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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, 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 (IRS Employer Identification No.)
incorporation or organization)
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
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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
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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 21, 1997, the aggregate market value of the registrant's voting
stock held by non-affiliates of the registrant was approximately $2,189,943,409.
As of March 21, 1997, 56,095,692 shares of the registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for the fiscal year ended December 31, 1996
(certain parts as indicated herein in Parts I and II).
Definitive Proxy Statement dated March 26, 1997 for the Annual Meeting of
Shareholders to be held on May 1, 1997 (certain parts as indicated herein in
Part III).
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PART I
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Item 1. Business.
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Reebok International Ltd., a Massachusetts corporation organized on July
26, 1979, is a global company engaged 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 three major business groups: the Reebok Division, which is primarily
responsible for the Company's REEBOK (R) brand, the Greg Norman Division, which
is responsible for the GREG NORMAN (R) brand, and the Company's major
subsidiary, The Rockport Company, Inc. ("Rockport") which is responsible for the
ROCKPORT (R) brand, as well as footwear sold under the RALPH LAUREN (R) brand.
(Reebok International Ltd. is referred to herein, together with its
subsidiaries, as "Reebok" or the "Company" unless the context requires
otherwise.)
During calendar year 1996, net income for the Company decreased by 15.7% to
$139.0 million, or $2.00 per share, from $164.8 million, or $2.07 per share, for
the year ended December 31, 1995 (inclusive of a special charge related to
facilities consolidation, severance and other costs associated with streamlining
certain operations and the writedown of the carrying value of the Company's Avia
subsidiary), while net sales decreased by 0.1%, from $3.482 billion in 1995 to
$3.479 billion in 1996.
In June 1996, the Company sold its subsidiary Avia Group International,
Inc. in order to focus on its core brands. In addition, in November 1996, the
Company discontinued the operation of its Boks Division.
On July 28, 1996, the Company's Board of Directors authorized the purchase
by the Company of up to 24 million shares of its common stock at a price ranging
from $30.00 to $36.00 net per share in cash pursuant to a "Dutch Auction"
self-tender offer. The offer commenced on July 30, 1996 and expired on August
27, 1996. As a result of the self-tender offer, the Company repurchased
approximately 17 million shares of its common stock at a price of $36.00 per
share. In conjunction with the repurchase, the Company entered into a new credit
agreement underwritten by Credit Suisse and a syndicate of major banks. See
discussion under "Working Capital Arrangements" below.
The following is a discussion of the business of each of the Company's
operating units.
REEBOK DIVISION
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The Reebok Division designs, produces and markets sports and fitness
footwear, apparel and accessories, as well as related sports and fitness
products, that combine the attributes of athletic performance and style. The
Division's products include footwear for basketball, running, soccer, tennis,
golf, track and field, volleyball, football, baseball, aerobics, cross training,
outdoor performance and walking activities, as well as athletic apparel and
accessories. The Division has expanded its product scope through the development
and marketing of related sports and fitness products and services, such as
sports and fitness videos, programming and equipment, and through its strategic
licensing program, pursuant to which the Company's technologies and/or
trademarks are licensed to third parties for sporting goods and related
products.
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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. Although much of the
Company's historical growth has been due to its strength in footwear and other
products for the fitness market, beginning in 1994 the Company launched a major
strategic effort towards increasing Reebok's on-field presence and establishing
itself as an authentic sports brand. Through such effort, Reebok has gained
increased visibility on playing fields worldwide through endorsement
arrangements with such prominent athletes as Shaquille O'Neal of the Los Angeles
Lakers, Allen Iverson of the Philadelphia 76ers, Emmitt Smith of the Dallas
Cowboys and Frank Thomas of the Chicago White Sox, and with various sports and
event sponsorships. 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, where it has
a state-of-the-art 50,000 square foot product development facility which is
dedicated to the design and development of technologically-advanced athletic and
fitness footwear, and in its various Far East offices.
TECHNOLOGY
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Reebok places a strong emphasis on technology and has continued to
incorporate various proprietary performance technologies in its products. Reebok
has developed HEXALITE (R), its honeycomb-shaped cushioning material, for
various applications in its footwear products. As an example, VIZ-HEX, a design
element, communicates to the consumer the cushioning effectiveness of the
HEXALITE (R) technology, and was introduced at retail in July 1996. Other
HEXALITE (R) applications include Radial HEXALITE (R), which combines
under-the-foot cushioning and lateral stabilization and is expected to be
available at retail in April 1997; Suspended HEXALITE (R), which incorporates
Radial HEXALITE but removes midsole material, providing improved lightweight
cushioning and stabilization, and is expected to be available at retail in July
1997; and HEXLINER (TM), a PU foam sockliner, which includes HEXALITE (R)
material in the heel for a softer feel close to the foot and is expected to be
available at retail in June 1997.
In 1995 Reebok introduced a new evolution of its DYNAMIC CUSHIONING (R)
technology called DMX (TM), which utilizes a dynamic air transfer system in the
midsole to provide heel and forefoot cushioning and comfort. Walking shoes
incorporating this technology were introduced at retail in April 1995. In August
1996, the Company debuted its DMX (TM) Series 2000 technology, which is an
advanced version of DMX (TM), that incorporates a multiple channel, active air
flow system delivering cushioning precisely when and where it is needed. This
technology is expected to first be introduced at retail in running shoes in
April 1997. The Company is incorporating the DMX (TM) Series 2000 technology
into other footwear categories and plans to introduce such footwear at retail
later in 1997.
In January 1997, Reebok introduced at retail 3D ULTRALITE (TM) in a women's
fitness shoe. 3D ULTRALITE uses material that allows the midsole and outsole to
be combined in one injection molded unit, but still permits the shoe to be
lightweight, flexible and durable. The Company plans to incorporate this
technology into additional footwear categories and expects to introduce such
footwear at retail later in 1997.
Finally, Reebok has incorporated advanced technology into its apparel
products with the introduction of HYDROMOVE (TM) technology in certain
performance apparel. This moisture management system helps keep athletes warm in
cold weather and dry and cool in hot weather. Performance apparel incorporating
the HYDROMOVE (TM) technology first became available at retail at the end of
1996.
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MARKETING AND PROMOTIONAL ACTIVITIES
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The Reebok Division devotes significant resources to advertising its
products to a variety of audiences through television, radio and print media and
utilizes its relationships with major sports figures in a variety of sports to
maintain and enhance visibility for the REEBOK brand. A substantial advertising
program was pursued in 1996 with advertisements directed toward both the trade
and the ultimate consumers of REEBOK (R) products. The major advertising
campaigns in 1996 included a campaign which debuted during the 1996 Summer
Olympic Games featuring Emmitt Smith in his "light-hearted" quest to have
football accepted as an Olympic sport; an ad campaign starring Don Cornelius and
featuring various Reebok basketball and football endorsers; and a Planet Reebok
print campaign featuring various Reebok endorsers.
As part of its marketing efforts in 1996, Reebok also signed a five year
exclusive world-wide agreement with America Online to develop and display an
interactive sports and fitness site on America Online.
Substantial resources were devoted to promotional activities in 1996,
including endorsement agreements with athletes, teams, leagues and sports
federations; event sponsorships; in-store promotions and point-of-sale
materials. The Reebok Division continued its strategic push into the sports
market, gaining increased visibility on playing fields and in sports arenas
worldwide through endorsement arrangements with such athletes as Shaquille
O'Neal, with whom Reebok markets a signature line of footwear, apparel and
accessories featuring his distinctive logo. In addition, in 1996 Reebok signed a
major endorsement agreement with Allen Iverson of the Philadelphia 76ers, who
was the number one selection in the 1996 NBA draft, and has begun marketing an
Allen Iverson signature line of footwear and apparel products. Other
endorsements in basketball come from professional players such as Shawn Kemp,
Clyde Drexler, Nick Van Exel and Steve Smith. Reebok also sponsors a number of
college basketball programs and in 1996 Reebok entered into a sponsorship
agreement with the Harlem Globetrotters. In addition, in 1996, Reebok was named
a founding sponsor of the women's American Basketball League ("ABL"); Reebok is
the exclusive supplier of uniforms and practice gear to four of the league's
eight teams and an official ABL licensee and has entered into endorsement
agreements with a number of ABL players including Saudia Roundtree and Jennifer
Azzi.
To promote the sale of its cross training footwear, Reebok used
endorsements by prominent athletes such as National Football League ("NFL")
players Emmitt Smith, Derrick Thomas, John Elway, Ken Norton, Thurman Thomas,
Herman Moore, Ben Coates and Greg Lloyd, as well as Major League Baseball
("MLB") players Frank Thomas, Mark McGwire, John Smoltz, Juan Gonzalez and Roger
Clemens. To promote its cleated football and baseball shoes, the Company also
has endorsement contracts with several hundred MLB and NFL players, including
numerous all-stars, and sponsors a number of college football programs.
The Company has a multi-year agreement with NFL 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. Pursuant to this agreement, in 1996, the coaching staff and players of
the San Francisco 49ers, Detroit Lions, New York Giants and Carolina Panthers
wore REEBOK (R) uniforms and sideline apparel and Reebok supplied sideline
apparel to the New Orleans Saints and Seattle Seahawks. In 1997, Reebok will
supply uniforms and sideline apparel to the San Francisco 49ers, Detroit Lions,
New York Giants, New Orleans Saints, Kansas City Chiefs and Atlanta Falcons. In
addition to the Pro Line license, Reebok has an agreement with the NFL under
which Reebok is one of only two brands authorized to provide NFL players
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with footwear that has visible logos and all NFL on-field game officials wear
REEBOK (R) footwear exclusively.
In soccer, Reebok has a number of endorsement arrangements including key
contracts with Gabriel Batistuta of Fiorentina and the Argentinean national
team, Ryan Giggs of Manchester United and Wales, Dennis Bergkamp of Arsenal and
the Netherlands, Jurgen Klinsmann of Bayern Munich and Germany, and Guiseppe
Signori of Lazio and Italy, as well as U.S. national team members Eric Wynalda,
Michelle Akers and Julie Foudy. In 1996 the Company signed major sponsorship
agreements with the Liverpool Football Club, one of the world's best known club
soccer teams, and with the Argentina National Football Association, which will
take effect in 1999. Reebok has also entered into sponsorship agreements with
such soccer teams as Fiorentina of Italy, Aston Villa and Bolton Wanderers of
England, Borussia Moenchengladbach of Germany, Bastia of France, Palmeiras of
Brazil, Brondby of Denmark and Gothenburg of Sweden. In addition, Reebok is the
official uniform supplier of U.S. major league soccer teams the New England
Revolution and, beginning with the 1997 season, the Colorado Rapids. In rugby,
the Company sponsors the national rugby teams of Australia, Wales and Italy.
Tennis promotions included endorsement contracts with well-known
professionals including Michael Chang, Venus Williams, Todd Martin, Patrick
Rafter, Arantxa Sanchez-Vicario, Chanda Rubin and Malivai Washington.
Promotional efforts in running included endorsement contracts with such
well-known runners as Moses Kiptanui, Ato Boldon, Elana Meyer, Derrick Adkins,
Sonia O'Sullivan, Kim Batten and Marie Jose Perec.
To promote its women's sports and fitness products, Reebok sponsored
athletes such as Rebecca Lobo, U.S. women's national basketball team member, as
well as Michelle Akers and Julie Foudy of the U.S. national soccer team, Dot
Richardson and Lisa Fernandez of the U.S. national softball team, Liz Masakayan,
pro beach volleyball player, and Nancy Feagin, world-class rock climber. In
addition, Reebok sponsors a variety of college basketball and volleyball teams
and such organizations as the American Basketball League and the Women's Sports
Foundation, a non-profit educational organization that promotes sports for women
and girls.
The Reebok Division also continued its promotional efforts in the fitness
area. Reebok fitness products and programming are featured on Fit TV, a 24-hour
cable network, pursuant to a programming agreement. Through an agreement with
Channel One Communications, Reebok provides the programming for P.E.TV, an
award-winning program designed to educate kids about physical fitness. Reebok
has developed numerous fitness programs such as its Versa Training program,
designed to help consumers meet their varied fitness goals with aerobic,
strength and flexibility workouts, the WALK REEBOK program which promotes
walking, its CYCLE REEBOK program that features the CYCLE REEBOK studio cycle,
and the Reebok Flexible Strength program that develops strength and flexibility
simultaneously. These programs were complemented by the marketing and sale of a
line of REEBOK (R) fitness videos, as well as the marketing and sale of REEBOK
fitness equipment products such as the STEP REEBOK exercise platform, the SLIDE
REEBOK lateral motion training device, the CYCLE REEBOK studio cycle and the
REEBOK Sky Walker exercise machine.
To gain further visibility for the REEBOK brand, Reebok has also entered
into several key sport sponsorships, such as an arrangement under which Reebok
was designated the official footwear and apparel sponsor of the Russian Olympic
Committee and the approximately 25 individual associated Russian sports
federations through the 1996 Atlanta Summer Olympic Games, and an agreement with
the U.S. Gymnastics Federation. Reebok is also the official apparel and
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footwear sponsor of the IRONMAN Triathlon World Championship, will become the
official footwear of the USA Triathlon in 1997, and will introduce in 1997
official REEBOK IRONMAN footwear. In addition, Reebok has school-wide
sponsorship arrangements with colleges such as U.C.L.A., University of Texas,
University of Virginia and University of Wisconsin.
Reebok had a major presence at the 1996 Atlanta Summer Olympic Games.
Approximately 3000 athletes (about one-third of all competitors) competed in
REEBOK (R) products at the 1996 Summer Olympic Games. Reebok also sponsored the
National Olympic Committees of Russia, Poland, Ireland, Brazil, Jamaica, New
Zealand and South Africa, and the track and field federations of China, Belgium,
The Netherlands, Portugal, Spain and Sweden. In addition, Reebok outfitted the
Olympic delegations of a number of smaller countries through its emerging
nations program and supplied footwear to U.S. Olympic Team coaches and
delegation officials. Reebok was a supplier to the 1996 Centennial Olympic Games
supplying footwear to employees and volunteers of the Atlanta Committee for the
Olympic Games, an official licensee for footwear and videos, and an official
sponsor of NBC's broadcast of the 1996 Summer Olympic Games.
U.S. OPERATIONS
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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 totalled approximately $1.1928 billion in 1996
compared to $1.367 billion in 1995. REEBOK (R) brand apparel sales (including
GREG NORMAN (R) apparel) in the U.S. in 1996 totalled approximately $314.9
million, compared to approximately $221.7 million(1) in 1995.
In the U.S., the Reebok Division generally uses an employee sales force for
its principal product lines, although it utilizes independent sales
representatives for some of its specialty products, such as its REEBOK golf and
tennis products and its equipment and other sports and fitness products.
Reebok's 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, with specialty products, such as
golf products and equipment, also being distributed in certain specialty
channels. Distribution of the Company's apparel line is predominantly through
pro shops, health clubs and department, sporting goods and specialty stores. The
Reebok Division also sells its products through REEBOK (R) concept or company
stores. See discussion under "Retail Stores" below.
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(1) 1995 sales are adjusted to include apparel sales of the retail division
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.
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INTERNATIONAL OPERATIONS
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The Reebok Division's international sales are coordinated from the
Company's corporate headquarters in Stoughton, Massachusetts, which is also
where the Division's regional operations responsible for Latin America are
located. There are also regional offices in Lancaster, England which is
responsible for Northern Europe; in Munich, Germany which is responsible for
Central Europe; in Paris, France which is responsible for Southern Europe; in
Denham Lock, England which is responsible for the Middle East and Africa; and in
Tokyo, Japan which is responsible for Far East operations and India and is also
supported by a marketing team located in Hong Kong. The Canadian operations of
the Division are managed through a wholly owned subsidiary headquartered outside
of Toronto, Canada. The Division markets REEBOK (R) products internationally
through wholly owned subsidiaries in Austria, Belgium, Canada, France, Germany,
Ireland, The Netherlands, Italy, Poland, Portugal, Russia, Switzerland and the
United Kingdom and majority owned subsidiaries in Japan, India, South Korea,
Spain and South Africa. REEBOK products are also marketed internationally
through 28 independent distributors and joint ventures in which the Company
holds a minority interest. The Company or its wholly owned U.K. subsidiary holds
partial ownership interests in 6 of these international distributors, with its
percentage of ownership ranging from 30 to 35 percent. Through this
international distribution network products bearing the REEBOK brand are
actively marketed internationally in approximately 170 countries and
territories. The Division's International operations unit also has small design
staffs which assist in the design of REEBOK (R) footwear and apparel.
During 1996 the contribution of the Division's International operations
unit to overall sales of REEBOK (R) products (including GREG NORMAN (R) apparel)
increased to $1.474 billion from $1.395 billion in 1995. These sales figures do
not, however, reflect the full wholesale value of all REEBOK products sold
outside the United States in 1996 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 $1.803 billion
in wholesale value, consisting of approximately 35.7 million pairs of shoes
totalling approximately $1.189 billion in wholesale value of footwear sold
outside the United States in 1996 (compared with approximately 36 million pairs
totalling approximately $1.227 billion in 1995) and approximately $613.8 million
in wholesale value of REEBOK apparel (including GREG NORMAN apparel) sold
outside the United States in 1996 (compared with approximately $438 million in
1995).
SPORTS AND FITNESS EQUIPMENT AND LICENSING
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The Company has continued to expand its strategic trademark and technology
licensing program begun in 1991. This program is designed to pursue
opportunities for licensing the Company's trademarks, patents and other
intellectual property to third parties for sporting goods, apparel and related
products. The licensing program is focused on expanding the REEBOK brand into
new sports and fitness markets and enhancing the reputation of the Company's
brands and technologies. 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 program reinforces Reebok's
reputation as a market leader.
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The Company's licensing program includes such products as a full line of
athletic gloves, including baseball batting gloves, football gloves, running
gloves, court/racquetball gloves, fitness/weightlifting gloves, and cycling
gloves, all featuring the REEBOK trademark and Reebok's Vector Logo; a
collection of REEBOK (R) performance sports sunglasses; the WATCH REEBOK
collection of sport watches and a new line of heart rate monitors; REEBOK
basketballs, volleyballs and footballs; REEBOK weight belts, both with and
without Reebok's INSTAPUMP (TM) technology; and a line of gymnastic apparel
including replicas of the U.S. gymnastics team uniforms. In 1996, Reebok also
entered into license agreements with Mead for a line of REEBOK school supplies
and with Haddad Apparel for a line of REEBOK infant and toddler apparel.
During 1996, Reebok and its video partner and licensee, Polygram
International, continued to produce, market and sell a line of REEBOK (R)
fitness videos. Through a licensee, Reebok also sells REEBOK (R) fitness audio
tapes. In the equipment area, the Company continued sales of its STEP REEBOK (R)
exercise platform and SLIDE REEBOK (TM) lateral motion training device, and
through licensees, sold the REEBOK (R) Sky Walker (TM) exercise product and the
CYCLE REEBOK studio cycle to health clubs and fitness facilities. In 1996,
Reebok also signed a license agreement with Cross Conditioning Systems to act as
its licensee to develop a line of REEBOK fitness equipment products designed for
use in health clubs and other institutional markets. The first two products
commercialized under this relationship, the REEBOK Body Mill and REEBOK Body
Trek, were sold to health clubs in 1996.
In addition, as part of the Company's licensing program, WEEBOK (R) infant
and toddler apparel and accessories are sold by a licensee and, beginning in
1997, a line of WEEBOK (R) footwear will be sold by a licensee.
THE ROCKPORT COMPANY
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The Company's Rockport subsidiary, headquartered in Marlboro,
Massachusetts, designs, manufactures and distributes specially engineered
comfort footwear for men and women worldwide under the ROCKPORT (R) brand, as
well as apparel through a licensee. Rockport also develops, markets and sells
footwear under the RALPH LAUREN (R) brand pursuant to a license agreement
entered into in May 1996.
Rockport's net sales increased by approximately $79.5 million in 1996, to
$447.6 million from $368.1 million in 1995. Rockport's 1996 sales include sales
of the RALPH LAUREN footwear business which was acquired in May 1996.
ROCKPORT BRAND
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Designed to fully address the different aspects of customers' lives, the
ROCKPORT product line includes casual, dress, outdoor performance, golf and
fitness walking shoes. In 1996, Rockport built upon its walking heritage with
the introduction of its World Tour walking shoe and relaunched its apparel,
which will be developed, marketed and sold through a licensee. In women's
products, Rockport continued to focus on combining comfort with style. In 1996,
Rockport's Mirabel shoe earned the Seal of Approval from the American Orthopedic
Foot and Ankle Society, becoming the first women's heel to receive this seal.
Rockport continued its focus on brand-building activities with The Rockport
{PROOF} campaign, an integrated marketing campaign that featured real consumer
experiences, ranging from
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the ordinary to the extraordinary, wearing ROCKPORT (R) shoes. The Rockport
{PROOF} campaign was used as the major marketing platform for the entire brand
in 1996, encompassing television advertising in certain markets, print
advertising, public relations and retail promotions. In March 1996, Rockport
took the Rockport {PROOF} campaign on-line with the establishment of a Rockport
website on the Internet.
Rockport markets its products to authorized retailers throughout the United
States primarily through a locally based employee sales staff, although Rockport
utilizes independent sales agencies for certain products. Internationally,
Rockport markets its products through approximately 30 locally based
distributors in approximately 48 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 sells its products through
independently owned ROCKPORT dedicated retail shops, as well as ROCKPORT (SM)
concept or company stores. See discussion under "Retail Stores" below. Rockport
has not pursued mass merchandisers or discount outlets for the distribution of
its products.
RALPH LAUREN (R) BRAND
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In May 1996, Rockport entered into an exclusive license agreement to
design, develop, manufacture, market and sell footwear under the RALPH LAUREN
brand. The territory covered by the license agreement currently includes the
U.S. and Canada and is expected to expand over time to cover the world as
existing RALPH LAUREN licenses expire, and subject to reaching agreement with
Ralph Lauren on business plans for the additional territories. As part of this
arrangement, Rockport acquired Ralph Lauren's existing footwear licensee for the
U.S. and Canada. Rockport, through its wholly owned subsidiary Ralph Lauren
Footwear Co., Inc., is now selling the existing RALPH LAUREN footwear line and
plans to build a global footwear business around the RALPH LAUREN (R) and POLO
SPORT (R) lines. A new line of athletic footwear under the POLO SPORT label is
expected to be launched in Spring 1998.
RALPH LAUREN footwear is marketed to authorized retailers through a locally
based employee staff. Products are distributed primarily through higher-quality
department stores. Products are also sold through space licensing and
merchandising arrangements at RALPH LAUREN/POLO retail stores.
GREG NORMAN (R) BRAND
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The Company's Greg Norman Division produces a collection of apparel
marketed under the GREG NORMAN (R) name and logo. The GREG NORMAN Collection has
grown from a golf apparel line to a broader line of men's casual sportswear. The
GREG NORMAN product line has been expanded to include a wide range of apparel
products -- from leather jackets and sweaters to activewear -- at a variety of
price-points. The Greg Norman Division intends to grow the GREG NORMAN brand
further by offering a variety of lifestyle products and expanding into
international markets. It is anticipated that the Division will accomplish such
expansion through various licensing and distribution arrangements. In 1996 the
Division signed licensing agreements for branded leather
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products and hosiery. A number of new agreements which will broaden the scope of
products offered and expand distribution internationally are expected.
The GREG NORMAN brand is marketed through its endorsement by pro golfer
Greg Norman, and a marketing and advertising campaign designed to emphasize his
aggressive, bold, charismatic and "winning" style. The current tag line for the
brand and marketing focus is the theme "Attack Life".
GREG NORMAN products are distributed principally at on-course pro-shops,
golf specialty stores and certain department and men's specialty stores and are
sold by a combination of independent and employee sales representatives. The
GREG NORMAN Collection is also sold in independently owned GREG NORMAN-dedicated
retail shops, as well as GREG NORMAN (SM) concept or company stores. See
discussion under "Retail Stores" below.
RETAIL STORES AND OTHER PROPERTIES.
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The Company operates approximately 130 factory direct stores that include
REEBOK (R), ROCKPORT (SM) and GREG NORMAN (SM) stores which sell a variety of
footwear, apparel and accessories marketed under the Company's various brands.
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" or company retail stores located
in New York City and King of Prussia, Pennsylvania. 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),
footwear and apparel. Internationally, there are a number of REEBOK retail
stores owned by the Company, its subsidiaries or its independent distributors.
The Company continues to open retail stores either directly or through its
distributors in numerous international markets. REEBOK retail shops are expected
to be an important means of launching the brand in new markets such as China,
India and Russia and in other international markets.
Rockport has concept or company retail stores in Boston, Massachusetts,
Newport, Rhode Island, King of Prussia, Pennsylvania and New York City. In
addition, there are two GREG NORMAN concept or company retail stores in New York
City. Rockport's Ralph Lauren footwear subsidiary operates "concept" footwear
departments in RALPH LAUREN/POLO stores in New York City, Beverly Hills,
California, Honolulu, Hawaii, and Oakbrook, Illinois. In addition, the Ralph
Lauren footwear subsidiary has footwear retail operations in approximately 18
RALPH LAUREN/POLO factory direct stores.
Reebok is also a partner in the REEBOK Sports Club/NY, a premier sports and
fitness complex in New York City featuring a wide array of fitness equipment,
facilities and services in a luxurious atmosphere. The club utilizes
approximately 125,000 square feet and occupies 5 floors of the Lincoln Square
project. A REEBOK concept store, as well as ROCKPORT and GREG NORMAN concept
stores, is also located in the building.
9
<PAGE> 11
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.
The Company has adopted certain human rights standards which apply to
manufacturers of its products and monitors compliance with such standards
through its human rights program. In conjunction with this program and as part
of its commitment to human rights, in November 1996 the Company announced that
all of its soccer balls would be labeled with a guarantee that the balls are
made without child labor. Reebok is instituting a vigorous monitoring program to
ensure compliance with this guarantee.
China, Indonesia, the Philippines and Thailand were the Company's primary
sources for footwear, accounting for approximately 34%, 30%, 13%, and 12%,
respectively, of the Company's total footwear production during 1996 (based on
the number of units produced). The Company's largest manufacturer, which has
several factory locations, accounted for approximately 11% of the Company's
total footwear production in 1996.
Reebok's wholly owned Hong Kong subsidiary, and a network of affiliates in
China, Indonesia, India, 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 affiliates inspect certain components
and materials purchased by unrelated manufacturers for use in footwear
production. The network of affiliates 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 affiliates 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. ROCKPORT (R) 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.
SOURCES OF SUPPLY
- -----------------
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 components used in the
Company's technologies are obtained from only one or two sources, and thus a
loss of
10
<PAGE> 12
supply could disrupt production. The principal materials used in the Company's
apparel products are cotton, fleece, nylon 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.
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 China, Indonesia, the
Philippines 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 or prohibitive tariff rates, either through
statutory action or intervention by the Executive Branch, due to concern over
China's trade policies, human rights, foreign weapons sales practices and its
foreign policy. Further debate on these issues is expected to continue in 1997.
However, the Company does not currently anticipate that restrictions on imports
from China will be imposed by the U.S. during 1997. If adverse action is taken
with respect to imports from China, it could have an adverse effect on some or
all of the Company's product lines, which could result in a negative financial
impact. The Company has put in place contingency plans which should allow it to
diversify some of its sourcing to countries other than China if any such adverse
action occurred. In addition, the Company does not believe that it would be more
adversely impacted by any such adverse action than its major competitors. The
actual effect of any such action will, however, depend on a number of factors,
including how reliant the Company, as compared to its competitors, is on
production in China and the effectiveness of the contingency plans put in place.
The European Union ("EU") imposed import quotas on certain footwear from
China in 1994. The effect of such quota scheme on Reebok has not been
significant because the quota scheme provides an exemption for certain
higher-priced special technology athletic footwear, which exemption is available
for most REEBOK products.
The EU has imposed antidumping duties against textile upper footwear from
China and Indonesia, and has calculated, but suspended, antidumping duties on
leather upper footwear from China, Thailand and Indonesia. It is expected that
the duties on leather upper footwear will remain suspended through 1997. A broad
exemption has been included in both antidumping cases (textile and leather
footwear) for athletic footwear covering most REEBOK models. If the athletic
footwear exemption remains in its current form, few of the Company's product
lines would be affected adversely, and in any case, the Company does not believe
that its products will be more severely restricted than those of its major
competitors.
11
<PAGE> 13
However, recently the EU has initiated at the internal staff level an
effort to significantly narrow the athletic footwear exemption which applies to
both the quota scheme and antidumping duties. The Company, through relevant
trade associations, is working to prevent imposition of the more limited
athletic footwear criteria. Should the proposed revisions be adopted, certain of
the Company product lines would be affected adversely, although the Company does
not believe that its products would be more severely affected than those of its
major competitors.
Various other countries have taken steps to restrict footwear imports or
impose additional customs duties, which actions affect the Company as well as
other footwear importers. The Company, in conjunction with other footwear
importers, is aggressively challenging such restrictions. Such restrictions have
in some cases had a significant adverse effect on the Company's sales in some of
such countries, most notably Argentina, although 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: 1996, footwear
(approximately 75%) and apparel (approximately 24%); 1995, footwear
(approximately 81%) and apparel (approximately 18%); 1994, footwear
(approximately 88%) and apparel (approximately 12%).
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.
WORKING CAPITAL ARRANGEMENTS
- ----------------------------
In conjunction with the Company's repurchase of approximately 17 million
shares of its common stock pursuant to a Dutch Auction self-tender offer, the
Company entered into a new credit agreement underwritten by Credit Suisse and a
syndicate of major banks. The facility includes a committed $750 million
revolving credit line to replace the Company's previous $300 million revolving
credit facility. The balance of the facility is a $640 million six year term
loan which was used to finance the share repurchase. In February 1997, the
Company prepaid $50 million of the $640 million term loan.
The Company also has various arrangements with numerous banks which provide
an aggregate of approximately $938.2 million of uncommitted facilities,
substantially all of which are available to the Company's foreign subsidiaries.
Of this amount, approximately $395 million is available for short-term
borrowings and bank overdrafts, with the remainder available for letters of
credit for inventory purchases. At December 31, 1996, approximately $252 million
was outstanding for open letters of credit for inventory purchases, in addition
to approximately $33 million in notes payable to banks.
12
<PAGE> 14
The Company also has authority to issue up to $200 million of commercial
paper which is supported to the extent available by its revolving credit and
loan agreements, referred to above. As of December 31, 1996, the Company had no
commercial paper obligations outstanding.
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
- ---------------
There was no single customer of the Company that accounted for 10% or more
of the Company's net sales in 1996.
BACKLOG
- -------
The Company's backlog of orders at December 31, 1996 (many of which are
cancelable by the purchaser), totalled approximately $1.198 billion, compared to
$1.068 billion as of December 31, 1995. The Company expects that substantially
all of these orders will be shipped in 1997, although, as noted above, many of
these orders are cancelable. The backlog position is not necessarily indicative
of future sales because the ratio of future orders to "at once" shipments and
sales by Company owned retail stores may vary from year to year.
COMPETITION AND COMPETITORS
- ---------------------------
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, Fila and others. Competition is very strong in
each of the sports and fitness footwear and apparel market segments, with new
entrants and established companies providing challenges in every category.
The casual footwear market into which the ROCKPORT (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.
In addition, Rockport's DRESSPORTS (R) line competes with leading makers of
dress shoes.
The Company's other product lines also continue to confront strong
competition. The REEBOK (R) apparel line competes with well-known brands such as
Nike, Fila and Adidas. The GREG NORMAN (R) line competes with Tommy Hilfiger,
Ralph Lauren, Nautica and other makers of men's casual sportswear. The RALPH
LAUREN footwear brand competes with such brands as Cole Haan, Ferragamo and
Donna Karan.
ISSUES AND UNCERTAINTIES
- ------------------------
This report includes, and other documents, information or statements
released or made from time to time by the Company may include, forward-looking
statements. These statements involve risks and uncertainties. The Company's
actual results may differ materially from those discussed in
13
<PAGE> 15
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 underlying
such expectations or forecasts, become inaccurate. The following discussion
identifies certain important issues and uncertainties that are among the 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 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
(including the U.S.), sales growth may be dependent in part on the Company
increasing its market share at the expense of its competitors, which may be
difficult to accomplish particularly in view of the Company's recent market
share decline in the U.S. footwear market. The Company also faces strong
competition with respect to its other product lines, such as the ROCKPORT
product line and the GREG NORMAN collection. For discussion of the Company's
major competitors see "COMPETITION AND COMPETITORS" above.
Competition in the markets for the Company's products occurs in a variety
of ways, including price, quality, product design, brand image, marketing and
promotion 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 filling customer orders or
in liquidating excess inventory, which may have an adverse effect on the
Company's sales margins and brand image.
SALES FORECASTS
- ---------------
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 those described above
under "Competition and Consumer Preferences", as well as 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 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.
14
<PAGE> 16
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. In the event that such investments do not
achieve the desired effect in terms of increased retailer acceptance and/or
consumer purchase of the Company's products, there could be an adverse impact on
the Company's financial results.
RETAIL OPERATIONS
- -----------------
At the end of 1996, the Company operated approximately 140 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 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.
INTERNATIONAL SALES AND PRODUCTION
- ----------------------------------
A substantial portion of the Company's products are manufactured abroad and
approximately 40% of the Company's sales are made outside the U.S. The Company's
footwear and apparel production and sales operations are thus subject to the
usual risks of doing business abroad, such as currency fluctuations, longer
payment terms, potentially adverse tax consequences, repatriation of earnings,
import duties, tariffs, quotas and other threats to free trade, labor unrest,
political instability and other problems linked to local production conditions
and the difficulty of managing multinational operations. If such factors limited
or prevented the Company from selling products in any significant international
market or prevented the Company from acquiring products from its suppliers in
China, Indonesia, the Philippines 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. See "TRADE POLICY"
above.
SOURCES OF SUPPLY
- -----------------
The Company depends upon 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 or components
used in its products, it could have a negative effect on the Company's business,
including increased costs or
15
<PAGE> 17
difficulty in delivering product. Some of the components used in the Company's
technologies are obtained from only one or two sources and thus a loss of supply
could disrupt production.
RISK OF DEBT
- ------------
In connection with the Company's Dutch auction share repurchase, the
Company incurred $640 million in additional debt to finance the repurchase of
shares (of which $50 million was prepaid in February 1997) and entered into a
$750 million revolving credit line which replaced its prior $300 million
revolving credit facility. As a result of these new credit arrangements, the
Company currently faces significantly increased interest expense and debt
amortization, as compared to the past. The credit arrangements contain certain
covenants (including restrictions on asset acquisitions, capital expenditures
and future indebtedness and the requirement to maintain a minimum interest
coverage ratio) which are intended to limit the Company's future actions and
which may also limit the Company's financial, operating and strategic
flexibility. In addition, the Company's failure to make timely payments of
interest and principal on its debt, or to comply with the material covenants
applicable thereto, could result in significant negative consequences.
The Company believes that its cash, short-term investments and access to
new credit facilities, together with its anticipated cash flow from operations,
are adequate for its needs in the foreseeable future. However, the Company's
actual experience may differ from the expectations set forth in the preceding
sentence. Factors that might lead to a difference include, but are not limited
to, the matters discussed herein 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 resources.
RISK 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. However, no assurance can be given that
fluctuation in foreign currency exchange rates will not have an adverse impact
on the Company's revenues, net profits or financial condition.
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, technologies and designs are of
great value. From time to time the Company has been, and may in the future be,
the subject of litigation challenging its ownership of certain intellectual
property. Loss of the REEBOK or ROCKPORT trademark rights could have a serious
impact on the Company's business. Because of the
16
<PAGE> 18
importance of such intellectual property rights, the Company's business is
subject to the risk of 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, general
weakness in retail markets and changes in consumer purchasing power and
preferences. 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.
ABILITY TO IMPROVE PERFORMANCE OF REEBOK FOOTWEAR BUSINESS
- ----------------------------------------------------------
The Company has recently taken steps which it believes may improve the
performance of its REEBOK footwear business. There are, however, many
uncertainties associated with accomplishment of such an improvement. These
include the decline in recent years in the Company's share of the U.S. athletic
footwear market, slower overall growth in the U.S. athletic footwear market, the
emergence and growth of strong competitors, the substantial and increasing
investment by such competitors in marketing and advertising, and the possibility
of changing consumer preferences. Moreover, while the Company has received
initial positive indications from certain retailers as to its new products,
there is not yet any evidence or assurance as to consumer response to many of
these new products.
EMPLOYEES
- ---------
As of December 31, 1996, the Company had approximately 6,900 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
- -----------------------------------------------------------
The Company is filing herewith selected portions of its Annual Report to
Shareholders for the year ended December 31, 1996 (the "1996 Annual Report")
with the Securities and Exchange Commission. Financial information pertaining to
the Company's foreign and domestic operations is incorporated herein by
reference from Note 15 on page 42 of the 1996 Annual Report.
17
<PAGE> 19
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 53 President, Chief Executive Officer and
Chairman of the Board of Directors
Paul R. Duncan 56 Executive Vice President and Director
Robert Meers 53 Executive Vice President, President and Chief
Executive Officer of the Reebok Division and
Director
Angel R. Martinez 41 Executive Vice President, President and Chief
Executive Officer of The Rockport Company
Kenneth I. Watchmaker 54 Executive Vice President and Chief Financial
Officer
Arthur I. Carver 46 Senior Vice President, Sourcing and
Logistics Reebok Division,
Roger Best 44 Senior Vice President of the Reebok Division
and General Manager of Reebok North America
Bruce Nevins 59 Senior Vice President of the Reebok Division
and Managing Director of Reebok's
International Division
Barry Nagler 40 General Counsel and Vice President
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 has been an Executive Vice President of the Company since
February 1990 and a Director of the Company since March 1989. In November, 1996,
Mr. Duncan transitioned to a new part-time position with the Company in which he
will be responsible for special projects. He was previously President of the
Specialty Business Group since October 1995. From June 1995 until October 1995,
Mr. Duncan was Chief Operating Officer for the Reebok Division. Prior to June
1995 Mr. Duncan was Executive Vice President and Chief Financial Officer. Mr.
Duncan joined the Company in 1985 as Senior Vice President and Chief Financial
Officer.
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<PAGE> 20
Robert Meers has been an Executive Vice President of the Company since
February 1994 and a Director of the Company since 1993. He was appointed
President and Chief Executive Officer of the Reebok Division in October 1995.
Prior to that, he was President of the Company's Specialty Business Group from
January 1994 to October 1995. 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 joined the Company in 1984.
Angel R. Martinez has been President and Chief Executive Officer of The
Rockport Company since 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
Executive Vice President of Marketing Services from January 1994 to August 1994,
and prior to that he was Vice President for Business Development of the Company
for several years. Mr. Martinez joined the Company in 1982.
Kenneth I. Watchmaker has been an Executive Vice President of the Company
since February 1994. He was appointed Chief Financial Officer of the Company in
June 1995. Previously, since February 1994, he was an Executive Vice President
of the Company with responsibility for finance, footwear production and
management information systems. He joined the Company in July 1992 as Executive
Vice President, Operations and Finance, Reebok Division. Prior to joining
Reebok, Mr. Watchmaker was the partner in charge of audit services in the Boston
office of Ernst & Young.
Arthur I. Carver has been the Senior Vice President of Sourcing and
Logistics of the Reebok Division since January 1996. Prior to that, Mr. Carver
was Vice President of Operations Development Worldwide for the Reebok Division
since February 1994. Previously, from June 1992 through February 1994, he was
Vice President of North American Operations. Prior to that, he was Director of
Sales Operations. Mr. Carver joined the Company in 1990.
Roger Best has been Senior Vice President of the Reebok Division and
General Manager of Reebok North America since February 1996. Prior to that, he
was Regional Vice President of the Reebok Division's Northern Europe Operations
and Managing Director of Reebok U.K. since April 1995. Previously, from January
1992 through April 1995, he was Managing Director of Reebok U.K. Mr. Best joined
the Company in 1992.
Bruce Nevins has been Senior Vice President of the Reebok Division and
Managing Director of Reebok's International Division since April 1995. Prior to
that, Mr. Nevins was Senior Vice President of New Markets for the Reebok
Division since February 1994, when he joined the Company. Prior to joining
Reebok, Mr. Nevins was President of Umbro International from July 1990 through
February 1994.
Barry Nagler has been Vice President of the Company since May 1995 and
General Counsel since September 1995. Prior to that, Mr. Nagler was divisional
Vice President and Assistant General Counsel for the Company since September
1994. He joined the Company in June 1987 as Counsel.
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
19
<PAGE> 21
facilities in Stoughton, Massachusetts. At its corporate headquarters, the
Company occupies under lease approximately 200,000 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. This lease
was later amended to extend the term of the lease until June 30, 2000, with a
three-year renewal option thereafter. This facility and three other smaller
facilities, one of which is leased and the other two of which are owned by the
Company, 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. In order to
address the need for additional space at its corporate headquarters, in August
1996 the Company signed an option agreement for the potential purchase of a 42
acre site in Canton, Massachusetts, to be developed as a corporate headquarters
facility. Consummation of the purchase of the site is subject to obtaining
permits and other approvals and is not expected to be complete until early next
year. Construction of the corporate headquarters facility is expected to take
approximately two years following consummation of the purchase. In 1994, the
Company purchased a building in Avon, Massachusetts containing approximately
400,000 square feet of space which it uses as an office and 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 1995, Rockport completed construction of a distribution center of
approximately 285,000 usable square feet on approximately 140 acres of land in
Lancaster, Massachusetts which it purchased in 1992.
The Company's wholly owned U.K. subsidiary, Reebok International Limited,
entered into a fifteen-year lease for the previous corporate headquarters of the
Company's International operations in Stockley Park, London, (approximately
37,000 square feet) which is guaranteed by the Company. Since the Company has
moved its International operations to Stoughton, Massachusetts the property has
been subleased to two parties for the term of the lease. The Company's U.K.
subsidiary, Reebok International Limited, moved to a new corporate headquarters
building in Denham Lock, England in March 1996, for which it entered into a 7
year lease. The new 14,000 square foot corporate headquarters building, also
houses a showroom for use by the Reebok sales force in Southern England.
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 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
20
<PAGE> 22
California where it was assigned Civil Action Number 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. On September 9, 1996, the Second Circuit Court
upheld the decision of the District Court and approved the NAAG settlement. The
Plaintiff's right to appeal the Second Circuit decision expired on January 13,
1997.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------
Not applicable.
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- ------ ---------------------------------------------------------------------
The Company is filing herewith selected portions of its 1996 Annual Report
with the Securities and Exchange Commission. The information required by this
Item is incorporated herein by reference from page 46 of the 1996 Annual Report.
Item 6. Selected Financial Data.
- ------ -----------------------
The Company is filing herewith selected portions of its 1996 Annual Report
with the Securities and Exchange Commission. The information required by this
Item is incorporated herein by reference from page 25 of the 1996 Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------ -----------------------------------------------------------------------
of Operations.
-------------
The Company is filing herewith selected portions of its 1996 Annual Report
with the Securities and Exchange Commission. The information required by this
Item is incorporated herein by reference from pages 26 through 30 of the 1996
Annual Report.
Item 8. Financial Statements and Supplementary Data.
- ------ -------------------------------------------
The Company is filing herewith selected portions of its 1996 Annual Report
with the Securities and Exchange Commission. The consolidated financial
statements required by this Item, together with the report of the Company's
independent auditors for 1996, are contained therein and are incorporated herein
by reference from pages 31 through 43 of the 1996 Annual Report. The
supplementary financial information required by this Item is contained in the
1996 Annual Report on page 44 and such information is incorporated by reference
herein. The financial statements, supplementary data, and Report of Independent
Auditors for 1995 and 1994 are listed under Part IV, Item 14 in this report.
21
<PAGE> 23
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 1, 1997,
which will be filed with the Securities Exchange Commission on or before March
26, 1997 (the "1997 Proxy Statement"), under the headings "Information with
Respect to Nominees", "Transactions with Management and Affiliates" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934".
Information called for by this Item with respect to the 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 1997 Proxy Statement under the headings "Compensation of Directors",
"Executive Compensation", "Supplemental Executive Retirement Plan", "Employee
Agreements", "Report of Compensation Committee on Executive Compensation" and
"Performance Graphs".
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------- --------------------------------------------------------------
The information required by this Item is incorporated herein by reference
from the 1997 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 1997 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 appearing in the Company's
1996 Annual Report are incorporated by reference in Item 8 of this Form 10-K:
1996 ANNUAL REPORT PAGE
-----------------------
Consolidated Balance Sheets at
22
<PAGE> 24
December 31, 1996 and 1995 31
For each of the three years ended
December 31, 1996, 1995 and 1994:
Consolidated Statements of
Income 32
Consolidated Statements of
Stockholders' Equity 33
Consolidated Statements of
Cash Flows 34
Notes to Consolidated Financial Statements 35-42
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-1
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) 2. 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), (6), (8)
(4) Instruments defining the rights of security holders, including indentures.
-------------------------------------------------------------------------
4.1 Indenture, dated as of September 15, 1988, as amended and
restated by the First Supplemental Indenture, dated as of
January 22, 1993, between Reebok International Ltd. and Citibank
N.A., as Trustee (4), (12)
23
<PAGE> 25
4.2 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 (7), (9), (10)
(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 (6)
10.4 Lease Agreement, dated March 1, 1988, as amended, between Reebok
International Ltd. and North Stoughton Industrial Park
Development Trust (5), (14)
10.5 Purchase and Sale Agreement between Reebok International Ltd.
and Pentland Group plc dated March 8, 1991 (8)
10.6 Agreements with various banks in Hong Kong reflecting
arrangements for letter of credit facilities (8)
10.7 Credit Agreement, dated August 23, 1996, among the Company, the
Lenders and Co- Agents named therein and Credit Suisse, as
Administrative Agent, as amended by the First Amendment dated as
of August 23, 1996. (16)
Management Contracts and Compensatory Plans.
-------------------------------------------
10.8 Reebok International Ltd. 1994 Equity Incentive Plan, as amended
10.9 Reebok International Ltd. Equity and Deferred Compensation Plan
for Directors (14)
10.10 Reebok International Ltd. 1985 Stock Option Plan, as
amended (11)
10.11 Reebok International Ltd. 1987 Stock Option Plan for Directors,
as amended (12)
10.12 Reebok International Ltd. 1987 Stock Bonus Plan (3)
10.13 Reebok International Ltd. Excess Benefits Plan (8)
10.14 Reebok International Ltd. Supplemental Executive Retirement
Plan (15)
10.15 Reebok International Ltd. Executive Performance Incentive
Plan (15)
10.16 Amendment to Executive Performance Incentive Plan
24
<PAGE> 26
10.17 Stock Option Agreement with Paul B. Fireman (8)
10.18 Split-Dollar Life Insurance Agreement with Paul B. Fireman (11)
10.19 Contingent Severance Agreement with Paul R. Duncan (6)
10.20 Employment Agreement with Kenneth Watchmaker (12)
10.21 Change of Control Agreement with Kenneth Watchmaker (12)
10.22 Supplemental Retirement Program for Kenneth Watchmaker (12)
10.23 Contingent Severance Agreement with Angel Martinez (13)
10.24 Lease with Angel Martinez (13)
10.25 Amendment dated October 30, 1995 to Lease with Angel
Martinez (15)
10.26 Amendment dated January 1997 to Lease with Angel Martinez
10.27 Employment Agreement with Roger Best
10.28 Change of Control Agreement with Robert Meers
(11) Statement Re Computation of Per Share Earnings.
----------------------------------------------
(12) Statement Re Computation of Ratio of Earnings to Fixed Charges.
--------------------------------------------------------------
(13) Annual Report to Security Holders.
---------------------------------
13.1 Selected Portions of Registrant's 1996 Annual Report to
Shareholders
(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.
25
<PAGE> 27
(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 and as an Exhibit to
Registration Statement No. 11-13370 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 10-K dated March 26,
1990 and incorporated by reference herein.
(7) Filed as an Exhibit to Reebok International Ltd. Form 8-A filed on July
31, 1990 and incorporated by reference herein.
(8) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated March 28,
1991 and incorporated by reference herein.
(9) 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.
(10) 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.
(11) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated March 27,
1992 and incorporated by reference herein.
(12) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated March 26,
1993 and incorporated by reference herein.
(13) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated February
15, 1994 and incorporated by reference herein.
(14) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated March 30,
1995 and incorporated by reference herein.
(15) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated March 29,
1996 and incorporated by reference herein.
(16) Filed as an Exhibit to Reebok International Ltd. Form 10-Q for the quarter
ended September 30, 1996 and incorporated herein by reference.
26
<PAGE> 28
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/ KENNETH I. WATCHMAKER
---------------------------------------
Kenneth I. Watchmaker
Executive Vice President
and Chief Financial Officer
Dated: March 27, 1997
<PAGE> 29
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 B. FIREMAN
- -----------------------------------
Paul B. Fireman
Director, Chairman of the Board
and President
(Chief Executive Officer)
/s/ KENNETH I. WATCHMAKER
- -----------------------------------
Kenneth I. Watchmaker
Executive Vice President
and Chief Financial Officer
(Chief Financial and Accounting Officer)
/s/ PAUL R. DUNCAN
- -----------------------------------
Paul R. Duncan
Executive Vice President
Director
/s/ ROBERT MEERS
- -----------------------------------
Robert Meers
Executive Vice President
Director
/s/ WILLIAM F. GLAVIN
- -----------------------------------
William F. Glavin
Director
/s/ MANNIE L. JACKSON
- -----------------------------------
Mannie L. Jackson
Director
/s/ BERTRAM M. LEE, SR.
- -----------------------------------
Bertram M. Lee, Sr.
Director
/s/ RICHARD G. LESSER
- -----------------------------------
Richard G. Lesser
Director
28
<PAGE> 30
/s/ WILLIAM M. MARCUS
- -----------------------------------
William M. Marcus
Director
/s/ GEOFFREY NUNES
- -----------------------------------
Geoffrey Nunes
Director
/s/ JOHN A. QUELCH
- -----------------------------------
John A. Quelch
Director
Dated: March 27, 1997
29
<PAGE> 31
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
REEBOK INTERNATIONAL LTD.
(Amounts in thousands)
<CAPTION>
Balance at
end of Balance at Charged to Charged to Deductions Balance at
description Beginning Costs and Other From End of
period of Period Expenses Accounts Allowances(A) Period
- ----------- ---------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $46,401 $10,225 $13,099 $43,527
YEAR ENDED DECEMBER 31, 1995
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts 44,862 13,151 11,612 46,401
YEAR ENDED DECEMBER 31, 1994
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts 46,455 6,691 8,284 44,862
- ------------
(A) Uncollectible accounts written off, net of recoveries
</TABLE>
F-1
<PAGE> 32
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
as amended and restated by the First reference
Supplemental Indenture, dated as of
January 22, 1993, between Reebok
International Ltd. and Citibank
N.A., as Trustee
4.2 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 Lease Agreement, dated March 1, 1988, Incorporated by
as amended, between Reebok reference
International Ltd. and North Stoughton
Industrial Park Development Trust
10.5 Purchase and Sale Agreement between Incorporated by
Reebok International Ltd. and Pentland reference
Group plc dated March 8, 1991
10.6 Agreements with various banks in Hong Incorporated by
Kong reflecting arrangements for reference
letter of credit facilities
10.7 Credit Agreement, dated August 23, Incorporated by
1996, among the Company, the Lenders reference
and Co-Agents named therein and Credit
Suisse, as Administrative Agent, as
amended by the First Amendment dated
as of August 23, 1996
10.8 Reebok International Ltd. 1994 Equity Filed herewith
Incentive Plan, as amended
10.9 Reebok International Ltd. Equity and Incorporated by
Deferred Compensation Plan for reference
Directors
10.10 Reebok International Ltd. 1985 Stock Incorporated by
Option Plan, as amended reference
<PAGE> 33
10.11 Reebok International Ltd. 1987 Stock Incorporated by
Option Plan for Directors, as amended reference
10.12 Reebok International Ltd. 1987 Stock Incorporated by
Bonus Plan reference
10.13 Reebok International Ltd. Excess Incorporated by
Benefits Plan reference
10.14 Reebok International Ltd. Supplemental Incorporated by
Executive Retirement Plan reference
10.15 Reebok International Ltd. Executive Incorporated by
Performance Incentive Plan reference
10.16 Amendment to Executive Performance Filed herewith
Plan
10.17 Stock Option Agreement with Paul Incorporated by
B. Fireman reference
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 Kenneth Incorporated by
Watchmaker reference
10.21 Change of Control Agreement with Incorporated by
Kenneth Watchmaker reference
10.22 Supplemental Retirement Program for Incorporated by
Kenneth Watchmaker reference
10.23 Contingent Severance Agreement with Incorporated by
Angel Martinez reference
10.24 Lease with Angel Martinez Incorporated by
reference
10.25 Amendment dated October 30, 1995 Incorporated by
to Lease with Angel Martinez reference
10.26 Amendment dated January 1996 Filed herewith
to Lease with Angel Martinez
10.27 Employment Agreement with Roger Best Filed herewith
10.28 Change of Control Agreement with Robert Filed herewith
Meers
11. Statement Re Computation of Per Filed herewith
Share Earnings
12. Statement Re Computation of Ratio Filed herewith
of Earnings to Fixed Charges
13.1 Selected Portions of Registrant's Filed herewith
1996 Annual Report to Shareholders
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> 1
EXHIBIT 10.8
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.
<PAGE> 2
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 7,000,000 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.
2
<PAGE> 3
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
3
<PAGE> 4
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
4
<PAGE> 5
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
5
<PAGE> 6
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.
6
<PAGE> 7
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.
7
<PAGE> 8
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.
8
<PAGE> 1
EXHIBIT 10.16
Amendment to Reebok Executive Performance Incentive Plan
--------------------------------------------------------
Pursuant to Section 9 of the Reebok Executive Performance Incentive Plan
(the "Plan"), the Compensation Committee adopts the following amendment to the
Plan (capitalized terms used herein without definition shall have the respective
meanings set forth in the Plan):
1. Section 4 of the Plan shall be amended by deleting paragraphs (a)
and (d) of such Section in their entirety and substituting the following:
(a) Within 90 days after the beginning of each fiscal year of the
Company (a "year") or the beginning of such other performance period
as may be determined by the Committee, the Committee will select
Participants for the year or other performance period, as
applicable, and establish in writing (i) objective Performance Goal
or Goals for each Participant for that year or other performance
period, as applicable, based on one or more of the Performance
Criteria, (ii) the specific Award amounts that will be paid to each
Participant if the Performance Goal or Goals are achieved (the
"Target Award") and (iii) the method by which such amounts will be
calculated. At the Committee's option, the Committee may determine
that all or any part of any Award may be paid in shares of Common
Stock of the Company having an equivalent value to the amount of the
Award to be paid in stock, which shares shall be subject to such
restrictions as the Committee may determine. If the Committee
determines that any part of the Award shall be paid in stock, it
shall also determine the basis on which the Award will be converted
into stock. Notwithstanding the foregoing, in all cases the
Committee shall make the determinations required by this paragraph
before 25% of the applicable performance period has passed and at
such time as the determination of the actual amount of the Award to
be paid to any Participant is substantially uncertain.
(b) As soon as practicable following each year or other performance
period, as applicable, while the Plan is in effect, the Committee
shall determine and certify, for each Participant, the extent to
which the Performance Goal or Goals have been met and the amount of
the Award, if any, to be made. Awards will be paid to the
Participants in cash and/or stock, as applicable, following such
certification by the Committee and no later than ninety (90) days
following the close of the year or other performance period, as
applicable, with respect to which the Awards are made.
<PAGE> 2
2. Section 5 of the Plan shall be amended by deleting the first
sentence thereof and substituting the following:
"A Participant shall have no right to an Award under the Plan for
any performance period in which the Participant is not actively
employed by the Company or its Subsidiaries at the end of such
performance period."
3. Except as expressly set forth herein, the terms and conditions of
the Plan shall remain unchanged and continue in full force and effect.
<PAGE> 1
EXHIBIT 10.26
January, 1997
Angel Martinez
President
The Rockport Company
220 Donald Lynch Boulevard
Marlboro, Massachusetts 01752
RE: SECOND AMENDMENT TO LEASE
Dear Angel:
Reference is hereby made to the Lease dated November 1, 1993 between you and
Reebok International Ltd. ("Reebok"), together with the Addendum thereto and the
First Amendment thereto dated October 30, 1995 (the "Lease"). Capitalized terms
used herein without definition shall have the respective meanings set forth in
the Lease. We agree to amend such Lease as follows:
1. The term of the Lease has been extended for an additional period until
the date of the closing of your purchase of the Leased Premises from
Reebok (the "Closing Date").
2. You will pay rent to Reebok for the period from November 1, 1995
through Closing Date at a rate of $5,000 per month, which rent shall
be due and payable to Reebok in full on the date on which the Lease
terminates.
3. You have agreed to purchase from Reebok, and Reebok has
agreed to sell to you, the Leased Premises for a
purchase price of $882,926. The closing of the sale of
the Leased Premises to you by Reebok shall take place
as soon as possible following the satisfaction or
waiver of all conditions to closing (including the
receipt of a Title 5 certificate). As set forth above,
on such date you shall also pay to Reebok the rent due
on the Lease.
<PAGE> 2
If the foregoing reflects your agreement, please so indicate by signing
this letter where indicated below.
Very truly yours,
REEBOK INTERNATIONAL LTD.
By: /s/ KENNETH WATCHMAKER
-------------------------------
Kenneth Watchmaker
Executive Vice President
AGREED TO AND ACCEPTED BY:
By: /s/ ANGEL MARTINEZ
-------------------------------
Angel Martinez
<PAGE> 1
EXHIBIT 10.27
April 17, 1996
Mr. Roger Best
c/o Reebok International Ltd.
100 Technology Center Drive
Stoughton, MA 02072
Dear Roger:
This letter will evidence the agreement between you and Reebok
International Ltd. ("Reebok" or the "Company") relating to your employment by
Reebok. Our agreement is as follows:
1. YOUR POSITION; DUTIES AND RESPONSIBILITIES. During the term of this
Agreement (as described below in paragraph 2), you will be employed as Senior
Vice President and General Manager of Reebok North American Operations or, at
the Company's option, (a) as the head of the Reebok Division, (b) as the head of
the Reebok Division's International operations or (c) in such other position as
the Company may determine and to which you reasonably agree. Your duties will be
consistent with your position and as reasonably determined by Reebok. You agree
to devote your full working time, attention and energies to the business of
Reebok and to use your best efforts to promote the interests of Reebok.
Notwithstanding the foregoing, you may be a director of up to two non-competing
public companies, subject to the approval of Paul Fireman, which approval shall
not be unreasonably withheld.
2. TERM OF AGREEMENT. You and Reebok agree that this Agreement will be
for an initial period of three years beginning as of February 1, 1996, and shall
renew automatically each day after February 1, 1998 for a new rolling one year
period, unless written notice to the contrary is given by you or Reebok, as the
case may be, in which case the term of this Agreement shall expire one year from
the date of such notice (but not before January 31, 1999) or such other period
as may be mutually agreed in writing.
3 BASE SALARY. Your initial base salary shall be at the annualized
rate of $350,000, payable in accordance with Reebok's normal pay practices.
4. ANNUAL INCENTIVE COMPENSATION. You will be eligible for annual
target incentive compensation of 50% of your base salary, with the actual amount
of the award to be determined in accordance with the terms and conditions of the
Company's Management Incentive Plan. For calendar year 1996, your target
<PAGE> 2
incentive will be $175,000 and for such year only you will be guaranteed a
minimum payment of $100,000.
5. EQUITY INCENTIVE. The Company has granted you options to purchase
75,000 shares of Reebok common stock under the Company's 1994 Equity Incentive
Plan. Such options are exercisable in the following manner: 40% will vest two
years after the date of grant and 20% will vest on each of the third, fourth and
fifth anniversaries of the date of grant.
6. RETIREMENT CONTRIBUTION. You will be eligible to participate in
Reebok's deferred contribution retirement plans generally available to other
U.S.-based executives of your level. The Company will bear all contributions in
respect of such participation. Reebok will not make any separate or additional
contribution to any U.K. retirement program.
7. HEALTH BENEFITS AND LIFE INSURANCE. Until such time as your
immediate family relocates to the U.S., but no later than December 31, 1998 (the
"Relocation Period"), the Company will continue to provide to your spouse and
children, at no cost to you, the medical and dental benefits they are currently
receiving in the U.K. Reebok will also provide you, at no cost to you, with the
same medical and dental benefits available to other U.S.-based executives of
your level. During the Relocation Period, the Company will also provide you with
life insurance in the amount of $500,000, or $1 million in the case of death on
business travel. At the end of the Relocation Period, you and your immediate
family will be entitled to the same medical and dental benefits and you will be
entitled to the same life insurance available to other U.S.-based executives of
your level.
8. OTHER FRINGE BENEFITS. You will be eligible to participate in all
benefits that are provided generally by Reebok to other Reebok U.S.-based
executives of your level, including a car allowance of $1,000 per month, except
for those particular category of benefits that are expressly being provided to
you hereunder.
9. VACATION. You will be entitled to four weeks of vacation each year.
10. RELOCATION EXPENSES AND TEMPORARY HOUSING. (a) The Company will
reimburse you for the reasonable relocation expenses incurred by you in
relocating you and your immediate family from the U.K. to the U.S. in accordance
with Reebok's standard corporate relocation policy (a copy of which is attached
hereto as EXHIBIT A) except that Reebok will fully reimburse you for any
reasonable expenses incurred by you in connection with the sale of your
residence in the U.K. and the acquisition of a new residence in the U.S. without
a maximum limit and will pay for third party home sale assistance to purchase
your U.K. residence.
<PAGE> 3
(b) Reebok will also reimburse you for reasonable expenses incurred by
you and your immediate family for temporary housing (including hotels and up to
$150 per week for personal telephone calls) in connection with your relocation
for a period of up to 6 months from the effective date of this Agreement.
(c) If your employment is terminated by the Company other than for
"cause" (as defined in Section 15 hereof) (including a termination by the
Company of the term of this Agreement by its giving of a notice under Section 2
hereof), Reebok will pay the reasonable expenses incurred by you in relocating
your principal residence back to the United Kingdom for the reasonable
out-of-pocket costs incurred by you in selling any home purchased by you in the
U.S., including third party home sale assistance to purchase such home, and the
reasonable costs incurred by you in relocating you and your immediate family and
your household goods back to the U.K. and reasonable tax assistance expenses
incurred by you in connection with such relocation up to a maximum amount of
$10,000.
11. TRAVEL ASSISTANCE. During the term of this Agreement, Reebok will
reimburse you for the reasonable costs incurred by you, your wife and children
in travelling between the U.S. and the U.K. as follows: during each of calendar
years 1996 and 1997, reimbursement for up to 6 business class return tickets and
up to 6 coach class return tickets; and during any year thereafter, up to two
business class return tickets and two coach class return tickets. In addition to
the reimbursement provided hereunder, you shall also be entitled to the travel
assistance provided under Reebok's relocation policy.
12. TAX ASSISTANCE. During the term of the Agreement, the Company will
reimburse you for reasonable tax assistance expenses incurred by you as follows:
upon relocation to the U.S., up to $10,000; and on an annual basis for each year
during the term, including 1996, up to $4,000.
13. LEGAL FEES. The Company will also reimburse you for all reasonable
legal fees (U.S. and U.K.) incurred by you in connection with this Agreement and
your relocation up to a maximum amount of $15,000.
14. CONFIDENTIALITY; NON-COMPETITION; NON-RECRUIT AND NON-HIRE. (a) You
agree that during the term of this Agreement and thereafter your will maintain
the confidentiality of all confidential information learned by you while at
Reebok and that you will be bound by the terms of the Reebok Employee Agreement
attached hereto as Exhibit B and incorporated herein by reference.
(b) You further agree that during the period of your employment by
Reebok and for a period of one year thereafter you will not (without the
Company's written consent) accept any position with any organization which
competes anywhere in the
<PAGE> 4
world where Reebok products are sold, with the Reebok Brands Division or with
other businesses of Reebok as it shall be constituted at the time of your
termination, whether as officer, director, employee, agent, consultant, partner,
shareholder or otherwise. You acknowledge and agree that, because the legal
remedies of the Company would be inadequate in the event of your breach of, or
other failure to perform, any of your obligations set forth in this Section, the
Company may, in addition to obtaining any other remedy or relief available to it
(including without limitation damages at law), enforce the provisions of this
Section by injunction and other equitable remedies. You further acknowledge and
agree that the options to be granted to you pursuant to Section 5 hereof are
being granted in part to ensure your compliance with the non-compete
restrictions provided herein, and you thus agree that if you violate the
provisions of this clause (b), any such options held by you at such time shall
automatically terminate and be cancelled, and to the extent that you have
exercised any such options, you will transfer and deliver to the Company any
Reebok common stock held by you which was obtained as a result of such exercise,
or in the event you have sold such stock, you will pay the Company any profits
made by you as a result of such exercise and sale. You agree that the provisions
with respect to duration and geographic scope and product scope of the
restrictions set forth in this Section are reasonable to protect the legitimate
interests of the Company and the good will of the Company. The non-compete
restriction provided herein shall be in addition to your obligations and the
Company's rights under the Non-Compete Agreement dated August 1, 1995 between
you and the Company.
(c) The provisions of this Section 14 will continue to apply after
termination of this Agreement or your employment by the Company.
15. TERMINATION OF YOUR EMPLOYMENT BY THE COMPANY OTHER THAN FOR CAUSE.
If during the initial or any extended term of this Agreement, the Company should
terminate your employment other than for "cause" (as hereinafter defined) and
other than by giving you notice under Section 2 hereof and allowing you to work
until the expiration of such notice, the Company will pay you your base salary
at the times and in the amounts that would apply if you had remained in the
employ of the Company for the balance of the initial or extended term, as the
case may be, and an additional amount in lieu of your annual incentive
compensation for such period equal to the average of the annual incentive
compensation earned by you during each year of your employment by Reebok as
Senior Vice President and General Manager of Reebok North American Operations,
such additional amount to be payable to you no later than thirty (30) days
following such termination; provided, that if any payment of such base salary or
such additional amount is not paid when due and then is not paid within ten (10)
business days after notice from you that such payment is overdue, the total
outstanding balance of base salary
<PAGE> 5
plus such additional amount payable under this Section 15 shall immediately
become due and payable by the Company.
For purposes of this Agreement, the term "cause" shall mean the following:
(a) your conviction of a felony or misdemeanor involving moral
turpitude;
(b) your failure to comply with your material obligations under this
Agreement in any material respect, (such obligations to include material
performance of your duties hereunder), if such failure shall continue for
30 days after notice in writing from the Company to you specifying such
failure; or
(c) any conduct on your part amounting to fraud or gross misconduct.
The base salary and additional amount in lieu of your annual incentive
referred to in this Section 15 shall be payable irrespective of the amount of
any income which you may receive after the termination of your employment with
Reebok, whether from employment, business activities or otherwise.
16. VOLUNTARY TERMINATION OR TERMINATION FOR CAUSE. Except as expressly
provided in Section 17 below, if you should terminate your employment
voluntarily or if the Company should terminate your employment for cause or in
accordance with a notice given pursuant to Section 2, you shall be entitled to
your base salary only until the effective date of termination and no further
compensation or other payment, other than any relocation benefits you may be
entitled to under Section 10(c) hereof, and except that if during the term of
this Agreement you indicate to Reebok that you would like to work for Reebok or
its subsidiaries in the U.K. and Reebok does not offer you a position in the
U.K. as a General Manager of a division or subsidiary or an equivalent senior
staff position within a reasonable time period, and thereafter as a result, you
voluntarily terminate your employment with Reebok, Reebok will reimburse you for
your relocation back to the U.K., including third party buying service, in the
same manner as specified in Section 10(c) hereof. If you terminate your
employment with Reebok voluntarily during the initial three year term, except in
the specific situation described in the preceding sentence, you shall be
required to reimburse Reebok for the costs of you and your family's relocation
to the U.S. in the following manner: If you resign prior to the first
anniversary of the effective date of your employment hereunder, you shall
reimburse the Company for all such costs; if you voluntarily terminate your
employment on or after the first anniversary of the effective date, but prior to
the second anniversary thereof, you shall reimburse the Company for two-thirds
of such costs; and if you voluntarily terminate your employment on or after the
second anniversary of the effective date, but prior to the third
<PAGE> 6
anniversary thereof, you shall reimburse the Company for one-third of such
costs. References herein to "terminate" refer to the date on which your
employment ends and not to the date on which you give notice pursuant to Section
2 hereof.
17. CHANGE OF CONTROL. (a) In the event that any individual,
corporation, partnership, company, or other entity (a "Person"), which term
shall include a "group" (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934 (the "Act")), begins a tender or exchange offer, circulates
a proxy to the Company's shareholders, or takes other steps to effect a "Change
of Control" (as defined in paragraph 3 below) (such efforts are referred to
herein as an "Initiation of a Change of Control"), you agree that you will not
voluntarily leave the employ of the Company and will continue to render the
employment services contemplated in this Agreement until such Person has
terminated the efforts to effect a Change of Control or until a Change of
Control has occurred. Notwithstanding the foregoing, if you have given notice
pursuant to Section 2 to terminate the term of this Agreement prior to an
Initiation of a Change of Control, you may leave on the expiration of such
notice and your giving of such notice shall not affect your rights under this
Section 17 as long as you continue to render employment services under this
Agreement until such Person has terminated the efforts to effect a Change of
Control or until a Change of Control has occurred.
(b) Notwithstanding anything to the contrary herein, if, at any time
within 12 months following a Change of Control, you terminate your employment
with the Company voluntarily by giving the Company not less than one month's
written notice during or at the end of such 12 month period, the Company will
following the termination of your employment pay to you your base salary at the
times and in the amounts that would apply if you had remained in the employ of
the Company for the balance of the initial or extended term, as the case may be,
and an additional amount in lieu of your annual incentive compensation for such
period equal to the average of the annual incentive compensation earned by you
during each year of your employment by Reebok as Senior Vice President and
General Manager of Reebok North American Operations, such additional amount to
be payable to you no later than thirty (30) days following such termination;
provided, that if any payment of such base salary or such additional amount is
not paid when due and then is not paid within ten (10) business days after
notice from you that such payment is overdue, the total outstanding balance of
base salary and such additional amount payable under this Section shall
immediately become due and payable by the Company.
The base salary and additional amount in lieu of annual incentive referred
to in this Section 17 shall be payable irrespective of the amount of any income
which you may receive after the termination of your employment with Reebok,
whether from employment, business activities or otherwise.
(c) A "Change of Control" will occur for purposes of this Agreement if
(i) any Person (other than Paul Fireman (and his immediate family) or a group in
which Paul Fireman (and his immediate family) is a participant with a direct or
indirect interest of at least 10%) acquires directly or indirectly all or
substantially all of the Company's then-outstanding securities, or (ii) the
Company is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter, PROVIDED, HOWEVER, a "Change in
Control" will not be deemed to have occurred as a result of a leveraged buy-out
or recapitalization of the Company or other acquisition of the securities or
assets of the Company in which you or Paul Fireman participates as an equity
investor or in which three or more executive officers of the Company participate
as equity investors, with an aggregate direct or indirect interest of at least
5%.
18. Miscellaneous.
-------------
(a) SUCCESSORS, ASSIGNS, AMENDMENT, ETC. This Agreement shall not be
assignable by Reebok other than to a successor to its business or assets. This
Agreement shall be binding upon you and shall inure to the benefit of your
heirs, executors, administrators and legal representatives, but shall not be
assignable by you. This Agreement may be amended or altered only by the written
agreement of Reebok and you.
(b) NOTICE. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be hand delivered
or mailed by certified mail, postage prepaid, or sent by overnight courier and
addressed as follows: If to Reebok to it at 100 Technology Center Drive,
Stoughton, MA 02072 or to such other address as may have been furnished to you
in writing as herein provided; or, if to you, at the address set forth above, or
to such other address as may have been furnished to Reebok by you as herein
provided in writing. Any notice or other communication so addressed shall be
deemed to have been given if mailed, three business days after said mailing (or
six business days after said mailing if mailed internationally) and if delivered
by courier, two business days after delivery to a reputable courier.
(c) APPLICABLE LAW. This Agreement has been executed and delivered by
both parties in The Commonwealth of Massachusetts and shall be governed by and
construed in accordance with the internal laws of The Commonwealth of
Massachusetts.
(d) SEVERABILITY. Each provision of this Agreement, including without
limitation the provisions of Section 14, is severable from the others, and if
any provision hereof shall be to any extent unenforceable, it and the other
provisions hereof shall continue to be enforceable to the full extent allowable
by
<PAGE> 7
any court of competent jurisdiction, as if such offending provision had not been
a part of this Agreement.
(e) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties concerning its subject matter, and supersedes any and all
prior agreements between the parties, except for the Non-Compete Agreement dated
August 1, 1995.
If you accept and agree to the foregoing, please signify by signing and
returning a counterpart of this letter, whereupon this letter will become a
binding agreement between you and the Company as of the date first above
written.
Very truly yours,
REEBOK INTERNATIONAL LTD.
By: /s/ JOHN B. DOUGLAS III
Accepted and agreed to:
/s/ ROGER BEST
- -------------------------------
Roger Best
<PAGE> 1
EXHIBIT 10.28
REEBOK INTERNATIONAL LTD.
CHANGE OF CONTROL AGREEMENT
---------------------------
AGREEMENT, made this 1st day of January, 1997 by and between Robert Meers
("Executive") and Reebok International Ltd. (the "Company"),
WITNESSETH
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its shareholders
for the Company to agree to provide benefits under circumstances described below
to Executive; and
WHEREAS, the Board recognizes that the possibility of a change of control
of the Company, followed by a termination of the Executive's employment or a
reduction in his responsibility or compensation, is unsettling to the Executive
and wishes to make arrangements at this time to help assure his continuing
dedication to his duties to the Company and its shareholders, notwithstanding
any attempts by outside parties to gain control of the Company; and
WHEREAS, the Board believes it important, should the Company receive
proposals from outside parties, to enable the Executive, without being
distracted by the uncertainties of his own employment situation, to perform his
regular duties,
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
1. In the event that any individual, corporation, partnership, company, or
other entity (a "Person"), which term shall include a "group" (within the
meaning of section 13(d) of the Securities Exchange Act of 1934 (the "Act")),
begins a tender or exchange offer, circulates a proxy to the Company's
shareholders, or takes other steps to effect a "Change of Control" (as defined
in paragraph 3 below), Executive agrees that he will not voluntarily leave the
employ of the Company and will render the services contemplated in the recitals
to this Agreement until such Person has terminated the efforts to effect a
Change of Control or until a Change of Control has occurred.
2. If, within 12 months following a Change of Control, Executive's employment
with the Company terminates (i) on an involuntary basis, other than as a result
of the death, total disability or retirement of the Executive at or after his
normal retirement date and other than for "Cause" (as defined in para-
<PAGE> 2
graph 4 below), or (ii) on a voluntary basis following any downgrading of
Executive's responsibilities or compensation or removal of or reduction in title
from that in effect immediately preceding the Change in Control, then, subject
to Executive's willingness to remain in the employ of the Company or its
successor for at least six months after the Change of Control to assist in the
transition and further subject to Section 5 below:
a. the Company will pay to Executive within 30 days of such termination
of employment a lump-sum cash payment equal to 400% of the aggregate
of his current annual base salary and his cash bonus for the most
recent calendar year ended before the Change of Control; and
b. all of Executive's outstanding stock options, restricted shares and
other similar incentive interests and rights will become immediately
and fully vested and exercisable; and
c. Executive, together with his dependents, will continue following
such termination of employment to participate fully, at no cost to
him or them, in all accident and health plans maintained or
sponsored by the Company immediately prior to the Change of Control,
or receive substantially the equivalent coverage (or the full value
thereof in cash) from the Company, until the first anniversary of
such termination; and
d. the Company will promptly reimburse Executive for any and all legal
fees and expenses incurred by him as a result of such termination of
employment, including without limitation all fees and expenses
incurred to enforce the provisions of this Agreement.
3. A Change of Control will occur for purposes of this Agreement if (i) any
Person who does not currently own directly or indirectly 5% or more of the
combined voting power of the Company's outstanding securities becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act) of securities of the
Company representing more than 30% (or, if higher, the aggregate percentage of
the combined voting power of the Company's then-outstanding securities held by
or for the benefit of Paul Fireman and his family) of the combined voting power
of the Company's then-outstanding securities, (ii) there is a change of control
of the Company of a kind which would be required to be reported under Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Act (or a similar item
in a similar schedule or form), whether or not the Company is then subject to
such reporting requirement, (iii) the Company is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board in office immediately prior to such
transaction or event constitute less than a majority of the Board thereafter, or
(iv) individuals who,
<PAGE> 3
at the date hereof, constitute the Board (the "Continuing Directors") cease for
any reason to constitute a majority thereof, PROVIDED, HOWEVER, that any
director who is not in office at the date hereof but whose election by the Board
or whose nomination for election by the Company's shareholders was approved by a
vote of at least two-thirds of the directors then still in office who either
were directors at the date hereof or whose election or nomination for election
was previously so approved shall be deemed to be a Continuing Director for
purposes of this Agreement.
Notwithstanding the foregoing provisions of this paragraph 3, a "Change of
Control" will not be deemed to have occurred if the initiation of any of the
events described in the preceding paragraph is by or with the concurrence of the
Company (acting by its Continuing Directors), nor shall a Change of Control be
deemed to have occurred solely because of (i) the acquisition of securities of
the Company (or any reporting requirement under the Act relating thereto) by an
employment benefit plan maintained by the Company for its employees or (ii)
the occurrence of a leveraged buy-out or recapitalization of the Company in
which Executive participates as an equity investor.
4. "Cause" means only: commission of a felony by the Executive or conviction
of the Executive for a crime involving moral turpitude.
5. a. Notwithstanding any other provision of this Agreement, and except as
provided in subparagraph (b) below, the payments or benefits to
which Executive will be entitled under this Agreement will be
reduced to the extent necessary so that Executive will not be liable
for the federal excise tax levied on certain "excess parachute
payments" under section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code").
b. The limitation of subparagraph (a) will not apply if:
i. the difference between (i) the present value of all payments
to which Executive is entitled under this Agreement determined
without regard to subparagraph (a) above, less (ii) the present
value of all federal, state and other income and excise taxes for
which Executive is liable as a result of such payments; exceeds
ii. the difference between (i) the present value of all payments
to which Executive is entitled under this Agreement calculated as if
the limitation of subparagraph (a) above applies, less (ii) the
present value of all federal, state and other income and excise
taxes for which Executive is liable as a result of such reduced
payments.
<PAGE> 4
Present values will be determined using the interest rate specified in section
280G of the Code and will be the present values as of the date specified in such
section 280G and the regulations thereunder.
c. Whether payments to the Executive are to be reduced pursuant to
subparagraph (a) above, and the extent to which they are to be so
reduced, will be determined by the Executive whose determination
shall be final and binding upon the Company. Executive may, at the
expense of the Company, hire an accounting firm, law firm or
employment consulting firm selected by Executive to assist him in
such determination.
d. If a reduction is made pursuant to subparagraph (a) above, Executive
will have the right to determine which payments and benefits will be
reduced.
6. If the Company is at any time before or after a Change of Control merged
or consolidated into or with any other corporation or other entity (whether or
not the Company is the surviving entity), or if substantially all of the assets
thereof are transferred to another corporation or other entity, the provisions
of this Agreement will be binding upon and inure to the benefit of the
corporation or other entity resulting from such merger or consolidation or the
acquirer of such assets, and this paragraph 6 will apply in the event of any
subsequent merger or consolidation or transfer of assets.
In the event of any merger, consolidation, or sale of assets described
above, nothing contained in this Agreement will detract from or otherwise limit
Executive's right to participate or privilege of participation in any stock
option or purchase plan or any bonus, profit sharing, pension, group insurance,
hospitalization, or other incentive or benefit plan or arrangement which may be
or become applicable to executives of the corporation resulting from such merger
or consolidation or the corporation acquiring such assets of the Company.
In the event of any merger, consolidation or sale of assets described
above, references to the Company in this Agreement shall unless the context
suggests otherwise be deemed to include the entity resulting from such merger or
consolidation or the acquirer of such assets of the Company.
7. All payments required to be made by the Company hereunder to Executive or
his dependents, beneficiaries, or estate will be subject to the withholding of
such amounts relating to tax and/or other payroll deductions as may be required
by law.
8. There shall be no requirement on the part of the Executive to seek other
employment or otherwise mitigate damages in order to be entitled to the full
amount of any payments and benefits to which Executive is entitled under this
Agreement, and the amount of such
<PAGE> 5
payments and benefits shall not be reduced by any compensation or benefits
received by Executive from other employment.
9. Nothing contained in this Agreement shall be construed as a contract of
employment between the Company and the Executive, or as a right of the Executive
to continue in the employ of the Company, or as a limitation of the right of the
Company to discharge the Executive with or without Cause; the Executive may,
subject to the terms and conditions of this Agreement, have the right to receive
upon termination of his employment the payments and benefits provided in this
Agreement and shall not be deemed to have waived any rights he may have either
at law or in equity in respect of such discharge.
10. No amendment, change, or modification of this Agreement may be made except
in writing, signed by both parties.
Payments made by the Company pursuant to this Agreement shall be in lieu
of severance payments, if any, which might otherwise be available to Executive.
The provisions of this Agreement shall be binding upon and shall inure to
the benefit of Executive, his executors, administrators, legal representatives
and assigns, and the Company and its successors.
The validity, interpretation, and effect of this Agreement shall be
governed by the laws of The Commonwealth of Massachusetts.
The Company shall have no right of set-off or counterclaims, in respect of
any claim, debt, or obligation, against any payments to Executive, his
dependents, beneficiaries or estate provided for in this Agreement.
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
No right or interest to or in any payments or benefits hereunder shall be
assignable by the Executive; provided, however, that this provision shall not
preclude him from designating one or more beneficiaries to receive any amount
that may be payable after his death and shall not preclude the legal
representative of his estate from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to his
estate. The term "beneficiaries" as used in this Agreement shall mean a
beneficiary or beneficiaries so designated to receive any such amount, or if no
beneficiary has
<PAGE> 6
been so designated, the legal representative of the Executive's estate.
No right, benefit, or interest hereunder, shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation, or set-off in respect of any claim, debt, or obligation, or to
execution, attachment, levy, or similar process, or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void, and of no effect.
IN WITNESS WHEREOF, Reebok International Ltd. and Executive have each
caused this Agreement to be duly executed and delivered as of the date set forth
above.
REEBOK INTERNATIONAL LTD.
By: /s/ PAUL FIREMAN
-------------------------------------
Paul Fireman
Chairman and Chief Executive
Officer
Agreed:
/s/ ROBERT MEERS
- ----------------------------
Robert Meers
<PAGE> 1
EXHIBIT 11
REEBOK INTERNATIONAL LTD.
(Amount in thousands, except per share data)
<TABLE>
Exhibit 11 - Statement Re: computation per share earnings fully diluted
<CAPTION>
1996 1995 1994
---- ---- ----
Primary
- -------
<S> <C> <C> <C>
Average shares outstanding 67,370 78,317 82,228
Net effect of dilutive stock options 1,248 1,170 2,083
-------- -------- --------
TOTAL 68,618 79,487 84,311
-------- -------- --------
Net Income $138,950 $164,798 $254,478
-------- -------- --------
Per share amount $ 2.00 $ 2.07 $ 3.02
-------- -------- --------
Fully Diluted
- -------------
Average shares outstanding 67,370 78,317 82,228
Net effect of dilutive stock options 2,249 1,170 2,455
-------- -------- --------
TOTAL 69,619 79,487 84,683
-------- -------- --------
Net Income $138,950 $164,798 $254,478
-------- -------- --------
Per share amount $ 2.00 $ 2.07 $ 3.01
-------- -------- --------
</TABLE>
<PAGE> 1
Exhibit 12
REEBOK INTERNATIONAL LTD.
(Amounts in Thousands)
<TABLE>
Exhibit 12 - Statement RE: Computation of Ratio of Earnings to Fixed Charges
<CAPTION>
December December
1996 1995
-------- --------
<S> <C> <C>
Earnings
Pretax Income $223,033 $264,551
Add:
Interest on indebtedness 42,246 25,725
Amortization of debt
discount issuance costs 394 818
Interest on Letters of Credit
included in cost of goods sold
Portions of rent representative
of the interest factor 15,424 13,399
-------- --------
Income as adjusted $281,097 $304,493
======== ========
Fixed Charges
Interest on indebtedness $ 42,246 $ 25,725
Amortization of debt discount
and issuance costs 394 818
Interest on Letters of Credit
included in cost of goods sold
Portions of rent representative
of the interest factor 15,424 13,399
-------- --------
Fixed charges $ 58,064 $ 39,942
======== ========
Ratio of earnings to fixed
charges 4.84 7.62
</TABLE>
<PAGE> 1
EXHIBIT 13.1
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Amounts in thousands, except per share data
YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992
=====================================================================================================
<S> <C> <C> <C> <C> <C>
Net sales $3,478,604 $3,481,450 $3,280,418 $2,893,900 $3,022,627
Income before income taxes and
minority interest 237,668 275,974 417,368 371,508 259,751
Net income 138,950 164,798 254,478 223,415 114,818
Net income per common share 2.00 2.07 3.02 2.53 1.24
Cash dividends per common share .225 .300 .300 .300 .300
Weighted average common and
common equivalent shares outstanding 69,618 79,487 84,311 88,348 92,697
=====================================================================================================
<CAPTION>
Amounts in thousands
DECEMBER 31, 1996 1995 1994 1993 1992
=====================================================================================================
Working capital $ 946,127 $ 900,922 $ 831,856 $ 730,757 $ 682,342
Total assets 1,786,184 1,651,619 1,649,461 1,391,711 1,345,346
Long-term debt 854,099 254,178 131,799 134,207 116,037
Stockholders' equity 381,234 895,289 990,505 846,617 838,656
=====================================================================================================
</TABLE>
On June 7, 1996, Reebok completed the sale of substantially all of the operating
assets and business of its subsidiary, Avia Group International, Inc. ("Avia");
accordingly, subsequent to that date, the operations of Avia are no longer
included in the Company's financial results.
Financial data for 1995 includes total special after-tax charges of
$44,934, of which $33,699 relates to the sale of Avia and $11,235 relates to
facilities consolidation, severance and other related costs associated with the
streamlining of certain segments of the Company's operations.
Financial data for 1993 includes a special after-tax charge of $7,037
related to the sale of Ellesse U.S.A., Inc. and Boston Whaler, Inc.
Financial data for 1992 includes special after-tax charges of $135,439
principally related to the write-down of the Company's subsidiary, Avia, to its
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.
25
REEBOK INTERNATIONAL LTD.
<PAGE> 2
M D & A
Management's Discussion and Analysis of Results
of Operations and Financial Condition
The following discussion contains forward-looking statements which involve risks
and uncertainties. All such forward-looking statements necessarily represent
only current estimates or expectations as to future results, and there can be no
assurance that actual results will not materially differ from current estimates
or expectations. Factors that might cause such a difference include, but are not
limited to, those discussed below and those described in the Company's 1996
Annual Report on Form 10-K under the heading "Issues and Uncertainties."
OPERATING RESULTS 1996
Net sales for the year ended December 31, 1996 were $3.479 billion,
approximately equal to the net sales for the year ended December 31, 1995 of
$3.482 billion. Excluding Avia sales, net sales for the year ended December 31,
1996 were $3.429 billion, 2.3% higher than the $3.352 billion for the same
period in 1995. The Reebok Division's worldwide sales were $2.982 billion in
1996 and $2.984 billion in 1995. Growth in this Division's U.S. apparel sales as
well as growth in its International sales were offset by a decrease in U.S.
footwear sales. U.S. footwear sales of the Reebok Division decreased 12.7% to
$1.193 billion from $1.367 billion(A) in 1995. The decrease was due primarily to
decreases in substantially all categories other than walking and soccer, which
had increases in sales. U.S. apparel sales of the Reebok Division increased by
42.0% to $314.9 million from $221.7 million(A) in 1995. The increase resulted
from increases in licensed and branded apparel, particularly in T-shirts, all
purpose bottoms, warm-ups, tops and outerwear. International sales of the Reebok
Division (including footwear and apparel) were $1.474 billion in 1996, an
increase of 5.7% from $1.395 billion in 1995. Strong apparel sales and increases
in footwear sales of basketball, walking and classic products were partially
offset by decreases in the running, cross-training and outdoor footwear
categories. The stronger U.S. dollar adversely impacted sales comparisons with
the prior year. On a constant dollar basis for the year ended December 31, 1996,
the International sales gain was 8.8%. On a local currency basis, thereby
eliminating the impact of changes in foreign currency exchange rates, the United
Kingdom, Japan, Korea and South Africa had increases in sales whereas there were
decreases in sales in France, Canada and Belgium and in the Division's sales to
certain Latin American distributors.
Rockport's sales for 1996 increased by 21.6% to $447.6 million from $368.1
million in 1995. This increase reflects an emphasis on Rockport's walking
technology and the successful introduction of new products in 1996. Increased
sales in the men's casual dress and performance walking categories were
partially offset by decreased sales in the women's lifestyle and outdoor
categories. Rockport's 1996 results include the Ralph Lauren footwear business.
In May 1996, Rockport entered into a licensing arrangement for the North
American license for Ralph Lauren footwear and also acquired Ralph Lauren
Footwear, Inc., the former North American footwear licensee for Ralph Lauren.
Rockport expects to acquire the Ralph Lauren footwear licensing rights for the
rest of the world over the next several years. Sales of Ralph Lauren footwear
were $31.9 million in 1996 for the seven month period from May 1996 (the date
of acquisition) through December 1996. Rockport's International business
increased by 21.0% in 1996. Exclusive of sales of Ralph Lauren footwear,
Rockport's International sales accounted for 14% of its total sales during 1996.
For the year ended December 31, 1996, the Company's sales include $49.4
million of sales of Avia, a decrease of 61.9% from the $129.6 million of sales
of Avia for 1995. On June 7, 1996, Reebok completed the sale of substantially
all of the operating assets and business of Avia. Accordingly, subsequent to
that date, the operations of Avia are no longer included in the Company's
financial results.
Gross margins declined from 39.3% in 1995 to 38.4% in 1996. The decline in
margins reflects the effect of costs incurred with respect to new products and
technologies. These costs include the impact of start-up tooling, shorter
production runs and increased air freight. The margin decline also reflects a
substantial shift in the overall mix of the U.S. business due to increased
apparel sales and decreased footwear sales. U.S. apparel sales in 1996 accounted
for 20.8% of the Reebok business in the U.S. as compared to 14.0% in 1995. Since
U.S. apparel sales contribute lower gross margins than the U.S. footwear
business, the shift in domestic mix negatively impacts overall gross margins.
International margins were negatively impacted in 1996 as compared with the
prior year due to a strong U.S. dollar as against most international currencies.
Selling, general and administrative expenses increased as a percentage of
sales from 28.7% in 1995 to 30.6% in 1996. Advertising and marketing expenses
increased by $66.2 million during 1996 with approximately $30.0 million of that
increase attributable to Reebok's Olympic participation. Continued investment in
brand-building expenses, including product development, retail presence, sports
marketing and on-field presence also contributed to the increase. In addition,
retail operating expenses increased in support of the U.S. retail store
expansion. At December 31, 1996,
- --------------------------------------------------------------------------------
(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.
26
REEBOK INTERNATIONAL LTD.
<PAGE> 3
M D & A
Management's Discussion and Analysis of Results
of Operations and Financial Condition
the Company operated 141 U.S. Reebok, Rockport and Greg Norman retail stores as
compared to 117 at the end of 1995. Primarily all of these U.S. retail stores
are located in factory direct outlet malls.
Amortization of intangibles decreased due to the write-down in the fourth
quarter of 1995 of the carrying value of Avia to estimated fair value on sale.
Minority interest represents the minority shareholders' proportionate
share of the net income of certain of the Company's consolidated subsidiaries.
Interest expense increased from $25.7 million in 1995 to $42.2 million in
1996 as a result of increased borrowings to fund the purchase of approximately
17.0 million shares of the Company's common stock in connection with the
Company's Dutch Auction self-tender offer, which was completed in August 1996.
Year-to-year earnings per share comparisons benefited from the Company's
share repurchase programs and the repurchase of shares pursuant to the Dutch
Auction. Weighted average common shares outstanding for the year ended December
31, 1996 declined to 69.6 million, compared to 79.5 million shares for the year
ended December 31, 1995.
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, Thailand or the
Philippines, or significantly increase the cost to the Company of such products,
the Company's operations could be seriously disrupted until alternative
suppliers are found.
For several years, imports from China to the U.S., including footwear,
have been threatened with higher or prohibitive tariff rates, either through
statutory action or intervention by the Executive Branch, due to concern over
China's trade policies, human rights, foreign weapons sales practices and
foreign policy. Further debate on these issues is expected to continue in 1997.
However, the Company does not currently anticipate that restrictions on imports
from China will be imposed by the U.S. during 1997. If adverse action is taken
with respect to imports from China, it could have an adverse effect on some or
all of the Company's product lines, which could result in a negative financial
impact. The Company has put in place contingency plans which should allow it to
diversify some of its sourcing to countries other than China if any such adverse
action occurred. In addition, the Company does not believe that it would be more
negatively impacted by any such adverse action than its major competitors.
The European Union ("EU") imposed import quotas on certain footwear from
China in 1994. The effect of such a quota scheme on Reebok has not been
significant because the quota scheme provides an exemption for certain
higher-priced special technology athletic footwear, which exemption is available
for most Reebok products.
The EU has imposed antidumping duties against textile upper footwear from
China and Indonesia and has calculated but suspended antidumping duties on
leather upper footwear from China, Thailand and Indonesia. It is expected that
the duties on leather upper footwear will remain suspended through 1997. A broad
exemption has been included in both antidumping cases (textile and leather
footwear) for athletic footwear covering most Reebok models. If the athletic
footwear exemption remains in its current form, few of the Company's product
lines would be affected adversely, and in any case, the Company does not believe
that its products would be more severely restricted than those of its major
competitors.
However, recently the EU has initiated at the internal staff level an
effort to significantly narrow the athletic footwear exemption which applies to
both the quota scheme and antidumping duties. The Company, through relevant
trade associations, is working to prevent imposition of the more limited
athletic footwear exception. Should the proposed revisions be adopted, certain
of the Company's product lines would be affected adversely, although the Company
does not believe that its products would be more severely affected than those of
its major competitors.
Various other countries have taken steps to restrict footwear imports or
impose additional customs duties, which actions affect the Company as well as
other footwear importers. The Company, in conjunction with other footwear
importers, is aggressively challenging such restrictions. Such restrictions have
in some cases had a significant adverse effect on the Company's sales in some of
such countries, most notably Argentina, although they have not had a material
adverse effect on the Company as a whole.
OPERATING RESULTS 1995
Net sales for the year ended December 31, 1995 increased by 6.1%, or $201.0
million, to $3.482 billion from $3.280 billion in 1994. The Reebok Division's
worldwide sales were $2.984 billion in 1995, an increase of 6.3% from $2.808
billion(B) in 1994. This increase was due to growth in the
- --------------------------------------------------------------------------------
(B) The 1994 sales were adjusted on a proforma basis to reflect Tinley apparel
sales in Avia sales. The Tinley division was transferred to the Avia group
from Reebok during 1995. In order to present amounts on a comparable
basis, Tinley's apparel sales for 1994 have been reclassified to Avia.
27
REEBOK INTERNATIONAL LTD.
<PAGE> 4
M D & A
Management's Discussion and Analysis of Results
of Operations and Financial Condition
Reebok Division's U.S. apparel sales as well as growth in International sales.
The Reebok Division's U.S. footwear sales decreased 0.4% to $1.405 billion from
$1.410 billion in 1994. The decrease was due primarily to decreases in sales in
the running, tennis and outdoor categories, which were offset in part by sales
increases in the walking, cleated and children's categories. The 1995 U.S.
footwear sales comparison benefits from the fact that the Company increased the
number of Reebok-owned retail stores as compared with 1994. At December 31,
1995, there were 66 stores in operation as compared with 45 at the end of 1994.
Of the stores in operation, 62 are outlet stores with the balance being full
scale retail stores primarily used for testing retail concepts. The Reebok
outlet store business had a same store sales increase for 1995 of 7.1%. The
Reebok Division's U.S. apparel sales increased by 27.1% to $183.6 million from
$144.5 million(B) in 1994. The increase resulted primarily from increases in
licensed apparel, T-shirts and performance running product. The Reebok
Division's International sales (including both footwear and apparel) were $1.395
billion in 1995, an increase of 11.3% from $1.253 billion in 1994. For the year
ended December 31, 1995, slightly less than one-half of the International sales
increase can be attributed to the impact of the weaker dollar. On a local
currency basis, Korea, Spain and the United Kingdom had significant percentage
increases in sales whereas Japan and Mexico experienced a decline in sales.
Rockport's sales for 1995 increased by 17.0% to $368.1 million from $314.5
million in 1994. All categories, except outdoor, increased in comparison with
the prior year. Sales of Rockport product in Rockport retail stores also
contributed to the sales growth. At December 31, 1995, there were 40 Rockport
stores in operation as compared with 13 a year ago. Of the stores in operation,
36 are outlet stores with the balance being full scale retail stores primarily
used for testing retail concepts.
Avia's sales for 1995 decreased by 18.1% to $129.6 million from $158.2
million(B) in 1994. All categories except running had decreases from the prior
year.
Other income decreased in 1995 due mainly to losses on foreign exchange
transactions in 1995 compared to recognized gains in 1994. A decrease in joint
venture income also contributed to the decline in other income.
Gross margins declined from 40.1% in 1994 to 39.3% in 1995. U.S. margins
were unfavorably impacted by higher than normal markdowns taken on excess
inventory, as a result of a commitment to reduce inventory levels. Margins on
International sales were favorably impacted by exchange rate changes.
Selling, general and administrative expenses increased as a percentage of
sales from 27.1% in 1994 to 28.7% in 1995. During 1995, the Company announced
its intention to reduce planned expenditures in non-essential areas, with the
primary impact being realized in the second half of the year. For the full year,
the increase in SG&A expenses was primarily the result of increased investments
in brand building expenses, including sports marketing and on-field presence,
retail presence and the growth of the Company's retail outlet stores. In
addition, SG&A expenses increased by approximately $20 million due to a weaker
dollar.
The Company recorded special charges totaling $72.1 million in 1995. In
connection with the effort to reduce SG&A spending, a special charge of $18.0
million was recorded in the second quarter, principally related to facilities
consolidation and severance and other related costs associated with the
streamlining of certain segments of the Company's operations. In the fourth
quarter of 1995, the Company recorded a charge of $54.1 million to adjust the
carrying value of its Avia subsidiary to its estimated fair value on sale. In
January 1996, the Company announced its intention to sell Avia in order to focus
its resources on its core brands.
Minority interest represents the minority shareholders' proportionate
share of the net income of certain of the Company's consolidated subsidiaries.
Interest expense increased from $16.5 million in 1994 to $25.7 million
in 1995 as a result of increased borrowings to finance working capital needs
and the Company's share repurchase program. During 1995, $225.5 million of the
Company's common stock was repurchased. On October 19, 1995, the Company's
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 share repurchase
programs of $200 million each adopted by the Company in July 1992, July 1993
and October 1994. At December 31, 1995, the Company had approximately $198.1
million available for future repurchases of its common stock under these
programs. As of December 31, 1995, the Company had repurchased 42,933,902
shares of its common stock at an average price of $23.25 per share since April
1991.
Year-to-year earnings per share comparisons benefited from the share
repurchase programs. Weighted average common shares outstanding for the year
ended December 31, 1995 declined to 79.5 million shares, compared to 84.3
million shares for the year ended December 31, 1994.
OPERATING RESULTS 1994
Net sales for the year increased by 13.4%, or $386 million, to $3.280 billion in
1994 from $2.894 billion
28
REEBOK INTERNATIONAL LTD.
<PAGE> 5
M D & A
Management's Discussion and Analysis of Results
of Operations and Financial Condition
in 1993. The Reebok Division's worldwide sales were $2.813 billion(C) an
increase of 13.4% from $2.480 billion in 1993. This increase was due to growth
in Reebok's 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 the Reebok Division's U.S. footwear sales was
attributed to increases in the outdoor, classics, pre-season, 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(C) in 1994 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 the Reebok Division's International net sales by $9.3 million, or
0.9%.
Rockport sales reached $314.5 million in 1994, an 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(C) 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 $0.5 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 in 1993 related
to the completion of the sales of Boston Whaler, Inc. ("Boston Whaler") and
Ellesse U.S.A., Inc. ("Ellesse.") 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 the 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.
BACKLOG
The overall backlog of open customer orders to be delivered from January 1997
through June 1997 for the Reebok brand increased 11.7% from comparative levels
as of December 31, 1995. The backlog position is not necessarily indicative of
future sales because the ratio of future orders to "at once" shipments and
sales by Company-owned retail stores may vary from year to year. In addition,
many customer orders are cancelable.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's financial position remains strong. Working capital increased by
$45.2 million at December 31, 1996, or 5.0%, from the same period a year ago.
The current ratio at December 31, 1996 was 2.8 to 1 compared to 3.1 to 1 at
December 31, 1995.
Accounts receivable increased by $83.9 million from December 31, 1995, an
increase of 16.6%. This is the result of a greater percentage of sales coming
from international markets, where trade terms are typically longer than in the
U.S. Inventory decreased by $90.5 million, or 14.3%, from December 31, 1995.
Reebok brand U.S. footwear
- --------------------------------------------------------------------------------
(C) As indicated above, the 1994 sales reflected in the section entitled
"Operating Results 1995" have been adjusted on a proforma basis to reflect
Tinley apparel sales in Avia sales.
29
REEBOK INTERNATIONAL LTD.
<PAGE> 6
M D & A
Management's Discussion and Analysis of Results
of Operations and Financial Condition
inventories alone declined 42.2% from December 31, 1995, and Rockport, which had
a 28.0% sales growth in the fourth quarter, reduced inventories by 8.2%, even
with the inclusion of the Ralph Lauren Footwear business. Improved forecasting,
production planning and logistics operations account for this significant
inventory decrease.
The Company borrowed $640.0 million to fund the purchase of approximately
17.0 million shares of the Company's common stock pursuant to a Dutch Auction
self-tender offer, which was completed in August 1996. The debt is repayable in
various installments over the next six years. The credit agreement contains
various covenants including restrictions on asset acquisitions, capital
expenditures and future indebtedness and the requirement to maintain a minimum
interest coverage ratio. Concurrent with the Dutch Auction share repurchase, the
Company suspended its quarterly cash dividends.
During the year ended December 31, 1996, cash and cash equivalents
increased by $152.0 million, and outstanding borrowings increased by $618.0
million while $686.3 million of the Company's common stock was repurchased. As a
result of the improvement by the Company in managing its balance sheet, cash
provided by operations during 1996 was $280.3 million, an improvement of $108.5
million as compared to 1995. Capital expenditures during 1996 were $30.0
million, a 52.8% reduction from capital spending in 1995. Based on the strong
cash flow results, the Company made a $50.0 million pre-payment in February 1997
on its $640.0 million six-year term loan. 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 1997 cash
requirements. However, the Company's actual experience may differ from the
expectations set forth in the preceding forward-looking statement. Factors that
might lead to such a difference include, but are not limited to, the factors
discussed herein, and matters discussed in the Company's 1996 Annual Report on
Form 10-K under the heading "Issues and Uncertainties," 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 eliminate the availability of external financial sources.
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
its financial position or future results of operations.
The Company enters into forward currency exchange contracts and options 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 and options 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, 1996, 1995 and 1994 were not
significant. The Company has used forward exchange contracts and options as an
element of its risk management strategy for several years.
At December 31, 1996, the Company had forward currency exchange contracts
and options, all having maturities of less than one year, with a notional amount
aggregating $368.7 million. The contracts involved twelve different foreign
currencies. No single currency represented more than 24% of the aggregate
notional amount. The notional amount of the contracts intended to hedge
merchandise purchases was $158.3 million. Deferred gains (losses) on these
contracts were not material at December 31, 1996 and 1995.
The Company uses interest rate swap agreements to manage its exposure to
interest rate movements by effectively converting a portion of its variable rate
long-term debt from floating to fixed rates. These agreements involve the
exchange of variable rate payments for fixed rate payments without the effect of
leverage and without the exchange of the underlying principal amount. Interest
rate differentials paid or received under these swap agreements are recognized
over the life of the contracts as adjustments to interest expense. At December
31, 1996, the notional amount of interest rate swaps outstanding was $320.0
million.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and
hedging instruments.
The Company places cash equivalents with major financial institutions and,
by policy, limits the amount of credit exposure to any one financial
institution.
The Company is exposed to credit-related losses in the event of
non-performance by counterparties to hedging instruments. The counterparties to
these contracts are major financial institutions. The Company continually
monitors its positions and the credit ratings of its counterparties and places
dollar and term limits on the amount of contracts it enters into with any one
party.
30
REEBOK INTERNATIONAL LTD.
<PAGE> 7
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Amounts in thousands, except share data
DECEMBER 31, 1996 1995
================================================================================================
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 232,365 $ 80,393
Accounts receivable, net of allowance for
doubtful accounts (1996, $43,527; 1995, $46,401) 590,504 506,563
Inventory 544,522 635,012
Deferred income taxes 69,422 65,484
Prepaid expenses and other current assets 26,275 45,418
--------------------------
Total current assets 1,463,088 1,332,870
--------------------------
Property and equipment, net 185,292 192,033
Non-current assets:
Intangibles, net of amortization 69,700 64,436
Deferred income taxes 7,850 5,455
Other 60,254 56,825
--------------------------
137,804 126,716
--------------------------
Total Assets $1,786,184 $1,651,619
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 32,977 $ 66,682
Current portion of long-term debt 52,684 946
Accounts payable 196,368 166,037
Accrued expenses 169,344 144,585
Income taxes payable 65,588 47,956
Dividends payable 5,742
--------------------------
Total current liabilities 516,961 431,948
--------------------------
Long-term debt, net of current portion 854,099 254,178
Minority interest 33,890 31,081
Commitments and contingencies
Outstanding redemption value of equity put options 39,123
Stockholders' equity:
Common stock, par value $.01; authorized 250,000,000 shares;
issued 92,556,295 shares in 1996, 111,015,133 shares in 1995 926 1,096
Retained earnings 992,563 1,487,006
Less 36,716,227 shares at December 31, 1996 and 36,210,902 at
December 31, 1995 in treasury at cost (617,620) (603,241)
Unearned compensation (283) (1,208)
Foreign currency translation adjustment 5,648 11,636
--------------------------
381,234 895,289
--------------------------
Total Liabilities and Stockholders' Equity $1,786,184 $1,651,619
==========================
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
31
REEBOK INTERNATIONAL LTD.
<PAGE> 8
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Amounts in thousands, except per share data
YEAR ENDED DECEMBER 31, 1996 1995 1994
==============================================================================================
<S> <C> <C> <C>
Net sales $3,478,604 $3,481,450 $3,280,418
Other income 4,325 3,126 7,165
------------------------------------------
3,482,929 3,484,576 3,287,583
------------------------------------------
Costs and expenses:
Cost of sales 2,144,422 2,114,084 1,966,138
Selling, general and administrative expenses 1,065,792 999,731 889,590
Special charges 72,098
Amortization of intangibles 3,410 4,067 4,345
Interest expense 42,246 25,725 16,515
Interest income (10,609) (7,103) (6,373)
------------------------------------------
3,245,261 3,208,602 2,870,215
------------------------------------------
Income before income taxes and minority interest 237,668 275,974 417,368
Income taxes 84,083 99,753 153,994
------------------------------------------
Income before minority interest 153,585 176,221 263,374
Minority interest 14,635 11,423 8,896
------------------------------------------
Net income $ 138,950 $ 164,798 $ 254,478
==========================================
Net income per common share $ 2.00 $ 2.07 $ 3.02
==========================================
Dividends per common share $ 0.225 $ 0.300 $ 0.300
Weighted average common and common
equivalent shares outstanding 69,618 79,487 84,311
------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
32
REEBOK INTERNATIONAL LTD.
<PAGE> 9
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Common Stock Additional
Paid-in Retained Treasury
Dollar amounts in thousands Shares Par Value Capital Earnings Stock
=====================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 119,902,298 $1,199 $ 266,890 $1,198,190 $(603,241)
- ---------------------------------------------------------------------------------------------------------------------
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 (603,241)
- ---------------------------------------------------------------------------------------------------------------------
Net income 164,798
Adjustment for foreign currency translation
Issuance of shares to certain employees 43,545 1,558
Amortization of unearned compensation
Shares repurchased and retired (6,639,600) (66) (182,569) (42,835)
Shares retired (67,200) (1) (1,385) (554)
Shares issued under employee
stock purchase plans 161,377 2 4,253
Shares issued upon exercise of stock options 361,400 4 6,004
Put option contracts outstanding (15) (39,108)
Premium received from unexercised
equity put options 3,233
Income tax reductions relating to
exercise of stock options 953
Dividends declared (23,353)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 111,015,133 1,096 0 1,487,006 (603,241)
- ---------------------------------------------------------------------------------------------------------------------
Net income 138,950
Adjustment for foreign currency translation
Treasury shares repurchased (14,379)
Issuance of shares to certain employees 43,278 1,505
Amortization of unearned compensation
Shares repurchased and retired (18,931,403) (190) (672,900)
Shares issued under employee
stock purchase plans 157,134 2 4,042
Shares issued upon exercise of stock options 272,153 3 6,930
Put option contracts expired 15 39,825
Income tax reductions relating to
exercise of stock options 2,385
Dividends declared (15,180)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 92,556,295 $ 926 $ 0 $ 992,563 $(617,620)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Foreign
Currency
Unearned Translation
Dollar amounts in thousands Compensation Adjustment
============================================================================
- ----------------------------------------------------------------------------
<S> <C> <C>
BALANCE, DECEMBER 31, 1993 $(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 (2,598) (839)
- ----------------------------------------------------------------------------
Net income
Adjustment for foreign currency translation 12,475
Issuance of shares to certain employees (1,558)
Amortization of unearned compensation 1,008
Shares repurchased and retired
Shares retired 1,940
Shares issued under employee
stock purchase plans
Shares issued upon exercise of stock options
Put option contracts outstanding
Premium received from unexercised
equity put options
Income tax reductions relating to
exercise of stock options
Dividends declared
- ----------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 (1,208) 11,636
- ----------------------------------------------------------------------------
Net income
Adjustment for foreign currency translation (5,988)
Treasury shares repurchased
Issuance of shares to certain employees (55)
Amortization of unearned compensation 292
Shares repurchased and retired 688
Shares issued under employee
stock purchase plans
Shares issued upon exercise of stock options
Put option contracts expired
Income tax reductions relating to
exercise of stock options
Dividends declared
- ----------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $ (283) $ 5,648
- ----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
33
REEBOK INTERNATIONAL LTD.
<PAGE> 10
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Amounts in thousands
YEAR ENDED DECEMBER 31, 1996 1995 1994
===========================================================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 138,950 $ 164,798 $ 254,478
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 42,927 39,579 37,400
Minority interest 14,635 11,423 8,896
Deferred income taxes (6,333) (1,573) (13,332)
Special charges 62,743
Changes in operating assets and liabilities, exclusive of those arising
from business acquisitions:
Accounts receivable (107,082) 16,157 (64,786)
Inventory 77,286 (29,531) (81,948)
Prepaid expenses 22,650 7,841 (7,752)
Other 11,042 (18,830) (13,648)
Accounts payable and accrued expenses 67,769 (25,327) 35,211
Income taxes payable 18,419 (55,553) 20,236
---------------------------------------
Total adjustments 141,313 6,929 (79,723)
---------------------------------------
Net cash provided by operating activities 280,263 171,727 174,755
---------------------------------------
Cash flows from investing activities:
Payments to acquire property and equipment (29,999) (63,610) (61,839)
Proceeds (payments) for business acquisitions and divestitures 6,887 (4,297)
---------------------------------------
Net cash used for investing activities (23,112) (63,610) (66,136)
---------------------------------------
Cash flows from financing activities:
Net borrowings (payments) of notes payable to banks (36,947) 2,426 37,148
Proceeds from issuance of common stock to employees 13,362 11,216 13,025
Dividends paid (20,922) (23,679) (24,827)
Repayments of long-term debt (1,290) (112,445) (2,585)
Net proceeds from long-term debt 632,108 230,000
Proceeds from premium on equity put options 717 3,233
Dividends to minority shareholders (7,426) (2,885) (2,141)
Repurchases of common stock (686,266) (225,470) (112,138)
---------------------------------------
Net cash used for financing activities (106,664) (117,604) (91,518)
---------------------------------------
Effect of exchange rate changes on cash 1,485 5,944 (12,512)
---------------------------------------
Net increase (decrease) in cash and cash equivalents 151,972 (3,543) 4,589
Cash and cash equivalents at beginning of year 80,393 83,936 79,347
---------------------------------------
Cash and cash equivalents at end of year $ 232,365 $ 80,393 $ 83,936
---------------------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 38,738 $ 23,962 $ 19,135
Income taxes paid 101,975 152,690 135,060
---------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
34
REEBOK INTERNATIONAL LTD.
<PAGE> 11
NOTES
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, the GREG
NORMAN Logo and ROCKPORT.
================================================================================
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.
================================================================================
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
================================================================================
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 (including cooperative advertising)
amounted to $201,584, $157,573 and $163,210 for the years ended
December 31, 1996, 1995 and 1994, respectively.
================================================================================
Accounting for Stock-Based Compensation
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees."
================================================================================
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. Foreign currency transaction gains and losses are included
in the determination of net income.
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." Tax provisions and credits are recorded at
statutory rates for taxable items included in the consolidated statements of
income regardless of the period in 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 and the dilutive effect of
equity put options, if applicable.
================================================================================
Reclassification
Certain amounts in prior years have been reclassified to conform to the 1996
presentation.
================================================================================
35
REEBOK INTERNATIONAL LTD.
<PAGE> 12
NOTES
Notes to Consolidated Financial Statements
Dollar amounts in thousands, except per share data
2 DUTCH AUCTION SELF-TENDER STOCK REPURCHASE
On July 28, 1996, the Board of Directors authorized the purchase by the Company
of up to 24.0 million shares of the Company's common stock pursuant to a Dutch
Auction self-tender offer. The tender offer price range was from $30.00 to
$36.00 net per share in cash. The self-tender offer commenced on July 30, 1996
and expired on August 27, 1996. As a result of the self-tender offer, the
Company repurchased approximately 17.0 million common shares at a price of
$36.00 per share. Prior to the tender offer, the Company had 72.5 million
common shares outstanding. As a result of the tender offer share repurchase, the
Company had 55.8 million common shares outstanding at December 31, 1996. In
conjunction with this repurchase and as described in Notes 6 and 8, the Company
entered into a new credit agreement underwritten by a syndicate of major banks.
3 BUSINESS ACQUISITIONS AND DIVESTITURES
On May 23, 1996, the Company 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 agreement requires payment of certain annual minimum amounts for royalties
and other compensation. The territory for the license initially includes North
America and is expected to expand worldwide as existing Ralph Lauren licenses
expire, subject to reaching agreement with Ralph Lauren as to business plans for
the additional territories. In conjunction with the licensing arrangement,
Reebok's subsidiary, The Rockport Company, Inc., acquired Ralph Lauren's prior
licensee for the U.S. and Canada, Ralph Lauren Footwear, Inc.
On June 7, 1996, the Company completed the sale of substantially all
of the operating assets and business of its subsidiary, Avia Group
International, Inc.
4 PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consist of the following:
<CAPTION>
DECEMBER 31 , 1996 1995
=================================================================
<S> <C> <C>
Land $ 29,283 $ 32,226
Buildings 75,044 67,233
Machinery and equipment 204,354 189,731
Leasehold improvements 48,757 46,654
- -----------------------------------------------------------------
357,438 335,844
Less accumulated depreciation
and amortization 172,146 143,811
- -----------------------------------------------------------------
$185,292 $192,033
=================================================================
</TABLE>
5 INTANGIBLES
<TABLE>
Intangibles consist of the following:
<CAPTION>
DECEMBER 31, 1996 1995
=================================================================
<S> <C> <C>
Excess of purchase price
over fair value of assets acquired
(net of accumulated amortization of
$6,326 in 1996 and $130,925 in 1995) $ 27,696 $ 20,698
Other intangible assets:
Purchased technology 52,827 52,827
Company tradename and trademarks 49,092 49,144
Other 13,693 13,693
- -----------------------------------------------------------------
115,612 115,664
Less accumulated amortization 73,608 71,926
- -----------------------------------------------------------------
42,004 43,738
- -----------------------------------------------------------------
$ 69,700 $ 64,436
=================================================================
</TABLE>
6 SHORT-TERM BORROWINGS
The Company has various arrangements with numerous banks which provide an
aggregate of approximately $938,167 of uncommitted facilities, substantially all
of which are available to the Company's foreign subsidiaries. Of this amount,
$394,767 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 $252,315 was
outstanding for open letters of credit for inventory purchases at December 31,
1996.
On August 23, 1996, in conjunction with the repurchase of its shares
pursuant to the Dutch Auction self-tender offer, the Company entered into a new
credit agreement underwritten by a syndicate of major banks. The agreement
includes a $750,000 revolving credit facility, expiring on August 31, 2002 which
replaced the Company's previous $300,000 credit line. The balance of the
facility is a $640,000 six-year term loan (see Note 8.) The revolving credit
facility is available to finance the short-term working capital needs of the
Company as well as support the issuance of letters of credit for inventory
purchases, if required. At December 31, 1996, there were no borrowings
outstanding under the revolving credit portion of this agreement. As part of the
agreement, the Company is required to pay certain commitment fees on the unused
portion of the revolving credit facility as well as comply with various
financial and other covenants.
36
REEBOK INTERNATIONAL LTD.
<PAGE> 13
NOTES
Notes to Consolidated Financial Statements
Dollar amounts in thousands, except per share data
The Company has a commercial paper program through which it can borrow up
to $200,000 for periods up to 270 days. The borrowing amount was increased from
$125,000 on February 15, 1996. This program is supported, to the extent
available, by the unused portion of the $750,000 revolving credit facility. At
December 31, 1996, the Company had no commercial paper obligations outstanding.
The weighted average interest rate on notes payable to banks was 5.5% and
5.8% at December 31, 1996 and 1995, respectively.
7 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 1997 and 2007.
<TABLE>
Minimum annual rentals for the five years subsequent to December 31, 1996 and
in the aggregate are as follows:
=============================================================
<C> <C>
1997 $ 34,087
1998 26,571
1999 21,779
2000 16,392
2001 11,376
2002 and thereafter 20,469
- -------------------------------------------------------------
Total minimum lease obligations $130,674
=============================================================
</TABLE>
Total rent expense for all operating leases amounted to $46,751, $40,602
and $29,167 for the years ended December 31, 1996, 1995 and 1994, respectively.
8 LONG-TERM DEBT
<TABLE>
Long-term debt consists of the following:
<CAPTION>
DECEMBER 31, 1996 1995
================================================================================
<S> <C> <C>
Variable Rate Term Loan, final payment
due August 31, 2002 with interest
payable quarterly $640,000
Medium-term notes, bearing interest
at rates approximating 6.75%, due
May 15, 2000, with interest payable
semiannually on May 15 and
November 15 100,000 $100,000
6.75% debentures due September 15,
2005, with interest payable
semiannually on March 15 and
September 15 98,803 98,729
Medium-term notes, bearing
interest at rates approximating
6%, due July 15, 1998, with interest
payable semiannually on
February 15 and August 15 30,000 30,000
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 17,980 6,395
- --------------------------------------------------------------------------------
906,783 255,124
Less current portion 52,684 946
- --------------------------------------------------------------------------------
$854,099 $254,178
================================================================================
</TABLE>
37
REEBOK INTERNATIONAL LTD.
<PAGE> 14
NOTES
Notes to Consolidated Financial Statements
Dollar amounts in thousands, except per share data
On August 23, 1996, the Company entered into a $1,700,000 credit agreement
underwritten by a syndicate of major banks of which $950,000 was available in
the form of a six-year term loan facility for the purpose of financing the
Company's acquisition of common stock pursuant to the Dutch Auction self-tender
offer (see Note 2.) Based on the number of shares tendered, the Company borrowed
$640,000 from this facility. The undrawn portion of $310,000 was immediately
canceled upon funding of the share repurchase. The credit agreement includes
various covenants including restrictions on asset acquisitions, capital
expenditures and future indebtedness and the requirement to maintain a minimum
interest coverage ratio. Under the terms of the agreement there are various
options under which the interest is calculated. At December 31, 1996, the
effective rate of interest on the variable term loan was approximately 6.20%. In
addition, the Company is amortizing fees and expenses associated with the credit
agreement over the life of the agreement.
Maturities of long-term debt during the five-year period ending December
31, 2001 are $52,684 in 1997, $135,250 in 1998, $113,066 in 1999, $201,000 in
2000 and $141,500 in 2001.
9 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 1996, 1995 and 1994 were $11,755, $11,644 and
$13,660, respectively.
10 STOCK PLANS
The Company has 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 Company
has elected to follow Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," ("APB 25") and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," ("Statement 123") requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, as long as the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Under the 1994 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 the case of grants to
participants who are not executive officers of the Company and in certain other
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. The Company also has an option plan for its Directors. Under this
plan a fixed amount of options are granted annually to all non-employee
Directors. Grants of options under the Directors plan vest in equal annual
installments over three years.
Proforma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996, respectively: risk-free interest rates ranging
from 5.19% to 7.65%; dividend yields of .89% and .68%; volatility factor of the
expected market price of the Company's common stock of .27 in both years; and a
weighted-average expected life of 4.2 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of proforma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.
38
REEBOK INTERNATIONAL LTD.
<PAGE> 15
NOTES
Notes to Consolidated Financial Statements
Dollar amounts in thousands, except per share data
<TABLE>
The Company's proforma information is as follows:
<CAPTION>
DECEMBER 31, 1996 1995
================================================================================
<S> <C> <C>
Proforma net income $134,017 $163,404
Proforma earnings per share $ 1.96 $ 2.06
Weighted average exercise price
of options granted $ 31.32 $ 34.90
Weighted average fair value of
options outstanding at the end
of the period $ 10.76 $ 11.63
================================================================================
Exercise prices for options outstanding ranged from $8.75 - $41.63. Within
that range 2,933,609 options were outstanding between $8.75 and $20.46, and
6,982,097 options were outstanding between $20.47, and $41.63. The weighted
average contractual life of the options is seven years.
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its proforma effect will not be fully reflected until 2001.
</TABLE>
<TABLE>
The following schedule summarizes the changes in stock options during the three
years ended December 31, 1996:
<CAPTION>
Number of Shares Under Option
Non-Qualified Option
Stock Options Price Per Share
================================================================================
OUTSTANDING AT
<S> <C> <C>
DECEMBER 31, 1993 6,406,968 8.75-41.74
Granted 212,797 28.88-38.88
Exercised (352,255) 8.75-33.25
Canceled (387,935) 11.38-41.74
- --------------------------------------------------------------------------------
OUTSTANDING AT
DECEMBER 31, 1994 5,879,575 8.75-39.77
Granted 1,361,502 28.75-36.75
Exercised (361,400) 8.75-33.25
Canceled (722,760) 11.38-39.77
- --------------------------------------------------------------------------------
OUTSTANDING AT
DECEMBER 31, 1995 6,156,917 8.75-38.88
Granted 4,436,947 26.75-41.63
Exercised (272,153) 8.75-37.02
Canceled (406,005) 11.38-37.02
- --------------------------------------------------------------------------------
OUTSTANDING AT
DECEMBER 31, 1996 9,915,706 8.75-41.63
================================================================================
</TABLE>
Shares granted in 1996 include a July grant to certain senior executives
made in conjunction with the Dutch Auction. The options do not begin to vest
until the end of 1998, and vesting extends for a period of up to five years
ending in December 2002. These option grants provide that if an optionee
sells before the end of 1998 any shares acquired through the exercise of
options which were held prior to the Dutch Auction, the optionee will forfeit
an identical number of shares subject to option under the July 1996 grant. In
addition, during 1996 the Company reinstituted December as the month in which
it grants its annual stock options to employees. The 1995 and 1994 annual
employee option grants were issued in February 1996 and March 1995,
respectively.
At December 31, 1996 and 1995, options to purchase 3,983,278 and 3,956,545
shares of common stock were exercisable, and 1,225,051 and 3,369,311 shares,
respectively, were available for future grants under the Company's stock option
plans.
The Company's 1994 Equity Incentive Plan also permits 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 restrictions and
vesting schedule for restricted stock granted under this plan are 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 a price equal to the lower of 85% of market value at the beginning or end
of each 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. During 1996, 1995 and 1994,
respectively, 157,134, 161,377 and 158,965 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.
39
REEBOK INTERNATIONAL LTD.
<PAGE> 16
NOTES
Notes to Consolidated Financial Statements
Dollar amounts in thousands, except per share data
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, 1996, 11,772,677 shares of common stock were reserved for
issuance under the Company's various stock plans and 67,612,747 shares were
reserved for issuance under the shareholders' rights plan.
11 ACQUISITION OF COMMON STOCK
On October 19, 1995, 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
share repurchase programs of $200,000 each adopted by the Company in July 1992,
July 1993 and October 1994. As of December 31, 1996, the Company had
approximately $129,800 available for future repurchases of common stock under
these programs. The Company does not expect to make open market purchases in the
near term and will focus on repaying the incremental debt incurred as a result
of the Dutch Auction (see Note 2.)
12 EQUITY PUT OPTIONS
During 1996 and 1995, the Company issued equity put options as part of its
ongoing share repurchase program. These options provided the Company with an
additional source to supplement open market purchases of its common stock. The
options were priced based on the market value of the Company's stock at the date
of issuance. The redemption value of the options, which represents the option
price times the number of shares under option, is presented in the accompanying
consolidated balance sheets as "Outstanding redemption value of equity put
options." At December 31, 1996, no shares of outstanding common stock are
subject to repurchase under the terms and conditions of these options.
13 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 medium-term notes
and debentures 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. Interest rate swaps: the fair value of
the Company's interest rate swaps is estimated based on current interest rates.
<TABLE>
The carrying amounts and fair value of the Company's financial instruments are
as follows:
<CAPTION>
Carrying Amount Fair Value
- --------------------------------------------------------------------------------
DECEMBER 31, 1996 1995 1996 1995
================================================================================
<S> <C> <C> <C> <C>
Long-term debt $906,783 $255,124 $881,372 $261,860
Unrealized gains
(losses) on
foreign currency
exchange contracts
and options 173 (1,108) 1,394 (1,108)
Interest rate swaps 1,420
================================================================================
</TABLE>
Foreign Exchange Forwards and Options
The Company enters into forward currency exchange contracts and options 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 and options
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, 1996, 1995 and 1994 were not
significant. The Company has used forward exchange contracts and options as an
element of its risk management strategy for several years.
At December 31, 1996, the Company had forward currency exchange contracts,
all having maturities of less than one year, with a notional amount aggregating
$368,666.
40
REEBOK INTERNATIONAL LTD.
<PAGE> 17
NOTES
Notes to Consolidated Financial Statements
Dollar amounts in thousands, except per share data
The contracts involved twelve different foreign currencies. No single currency
represented more than 24% of the aggregate notional amount. The notional amount
of contracts intended to hedge merchandise purchases was $158,340. Deferred
gains (losses) on these contracts were not material at December 31, 1996 and
1995.
Interest Rate Swaps
The Company uses interest rate swap agreements to manage its exposure
to interest rate movements by effectively converting a portion of its variable
rate long-term debt from floating to fixed rates. These agreements involve the
exchange of variable rate payments for fixed rate payments without the effect
of leverage and without the exchange of the underlying principal amount.
Interest rate differentials paid or received under these swap agreements are
recognized over the life of the contracts as adjustments to interest expense.
During the fourth quarter of 1996, the Company entered into several
amortizing interest rate swaps with a group of financial institutions having
an initial notional value of $320,000 and expiring on December 31, 2000. The
notional amount of the swaps is reduced each year in accordance with the
expected repayment schedule of the Company's Variable Rate Term Loan. The
terms of the swaps require the Company to make fixed rate payments on a
quarterly basis whereas the Company will receive variable rate payments based
on the three-month U.S. dollar LIBOR. At December 31, 1996, the notional amount
of interest rate swaps outstanding was $320,000.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash equivalents and hedging
instruments. The Company places cash equivalents with major financial
institutions and, by policy, limits the amount of credit exposure to any one
financial institution.
The Company is exposed to credit-related losses in the event of
non-performance by counterparties to hedging instruments. The counterparties to
these contracts are major financial institutions. The Company continually
monitors its positions and the credit ratings of its counterparties and places
dollar and term limits on the amount of contracts it enters into with any one
party.
14 INCOME TAXES
<TABLE>
The components of income before income taxes and minority interest are as
follows:
DECEMBER 31, 1996 1995 1994
================================================================================
<S> <C> <C> <C>
Domestic $(12,720) $ 14,292 $171,166
Foreign 250,388 261,682 246,202
- --------------------------------------------------------------------------------
$237,668 $275,974 $417,368
================================================================================
</TABLE>
<TABLE>
<CAPTION>
The provision for income taxes consists of the following:
================================================================================
DECEMBER 31, 1996 1995 1994
================================================================================
<S> <C> <C> <C>
Current:
Federal $ 1,961 $ 3,998 $ 66,879
State 4,534 13,878 16,607
Foreign 83,921 83,450 83,840
- --------------------------------------------------------------------------------
90,416 101,326 167,326
- --------------------------------------------------------------------------------
Deferred:
Federal (1,705) (1,594) (3,038)
State (689) (3,112) (303)
Foreign (3,939) 3,133 (9,991)
- --------------------------------------------------------------------------------
(6,333) (1,573) (13,332)
- --------------------------------------------------------------------------------
$ 84,083 $ 99,753 $ 153,994
================================================================================
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $517,309, $410,402 and $316,099 at December 31, 1996, 1995 and
1994, 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.
<TABLE>
Income taxes computed at the federal statutory rate differ from amounts
provided as follows:
<CAPTION>
DECEMBER 31, 1996 1995 1994
================================================================================
<S> <C> <C> <C>
Tax at statutory rate 35.0% 35.0% 35.0%
State taxes, less federal tax effect 1.7 2.7 2.6
Effect of tax rates of foreign
subsidiaries and joint ventures (1.6) (2.0) (1.3)
Amortization of intangibles 0.4 0.4 0.5
Other, net (0.1) 0.1 0.1
- --------------------------------------------------------------------------------
Provision for income taxes 35.4% 36.2% 36.9%
================================================================================
</TABLE>
41
REEBOK INTERNATIONAL LTD.
<PAGE> 18
NOTES
Notes to Consolidated Financial Statements
Dollar amounts in thousands, except per share data
<TABLE>
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
<CAPTION>
DECEMBER 31, 1996 1995
================================================================================
<S> <C> <C>
Inventory $35,212 $ 36,219
Accounts receivable 23,085 25,810
Liabilities 9,661 5,958
Depreciation 5,528 5,216
Other, net 3,786 (2,264)
- --------------------------------------------------------------------------------
Total $ 77,272 $ 70,939
================================================================================
</TABLE>
15 OPERATIONS BY GEOGRAPHIC AREA
<TABLE>
Net sales to unaffiliated customers, net income and identifiable assets by
geographic area are summarized below:
<CAPTION>
DECEMBER 31, 1996 1995 1994
================================================================================
<S> <C> <C> <C>
Net sales:
United States $1,935,724 $2,027,080 $1,974,904
United Kingdom 566,196 492,843 506,658
Europe 623,209 642,622 536,629
Other countries 353,475 318,905 262,227
- --------------------------------------------------------------------------------
$3,478,604 $3,481,450 $3,280,418
================================================================================
Net income:
United States $ 29,155 $ 36,176 $ 126,916
United Kingdom 54,937 69,277 62,949
Europe 15,943 20,648 44,290
Other countries 38,915 38,697 20,323
- --------------------------------------------------------------------------------
$ 138,950 $ 164,798 $ 254,478
================================================================================
Identifiable assets:
United States $ 887,217 $ 813,935 $ 963,462
United Kingdom 391,865 291,825 282,795
Europe 282,057 311,903 230,912
Other countries 225,045 233,956 172,292
- --------------------------------------------------------------------------------
$1,786,184 $1,651,619 $1,649,461
================================================================================
</TABLE>
There are various differences between income before income taxes and
minority interest for domestic and foreign operations as shown in Note 14 and
net income shown above.
16 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 Number 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 of 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. On September 9, 1996, the Second Circuit Court
upheld the decision of the District Court and approved the NAAG settlement. The
Plaintiff's right to appeal the Second Circuit decision expired on January 13,
1997.
17 SPECIAL CHARGES
The Company recorded special charges totaling $72,098 in 1995. In the second
quarter of 1995, the Company recorded a special charge of $18,034, principally
related to facilities consolidation and severance and other 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. In connection
with the sale of the Company's Avia subsidiary, the Company recorded a special
charge of $54,064 in the fourth quarter of 1995 to adjust the carrying value of
Avia to its estimated fair value on sale. The after-tax effect of this
write-down was $33,699, or $0.44 per share. Actual amounts recorded in 1996 did
not differ materially from the Company's estimates.
18 CASH DIVIDENDS
Concurrent with the Dutch Auction self-tender stock repurchase described in Note
2, the Company's Board of Directors elected to suspend subsequent declarations
of quarterly cash dividends on the Company's common stock. Accordingly, the last
dividend declared was for shareholders of record as of September 11, 1996, who
received a dividend payment of $0.075 per share on October 2, 1996. Suspension
of the dividend will conserve substantial cash which the Company plans to
utilize to reduce debt incurred as a result of its share repurchase.
42
REEBOK INTERNATIONAL LTD.
<PAGE> 19
REPORTS
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Reebok International Ltd.
Stoughton, Massachusetts
We have audited the accompanying consolidated balance sheets of Reebok
International Ltd. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Reebok International Ltd. and subsidiaries at December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
- ------------------------
Boston, Massachusetts
January 30, 1997
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 control 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,
1996, the Company's system of internal control is adequate to accomplish the
objectives discussed herein.
Reebok International Ltd.,
/s/ Paul Fireman /s/ Kenneth Watchmaker
- ----------------------- ----------------------------
Paul Fireman Kenneth Watchmaker
Chairman, President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
43
REEBOK INTERNATIONAL LTD.
<PAGE> 20
QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Amounts in thousands, except per share data
First Second Third Fourth
YEAR ENDED DECEMBER 1996 Quarter Quarter Quarter Quarter
======================================================================================
<S> <C> <C> <C> <C>
Net sales $902,923 $817,572 $ 970,080 $788,029
Gross profit 351,132 312,268 380,530 290,252
Net income 48,415 19,813 50,612 20,110
Net income per common share .64 .27 .75 .35
Cash dividends per common share .075 .075 .075 .000
======================================================================================
First Second Third Fourth
YEAR ENDED DECEMBER 1995 Quarter Quarter Quarter Quarter
======================================================================================
Net sales $935,478 $788,692 $1,005,980 $751,300
Gross profit 378,079 316,847 391,145 281,295
Net income 65,917 21,404 76,202 1,275
Net income per common share .80 .26 .96 .02
Cash dividends per common share .075 .075 .075 .075
======================================================================================
</TABLE>
On June 7, 1996, Reebok completed the sale of substantially all of the operating
assets of its subsidiary Avia. Accordingly, subsequent to that date, the
operations of Avia are no longer included in the Company's financial results.
Net income for the second quarter of 1995 includes an after-tax special
charge of $11,235 ($0.14 per share.) Net income for the fourth quarter of 1995
includes an after-tax special charge of $33,699 ($0.44 per share.)
44
REEBOK INTERNATIONAL LTD.
<PAGE> 21
DIRECTORS & OFFICERS
- ------------------
BOARD OF DIRECTORS
- ------------------
PAUL FIREMAN
Chairman, President
& Chief Executive Officer
Reebok International Ltd.
PAUL R. DUNCAN
Executive Vice President
Reebok International Ltd.
WILLIAM F. GLAVIN
President, Babson College
MANNIE L. JACKSON
Chairman &
Chief Executive Officer
Harlem Globetrotters
International, Inc.
BERTRAM M. LEE, SR.
Chairman of the Board
Albimar Communications, Inc.
RICHARD G. LESSER
Executive Vice President
& Chief Operating Officer
TJX Companies, Inc.
WILLIAM M. MARCUS
Executive Vice President
& Treasurer
American Biltrite, Inc.
ROBERT MEERS
Executive Vice President
President & CEO
Reebok Division
GEOFFREY NUNES
Senior Vice President
& General Counsel
Millipore Corporation
JOHN A. QUELCH
Sebastian S.
Kresge Professor of
Marketing at the
Graduate School of
Business Administration
Harvard University
- ------------------
CORPORATE OFFICERS
- ------------------
PAUL FIREMAN
Chairman, President
& Chief Executive Officer
PAUL R. DUNCAN
Executive Vice President
ROBERT MEERS
Executive Vice President
President & CEO
Reebok Division
KENNETH WATCHMAKER
Executive Vice President
& Chief Financial Officer
ANGEL R. MARTINEZ
Executive Vice President
President & Chief Executive Officer
The Rockport Company, Inc.
BARRY NAGLER
Vice President
& General Counsel
LEO S. VANNONI
Treasurer
45
REEBOK INTERNATIONAL LTD.
<PAGE> 22
CORPORATE INFORMATION
AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
TRANSFER AGENT
AND REGISTRAR
The First National Bank of Boston is the Transfer Agent and Registrar for the
Company's common stock and maintains the shareholder accounting records. The
Transfer Agent should be contacted on questions of changes in address, name or
ownership, lost certificates and consolidation of accounts. When corresponding
with the Transfer Agent, shareholders should state the exact name(s) in which
the stock is registered and certificate number(s), as well as old and new
information about the account.
The First National
Bank of Boston
c/o Boston EquiServe, L.P.
Shareholder Correspondence
Mail Stop 45-02-64
Post Office Box 644
Boston, MA 02102-0644
(617) 575-3400
FORM 10-K
For a copy of the Form
10-K Annual Report filed with the
Securities and Exchange
Commission, write to:
Office of Investor Relations
Reebok International Ltd.
100 Technology Center Drive
Stoughton, MA 02072
WEB SITE
http://www.reebok.com
CORPORATE HEADQUARTERS
Reebok International Ltd.
100 Technology Center Drive
Stoughton, MA 02072
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at 10:00 a.m., local time, on
Thursday, May 1, 1997 at the First National Bank of Boston, First Floor
Auditorium, 100 Federal Street, Boston, Massachusetts.
Shareholders of record on March 11, 1997 are entitled to vote at the meeting.
STOCK INFORMATION
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 stock prices during 1996 and 1995.
1996 1995
High Low High Low
------------------------------------------------------------
First 31 3/8 25 3/8 39 5/8 33 5/8
Second 33 3/4 26 37 1/2 31 1/8
Third 36 7/8 29 1/4 37 7/8 32 7/8
Fourth 45 1/4 32 1/2 36 1/4 24 1/8
The number of record holders of the Company's common stock at December 31, 1996
was 7,179.
REEBOK, the Vector Logo , the Human Rights Logo and HEXALITE are registered
trademarks, and DMX, HYDROMOVE and 3D ULTRALITE are trademarks of Reebok
International.
ROCKPORT and DRESSPORTS are registered trademarks, and XCS and The Walking
Sandal are trademarks of The Rockport Company, Inc.
GREG NORMAN is a registered trademark, and the Greg Norman Logo is a trademark
of Great White Shark Enterprises, Inc.
RALPH LAUREN and POLO SPORT are registered trademarks of Polo Ralph Lauren, L.P.
Copy Right 1997 Reebok International Ltd. All rights reserved. Portions of this
annual report are printed on recycled paper.
46
REEBOK INTERNATIONAL LTD.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REEBOK INTERNATIONAL LTD.
-----------------------------------------
Jurisdiction of
Incorporation or
Name Organization
- ----- ----------------
Ralph Lauren Footwear Co., Inc. Massachusetts
RBK Thailand, Inc. Massachusetts
Reebok Aviation, Inc. Massachusetts
Reebok CHC, Inc. Massachusetts
Reebok Eastern Territories, Inc. Massachusetts
Reebok Foundation, Inc. Massachusetts
Reebok International Securities Corp. Massachusetts
Reebok Securities Holdings Corp. Massachusetts
The Reebok Worldwide Trading Company, Ltd. Massachusetts
The Rockport Company, Inc. Massachusetts
Avintco, Inc. Delaware
RFC, Inc. Delaware
The Donner Mountain Corporation Oregon
Reebok Austria GmbH Austria
Rockport Gmbh Austria
Reebok Belgium SA Belgium
Reebok Do Brasil Servicos Brazil
a Participacoes Ltda
Rockport do Brasil - Comercio, Servicos Brazil
e Participacoes Ltda.
R.C. Investments Ltd. Canada
Reebok Canada Inc. Canada
Reebok France S.A. France
Rockport France S.a.r.L. France
<PAGE> 2
EXHIBIT 21.1 - Page 2
SUBSIDIARIES OF REEBOK INTERNATIONAL LTD.
-----------------------------------------
Jurisdiction of
Incorporation or
Name Organization
- ---- ----------------
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 Ireland Limited Ireland
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 (Mauritius) Company Limited Mauritius
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
2
<PAGE> 3
EXHIBIT 21.1 - Page 3
SUBSIDIARIES OF REEBOK INTERNATIONAL LTD.
----------------------------------------
Jurisdiction of
Incorporation or
Name Organization
- ---- ----------------
Reebok Portugal Artigos Desportives Lda Portugal
Reebok Russia Retail, Inc. Russia
Reebok Leisure SA Spain
Reebok (South Africa) (Proprietary) Limited South Africa
Reebok (Switzerland) Ltd. Switzerland
Reebok (Taiwan) Services Company Taiwan
J.W. Foster & Sons United Kingdom
(Athletic Shoes) Limited
RBK Holdings plc United Kingdom
Reebok Eastern Trading Limited United Kingdom
Reebok International Limited United Kingdom
Reebok Sports Limited United Kingdom
Reebok UK Limited United Kingdom
The Rockport Company Limited United Kingdom
Rockport International Limited United Kingdom
3
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Reebok International Ltd. of our report dated January 30, 1997 included in
the 1996 Annual Report to Shareholders of Reebok International Ltd.
Our audits also included the financial statement schedule of Reebok
International Ltd. listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
on Form S-3 (File Nos. 33-24114, 33-32664, 33-62301 and 333-17955) 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 30, 1997, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the preceding
paragraph with respect to the financial statement schedule included in this
Annual Report (Form 10-K) of Reebok International Ltd.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31,1996 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF
INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000770949
<NAME> REEBOX INTERNATIONAL LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 232,365
<SECURITIES> 0
<RECEIVABLES> 634,031
<ALLOWANCES> 43,527
<INVENTORY> 544,522
<CURRENT-ASSETS> 1,463,088
<PP&E> 357,434
<DEPRECIATION> 172,142
<TOTAL-ASSETS> 1,786,184
<CURRENT-LIABILITIES> 516,961
<BONDS> 887,989
0
0
<COMMON> 926
<OTHER-SE> 380,308
<TOTAL-LIABILITY-AND-EQUITY> 1,786,184
<SALES> 3,478,604
<TOTAL-REVENUES> 3,482,929
<CGS> 2,144,422
<TOTAL-COSTS> 2,144,422
<OTHER-EXPENSES> 1,073,228
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,246
<INCOME-PRETAX> 223,033
<INCOME-TAX> 84,083
<INCOME-CONTINUING> 138,950
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 138,950
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 2.00
</TABLE>
