE>
Pursuant to the MicroTrade Agreement and SPACIFICS Agreement, the
Bank has issued certain Commercial Letters of Credit, certain of
which remain outstanding and unexpired as of the date of this
Third Agreement as summarized in Table 1 hereto. Prior to each
occasion on which the Bank issues a Commercial Letter of Credit,
the Bank will first require that Avia or the Applicant Subsidiary
communicate its request for such Letter of Credit by such
electronic means as are contemplated by the MicroTrade Agreement.
D. Pursuant to the Master Agreement, Reebok executed and
delivered to the Bank its general continuing guaranty (the
"Guaranty") dated June 26, 1990.
E. Forms of the Avia Note and the Guaranty are attached to the
Master Agreement as Exhibits A and E respectively. An executed
copy of the MicroTrade Agreement is attached to this Third
Amendment and Restated Master Agreement as Exhibit A.
F. Immediately prior to the execution of this Third Restated
Agreement, the Second Restated Agreement, the MicroTrade
Agreement and the Guaranty were in full force and effect.
G. The Bank and Reebok are entering into this Third Restated
Agreement with the intent that this Third Restated Agreement
shall supersede the Second Restated Agreement.
Terms of this Agreement
1. Bank is willing to consider requests from Avia to issue
commercial letters of credit, not exceeding at any one time
$25,000,000 in the aggregate, to be used solely to facilitate the
purchase of inventory. Any such requests may be accepted or
declined, in the Bank's sole discretion. Any letter of credit
issued must be issued prior to June 30, 1994, and must have a
tenor expiring no later than December 31, 1994.
This Third Amended Agreement does not constitute, and the Bank
has not made, a commitment to issue letters of credit. The Bank's
willingness to consider issuing commercial letters of credit is
further subject to Reebok and Avia's agreeing and complying, with
the terms of this Third Restated Agreement.
2. In connection herewith, Reebok warrants and represents to the
Bank as follows:
A. Reebok is a corporation duly organized and existing under the
laws of the Commonwealth of Massachusetts and is duly qualified
and authorized to do business and in good standing in every
PAGE 2 - THIRD AMENDED AND RESTATED MASTER AGREEMENT
<PAGE>
state, country or other jurisdiction in which the nature of its
business and property makes such qualification necessary, except
to the extent that failure to do so would not have a material
adverse effect on the business or financial condition of Reebok
and its subsidiaries taken as a whole.
B. Reebok has full power and authority to execute, deliver and
perform this Third Restated Agreement and to perform and observe
the terms and conditions hereof.
C. All corporate action on the part of Reebok necessary for the
authorization, execution, delivery and performance of this Third
Restated Agreement has been duly taken.
D. The officers of Reebok executing this Third Restated Agreement
are duly and properly in office and fully authorized to execute
the same.
E. This Third Restated Agreement, the MicroTrade Agreement and
the Guaranty have been duly authorized, executed and delivered,
or consented to, by Reebok and are the valid, legal and binding
agreements of Reebok or its affiliates, enforceable against it or
its affiliates in accordance with their terms.
F. The financial statements of Reebok and its subsidiaries dated
March 31, 1993, furnished to the Bank, except as noted therein,
have been prepared in accordance with generally accepted
accounting principles consistently applied and fairly present the
financial condition and the result of operations of Reebok and
its subsidiaries as of such date and for the three-month period
then ended subject to changes arising from audit and normal
year-end adjustment. The financial statements have been prepared
from the books and records of Reebok and its subsidiaries which,
to the best of Reebok's knowledge, are accurate in all material
respects. Since such date, there has been no change in Reebok's
financial condition or results of operations of such character as
to impair Reebok's ability to perform its obligations pursuant to
this Third Restated Agreement.
G. All financial and other information hereafter submitted by
Reebok to the Bank to induce the Bank to continue to extend
credit to Avia and Avia's subsidiaries, except as noted therein,
will be prepared in accordance with generally accepted accounting
principles and will fairly present the financial condition and
PAGE 3 - THIRD AMENDED AND RESTATED MASTER AGREEMENT
<PAGE>
result of operations of Reebok as of the dates thereof subject to
changes arising from audit and normal year end adjustment. The
financial statements will be prepared from the books and records
of Reebok and its subsidiaries which, to the best of Reebok's
knowledge, will be accurate in all material respects.
3. Prior to the first time the Bank shall issue a Commercial
Letter of Credit hereunder, Reebok shall furnish to the Bank
proof reasonably satisfactory to the Bank that Reebok's
execution, delivery and performance of this Third Restated
Agreement and the Guaranty have been duly authorized by all
necessary corporate action and that the persons executing this
Third Restated Agreement on behalf of Reebok have been authorized
to do so.
4. With respect to drafts under or purporting to be under a
Commercial Letter of Credit which are payable in United States
currency, Reebok agrees in the case of each sight draft to
reimburse the Bank at the Bank's office, on demand, in United
States dollars, the amount paid on such draft in the event that
Avia or the Applicant Subsidiary fails to do so. The Bank does
not intend to issue Commercial Letters of Credit under this Third
Restated Agreement in any currency other than United States
currency.
5. With respect to drafts described in paragraph 3 of this Third
Restated Agreement, Reebok hereby agrees to pay, on demand,
interest on the amount of such drafts from the date paid or
accepted by the Bank until reimbursed at annual rate equal to the
reference rate of Bank of America National Trust and Savings
Association (the "Reference Rate"). The Reference Rate is the
rate of interest publicly announced from time to time by Bank of
America National Trust and Savings Association as its reference
rate. Any change in the Reference Rate shall take effect on the
day specified in the public announcement of such change. The
Reference Rate is set by Bank of America National Trust and
Savings Association based on various factors, including costs and
desired return, general economic conditions and other factors and
is used as a reference point for pricing some loans. Loans may be
priced at, above or below the Reference Rate.
6. With respect to drafts described in paragraph 3, Reebok agrees
to pay, on demand, the Bank's commission for each Letter of
Credit set forth in Table 2 hereto.
7. Reebok and the Bank further agree that:
A. The MicroTrade Agreement shall continue in effect and Letters
of Credit issued on or after the date of this Third Restated
Agreement shall be issued pursuant to and subject to the terms of
the MicroTrade Agreement.
PAGE 4 - THIRD AMENDED AND RESTATED MASTER AGREEMENT
B. This Third Restated Agreement is an amendment to the Master
Agreement for the purposes of the Guaranty to the end that the
Guaranty is applicable to financial accommodations and extensions
of credit by the Bank to Avia or subsidiaries of Avia pursuant to
the Third Restated Agreement.
8. As soon as available, and in any event (i) within 60 days
after the end of each of the first three fiscal quarters in any
fiscal year, Reebok shall deliver to the Bank, Reebok's balance
sheet, income statement, statement of changes in financial
positions and statement of cash flows as of and for the period
ending on the last day of such quarter together with a copy of a
compliance certificate for such quarter certifying that Reebok is
not in default under its $175,000,000 revolving line of credit
with Credit Suisse, as agent Bank, or under any replacement of
such line of credit (the "Credit Suisse Line of Credit"); and
(ii) within 120 days after the end of each fiscal year, Reebok
shall deliver to the Bank Reebok's balance sheet, income
statement, statement of changes in financial position and
statement of cash flows as of and for the period ending on the
last day of such fiscal year, audited by independent certified
public accountants, together with a copy of a compliance
certificate for such annual period certifying that Reebok is not
in default under the Credit Suisse Line of Credit.
9. Reebok will deliver to the Bank as soon as available, all
reports sent by Reebok to its shareholders and all quarterly and
annual reports filed by Reebok with the Securities and Exchange
Commission and all other statements, reports and other
information as the Bank may reasonably request concerning the
financial condition and business affairs of Reebok and its
subsidiaries.
10. Neither the Bank nor Reebok shall be deemed to have waived
any of its rights hereunder, unless the party against which any
such waiver shall be enforced shall have signed such waiver in
writing. No such waiver, unless expressly stated therein, shall
be effective as to any transaction which occurs subsequent to the
date of such waiver, nor as to any continuance of a breach after
such waiver.
11. Nothing in this Agreement obligates the Bank to issue
Commercial Letters of Credit, it being understood that the
issuance of Commercial Letters of Credit is purely discretionary
to the Bank.
12. The Bank agrees that it shall not modify the MicroTrade
Agreement between the Bank and Avia or any Applicant Subsidiary
without the prior written consent of Reebok.
PAGE 5 - THIRD AMENDED AND RESTATED MASTER AGREEMENT
<PAGE>
13. Reebok may terminate this Third Restated Agreement but only
by first giving written notice to the Bank. Such notice may be
given by U.S. mail or by an overnight delivery service of
recognized reputation, addressed to the Bank at the following
address if given by U.S. Mail:
Bank of America Oregon
Commercial Banking, #2089
PO Box 6400
Portland, Oregon 97228-6400
Attention: John F. Wharton
Or at the following address if given by overnight delivery:
Bank of America Oregon
Commercial Banking, #2089
121 SW Morrison, Suite 1700
Portland, Oregon 97204
Attention: John F. Wharton
Such notice shall be deemed to have been received by the Bank on
the third business day after having been deposited in the U.S.
mail and on the business day next following the day when
delivered to an overnight delivery service, if so given. Such
notice shall be effective as of the end of the third business day
after receipt by the Bank. The termination of this Third Restated
Agreement shall not impair Reebok's responsibility for
transactions pursuant to the Commercial Letter of Credit Line of
Credit effected or completed prior to such notice becoming
effective.
14. Reebok is entering into this Third Restated Agreement based
upon its understanding of the financial condition of Avia and
Avia's subsidiaries and not based upon any representation made by
the Bank with respect to such financial condition. Reebok
acknowledges that Reebok is in a position to know and to obtain
information in the future regarding such financial conditions.
The Bank undertakes no duty to advise Reebok regarding the
financial condition of Avia and Avia's subsidiaries.
15. Reebok waives notice of the acceptance of this Third Restated
Agreement by the Bank, of requests for the issuance of Commercial
Letters of Credit by Avia or an Applicant Subsidiary, of
nonpayment or other default by Avia or of any Applicant
Subsidiary and any other notice of any kind, including those of
any action or non-action on the part of Avia, any Applicant
Subsidiary or the Bank, and further agrees that the Bank's
failure to give such notice or notices shall not adversely impair
Reebok's obligations pursuant to this Third Restated Agreement or
the Guaranty. Reebok waives any requirement that the Bank
PAGE 6 - THIRD AMENDED AND RESTATED MASTER AGREEMENT
<PAGE>
proceed first against Avia or any Applicant Subsidiary to collect
any indebtedness of Avia or any Applicant Subsidiary to the Bank
pursuant to this Third Restated Agreement.
16. Reebok agrees to pay all costs and expenses incurred by the
Bank in enforcing this Third Restated Agreement, including
reasonable attorney fees, even if no suit, action or other
proceeding is commenced for that purpose, and if commenced, such
costs, expenses and attorney fees at trial, on appeal and
otherwise.
17. This Third Restated Agreement shall be binding upon and shall
inure to the benefit of the Bank, Reebok and their respective
successors and assigns and shall be governed by and interpreted
in accordance with the laws of the state of Oregon.
UNDER OREGON LAW MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE
BY FINANCIAL INSTITUTIONS (AS DEFINED IN ORS 706.005) AFTER
OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS
WHICH ARE NOT PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED
SOLELY BY THE BORROWERS' RESIDENCE MUST BE IN WRITING, EXPRESS
CONSIDERATION AND BE SIGNED BY US TO BE ENFORCEABLE.
BANK OF AMERICA OREGON
By: /S/ JOHN F. WHARTON
Title: Vice President
REEBOK INTERNATIONAL LTD.
By: /S/ PAUL R. DUNCAN
Title: Executive Vice President and
Chief Financial Officer
Table 1: Summary of outstanding Commercial Letters of Credit
Table 2: Fee Schedule
Exhibit A: MicroTrade Service Agreement
PAGE 7 - THIRD AMENDED AND RESTATED MASTER AGREEMENT
<PAGE>
AMENDMENT NO. 1 TO THIRD AMENDMENT AND
RESTATED MATER AGREEMENT
This Amendment No. 1 (the "Amendment") dated as of July 1, 1994,
is between Bank of America (the "Bank") and Reebok International
Ltd. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Third
Amended and Restated Master Agreement dated as of July 1, 1993
(the "Agreement").
B. The Bank and the Borrower desire to amend the
Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in
this Amendment shall have the meaning given to them in the
Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 Paragraph 1 under "Terms of this Agreement" is
amended to change the dates "June 30, 1994" to "June 30, 1995"
and "December 31, 1994" to "December 31, 1995".
3. Effect of Amendment. Except as provided in this
Amendment, all of the terms and conditions of the Agreement shall
remain in full force and effect.
This Amendment is executed as of the date stated at the
beginning of this Amendment.
Bank of American Oregon
Reebok
International Ltd.
/S/ JOHN F. WHARTON /S/ LEO S. VANNONI
By: John F. Wharton By: Leo S. Vannoni
Title: Vice President Title: Treasurer
EXHIBIT 10.11
REEBOK INTERNATIONAL LTD.
1994 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this 1994 Equity Incentive Plan (the
"Plan") is to advance the interests of Reebok International Ltd.
(the "Company") and its subsidiaries by enhancing the ability of
the Company to (i) attract and retain employees and other persons
or entities who are in a position to make significant
contributions to the success of the Company and its subsidiaries;
(ii) reward such persons for such contributions; and (iii)
encourage such persons to take into account the long-term
interest of the Company through ownership of shares ("Shares") of
the Company's common stock ("Stock").
The Plan is intended to accomplish these goals by enabling
the Company to grant awards ("Awards") in the form of Options,
Stock Appreciation Rights, Restricted Stock or Deferred Stock,
all as more fully described below.
2. ADMINISTRATION
The Plan will be administered by the Compensation and
Nominating Committee (the "Committee") of the Board of Directors
of the Company (the "Board") which will be constituted to permit
the Plan to comply with Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or any successor rule and to comply with the requirements for a
compensation committee composed of outside directors under
Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"). The Committee will determine the recipients of
Awards, the times at which Awards will be made and the size and
type or types of Awards to be made to each recipient and will set
forth in such Awards the terms, conditions and limitations
applicable to it. Awards may be made singly, in combination or
in tandem. The Committee will have full and exclusive power to
interpret the Plan, to adopt rules, regulations and guidelines
relating to the Plan, to grant waivers of Plan restrictions and
to make all of the determinations necessary for its
administration. Such determinations and actions of the
Committee, and all other determinations and actions of the
Committee made or taken under authority granted by any provision
of the Plan, will be conclusive and binding on all parties.
Nothing in this paragraph shall be construed as limiting the
power of the Committee or the Board to make adjustments under
Section 12 or to amend or terminate the Plan under Section 17.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it
is approved by the stockholders of the Company. Grants of Awards
under the Plan may be made prior to that date, subject to such
approval of the Plan.
The Plan will terminate ten years after the effective date
of the Plan, subject to earlier termination of the Plan by the
Board pursuant to Section 17. No Award may be granted under the
Plan after the termination date of the Plan, but Awards
previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 12 below,
(i) the maximum aggregate number of Shares of Stock that may be
delivered for all purposes under the Plan shall be 5,000,000 and
(ii) the maximum number of Shares of Stock awarded to any
Participant (as defined in Section 5 below) in any calendar year
under the Plan shall be (x) 250,000 Shares of Stock in the case
of all Participants other than the Chief Executive Officer and/or
President of the Company and (y) 500,000 Shares of Stock in the
case of the Chief Executive Officer and/or President of the
Company. The maximum aggregate number of Shares of Stock which
may be issued under the Plan pursuant to the exercise of ISOs (as
defined in Section 7 below) shall be 1,000,000. The maximum
amount of compensation (other than Stock) that may be awarded to
any Participant in any calendar year under the Plan shall be
$2,000,000.
If any Award requiring exercise by the Participant for
delivery of Stock is canceled or terminates without having been
exercised in full, or if any Award payable in Stock or cash is
satisfied in cash rather than Stock, the number of Shares of
Stock as to which such Award was not exercised or for which cash
was substituted will be available for future grants of Stock
except that Stock subject to an Option canceled upon the exercise
of an SAR shall not again be available for Awards under the Plan
unless, and to the extent that, the SAR is settled in cash.
Likewise, if any Award payable in Stock or cash is satisfied in
Stock rather than cash, the amount of cash for which such Stock
was substituted will be available for future Awards of cash
compensation. Shares of Stock tendered by a Participant or
withheld by the Company to pay the exercise price of an Option or
to satisfy the tax withholding obligations of the exercise or
vesting of an Award shall be available again for Awards under the
Plan, but only to Participants who are not subject to Section 16
of the Exchange Act. Shares of Restricted Stock forfeited to the
Company in accordance with the Plan and the terms of the
particular Award shall be available again for Awards under the
Plan unless the Participant has received the benefits of
ownership (within the applicable interpretation under Rule 16b-3
under the Exchange Act), in which case such Shares may only be
available for Awards to Participants who are not subject to
Section 16 of the Exchange Act.
Stock delivered under the Plan may be either authorized but
unissued Stock or previously issued Stock acquired by the Company
and held in treasury. No fractional Shares of Stock will be
delivered under the Plan and the Committee shall determine the
manner in which fractional share value will be treated.
5. ELIGIBILITY AND PARTICIPATION
Those eligible to receive Awards under the Plan
("Participants") will be persons in the employ of the Company or
any of its subsidiaries ("Employees") and other persons or
entities who, in the opinion of the Committee, are in a position
to make a significant contribution to the success of the Company
or its subsidiaries, except that non-Employee directors of the
Company or a subsidiary of the Company are not eligible to
participate in this Plan. A "subsidiary" for purposes of the
Plan will be a corporation in which the Company owns, directly or
indirectly, stock possessing 50% or more of the total combined
voting power of all classes of stock.
6. DELEGATION OF AUTHORITY
The Committee may delegate to senior officers of the
Company who are also directors of the Company (including, without
limitation, the Chief Executive Officer and/or President) its
duties under the Plan subject to such conditions and limitations
as the Committee may prescribe, except that only the Committee
may designate and make grants to Participants (i) who are subject
to Section 16 of the Exchange Act or any successor statute,
including, without limitation, decisions on timing, amount and
pricing of Awards, or (ii) whose compensation is covered by
Section 162(m) of the Code.
7. OPTIONS
a. Nature of Options. An Option is an Award
entitling the Participant to purchase a specified number of
Shares at a specified exercise price. Both "incentive stock
options," as defined in Section 422 of the Code (referred to
herein as an "ISO") and non-incentive stock options may be
granted under the Plan. ISOs may be awarded only to Employees.
b. Exercise Price. The exercise price of each Option
shall be determined by the Committee, but in the case of an ISO
shall not be less than 100% (110% in the case of an ISO granted
to a ten-percent shareholder) of the Fair Market Value of a Share
at the time the ISO is granted; nor shall the exercise price of
any other Option be less than 100% of the Fair Market Value of a
Share at the time the Option is granted except that (i) Options
may be granted to Participants who are not executive officers of
the Company at less than Fair Market Value, (ii) in connection
with an amendment of an Option which, in the opinion of the
Committee, is or may be treated for tax or Section 16 purposes as
a new grant of the Option, the exercise price of such amended
Option may be equal to the exercise price of the original Option
even if such exercise price is less than Fair Market Value, and
(iii) in connection with an acquisition, consolidation, merger or
other extraordinary transaction, Options may be granted at less
than Fair Market Value in order to replace existing Options at
comparable value; provided, that, in no case shall the exercise
price of an Option be less, in the case of an original issue of
authorized Stock, than the par value of a Share. For purposes of
this Plan, "Fair Market Value" shall mean, except as provided
below, the closing price of a Share as reported on the New York
Stock Exchange on the date of the grant (based on The Wall Street
Journal report of composite transactions) or, if the New York
Stock Exchange is closed on the date of grant, the next preceding
date on which it is open or, if the Shares are no longer listed
on such Exchange, such term shall have the same meaning as it
does in the case of ISOs. In the case of ISOs, the term "Fair
Market Value" shall have the same meaning as it does in the
provisions of the Code and the regulations thereunder applicable
to ISOs. For purposes of this Plan, "ten-percent shareholder"
shall mean any Employee who at the time of grant owns directly,
or is deemed to own by reason of the attribution rules set forth
in Section 424(d) of the Code, Stock possessing more than 10% of
the total combined voting power of all classes of stock of the
Company or of any of its subsidiaries.
c. Duration of Options. In no case shall an Option
be exercisable more than ten years (five years, in the case of an
ISO granted to a "ten-percent shareholder" as defined in (b)
above) from the date the Option was granted.
d. Exercise of Options and Conditions. Options
granted under any single Award will become exercisable at such
time or times, and on and subject to such conditions, as the
Committee may specify. The Committee may at any time and from
time to time accelerate the time at which all or any part of the
Option may be exercised.
e. Payment for and Delivery of Stock. Full payment
for Shares purchased will be made at the time of the exercise of
the Option, in whole or in part. Payment of the purchase price
will be made in cash or in such other form as the Committee may
approve, including, without limitation, delivery of Shares of
Stock.
8. STOCK APPRECIATION RIGHTS
a. Nature of Stock Appreciation Rights. A Stock
Appreciation Right (an "SAR") is an Award entitling the recipient
to receive payment, in cash and/or Stock, determined in whole or
in part by reference to appreciation in the value of a Share. In
general, an SAR entitles the recipient to receive, with respect
to each Share as to which the SAR is exercised, the excess of the
Fair Market Value of a Share on the date of exercise over the
Fair Market Value of a Share on the date the SAR was granted.
However, the Committee may provide at the time of grant that the
amount the recipient is entitled to receive will be adjusted
upward or downward under rules established by the Committee to
take into account the performance of the Shares in comparison
with the performance of other stocks or an index or indices of
other stocks.
b. Grant of SARs. SARs may be granted in tandem
with, or independently of, Options granted under the Plan. An
SAR granted in tandem with an Option which is not an ISO may be
granted either at or after the time the Option is granted. An
SAR granted in tandem with an ISO may be granted only at the time
the Option is granted.
c. Exercise of SARs. An SAR not granted in tandem
with an Option will become exercisable at such time or times, and
on such conditions, as the Committee may specify. An SAR granted
in tandem with an Option will be exercisable only at such times,
and to the extent, that the related Option is exercisable. An
SAR granted in tandem with an ISO may be exercised only when the
market price of the Shares subject to the Option exceeds the
exercise price of such Option. The Committee may at any time and
from time to time accelerate the time at which all or part of the
SAR may be exercised.
9. RESTRICTED STOCK.
A Restricted Stock Award entitles the recipient to
acquire Shares, subject to certain restrictions or conditions,
for no cash consideration, if permitted by applicable law, or for
such other consideration as determined by the Committee. The
Award may be subject to such restrictions, conditions and
forfeiture provisions as the Committee may determine, including,
but not limited to, restrictions on transfer; continuous service
with the Company; achievement of business objectives; and
individual, unit and Company performance. Subject to such
restrictions, conditions and forfeiture provisions as may be
established by the Committee, any Participant receiving an Award
will have all the rights of a stockholder of the Company with
respect to Shares of Restricted Stock, including the right to
vote the Shares and the right to receive any dividends thereon.
10. DEFERRED STOCK
A Deferred Stock Award entitles the recipient to
receive Shares to be delivered in the future. Delivery of the
Shares will take place at such time or times, and on such
conditions, as the Committee may specify. The Committee may at
any time accelerate the time at which delivery of all or any part
of the Shares will take place. At the time any Deferred Stock
Award is granted, the Committee may provide that the Participant
will receive an instrument evidencing the Participant's right to
future delivery of Deferred Stock.
11. TRANSFERS
No Award (other than an Award in the form of an
outright transfer of cash or Stock) may be assigned, pledged or
transferred other than by will or by the laws of descent and
distribution and during a Participant's lifetime will be
exercisable only by the Participant or, in the event of a
Participant's incapacity, his or her guardian or legal
representative.
12. ADJUSTMENTS
a. In the event of a stock dividend, stock split or
combination of Shares, recapitalization or other change in the
Company's capitalization, or other distribution to common
stockholders other than normal cash dividends, after the
effective date of the Plan, the Committee will make any
appropriate adjustments to the maximum number of Shares that may
be delivered under the Plan and to any Participant under Section
4 above.
b. In any event referred to in paragraph (a), the
Committee will also make any appropriate adjustments to the
number and kind of Shares of Stock or securities subject to
Awards then outstanding or subsequently granted, any exercise
prices relating to Awards and any other provision of Awards
affected by such change. The Committee may also make such
adjustments to take into account material changes in law or in
accounting practices or principles, mergers, consolidations,
acquisitions, dispositions or similar corporate transactions, or
any other event, if it is determined by the Committee that
adjustments are appropriate to avoid distortion in the operation
of the Plan.
13. RIGHTS AS A STOCKHOLDER
Except as specifically provided by the Plan, the
receipt of an Award will not give a Participant rights as a
stockholder; the Participant will obtain such rights, subject to
any limitations imposed by the Plan or the instrument evidencing
the Award, upon actual receipt of Shares. However, the Committee
may, on such conditions as it deems appropriate, provide that a
Participant will receive a benefit in lieu of cash dividends that
would have been payable on any or all Shares subject to the
Participant's Award had such Shares been outstanding.
14. CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any Shares
pursuant to the Plan or to remove any restrictions or legends
from Shares previously delivered under the Plan until, (a) in the
opinion of the Company's counsel, all applicable federal and
state laws and regulations have been complied with, (b) if the
outstanding Shares are at the time listed on any stock exchange,
until the Shares to be delivered have been listed or authorized
to be listed on such exchange upon official notice of notice of
issuance, and (c) until all other legal matters in connection
with the issuance and delivery of such Shares have been approved
by the Company's counsel. If the sale of Shares has not been
registered under the Securities Act of 1933, as amended, the
Company may require, as a condition to exercise of the Award,
such representations and agreements as counsel for the Company
may consider appropriate to avoid violation of such Act and may
require that the certificates evidencing such Shares bear an
appropriate legend restricting transfer.
If an Award is exercised by the Participant's legal
representative, the Company will be under no obligation to
deliver Shares pursuant to such exercise until the Company is
satisfied as to the authority of such representative.
15. TAX WITHHOLDING
The Company will have the right to deduct from any cash
payment under the Plan taxes that are required to be withheld and
further to condition the obligation to deliver or vest Shares
under this Plan upon the Participant's paying the Company such
amount as it may request to satisfy any liability for applicable
withholding taxes. The Committee may in its discretion permit
Participants to satisfy all or part of their withholding
liability by delivery of Shares with a Fair Market Value equal to
such liability or by having the Company withhold from Stock
delivered upon exercise of an Award, Shares whose Fair Market
Value is equal to such liability.
16. MERGERS; ETC.
In the event of any merger or consolidation involving
the Company, any sale of substantially all of the Company's
assets or any other transaction or series of related transactions
as a result of which a single person or several persons acting in
concert own a majority of the Company's then outstanding Stock
(such merger, consolidation, sale or other transaction being
hereinafter referred to as a "Transaction"), all outstanding
Options and SARs shall become immediately exercisable and each
outstanding share of Restricted Stock and each outstanding
Deferred Stock Award shall immediately become free of all
restrictions and conditions. Upon consummation of the
Transaction, all outstanding Options and SARs shall terminate and
cease to be exercisable. There shall be excluded from the
foregoing any Transaction as a result of which (a) the holders of
Stock prior to the Transaction retain or acquire securities
constituting a majority of the outstanding voting common stock of
the acquiring or surviving corporation or other entity and (b) no
single person owns more than half of the outstanding voting
common stock of the acquiring or surviving corporation or other
entity. For purposes of this Section, voting common stock of the
acquiring or surviving corporation or other entity that is
issuable upon conversion of convertible securities or upon
exercise of warrants or options shall be considered outstanding,
and all securities that vote in the election of directors (other
than solely as the result of a default in the making of any
dividend or other payment) shall be deemed to constitute that
number of shares of voting common stock which is equivalent to
the number of such votes that may be cast by the holders of such
securities.
In lieu of the foregoing, if there is an acquiring or
surviving corporation or entity, the Committee may, by vote of a
majority of the members of the Committee who are Continuing
Directors (as defined below), arrange to have such acquiring or
surviving corporation or entity or an Affiliate (as defined
below) thereof grant to Participants holding outstanding Awards
replacement Awards which, in the case of ISOs, satisfy, in the
determination of the Committee, the requirements of Section
425(e) of the Code.
The term "Continuing Director" shall mean any director of
the Company who (i) is not an Acquiring Person or an Affiliate of
an Acquiring Person and (ii) either was (A) a member of the Board
of Directors of the Company on the date hereof or (B) nominated
for his or her initial term of office by a majority of the
Continuing Directors in office at the time of such nomination.
The term "Acquiring Person" shall mean, with respect to any
Transaction, each Person who is a party to or a participant in
such Transaction or who, as a result of such Transaction, would
(together with other Persons acting in concert) own a majority of
the Company's outstanding Common Stock; provided, however, that
none of the Company, any wholly-owned subsidiary of the Company,
any employee benefit plan of the Company or any trustee in
respect thereof acting in such capacity shall, for purposes of
this Section, be deemed an "Acquiring Person". The term
"Affiliate", with respect to any Person, shall mean any other
Person who is, or would be deemed to be, an "affiliate" or an
"associate" of such Person within the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as
amended. The term "Person" shall mean a corporation,
association, partnership, joint venture, trust, organization,
business, individual or government or any governmental agency or
political subdivision thereof.
17. AMENDMENTS AND TERMINATION
The Committee will have the authority to make such
amendments to any terms and conditions applicable to outstanding
Awards as are consistent with this Plan provided that, except for
adjustments under Section 12 hereof, no such action will modify
such Award in a manner adverse to the Participant without the
Participant's consent except as such modification is provided for
or contemplated in the terms of the Award.
The Board may amend, suspend or terminate the Plan except
that no such action may be taken, without shareholder approval,
which would effectuate any change for which shareholder approval
is required pursuant to Section 16 of the Exchange Act.
18. PRIOR PLANS
This Plan is intended to replace the Reebok
International Ltd. 1985 Stock Option Plan, the Reebok
International Ltd. 1986 Stock Option Plan for Selected
Individuals and the Reebok International 1987 Stock Bonus Plan
(collectively the "Prior Plans"), which Prior Plans shall
automatically be terminated and replaced and superseded by this
Plan on the date on which this Plan becomes effective.
19. MISCELLANEOUS
This Plan shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts.
EXHIBIT 10.12
REEBOK INTERNATIONAL LTD.
EQUITY AND DEFERRED COMPENSATION
PLAN FOR DIRECTORS
1. PURPOSE
The purpose of this Equity and Deferred Compensation
Plan for Directors (the "Plan") is to advance the interests of
Reebok International Ltd. (the "Company") by enhancing the
ability of the Company to attract and retain directors who are in
a position to make significant contributions to the success of
the Company and to reward directors for such contributions (a)
through ownership of shares of the Company's common stock (the
"Stock") and (b) by providing a means whereby directors may defer
all or a portion of their directors fees.
2. ADMINISTRATION
The Plan shall be administered by a committee (the
"Committee") of the Board of Directors (the "Board") of the
Company, which will be constituted to permit the Plan to comply
with Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Committee shall have
authority, not inconsistent with the express provisions of the
Plan, (a) to issue options in accordance with the Plan to such
directors as are eligible to receive options; (b) to prescribe
the form or forms of instruments evidencing options and any other
instruments required under the Plan and to change such forms from
time to time; (c) to prescribe the forms and procedures in
connection with any election or designation with respect to the
deferral of directors fees; (d) to adopt, amend and rescind rules
and regulations for the administration of the Plan; and (e) to
interpret the Plan and to decide any questions and settle all
controversies and disputes that may arise in connection with the
Plan. Subject to Section 11 and to the extent such actions are
consistent with the exemptions provided under Rule 16b-3
promulgated under the Exchange Act, the Committee shall also have
the authority, both generally and in particular instances, to
waive compliance by a director with any obligation to be
performed by him or her under the Plan and to waive any
condition, restriction or provision imposed under the Plan. Such
determinations and actions of the Committee, and all other
determinations and actions of the Committee made or taken under
authority granted by any provision of the Plan, will be
conclusive and binding on all parties. Nothing in this paragraph
shall be construed as limiting the power of the Committee or the
Board to make adjustments under Section 5(c) or to amend or
terminate the Plan under Section 11.
3. DELEGATION OF AUTHORITY
The Committee may delegate to designated senior
officers of the Company its duties under the Plan subject to such
conditions and limitations as the Committee may prescribe. The
Chief Financial Officer of the Company, as the designee of the
Committee, shall act as the administrator (the "Administrator")
of the deferred compensation provisions of the Plan and shall
have authority to prescribe forms and procedures in connection
with any election to defer compensation made under the Plan.
4. EFFECTIVE DATE OF PLAN
The Plan shall become effective on the date on which
the Plan is approved by the shareholders of the Company.
5. SHARES SUBJECT TO THE PLAN
a. Number of Shares. Subject to adjustment as
provided in Section 5(c), the aggregate number of shares of Stock
that may be delivered upon the exercise of options granted under
the Plan and may be credited to the Deferred Stock Accounts (as
defined in Section 8(b)) of directors under the Plan shall be
300,000. If any option granted under the Plan terminates without
having been exercised in full, the number of shares of Stock as
to which such option was not exercised shall be available for
future grants within the limits set forth in this Section 5(a).
b. Shares to be Delivered. Shares delivered under
the Plan shall be authorized but unissued Stock or, if the Board
so decides in its sole discretion, previously issued Stock
acquired by the Company and held in treasury. No fractional
shares of Stock shall be delivered under the Plan.
c. Changes in Stock. In the event of a stock
dividend, stock split or combination of shares, recapitalization
or other change in the Company's capital stock, or other
distribution to common stockholders other than normal cash
dividends, after the effective date of the Plan, the maximum
number of shares that may be delivered under the Plan, the number
and kind of shares of Stock of the Company credited to the
Deferred Stock Accounts of directors or subject to options then
outstanding or subsequently granted under the Plan, the exercise
price of options granted under the Plan, and other relevant
provisions shall be appropriately adjusted by the Committee,
whose determination shall be binding on all persons.
6. ELIGIBILITY
Directors eligible to participate in the Plan
("Eligible Directors") shall be any director who (i) is not an
officer or employee of the Company and (ii) is not a holder of
more than 5% of the outstanding shares of Stock of the Company or
a person who is in control of such holder.
7. TERMS AND CONDITIONS OF OPTIONS
a. Number of Options. Commencing on the Effective
Date of this Plan, each Eligible Director, upon his or her first
election to the Board, shall be awarded options covering shares
of Stock with a fair market value on the date of such election
equal to six times the average annual cash compensation received
by all Directors for the immediately prior calendar year.
On April 28 of each year, commencing with April 28, 1995,
each Eligible Director shall be awarded for each year of service
options covering shares of Stock with a fair market value on the
date of such grant equal to three times the average annual cash
compensation received by all Directors for the immediately prior
calendar year. If less than one full year elapses between an
initial grant and an annual grant, the Eligible Director shall
receive options covering shares of Stock for each quarter (or
portion thereof) of service with a fair market value on the date
of grant equal to one-fourth of the average annual cash
compensation received by all Directors for the immediately prior
calendar year.
For purposes of this Section 7(a), "fair market value" shall
mean the closing price of the Stock as reported on the New York
Stock Exchange on the date of election or grant, as the case may
be (based on The Wall Street Journal report of composite
transactions) or, if the New York Stock Exchange is closed on the
date of election or grant, the next preceding date on which it is
open or, if the Stock is no longer listed on such Exchange, it
shall have the same meaning as it does in the provisions of the
Internal Revenue Code of 1986, as amended (the "Code") and the
regulations thereunder applicable to incentive options.
b. Exercise Price. The exercise price of each option
shall be 100% of the fair market value per share of the Stock at
the time the option is granted. For this purpose, "fair market
value" shall mean the closing price of the Stock as reported on
the New York Stock Exchange on the date of the grant (based on
The Wall Street Journal report of composite transactions) or, if
the New York Stock Exchange is closed on the date of grant, the
next preceding date on which it is open or, if the Stock is no
longer listed on such Exchange, it shall have the same meaning as
it does in the provisions of the Code and the regulations
thereunder applicable to incentive options.
c. Duration of Options. The latest date on which an
option may be exercised shall be the date which is ten years from
the date the option was granted.
d. Exercise of Options.
(1) Each option shall become exercisable to the
extent of thirty-three and one-third percent (33 1/3%) of the
shares covered thereby on each of the first, second and third
anniversaries of the date of the grant.
(2) Any exercise of an option shall be in
writing, signed by the proper person and delivered or mailed to
the Company, accompanied by (a) the option certificate and any
other documents required by the Committee and (b) payment in full
for the number of shares for which the option is exercised, as
provided in paragraph (e) below.
(3) If an option is exercised by the executor or
administrator of a deceased director, or by the person or persons
to whom the option has been transferred by the director's will or
the applicable laws of descent and distribution, the Company
shall be under no obligation to deliver Stock pursuant to such
exercise until the Company is satisfied as to the authority of
the person or persons exercising the option.
(4) The Company shall have the right to settle
any option, and to terminate the rights of the holder thereof, by
paying to the option holder in cash the difference between the
fair market value of the Stock at the time of settlement and the
purchase price.
e. Payment for Stock. Stock purchased under the Plan
shall be paid for as follows: (i) in cash or by certified check,
bank draft or money order payable to the order of the Company,
(ii) through the delivery of shares of Stock having a fair market
value on the last business day preceding the date of exercise
equal to the purchase price; (iii) by a combination of cash and
Stock as provided in clauses (i) and (ii) above; or (iv) by
delivery of a properly executed notice with an undertaking by a
broker to deliver promptly to the Company the amount of sale
proceeds to pay the exercise price.
An option holder shall not have the rights of a shareholder
with regard to awards under the Plan except as to Stock actually
received by him or her under the Plan.
f. Nontransferability of Options. No option may be
transferred other than by will or by the laws of descent and
distribution, and during a director's lifetime an option may be
exercised only by him or her.
g. Death. Upon the death of any Eligible Director
granted options under this Plan, all options not then exercisable
shall terminate. All options held by the director that are
exercisable immediately prior to death may be exercised by his or
her executor or administrator, or by the person or persons to
whom the option is transferred by will or the applicable laws of
descent and distribution, at any time within the three-year
period ending with the third anniversary of the director's death
(subject, however, to the limitations of Section 6(c) regarding
the maximum exercise period for such option).
h. Other Termination of Status of Director. If a
director's service with the Company terminates for any reason
other than death, all options held by the director that are not
then exercisable shall terminate. Options that are exercisable
on the date of termination shall continue to be exercisable for a
period of three months (subject, however, to the limitations of
Section 6(c) regarding the maximum exercise period for such
options). After completion of that three-month period, such
options shall terminate to the extent not previously exercised,
expired or terminated.
8. TERMS AND CONDITIONS OF DEFERRAL OF COMPENSATION
a. Deferral of Fees. Any Eligible Director may elect
to defer in either cash or Stock all or a portion of the annual
retainer and meeting fees ("Fees") payable by the Company for his
or her services as a director for any calendar year by delivering
a deferral election to the Administrator not later than (i)
December 31 of the year immediately preceding the year to which
the deferral election relates, or (ii) with respect to a
Director's first year or partial year of service as a director,
thirty days following the date on which such Director first
became a director. The election form shall specify the amount or
portion of the Fees to be deferred; whether and to what extent
such Fees are to be deferred in cash or in Stock; the manner of
payment with respect to such deferred amounts; and if such Fees
are deferred in cash, the date on which the deferred amounts
shall be paid in a lump sum or in which installment payments
shall commence or if such Fees are deferred in Stock, the date on
which such Stock shall be distributed. Such election shall
remain in force for such calendar year and for each year
thereafter until changed or revoked by the director by written
notice to the Administrator not later than December 31
immediately preceding the year to which such change or revocation
relates. A deferral election may not be changed or revoked after
the beginning of the year to which it relates.
b. Accounts; Interest and Dividend Credits.
(1) On the first day of each calendar quarter
(the "Credit Date"), an Eligible Director who elects to defer his
or her Fees shall receive a credit to his or her deferred
compensation accounts (the "Deferred Compensation Accounts")
under the Plan as hereinafter provided. Any portion of a
participant's Fees which are deferred in cash shall be credited
to the participant's Cash Deferral Account. The amount of the
credit shall equal the amount of Fees deferred in cash by the
participant during the immediately preceding calendar quarter.
Any portion of a participant's Fees which are deferred in Stock
shall be credited to the participant's Deferred Stock Account.
The amount of the credit to such Deferred Stock Account shall be
the number of shares of Stock (rounded to the nearest one
hundredth of a share) determined by dividing the amount of the
participant's Fees deferred in Stock during the immediately
preceding quarter by the closing price of a share of Stock of the
Company as reported on the New York Stock Exchange on the Credit
Date (based on The Wall Street Journal report of composite
transactions) or, if the New York Stock Exchange is closed on the
Credit Date, the next preceding date on which it is open.
(2) On the first day of each calendar quarter, an
amount shall be credited to each participant's Cash Deferral
Account equal to the Interest Rate (as hereinafter defined) on
the balance credited to the Cash Deferral Account during the
immediately preceding calendar quarter. Interest shall accrue on
the balance of each participant's Cash Deferral Account
commencing with the date the first payment is credited thereto
and ending with the final payment therefrom. For this purpose,
"Interest Rate" shall mean, with respect to any calendar quarter,
the Merrill Lynch Corporate Bond Rate then in effect.
(3) Each time a dividend is paid on the Stock, a
participant who has a positive balance in his or her Deferred
Stock Account shall receive a credit to such Account. The amount
of the dividend credit shall be the number of shares of Stock
(rounded to the nearest one-hundredth of a share) determined by
multiplying the dividend amount per share by the number of shares
credited to the participant's Deferred Stock Account as of the
record date for the dividend and dividing the product by the
closing price per share of Stock reported on the New York Stock
Exchange on the dividend payment date (based on The Wall Street
Journal report of composite transactions) or, if the New York
Stock Exchange is closed on the dividend payment date, the next
preceding date on which it is open.
c. Payment. The balance of a director's Deferred
Compensation Accounts shall be paid to the director (or, in the
event of death, to his or her designated beneficiary or estate)
as follows: (1) in the case of a Cash Deferral Account such
balance shall be paid, at the director's option, either (i) in a
single lump sum as soon as practicable following the earlier of
(x) the date on which the director ceases to serve as a director
of the Company or (y) the date specified by the director as the
distribution date (such earlier date shall be referred to as the
"Distribution Date"), or (ii) in annual installments over a
period, to be specified by the director, not to exceed ten years
commencing as soon as practicable after the Distribution Date,
and (2) in the case of a Deferred Stock Account, such balance
shall be distributed in Stock on the Distribution Date. If a
directors's Cash Deferral Account is paid in installments, the
amount of each installment shall be (1) the balance of the Cash
Deferral Account on the Distribution Date divided by the number
of installments plus (2) interest credits. Upon the death of a
director, the Administrator may elect to pay any remaining
benefits in a single lump sum.
d. Designation of Beneficiary. Each director may
designate in writing a beneficiary to receive such portion, if
any, of the director's Deferred Compensation Accounts as remains
unpaid at the director's death. In the absence of a valid
beneficiary designation, that portion, if any, of an Account
remaining unpaid at the director's death shall be paid to his or
her estate.
e. Nature of Promise. The Company shall not be
required to segregate or earmark any funds or Stock in respect of
its obligations under Section 8 of the Plan. No director nor any
other person shall have any rights to any assets of the Company
by reason of amounts deferred or benefits accrued under this
Plan, other than as a general unsecured creditor of the Company.
f. No Assignment. Rights to benefits under this
Section 8 of the Plan may not be assigned, pledged or otherwise
alienated, other than in accordance with the beneficiary
designation provisions of Section 8(d) above.
9. CONDITIONS ON DELIVERY OF STOCK
The Company shall not be obligated to deliver any
shares of Stock pursuant to options granted under the Plan or in
connection with the distribution of Stock from a director's
Deferred Stock Account (a) until, in the opinion of the Company's
counsel, all applicable federal and state laws and regulations
have been complied with, and (b) if the outstanding Stock is at
the time listed on any stock exchange, until the shares to be
delivered have been listed or authorized to be listed on such
exchange upon official notice of issuance, and (c) until all
other legal matters in connection with the issuance and delivery
of such shares have been approved by the Company's counsel. If
the sale of Stock has not been registered under the Securities
Act of 1933, as amended, the Company may require, as a condition
to exercise of the option or to the distribution of a director's
Deferred Stock Account, such representations or agreements as
counsel for the Company may consider appropriate to avoid
violation of such Act and may require that the certificates
evidencing such Stock bear an appropriate legend restricting
transfer.
10. MERGERS; ETC.
In the event of any merger or consolidation involving
the Company, any sale of substantially all of the Company's
assets or any other transaction or series of related transactions
as a result of which a single person or several persons acting in
concert own a majority of the Company's then outstanding Stock
(such merger, consolidation, sale or other transaction being
hereinafter referred to as a "Transaction"), (i) all outstanding
options shall become exercisable prior to the consummation of
such Transaction and the Committee shall take all necessary
actions to ensure that such options remain exercisable for a
period of at least 20 days prior to the consummation and (ii) any
outstanding balance in a director's Cash Deferral Account shall
be paid in a lump sum and any outstanding balance in a director's
Deferred Stock Account shall be distributed in Stock prior to the
consummation of such Transaction. Upon consummation of the
Transaction, all outstanding options shall terminate and cease to
be exercisable. There shall be excluded from the foregoing any
Transaction as a result of which (a) the holders of Stock prior
to the Transaction retain or acquire securities constituting a
majority of the outstanding voting common stock of the acquiring
or surviving corporation or other entity and (b) no single person
owns more than half of the outstanding voting common stock of the
acquiring or surviving corporation or other entity. For purposes
of this Section, voting common stock of the acquiring or
surviving corporation or other entity that is issuable upon
conversion of convertible securities or upon exercise of warrants
or options shall be considered outstanding, and all securities
that vote in the election of directors (other than solely as the
result of a default in the making of any dividend or other
payment) shall be deemed to constitute that number of shares of
voting common stock which is equivalent to the number of such
votes that may be cast by the holders of such securities.
Notwithstanding the foregoing, in the event that any person
or group of persons commences a tender offer for shares of the
Stock within the scope of Regulation 14D under the Exchange Act
(a "Tender Offer"), all outstanding options shall become
immediately exercisable. Any shares of Stock received upon this
accelerated exercise that are not purchased pursuant to the offer
(whether by failure of the offer or otherwise) shall be subject
to repurchase at the exercise price by the Company, at its
option, upon termination of the optionee's service as director,
in accordance with the vesting schedule that corresponds to the
schedule of exercisability for the option under which the shares
of Stock were acquired. In addition, in the event of a Tender
Offer, any outstanding balance in a director's Cash Deferral
Account shall be paid in a lump sum and any outstanding balance
in a director's Deferred Stock Account shall be distributed in
Stock prior to the commencement of such Tender Offer.
11. AMENDMENTS AND TERMINATION
The Committee may at any time discontinue granting
options under the Plan. The Committee may at any time or times
amend or terminate the Plan, provided that (except to the extent
expressly required or permitted herein above), (a) no such
amendment shall, without the approval of the shareholders of the
Company, effectuate any other change for which shareholder
approval is required under Section 16 of the Exchange Act, and
(b) no such amendment shall adversely affect the rights of any
director (without his or her consent) under any option previously
granted or reduce the then existing balance of any director's
Cash Deferral or Deferred Stock Account. In the event of
termination of the Plan, the Board of Directors may elect to
satisfy all obligations under Section 8 of the Plan by
distributing remaining Deferred Compensation Account balances in
immediate lump sum payments in cash, in Stock or in such other
manner as it may determine.
12. PRIOR PLANS
This Plan is intended to replace the Reebok
International Ltd. Deferred Cash Compensation Plan for Directors
and the Reebok International Ltd. 1987 Stock Option Plan for
Directors (collectively the "Prior Plans"), which Prior Plans
shall automatically be terminated and replaced and superseded by
this Plan on the date on which this Plan becomes effective.
13. MISCELLANEOUS
This Plan shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts.
REEBOK INTERNATIONAL LTD.
(Amounts in thousands, except per share data)
Exhibit 11 - Statement RE: Computation of Per Share Earnings
<TABLE>
<CAPTION>
1994 1993 1992
____ ____ ____
<S> <C> <C> <C>
Primary
_______
Average shares outstanding 82,228 86,462 90,742
Net effect of dilutive stock options 2,083 1,886 1,955
_______ _______ _______
Total 84,311 88,348 92,697
======= ======= =======
Net income $254,478 $223,415 $114,818
======= ======= =======
Per share amount $3.02 $2.53 $1.24
======= ======= =======
Fully Diluted
_____________
Average shares outstanding 82,228 86,462 90,742
Net effect of dilutive stock options 2,455 1,911 2,277
_______ _______ _______
Total 84,683 88,373 93,019
======= ======= =======
Net income $254,478 $223,415 $114,818
======= ======= =======
Per share amount $3.01 $2.53 $1.23
======= ======= =======
</TABLE>
<PAGE>
REEBOK INTERNATIONAL LTD.
(Amounts in Thousands)
Exhibit 12 - Statement RE: Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Earnings
Pretax income $408,472 $363,247 $257,964 $389,886 $294,835
Add:
Interest on indebtedness 16,515 25,021 20,080 29,295 18,857
Amortization of debt
discount and issuance
costs 1,914 1,368 1,914 1,741 96
Interest on letters of
credit included in cost
of goods sold 40 - 40 87 1,503
Portions of rent
representative of the
interest factor 6,764 7,876 6,764 5,393 4,297
_______ _______ _______ _______ _______
Income as adjusted $433,705 $397,512 $286,762 $426,402 $319,588
======= ======= ======= ======= =======
Fixed Charges
Interest on indebtedness $20,080 $25,021 $20,080 $29,295 $18,857
Amortization of debt
discount and issuance
costs 1,914 1,368 1,914 1,741 96
Interest on letters of
credit included in cost
of goods sold 40 - 40 87 1,503
Portions of rent
representative of the
interest factor 6,764 7,876 6,764 5,393 4,297
------- ------- ------- ------- -------
Fixed charges $28,798 $34,265 $28,798 $36,516 $24,753
======= ======= ======= ======= =======
Ratio of earnings to
fixed charges 15.1 11.6 10.0 11.7 12.9
======= ======= ======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REEBOK INTERNATIONAL LTD.
Jurisdiction of
Incorporation or
Name Organization
RBK Thailand, Inc. Massachusetts
Reebok Aviation, Inc. Massachusetts
Reebok Eastern Territories Inc. Massachusetts
Reebok Foundation, Inc. Massachusetts
Reebok International Securities Corp. Massachusetts
The Reebok Worldwide Trading Company, Ltd. Massachusetts
The Rockport Company, Inc. Massachusetts
AVIA Group International, Inc. Delaware
Kobeer Holdings, Inc. Delaware
RFC, Inc. Delaware
The Donner Mountain Corporation Oregon
Reebok Austria GmbH Austria
Rockport Gmbh Austria
RBK (Belgium) SA Belgium
Joggingsport SA Belgium
Reebok Do Brasil Servicos Brazil
a Participacoes Ltda
Rockport (South America) Industrial Ltda. Brazil
Beijing Reebok Sports Consultancy Ltd. British Virgin
Islands
Reebok (China) Holdings Ltd. British Virgin
Islands
Reebok Canada, Inc. Canada
Reebok France (S.A.) France
Rockport France S.a.r.L. France
EXHIBIT 21.1 - Page 2
SUBSIDIARIES OF REEBOK INTERNATIONAL LTD.
Jurisdiction of
Incorporation or
Name Organization
Sud Ouest Diffusion Sport France
ASL - American Sports and Leisure Germany
Vertriebs GMBH
Reebok Deutschland GmbH Germany
Reebok (China) Services Limited Hong Kong
Reebok Far East Ltd. Hong Kong
Reebok Trading (Far East) Limited Hong Kong
Reebok India Company India
Reebok Technical Services Private Limited India
Reebok Italia S.r.l. Italy
Rockport International Trading Italy
Co. Italy S.r.l.
Reebok Japan Inc. Japan
Rockport Japan Inc. Japan
Reebok Korea Limited Korea
Reebok Korea Technical Services Korea
Company, Ltd.
Reebok International Finance B.V. The Netherlands
Reebok Nederland B.V. The Netherlands
Rockport (Europe) B.V. The Netherlands
Rockport (Nederland) B.V. The Netherlands
Reebok (Philippines) Services Co., Inc. Philippines
Reebok Poland SA Poland
Reebok Russia Retail, Inc. Russia
EXHIBIT 21.1 - Page 3
SUBSIDIARIES OF REEBOK INTERNATIONAL LTD.
Jurisdiction of
Incorporation or
Name Organization
Reebok Leisure SA Spain
Reebok (South Africa) (Proprietary) Limited South Africa
Reebok (Switzerland) Ltd. Switzerland
Reebok (Taiwan) Services Company Taiwan
RBK Holdings plc United Kingdom
Reebok International Limited United Kingdom
Reebok UK Limited United Kingdom
Reebok Sports Limited United Kingdom
The Rockport Company Limited United Kingdom
J.W. Foster & Sons United Kingdom
(Athletic Shoes) Limited
The Rockport Company Limited United Kingdom
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
on Form S-3 (File Nos. 33-24114 and 33-32664) and Form S-8 (File Nos.
33-6989, 33-15729, 33-53954, 33-14698, 33-15089, 33-32663, 33-54562,
33-53523, 33-53525 and 33-53537) and related prospectuses of our report
dated January 31, 1995, with respect to the consolidated financial statements
and schedule of Reebok International Ltd. included in this Annual Report
(Form 10-K) for the year ended December 31, 1994.
ERNST & YOUNG LLP
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
March 27, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1994 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT
OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000770949
<NAME> REEBOK INTERNATIONAL LTD.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 83,936
<SECURITIES> 0
<RECEIVABLES> 577,337
<ALLOWANCES> 44,862
<INVENTORY> 624,625
<CURRENT-ASSETS> 1,337,444
<PP&E> 283,235
<DEPRECIATION> 118,387
<TOTAL-ASSETS> 1,649,461
<CURRENT-LIABILITIES> 505,588
<BONDS> 131,799
<COMMON> 1,172
0
0
<OTHER-SE> 989,333
<TOTAL-LIABILITY-AND-EQUITY> 1,649,461
<SALES> 3,280,418
<TOTAL-REVENUES> 3,280,418
<CGS> 1,966,138
<TOTAL-COSTS> 1,966,138
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,515
<INCOME-PRETAX> 408,472
<INCOME-TAX> 153,994
<INCOME-CONTINUING> 254,478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 254,478
<EPS-PRIMARY> 3.02
<EPS-DILUTED> 3.01
</TABLE>
