<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file number 1-9340
REEBOK INTERNATIONAL LTD.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2678061
- ----------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Technology Center Drive, Stoughton, Massachusetts 02072
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(Address of principal executive offices) (Zip Code)
(617) 341-5000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of registrant's common stock, par value $.01
per share, at July 26, 1996, was 72,536,700 shares.
<PAGE> 2
REEBOK INTERNATIONAL LTD.
INDEX
PART I. FINANCIAL INFORMATION:
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 1996 and
1995, and December 31, 1995 . . . . . . . . . . 2-3
Consolidated Statements of Income - Three and
Six Months Ended June 30, 1996 and 1995 . . . . 4
Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1996 and 1995 . . . . . . 5-6
Notes to Consolidated Financial Statements . . . 7-8
Item 2
Management's Discussion and Analysis of Results
Of Operations and Financial Condition . . . . . 9-15
Part II. OTHER INFORMATION:
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . 16
Items 2-3 Not Applicable . . . . . . . . . . . . . . . . . 16
Item 4 Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . 16
Item 5 Other Information . . . . . . . . . . . . . . . . 16
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . 17
<PAGE> 3
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995 1995
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 109,062 $ 89,661 $ 80,393
Accounts receivable, net
of allowance for doubtful
accounts (June 1996, $49,408;
June 1995, $51,370;
December 1995, $46,401) 654,549 627,804 506,563
Inventory 607,080 734,175 635,012
Deferred income taxes 63,696 76,447 75,543
Prepaid expenses and other
current assets 36,316 28,784 45,418
---------- ---------- ----------
Total current assets 1,470,703 1,556,871 1,342,929
---------- ---------- ----------
Property and equipment, net 191,933 190,307 192,033
Non-current assets:
Intangibles, net of
amortization 69,965 97,876 64,436
Deferred income taxes 5,862 3,516
Other 57,631 43,205 56,825
---------- ---------- ----------
133,458 144,597 121,261
---------- ---------- ----------
$1,796,094 $1,891,775 $1,656,223
========== ========== ==========
</TABLE>
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<PAGE> 4
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995 1995
---- ---- ----
(Amounts in thousands, except share data)
<S> <C> <C> <C>
Current liabilities:
Notes payable to banks $ 65,123 $ 71,340 $ 66,682
Commercial paper 65,000 85,000
Current portion of
long-term debt 1,004 2,662 946
Accounts payable 183,481 166,883 166,037
Accrued expenses 187,893 189,753 144,585
Income taxes payable 71,204 110,087 47,956
Dividends payable 5,529 5,924 5,742
---------- ---------- ----------
Total current liabilities 579,234 631,649 431,948
---------- ---------- ----------
Long-term debt, net of
current portion 266,181 237,528 254,178
Deferred income taxes 4,604
Minority interest 27,290 27,718 31,081
Commitments and contingencies
Outstanding redemption value of
equity put options 32,863 39,123
Stockholders' equity:
Common stock, par value $.01;
authorized 250,000,000 shares;
issued June 30, 1996; 108,163,925
issued June 30, 1995, 114,729,016;
issued December 31, 1995,
111,015,133 1,082 1,147 1,096
Additional paid-in capital 79,736
Retained earnings 1,503,118 1,503,389 1,487,006
Less 36,716,225 shares
at June 30, 1996 and
36,210,902 at
June 30, 1995 and
December 31, 1995
in treasury at cost (617,620) (603,241) (603,241)
Unearned compensation (507) (2,188) (1,208)
Foreign currency translation
adjustment 4,453 16,037 11,636
---------- ---------- ----------
890,526 994,880 895,289
---------- ---------- ----------
$1,796,094 $1,891,775 $1,656,223
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
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<PAGE> 5
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $817,572 $788,692 $1,720,495 $1,724,170
Other income 766 915 1,528 2,053
-------- -------- ---------- ----------
818,338 789,607 1,722,023 1,726,223
Costs and expenses:
Cost of sales 505,304 471,845 1,057,095 1,029,244
Selling, general and
administrative expenses 274,551 258,049 538,095 523,312
Special charges 18,034 18,034
Amortization of intangibles 629 1,054 1,255 2,056
Minority interest 2,320 1,443 6,954 4,820
Interest expense 6,808 5,726 13,336 10,600
Interest income (3,090) (900) (4,240) (2,005)
-------- -------- ---------- ----------
786,522 755,251 1,612,495 1,586,061
-------- -------- ---------- ----------
Income before income taxes 31,816 34,356 109,528 140,162
Income taxes 12,003 12,952 41,300 52,841
-------- -------- ---------- ----------
Net income $ 19,813 $ 21,404 $ 68,228 $ 87,321
======== ======== ========== ==========
Net income per common share $ 0.27 $ 0.26 $ 0.92 $ 1.07
======== ======== ========== ==========
Dividends per common share $ 0.075 $ 0.075 $ 0.15 $ 0.15
======== ======== ========== ==========
Weighted average common and
common equivalent shares
outstanding 73,922 81,082 74,540 81,625
======== ======== ========== ==========
</TABLE>
Certain amounts in 1995 have been reclassified to permit comparisons.
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 6
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1996 1995
---- ----
(Amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 68,228 $ 87,321
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 17,135 17,167
Amortization of intangibles 1,255 2,056
Minority interest, net of dividends paid 6,954 4,820
Amortization of unearned compensation (88) 1,043
Deferred income taxes 1,153 (10,626)
Changes in operating assets and
liabilities:
Accounts receivable (157,601) (77,394)
Inventory 18,532 (88,691)
Prepaid expenses 8,786 1,595
Other 1,803 (11,888)
Accounts payable 22,686 (10,875)
Accrued expenses 40,404 30,406
Income taxes payable 23,082 7,290
--------- ---------
Total adjustments (15,899) (135,097)
--------- ---------
Net cash (used for) provided by
operating activities 52,329 (47,776)
--------- ----------
Cash flows from investing activity:
Payments to acquire property and
equipment (19,407) (36,522)
--------- ---------
Net cash (used for)
investing activity (19,407) (36,522)
--------- ---------
</TABLE>
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<PAGE> 7
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------
1996 1995
---- ----
(amounts in thousands)
<S> <C> <C>
Cash flows from financing activities:
Net borrowings of notes payable to banks $ 2,125 $ 13
Proceeds from issuance of commercial paper 65,000 85,000
Net borrowings of long-term debt 11,542 101,125
Proceeds from issuance of common stock to
employees 2,688 6,853
Dividends paid (11,222) (12,134)
Proceeds from premium on equity put options 717
Repurchases of common stock (64,391) (95,728)
-------- --------
Net cash provided by
financing activities 6,459 85,129
-------- --------
Effect of exchange rate changes on cash
and cash equivalents (10,712) 4,894
-------- --------
Net increase in cash and cash 28,669 5,725
equivalents
-------- --------
Cash and cash equivalents at beginning of period 80,393 83,936
-------- --------
Cash and cash equivalents at end of period $109,062 $ 89,661
======== ========
Supplemental disclosures of cash flow information:
1996 1995
---- ----
Cash paid during the period for:
Interest $ 13,279 $ 11,798
Income taxes 24,955 45,146
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 8
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
NOTE 2 - CONTINGENCIES
- ------------------------------
On August 29, 1995, the Company obtained a favorable ruling on its motion for
summary judgment in the lawsuit entitled Stutz Motor Car of America, Inc. v.
Reebok International Ltd., (filed on July 1, 1993 in the Central District of Los
Angeles County Superior Court as Case Number BC074579 and removed to the United
States District Court for the Central District of California where it was
assigned Civil Action No. 93-4433LGB) and, as a result, the case was dismissed.
The Plaintiff has appealed the decision. The Company believes that the
Plaintiff's appeal is without merit and is confident that the District Court
decision will be upheld.
The Company's settlement with the National Association of Attorneys General
("NAAG") relating to the investigation by NAAG against the Company was approved
by the Federal Court for the Southern District of New York on October 20, 1995.
The Court's order approving the settlement was appealed to the Second Circuit
Court of Appeals on January 9, 1996 by counsel purporting to represent a class
of Reebok and Rockport consumers. The Company is currently awaiting a decision
on the appeal, which it believes to be without merit.
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<PAGE> 9
NOTE 3 - RALPH LAUREN LICENSING ARRANGEMENT
- -------------------------------------------
On May 23, 1996, Reebok finalized a long-term exclusive footwear
licensing arrangement with Ralph Lauren to design, develop, manufacture, market
and distribute men's, women's and children's footwear under the Ralph Lauren
label. The Ralph Lauren footwear business will be managed by Reebok's
subsidiary, The Rockport Company, Inc., which has established a separate
subsidiary to operate this business. In conjunction with the licensing
arrangement, Rockport acquired Ralph Lauren's prior licensee for the U.S. and
Canada, Ralph Lauren Footwear, Inc.
NOTE 4 - SALE OF AVIA
- ----------------------
On June 7, 1996 Reebok completed the sale of substantially all of the
operating assets and business of its subsidiary, AVIA Group International, Inc.
to American Sporting Goods Corporation. The proceeds from sale of Avia, net of
proceeds disbursed for the acquisition of Ralph Lauren Footwear, Inc. (see Note
3) were immaterial to the consolidated financial position and cash flows of the
Company.
NOTE 5 - Special Charges
- ------------------------
In the second quarter of 1995, the Company recorded a special charge of
$18,034, principally related to facilities consolidation and severance and other
related costs associated with the streamlining of certain segments of the
Company's operations. The after-tax effect of this charge was $11,235 or $0.14
per share.
NOTE 6 - Equity Put Options
- ---------------------------
At June 30, 1996, 1,200,000 shares of outstanding common stock are
subject to repurchase at prices ranging from $26.875 to $28.420 under the terms
and conditions of these options. The outstanding options expire between July 22,
1996 and December 12, 1996.
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<PAGE> 10
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
<TABLE>
The following table shows the percentage which amounts in the Consolidated
Statements of Income bear to net sales:
<CAPTION>
Percentage of Net Sales
-----------------------
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Other income .1 .1 .1 .1
----- ----- ----- -----
100.1 100.1 100.1 100.1
Costs and expenses:
Cost of sales 61.8 59.8 61.4 59.7
Selling, general and
administrative expenses 33.6 32.7 31.3 30.4
Special charges 2.3 1.0
Amortization of intangibles .1 .1 .1 .1
Minority interest .3 .2 .4 .3
Interest expense .8 .7 .8 .6
Interest income (.4) (.1) (.2) (.1)
----- ----- ----- -----
96.2 95.7 93.7 92.0
----- ----- ----- -----
Income before income taxes 3.9 4.4 6.4 8.1
Income taxes 1.5 1.6 2.4 3.1
----- ----- ----- -----
Net income 2.4% 2.8% 4.0% 5.0%
===== ===== ===== =====
</TABLE>
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<PAGE> 11
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion contains forward-looking statements which involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, the matters discussed in
Attachment A to this Quarterly Report on Form 10Q.
Operating Results
- -----------------
Second Quarter 1996 Compared to Second Quarter 1995
- ---------------------------------------------------
Net sales for the quarter ended June 30, 1996, were $817.6 million, an
increase of 3.7% over the second quarter 1995 sales of $788.7 million. Excluding
Avia sales, net sales for the same period were $794.9 million, 5.5% more than
the second quarter 1995 sales of $753.8 million. The Reebok Division's worldwide
sales were $689.3 million, an increase of 2.1% from $675.1 million(A) in the
second quarter of 1995. U.S. footwear sales of the Reebok Division decreased
3.0% to $321.2 million from $331.2 million(A) in the second quarter of 1995.
This decrease in the Reebok Division's U.S. footwear sales is attributed
primarily to decreases in the basketball, tennis, and cross-training categories.
This decrease in sales was partially offset by increases in Reebok's classic,
walking and soccer categories, as well as increases in Reebok's retail store
sales. The Reebok Division's U.S. apparel sales increased by 54.7% to $67.0
million from $43.3 million(A) in 1995. The increase resulted primarily from
increases in sales of branded core basics and T-shirts. The Reebok Division's
International sales (including both footwear and apparel) were $301.1 million in
the second quarter of 1996, approximately equal to sales in the second quarter
of 1995, which were $300.6 million.
- -----------------------
(A) The 1995 sales are adjusted to include the retail division's
apparel sales in U.S. apparel consistent with the 1996 presentation.
Previously, all retail sales (including footwear and apparel) had been
included in U.S. footwear sales. In addition, all sales of Tinley
brand apparel for 1995 have been reclassified to Avia to conform with
the 1996 presentation.
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<PAGE> 12
Internationally, increases in the classics and walking categories were offset by
decreases in the running and children's categories. The International sales
comparison was negatively impacted by changes in foreign currency exchange
rates. On a constant dollar basis for the quarter, the International sales gain
was 6.4%. On a local currency basis, thereby eliminating the impact of changes
in foreign currency exchange changes, France, United Kingdom, Germany, Korea and
Japan had increases in sales whereas Italy, Canada and Belgium experienced
decreased sales.
Rockport's second quarter sales increased by 34.3% to $105.7 million
from $78.7 million in the second quarter of 1995. The second quarter growth rate
reflects some pent-up demand resulting from the transition of Rockport's product
line in the first quarter of 1996 and significant new product introductions. In
addition, the increase in second quarter sales reflects Rockport's improved
inventory management which resulted in the close-out of slow-moving inventory
earlier than last year. Rockport's 1996 results include sales of the Ralph
Lauren footwear business which was acquired in late May 1996. For the quarter,
sales of the Ralph Lauren footwear business were $5.3 million, representing 6.7%
of the Rockport sales growth.
Avia's second quarter sales decreased by 35.2% to $22.6 million(A) in
1996. Management believes that Reebok's announced intention to sell this
business negatively impacted Avia's sales. Reebok completed the sale of
substantially all of the operating assets and business of Avia to American
Sporting Goods Corporation on June 7, 1996.
Gross margins declined to 38.2% during 1996's second quarter compared
to 40.2% in 1995's second quarter. International margins were unfavorably
impacted by the effect of exchange rates. Nearly one-half of the decline from
last year is attributable to the strengthening of the U.S. dollar and its
corresponding impact on the Company's International business. Gross margins,
excluding Avia, for the second quarter of 1996 were 38.7% as compared to 41.0%
for the second quarter of 1995.
Selling, general and administrative expenses for the quarter were
$274.6 million or 33.6% of sales, as compared to $258.0 million, or 32.7% of
sales in 1995's second quarter. The increase of $16.6 million in SG&A was
primarily due to increases in advertising and marketing expenses, and, in the
retail division expenses, due to an
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<PAGE> 13
increase in the number of stores operating in the second quarter 1996 as
compared with the second quarter of 1995. Selling, general and administrative
expenses, excluding Avia's results, were $266.8 million, or 33.6% of sales, as
compared to $247.7 million, or 32.9% of sales in 1995's second quarter.
In the second quarter of 1995, the Company recorded special charges of
$18.0 million principally related to severance and other costs associated with
the streamlining of certain segments of its operations. The after-tax affect
of these charges was $11.2 million or $0.14 per share.
Minority interest represents the minority shareholders' proportionate
share of the net income of certain of the Company's consolidated subsidiaries.
Interest income increased $2.2 million as a result of the improvement
in the cash flow from operations as compared with the same period in 1995.
Year-to-year earnings per share comparisons benefited from the
Company's share repurchase programs. Weighted average common shares outstanding
for the quarter ended June 30, 1996 declined by 8.8% to 73.9 million shares, as
compared to 81.1 million shares for the second quarter of 1995.
First Six Months 1996 Compared to First Six Months 1995
- -------------------------------------------------------
Net sales for the six months ended June 30, 1996 decreased by $3.7
million, 0.2% lower than the first six months of 1995. Excluding Avia sales, net
sales for the first half of 1996 were $1.671 billion, 0.9% higher than the
$1.656 billion of sales for the first six months of 1995. The Reebok Division's
worldwide sales were $1.480 billion for the first six months of 1996, a decrease
of 0.9% from sales of $1.493 billion(A) for the same period in 1995. The Reebok
Division's U.S. footwear sales decreased 8.3% to $654.8 million from $714.0
million(A) in the same period of 1995. The decrease is due primarily to
decreases in substantially all categories other than the walking and soccer
categories which had increases in sales. The Reebok Division's U.S. apparel
sales increased by 38.5% to $128.9 million from $93.1 million(A) in 1995. The
increase resulted primarily from increases in the branded core basics and
T-shirt categories. The Reebok Division's International sales (including
footwear and apparel) were $695.8 million for the first six months of 1996, an
increase of 1.4% from $686.0 million for the same period in 1995. Increases in
the walking, classics and soccer categories were offset by
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<PAGE> 14
decreases in the running, children's and PRESEASON[Registered Trademark]
categories. On a local currency basis, thereby eliminating the impact of
foreign currency exchange changes, United Kingdom, Italy, Japan and Korea had
increases in sales whereas there was a decrease in sales in Canada and Austria
and in the Company's sales to certain Latin American distributors. The
International sales comparison was negatively impacted by changes in foreign
currency exchange rates. On a constant dollar basis for the six month period,
the International sales increase was 4.0%.
Rockport's sales for the six month period increased by 17.3% to $191.6
million from $163.3 million for the same period in 1995. This increase reflects
the transition of Rockport's product line and the introduction of new product in
1996. All categories, except outdoor, increased in comparison with the prior
year.
Avia's sales for the six month period decreased by 27.1% to $49.4
million from $67.8 million(A) for the same period in 1995. Management believes
that Reebok's announced intention to sell this business negatively impacted
Avia's sales. Reebok completed the sale of substantially all of the operating
assets and business of Avia to American Sporting Goods Corporation on June 7,
1996.
Gross margins decreased from 40.3% for the first six months of 1995 to
38.6% in the same period in 1996. International margins were unfavorably
impacted by the effect of exchange rates. U.S. margins were unfavorably impacted
by a higher percentage of close-out sales in the first half of 1996 as compared
to 1995 as a result of an aggressive program to reduce inventory levels.
Excluding Avia, gross margins were 39.1% for the first six months of 1996 as
compared to 40.9% for the six months of 1995.
Selling, general and administrative expenses increased as a percentage
of sales from 30.4% to 31.3% in 1996, primarily as a result of increased
advertising expenses. Exclusive of the increased advertising, overall SG&A
spending was approximately the same as last year. Selling, general and
administrative expenses, without Avia, were 31.3% of net sales, as compared to
30.3% of net sales in 1995.
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<PAGE> 15
Amortization of intangibles decreased due to the write-down of the
carrying value of Avia to estimated fair value on sale in the fourth quarter of
1995.
Minority interest represents the minority shareholders' proportionate
share of the net income of certain of the Company's consolidated subsidiaries.
Year-to-year earnings per share comparisons benefited from the
Company's share repurchase program. Weighted average common shares outstanding
for the six months ended June 30, 1996 declined to 74.5 million shares, compared
to 81.6 million shares for the first six months of 1995.
Liquidity and Sources of Capital
- --------------------------------
The Company's financial position remains strong, although working
capital decreased slightly by $33.8 million, or 3.7% from the same period a year
ago. The current ratio at June 30, 1996 and 1995 was 2.5 to 1, as compared to
3.1 to 1 at December 31, 1995.
Accounts receivable increased from June 30, 1995 by $26.7 million, or
4.3%, which is consistent with the sales increase for the second quarter of
1996. Inventory decreased by $127.1 million or 17.3% from June 30, 1995.
U.S. Reebok Brand footwear inventories alone declined 29.1% from June 30, 1995
and are at their lowest level since June 30, 1993. Improved forecasting,
production planning and logistics operations account for the significant
inventory decrease.
During the twelve months ended June 30, 1996, cash and cash equivalents
increased $19.4 million and outstanding borrowings remained approximately equal,
while $194.2 million of the Company's stock was repurchased. As a result of the
improvement by the Company in managing its balance sheet, cash provided by
operations during 1996's first six months was $52.3 million, an improvement of
$100.1 million as compared to the first six months of 1995. This improvement was
accomplished despite lower earnings in 1996 as compared with 1995. Capital
expenditures during the first six months of 1996 were $19.4 million, a 47%
reduction from the capital spending during the first six months of 1995. Cash
generated from operations, together with the Company's existing credit lines and
other financial resources, is expected to adequately finance the Company's
current and planned 1996 cash requirements. However, the Company's actual
experience may differ from the expectations set forth in the preceding sentence.
Factors that
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<PAGE> 16
might lead to such a difference include, but are not limited to, the matters
discussed in Attachment A to this quarterly report on Form 10-Q, as well as
future events that might have the effect of reducing the Company's available
cash balances (such as unexpected operating losses or capital or other
expenditures) or that might reduce or eliminate the availability of external
financial sources.
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<PAGE> 17
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings
Reference is made to Item 3. Legal Proceedings in the Company's Annual Report
on Form 10-K, dated March 29, 1996, for a description of Stutz Motor Car of
America, Inc. v. Reebok International Ltd. and the status of the Company's
settlement with the National Association of Attorneys General.
Items 2 - 3
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 7, 1996. At the
Annual Meeting, the following proposals were approved:
<TABLE>
1. Three Class III members of the Board of Directors were
elected by shareholders as follows (there were no
abstentions nor broker non-voltes)
<CAPTION>
Number of Number of
Name of Votes Cast Votes
Director FOR WITHHELD
- -------- ---------- ----------
<S> <C> <C>
Paul B. Fireman 63,453,595 3,166,936
Bertram M. Lee, Sr. 64,953,521 1,667,010
Robert Meers 64,956,352 1,664,179
</TABLE>
2. The Executive Performance Incentive Plan was approved by a vote of
50,757,343 FOR, 7,286,686 AGAINST, 886,623 ABSTAIN and 7,689,878 broker
non-votes.
Item 5 - Other Information
On July 29, 1996, the Company announced that its Board of Directors authorized
the purchase by the Company of 24,000,000 shares of the Company's Common Stock
pursuant to a "Dutch Auction" self-tender offer. The tender offer price range
will be from $30.00 to $36.00 net per share in cash. The offer is expected to
commence on July 30, 1996 and will expire at 5:00 pm, New York City time, on
Tuesday, August 27, 1996, unless extended.
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<PAGE> 18
The tender offer will be subject to various terms and conditions described in
offering materials to be distributed to shareholders. Under the terms of the
Dutch Auction offer, Reebok shareholders will be given the opportunity to
specify prices within the Company's stated price range at which they are willing
to tender their shares. Upon receipt of the tenders, Reebok will determine a
final price that enables it to purchase up to the stated amount of shares from
those shareholders who agreed to sell at or below the selected purchase price.
All shares purchased will be at that determined price. If more than 24,000,000
shares are tendered at or below the purchase price, there will be a proration.
The tender offer will not be contingent upon any minimum number of shares being
tendered. As of July 29, 1996, Reebok had approximately 72,500,000 Common shares
outstanding. The Company has obtained an underwritten commitment of senior bank
financing from Credit Suisse to purchase the shares as well as a facility to
finance its working capital needs. The Company has been advised that Paul and
Phyllis Fireman, who together own approximately 14.1% of the outstanding Common
Stock of the Company, do not intend to tender shares pursuant to the Offer.
Item 6
(a) Exhibits:
11. Statement Re Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K: There were no reports on Form 8-K filed during
the quarter ended June 30, 1996.
-17-
<PAGE> 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: July 29, 1996
REEBOK INTERNATIONAL LTD.
BY: /s/ KENNETH WATCHMAKER
-------------------------
Kenneth Watchmaker
Executive Vice President and
Chief Financial Officer
-18-
<PAGE> 20
Attachment A
------------
ISSUES AND UNCERTAINTIES
- ------------------------
The Company's quarterly report on Form 10-Q attached hereto, as well as
other public documents of the Company, may include forward-looking statements
which involve risks and uncertainties. The Company's actual results may differ
materially from those discussed in such forward-looking statements. Prospective
information is based on management's then current expectations or forecasts.
Such information is subject to the risk that such expectations or forecasts, or
the assumptions used in making such estimates or forecasts, become inaccurate.
The following discussion identifies important factors that could affect the
Company's actual results and could cause such results to differ materially from
those contained in forward looking statements made by or on behalf of the
Company.
COMPETITION AND CONSUMER PREFERENCES
- ------------------------------------
The footwear and apparel industry is intensely competitive and subject to
rapid changes in consumer preferences, as well as technological innovations. A
major technological breakthrough or unusual marketing or promotional success by
one of the Company's competitors could adversely affect the Company's
competitive position. In addition, in countries where the athletic footwear
market is mature, sales growth may be dependent in part on the Company
increasing its market share at the expense of its competitors. The Company also
faces strong competition with respect to its other product lines, such as the
ROCKPORT product line and the GREG NORMAN collection.
Competition in the markets for the Company's products occurs 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 the consumer preference
and technology that can occur in the footwear and apparel markets constitute
significant risk factors in the Company's operations.
INVENTORY RISK
- --------------
The footwear industry has relatively long lead times for design and
production of product and thus, the Company must commit to production tooling
and in some cases to production in advance of orders. If the Company fails to
accurately forecast consumer demand or if there are changes in consumer
preference or market demand after the Company has made such production
commitments, the Company may encounter difficulty in liquidating its inventory,
which may have an adverse effect on the Company's sales margins and brand image.
SALES FORECASTS
- ---------------
<PAGE> 21
The Company's investment in advertising and marketing is based on sales
forecasts and is necessarily made in advance of actual sales. The markets in
which the Company does business are highly competitive, and the Company's
business is affected by a variety of factors, including brand awareness,
changing consumer preferences, fashion trends, retail market conditions and
economic and other factors. There can be no assurance that sales forecasts will
be achieved, and to the extent sales forecasts are not achieved, these
investments will represent a higher percentage of net revenues, and the Company
will experience higher inventory levels and associated carrying costs, all of
which would adversely impact the Company's financial condition and results.
ADVERTISING AND MARKETING INVESTMENT
- ------------------------------------
Because consumer demand for athletic footwear and apparel is heavily
influenced by brand image, the Company's business requires substantial
investments in marketing and advertising, including television and other
advertising, athlete endorsements and athletic sponsorships, as well as
investments in retail presence. The Company intends to continue its increased
investment in advertising and marketing in 1996; however, there can be no
assurance that such increased investment will result in increased sales.
RETAIL OPERATIONS
- -----------------
The Company currently operates over 100 retail stores in the U.S. and a
significant number of retail stores internationally which are operated either
directly or through the Company's distributors. The Company has made a
significant capital investment in opening these stores and incurs significant
expenditures in operating these stores. To the extent the Company continues to
expand its retail organization, the Company's performance could be adversely
affected by lower than anticipated sales at its retail stores. The performance
of the Company's retail organization is also subject to the general retail
market conditions.
TIMELINESS OF PRODUCT
- ---------------------
Timely product deliveries are essential in the footwear and apparel
business since the Company's orders are cancelable by customers if agreed
delivery windows are not met. If as a result of design, production or
distribution problems, the Company is late in delivering product, it could have
an adverse impact on its sales and/or profitability.
GLOBAL SALES AND PRODUCTION
- ---------------------------
A substantial portion of the Company's products are manufactured abroad and
approximately 40% of the Company's sales
2
<PAGE> 22
are made outside the U.S. The Company's footwear and apparel production
operations are thus subject to the usual risks of doing business abroad, such as
import duties, tariffs, quotas and other threats to free trade, labor unrest,
political instability and other problems linked to local production conditions.
If such factors limited or prevented the Company from selling products in any
significant market or prevented the Company from acquiring products from its
suppliers in Indonesia, China or Thailand, or significantly increased the cost
to the Company of such products, the Company's operations could be seriously
disrupted until alternative suppliers were found or alternative markets were
developed, with a significant negative impact.
SOURCES OF SUPPLY
- -----------------
The Company depends upon its independent manufacturers to manufacture
high-quality product in a timely and cost-efficient manner and relies upon the
availability of sufficient production capacity at its existing manufacturers or
the ability to utilize alternative sources of supply. In addition, if the
Company were to experience significant shortages in raw materials used in its
products, it could have a negative effect on the Company's business, including
increased costs or difficulty in delivering product.
RISKS OF CURRENCY FLUCTUATIONS
- ------------------------------
The Company conducts operations in various international countries and a
significant portion of its sales are transacted in local currencies. As a
result, the Company's revenues are subject to foreign exchange rate
fluctuations. 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. The Company also uses foreign currency
exchange contracts to hedge significant inter-company assets and liabilities
denominated in other currencies.
CUSTOMERS
- ---------
Although the Company has no single customer that represents 10% or more of
its sales, the Company has certain significant customers, the loss of which
could have an adverse effect on its business. There could also be a negative
effect on the Company's business if any such significant customer became
insolvent or otherwise failed to pay its debts.
INTELLECTUAL PROPERTY
- ---------------------
The Company believes that its trademarks, its technologies and designs are
of great value. Loss of the REEBOK or ROCKPORT trademark rights could have a
serious impact on the Company's business. Because of the importance of such
intellectual property rights, the Company's business is subject to the risk of
3
<PAGE> 23
counterfeiting, parallel trade or intellectual property infringement. The
Company is, however, vigilant in protecting its intellectual property rights.
LITIGATION
- ----------
The Company is subject to the normal risks of litigation with respect to
its business operations.
ECONOMIC FACTORS
- ----------------
The Company's business is subject to economic conditions in the Company's
major markets, including, without limitation, recession, inflation or general
weakness in retail markets. Adverse changes in such economic factors could have
a negative effect on the Company's business.
TAX RATE CHANGES
- ----------------
If the Company was to encounter significant tax rate changes in the major
markets in which it operates, it could have an adverse effect on its business.
QUARTERLY REPORTS
- -----------------
The financial results reflected in the Company's quarterly report on Form
10-Q are not necessarily indicative of the financial results which may be
achieved in future quarters or for year-end, which results may vary.
4
<PAGE> 1
REEBOK INTERNATIONAL LTD.
(Amounts in Thousands, Except Per Share Data)
<TABLE>
Exhibit 11 - Statement RE: Computation of Per Share Earnings
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary
- --------------------------------
Average shares outstanding 72,979 79,464 73,682 80,061
Net effect of dilutive stock options 943 1,618 858 1,564
------- ------- ------- -------
Total 73,922 81,082 74,540 81,625
======= ======= ======= =======
Net income $19,813 $21,404 $68,228 $87,321
======= ======= ======= =======
Per share amount $ .27 $ 0.26 $ .92 $ 1.07
======= ======= ======= =======
Fully Diluted
- --------------------------------
Average shares outstanding 72,979 79,464 73,682 80,061
Net effect of dilutive stock options 1,273 1,618 1,309 1,564
------- ------- ------- -------
Total 74,252 81,082 74,991 81,625
======= ======= ======= =======
Net income $19,813 $21,404 $68,228 $87,321
======= ======= ======= =======
Per share amount $ 0.27 $ 0.26 $ 0.91 $ 1.07
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1996 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANICAL STATEMENTS.
</LEGEND>
<CIK> 0000770949
<NAME> REEBOK INTERNATIONAL LTD.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 109,062
<SECURITIES> 0
<RECEIVABLES> 703,957
<ALLOWANCES> 49,408
<INVENTORY> 607,080
<CURRENT-ASSETS> 1,470,703
<PP&E> 352,499
<DEPRECIATION> 160,566
<TOTAL-ASSETS> 1,796,094
<CURRENT-LIABILITIES> 579,234
<BONDS> 326,334
<COMMON> 1,082
0
0
<OTHER-SE> 889,444
<TOTAL-LIABILITY-AND-EQUITY> 1,810,929
<SALES> 1,720,495
<TOTAL-REVENUES> 1,722,023
<CGS> 1,057,095
<TOTAL-COSTS> 1,057,095
<OTHER-EXPENSES> 542,064
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,336
<INCOME-PRETAX> 109,528
<INCOME-TAX> 41,300
<INCOME-CONTINUING> 68,228
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,228
<EPS-PRIMARY> .92
<EPS-DILUTED> .91
</TABLE>
