FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number 1-9340
REEBOK INTERNATIONAL LTD.
_________________________________________________________________
(Exact name of registrant as specified in its charter)
Massachusetts 04-2678061
____________________________________ ____________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Technology Center Drive, Stoughton, Massachusetts 02072
_________________________________________________________________
(Address of principal executive offices) (Zip Code)
(617) 341-5000
_________________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of registrant's common stock,
par value $.01 per share, at May 5, 1997, was 56,144,412 shares.
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REEBOK INTERNATIONAL LTD.
INDEX
PART I. FINANCIAL INFORMATION:
Item 1 Condensed Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets -
March 31, 1997 and 1996, and
December 31, 1996 . . . . . . . . . . . . . . . . 2-3
Consolidated Condensed Statements of Income -
Three Months ended March 31, 1997 and 1996. . . . 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996. . . . 5-6
Notes to Consolidated Condensed Financial
Statements . . . . . . . . . . . . . . . . . . . 7-8
Item 2
Management's Discussion and Analysis of Results
Of Operations and Financial Condition . . . . . 9-12
Part II. OTHER INFORMATION:
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . 13
Items 2-3 Not Applicable . . . . . . . . . . . . . . . . . 13
Item 4 Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . 13
Item 5 Not Applicable . . . . . . . . . . . . . . . . . . 13
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . 14
<PAGE>
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
1997 1996 1996
__________ __________ ___________
(Amounts in thousands)
Current assets:
Cash and cash equivalents $ 174,617 $ 64,844 $ 232,365
Accounts receivable, net
of allowance for doubtful
accounts (March 1997,
$48,584; March 1996,
$50,513; December 1996,
$43,527) 726,639 683,996 590,504
Inventory 518,101 579,726 544,522
Deferred income taxes 67,583 71,291 69,422
Prepaid expenses and other
current assets 34,981 48,123 26,275
__________ __________ __________
Total current assets 1,521,921 1,447,980 1,463,088
__________ __________ __________
Property and equipment, net 181,241 189,505 185,292
Non-current assets:
Intangibles, net of
amortization 66,539 63,775 69,700
Deferred income taxes 9,923 5,743 7,850
Other 56,074 56,421 60,254
__________ __________ __________
132,536 125,939 137,804
__________ __________ __________
$1,835,698 $1,763,424 $1,786,184
========== ========== ==========
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REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
March 31, December 31,
1997 1996 1996
__________ __________ __________
(Amounts in thousands, except share data)
Current liabilities:
Notes payable to banks $ 65,078 $ 76,848 $ 32,977
Commercial paper 50,000
Current portion of
long-term debt 114,101 26 52,684
Accounts payable 183,330 164,448 196,368
Accrued expenses 200,541 152,669 169,344
Income taxes payable 81,483 73,534 65,588
Dividends payable 5,601
__________ __________ __________
Total current liabilities 644,533 523,126 516,961
__________ __________ __________
Long-term debt, net of
current portion 740,808 265,537 854,099
Minority interest 36,347 33,710 33,890
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 March 31, 1997,
92,804,904; issued March 31,
1996, 110,099,236; issued
December 31, 1996,
92,556,295 928 1,086 926
Retained earnings 1,039,342 1,504,049 992,563
Less 36,716,227 shares at
March 31, 1997 and December
31, 1996 and 36,210,902 at
March 31, 1996 in treasury
at cost (617,620) (610,252) (617,620)
Unearned compensation (242) (514) (283)
Foreign currency translation
adjustment (8,398) 7,559 5,648
__________ __________ __________
414,010 901,928 381,234
__________ __________ __________
$1,835,698 $1,763,424 $1,786,184
========== ========== ==========
The accompanying notes are an integral part of the consolidated condensed
financial statements.
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REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
Three Months Ended
March 31,
___________________________
1997 1996
____ ____
Net sales $ 930,041 $ 902,923
Other income 1,096 762
_________ _________
931,137 903,685
Costs and expenses:
Cost of sales 573,812 551,791
Selling, general and
administrative expenses 271,682 263,544
Amortization of intangibles 760 626
Interest expense 15,913 6,528
Interest income (1,989) (1,150)
_________ _________
860,178 821,339
_________ _________
Income before income taxes and minority 70,959 82,346
interest
Income taxes 25,700 29,297
_________ _________
Income before minority interest 45,259 53,049
Minority interest 5,075 4,634
_________ _________
Net income $ 40,184 $ 48,415
========= =========
Net income per common share $ 0.69 $ 0.64
========= =========
Dividends per common share $ .000 $ .075
========= =========
Weighted average common and
common equivalent shares
outstanding 58,431 75,143
========= =========
The accompanying notes are an integral part of the consolidated condensed
financial statements.
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REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
________________
1997 1996
____ ____
(Amounts in thousands)
Cash flows from operating activities:
Net income $ 40,184 $ 48,415
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Depreciation and amortization 10,762 9,739
Minority interest 5,075 4,634
Deferred income taxes (234) (6,484)
Changes in operating assets and
liabilities, exclusive of those arising
from business acquisitions:
Accounts receivable (156,320) (186,118)
Inventory 13,263 51,240
Prepaid expenses (8,991) (9,034)
Other 15,069 7,951
Accounts payable (5,118) 6,009
Accrued expenses 31,061 4,798
Income taxes payable 16,365 25,737
__________ __________
Total adjustments (79,068) (91,528)
__________ __________
Net cash used for operating activities (38,884) (43,113)
__________ __________
Cash flows from investing activity:
Payments to acquire property and
equipment (7,869) (8,657)
__________ __________
Net cash used for investing activity (7,869) (8,657)
__________ __________
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REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
___________________
1997 1996
____ ____
(amounts in thousands)
Cash flows from financing activities:
Net borrowings of notes payable to banks 35,600 12,379
Proceeds from issuance of commercial paper 50,000
Repayments of long-term debt (50,841)
Net proceeds from long-term debt 11,092
Proceeds from issuance of common stock to
employees 6,612 117
Dividends paid (5,693)
Repurchases of common stock (32,031)
________ _________
Net cash provided by (used for) financing (8,629) 35,864
activities ________ _________
Effect of exchange rate changes on cash
and cash equivalents (2,366) 357
________ _________
Net decrease in cash and cash equivalents (57,748) (15,549)
________ _________
Cash and cash equivalents at beginning of period 232,365 80,393
________ _________
Cash and cash equivalents at end of period $174,617 $ 64,844
======== =========
Supplemental disclosures of cash flow information:
1997 1996
____ ____
Cash paid during the period for:
Interest $ 17,277 $ 7,230
Income taxes 11,680 16,210
The accompanying notes are an integral part of the consolidated condensed
financial statements.
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REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
______________________________
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three months ended
March 31, 1997 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1997. For
further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
Certain prior year amounts have been reclassified to conform to
the 1997 presentation.
NOTE 2 - CONTINGENCIES
______________________________
On August 29, 1995, the Company obtained a favorable ruling on
its motion for summary judgment in the lawsuit entitled Stutz
Motor Car of America, Inc. v. Reebok International Ltd., (filed
on July 1, 1993 in the Central District of Los Angeles County
Superior Court as Case Number BC074579 and removed to the United
States District Court for the Central District of California
where it was assigned Civil Action No. 93-4433LGB) and, as a
result, the case was dismissed. The Plaintiff has appealed the
decision. The Company believes that the Plaintiff s appeal is
without merit and is confident that the District Court decision
will be upheld.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
________________________________________
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share, which is required
to be adopted on December 31, 1997. At that time, the Company
will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the
new requirements for calculating basic earnings per share, the
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dilutive effect of stock options will be excluded. The impact is
expected to result in an increase in primary earnings per share
for the first quarter ended March 31, 1997 and March 31, 1996 of
$.03 and $.01 per share, respectively. The impact of Statement
128 on the calculation of fully diluted earnings per share for
these quarters is not expected to be material.
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<PAGE>
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following table shows the percentage which amounts in the
Consolidated Condensed Statements of Income bear to net sales:
Percentage of Net Sales
_______________________
Three Months Ended
March 31,
__________________
1997 1996
____ ____
Net sales 100.0% 100.0%
Other income 0.1 0.1
______ ______
100.1 100.1
Costs and expenses:
Cost of sales 61.7 61.1
Selling, general and
administrative expenses 29.2 29.2
Amortization of intangibles 0.1 0.1
Interest expense 1.7 .7
Interest income (0.2) (0.1)
______ ______
92.5 91.0
______ ______
Income before income taxes and 7.6 9.1
minority interest
Income taxes 2.7 3.2
______ ______
Income before minority interest 4.9 5.9
Minority interest 0.5 0.5
______ ______
Net income 4.4% 5.4%
====== ======
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<PAGE>
REEBOK INTERNATIONAL LTD. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion contains forward-looking statements
which involve risks and uncertainties. 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 Attachment A to this Quarterly Report on
Form 10-Q.
Operating Results
_________________
First Quarter 1997 Compared to First Quarter 1996
_________________________________________________
Net sales for the quarter ended March 31, 1997 were $930.0
million, an increase of 3.0% from 1996 s first quarter net sales
of $902.9 million, which included $26.7 million of sales from the
Company s Avia subsidiary that was sold in June 1996. The Reebok
Division s worldwide sales in the first quarter of 1997 were
$811.6 million, an increase of 2.7% from $790.4 million in the
first quarter of 1996. Growth in this Division s U.S. apparel
sales was partially offset by a decrease in its International
sales due to the impact of the stronger U.S. dollar. U.S.
footwear sales of the Reebok Division during the first quarter of
1997 were $334.6 million, up slightly from last year s first
quarter net sales of $333.7 million. This marks the first
quarter this division reported sales increases in over a year.
Increases in the running, classics and walking categories were
offset by decreases in the basketball and tennis categories. The
Reebok Division s U.S. apparel sales increased by 58.2% to $97.9
million from $61.9 million in 1996. The increase resulted
primarily from increases in sales of T-shirts and core basics.
International sales (including both footwear and apparel) were
$379.1 million in the first quarter of 1997, a decrease of 4.0%
from $394.8 million in the first quarter of 1996. The
International sales comparison was negatively impacted by changes
in foreign currency exchange rates. On a constant dollar basis
for the quarter, the International sales gain was 1.8%. On a
local currency basis, thereby eliminating the impact of changes
in foreign currency exchange changes, the United Kingdom and
Japan had increases in sales whereas France,
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<PAGE>
Holland and Italy experienced decreased sales. Internationally,
increases in apparel sales, and in the footwear categories of
classic and soccer, were offset by decreases in the running,
children s and tennis footwear categories.
Rockport s first quarter sales increased by 38.0% to $118.4
million from $85.8 million in the first quarter of 1996.
Exclusive of the Ralph Lauren business, Rockport s sales
increased 20% in the quarter due to growth in the walking and
men s premium dress categories along with continued International
sales growth. Rockport s women s business was essentially flat
during the first quarter, with growth in walking offset by
declines in women s lifestyle products. Rockport s International
revenues which grew by over 40% accounted for approximately 16%
of the sales in the first quarter of 1997.
Gross margin declined to 38.3% during the first quarter of
1997 compared to 38.9% in 1996 s first quarter. The decrease
reflects start up costs associated with new technology products
as well as the adverse effect of the stronger U.S. dollar on our
International gross margins. The impact of the start-up expenses
for new product introductions, the comparatively lower margins
contributed by the growing U.S. apparel business, and a strong
U.S. dollar is expected to continue to put pressure on the
Company s margins over the next several quarters.
Selling, general and administrative expenses for the first
quarter of 1997 were $271.1 million, or 29.2% of sales, as
compared to $263.7 million, or 29.2% of sales in 1996 s first
quarter. Increases in marketing, product development and retail
activities were partially offset by a decrease in advertising
expenses. The advertising decrease reflects a shift of
advertising from the first quarter to the second quarter in
support of the technology product launches, primarily the DMX
series 2000 running shoe. Looking ahead to the remainder of
1997, the full year SG&A spending is expected to increase versus
1996, primarily due to increases in product development and
retail operating expenses. However, as a percent of sales, the
SG&A spending should remain approximately even with 1996 levels.
Interest expense increased as a result of the additional
$640 million of debt the Company incurred to finance the shares
acquired during the August 1996 Dutch Auction self-tender.
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The effective tax rate before minority interest was 36.2% in
the first quarter of 1997 as compared to 35.6% in the first
quarter of 1996. The increase was due to a geographic change in
the mix of worldwide income.
Year-to-year earnings per share comparisons benefited from
the Company s share repurchase programs including the Dutch
Auction self-tender which was completed in August 1996. Weighted
average common shares outstanding for the quarter ended March 31,
1997 declined by 22.2% to 58.4 million shares, as compared to
75.1 million shares for the first quarter of 1996.
Liquidity and Sources of Capital
________________________________
The Company s financial position remains strong, although
working capital decreased by $47.5 million, primarily due to the
pre-payment of $50 million of long-term debt on May 6, 1997. In
February 1997, the Company also made a $50 million pre-payment on
the long-term debt facility used to fund the Dutch Auction self-
tender. The current ratio at March 31, 1997, was 2.4 to 1, as
compared to 2.8 to 1 at December 31, 1996 and 2.8 to 1 at March
31, 1996.
Accounts receivable increased from March 31, 1996 by $42.6
million, an increase of 6.2%, which is consistent with the sales
increase in the month of March 1997. Inventory decreased by
$61.6 million, or 10.6%, from March 31, 1996. U.S. Reebok brand
footwear inventories declined 33.0% from March 31, 1996 and
Rockport, which had a 38.0% sales growth in the first quarter,
maintained the same inventory level as a year ago. The Company
continues to gain greater efficiencies in the management of its
inventories due to improvements in forecasting, production
planning and logistics.
During the twelve months ended March 31, 1997, cash and cash
equivalents increased by $109.8 million, and outstanding
borrowings increased by $527.5 million, while $649.3 million of
the Company s common stock was repurchased. Cash used for
operations during the first quarter of 1997 was $38.9 million,
a decrease of $4.2 million as compared with the first quarter of
1996. 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.
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<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Reference is made to Item 3. Legal Proceedings in the Company s
Annual Report on Form 10-K, dated March 27, 1997, for a
description of Stutz Motor Car of America, Inc. v. Reebok
International Ltd.
Items 2 - 3
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 1,
1997. At the Annual Meeting, the following proposals were
approved:
1. Two Class I members of the Board of Directors were
elected by shareholders as follows (there are no
abstentions or broker non-votes):
Number of Votes Number of Votes
Name of Director Cast FOR WITHHELD
Mannie L. Jackson 49,189,663 912,731
Geoffrey Nunes 49,175,754 926,640
2. The amendment to the 1994 Equity Incentive Plan to
increase the number of shares of common stock authorized
for issuance thereunder by 2,500,000 was approved by a
vote of 35,888,264 FOR, 14,109,181 AGAINST and 104,949
ABSTAIN.
3. A vote to consider a shareholder proposal to reorganize
the Board of Directors into one class was approved by a
vote of 24,284,425 FOR, 21,605,599 AGAINST, 222,509
ABSTAIN and 3,989,861 BROKER NON-VOTES.
Item 5
Not applicable
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Item 6
(a) Exhibits:
11. Statement Re Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K: There were no reports on Form 8-K
filed during the quarter ended March 31, 1997.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: May 8, 1997
REEBOK INTERNATIONAL LTD.
BY: /s/ KENNETH WATCHMAKER
_________________________
Kenneth Watchmaker
Executive Vice President and
Chief Financial Officer
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Attachment A
ISSUES AND UNCERTAINTIES
The Company's quarterly report on Form 10-Q attached hereto
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 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.
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 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.
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
The Company currently operates 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.
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
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 an additional $50 million was
prepaid in May 1997) and entered into a $750 million revolving
credit line which replaced its prior $300 million revolving
credit facility. As a result of this new term debt, 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 and options 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 and options 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 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.
Quarterly Reports
The financial results reflected in the Company's quarterly
report on Form 10-Q are not necessarily indicative of the
financial results which may be achieved in future quarters or for
year-end, which results may vary.
REEBOK INTERNATIONAL LTD.
(Amounts in Thousands, Except Per Share Data)
Exhibit 11 - Statement RE: Computation of Per Share Earnings
Three Months Ended
March 31,
__________________
1997 1996
____ ____
Primary
________________________________
Average shares outstanding 55,944 74,385
Net effect of dilutive stock options 2,487 754
_______ _______
Total 58,431 75,139
======= =======
Net income $40,184 $48,415
======= =======
Per share amount $ 0.69 $ 0.64
======= =======
Fully Diluted
________________________________
Average shares outstanding 55,944 74,385
Net effect of dilutive stock options 2,487 758
_______ _______
Total 58,431 75,143
======= =======
Net income $40,184 $48,415
======= =======
Per share amount $ 0.69 $ 0.64
======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1997 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000770949
<NAME> REEBOK INTERNATIONAL LTD.
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<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
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