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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1997 COMMISSION FILE NUMBER 1-9340
REEBOK INTERNATIONAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MASSACHUSETTS 04-2678061
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
100 TECHNOLOGY CENTER DRIVE, 02072
STOUGHTON, MASSACHUSETTS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (781) 401-5000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF 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
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 11, 1998, the aggregate market value of the registrant's voting
stock held by non-affiliates of the registrant was approximately $1,434,988,737.
As of March 11, 1998, 56,374,938 shares of the registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for the fiscal year ended December 31, 1997
(certain parts as indicated herein in Parts I and II).
Definitive Proxy Statement dated March 27, 1998 for the Annual Meeting of
Shareholders to be held on May 5, 1998 (certain parts as indicated herein in
Part III).
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PART I
Item 1. Business.
Reebok International Ltd., a Massachusetts corporation organized on
July 26, 1979, 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) and Polo Sport brands.
(Reebok International Ltd. is referred to herein, together with its
subsidiaries, as "Reebok" or the "Company" unless the context requires
otherwise.)
During calendar year 1997, net income for the Company decreased by 2.8%
to $135.1 million, or $2.32 per share (inclusive of special charges related to
the Company's global restructuring activities and the restructuring of a number
of marketing contracts, as well as a tax benefit related to the conclusion of
outstanding tax matters associated with the June 1996 sale of the Company's Avia
subsidiary), from $139.0 million, or $2.03 per share(1), for the year ended
December 31, 1996, while net sales increased by 4.7%, from $3.479 billion in
1996 to $3.644 billion in 1997. Excluding the after-tax effect of the special
charges and tax benefit, in 1997 net income was $134.3 million or $2.30 per
share.
As a result of the current conditions within the athletic footwear and
apparel industry and the Company's expected near term business outlook, the
Company is taking a number of actions designed to manage its business more
efficiently. Such actions include simplifying the Reebok Division's
organizational structure by eliminating management layers, combining and
reducing business units and centralizing operations. The intention of these
actions is to become more focused in order to free up resources to be allocated
to certain near-term projects that the Company believes can generate immediate
results, and to postpone certain longer-term investments and simplify operations
to gain greater efficiencies and to generate cost savings. As a result of such
actions, the Company expects to take a restructuring charge in the first quarter
of 1998 of $25-$35 million on a pre-tax basis.
The following is a discussion of the business of each of the Company's
operating units.
REEBOK DIVISION
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, rugby,
tennis, golf, track and field, volleyball, football, baseball, aerobics, cross
training, outdoor and walking activities, as well as athletic apparel and
accessories. The Division continues to expand its product scope through the
development and marketing of related sports and fitness products and services,
such as sports and fitness videos and programming, and through its strategic
licensing program, pursuant to which the Company's technologies and/or
trademarks are licensed to third parties for fitness equipment, sporting goods
and related products and services.
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. Over the past few years,
the Company has sought to increase Reebok's on-field
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(1) The earnings per share amounts for 1996 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share".
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presence and establish 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 NBA Rookie of the Year
Allen Iverson of the Philadelphia 76ers, and with various sports and event
sponsorships. Recently, given the diminishing influence of sports "icons" on
consumer buying preferences and the increasing consumer appeal of "brown shoe"
or "casual" footwear products, the Company has been re-evaluating its
substantial investment in sports marketing deals and is in the process of
eliminating or restructuring certain of its underperforming marketing contracts
that the Company believes no longer reflect the Company's brand positioning. In
1998 the Reebok Division intends to focus its efforts on the performance of its
products and, in particular, its proprietary technologies, and on bringing its
message, both product and brand essence, directly to the consumer. Consistent
with this focus, in 1998 the Reebok Division will implement a new direct-to-the
consumer campaign called "Try on the Future," a nationwide mobile tour designed
to give consumers the opportunity to experience and "try on" Reebok's new
products and technologies.
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. Recently, Reebok has
opened development centers in the Far East to enable its development activities
to be more closely integrated with production. A development center was opened
in Korea in May 1996 and in China in June 1997. New development centers are also
scheduled to open in Taiwan and Thailand during 1998.
TECHNOLOGY
Reebok places a strong emphasis on technology and has continued to
incorporate various proprietary performance technologies in its products,
focusing on cushioning, stability and lightweight features.
In 1995 Reebok introduced its proprietary DMX(R) technology for superb
cushioning. DMX(R) utilizes a two pod system that allows air to flow from the
heel to forefoot. This technology continues to be used successfully in several
Reebok walking shoes. In April 1997, the Company debuted its DMX(R) 10
technology at retail with the introduction of the DMX Run shoe. This advanced
technology incorporates a ten pod, heel to forefoot, active air transfer system
delivering cushioning when and where it is needed. The DMX(R) 10 technology was
also introduced at retail in November 1997 in The Answer, an Allen Iverson
signature basketball shoe. In February 1998, Reebok debuted at retail DMX(R) 6,
a six pod, heel to forefoot, active air transfer system, in a running shoe, Run
DMX(R) 6. In addition, DMX(R) 6 was available at retail in February 1998 in The
Lightening, a signature basketball shoe to be worn by NBA player Nick Van Exel
and as a team shoe to be worn by many college athletes. The Company will also
introduce a DMX(R) Sockliner which is expected to debut at retail in a golf shoe
in March 1998 and in a soccer shoe in April 1998.
3D ULTRALITE(TM) technology is Reebok's approach to lightweight
performance footwear. 3D ULTRALITE is a proprietary material that allows the
midsole and outsole to be combined in one injection molded unit composed of foam
and rubber, thus making the shoe lightweight, flexible and durable. In 1997 the
Company introduced this technology in running, walking, basketball and women's
fitness shoes. In 1998, the Company plans to continue to introduce 3D ULTRALITE
technology at retail in additional footwear categories, including women's sport
training and men's cross-training.
Reebok continues to incorporate HEXALITE(R), a honeycomb-shaped
material, which provides stability and cushioning, in many of its shoes and in
many different applications. Radial HEXALITE(R), one application of this
technology, combines under-the-foot cushioning and lateral stabilization and was
first available at retail in early 1997. HEXLINER(TM), a PU foam sockliner
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which includes reengineered HEXALITE(R) material in the heel for a softer feel
close to the foot, was first available at retail in June 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.
MARKETING AND PROMOTIONAL ACTIVITIES
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. The Reebok Division's
advertising program in 1997 was directed toward both the trade and the ultimate
consumers of REEBOK(R) products. The major advertising campaigns in 1997
included an ad campaign featuring real-life portraits of rookies Allen Iverson
of the National Basketball League ("NBA") and Saudia Roundtree of the American
Basketball League ("ABL") depicting their adjustment to professional sports, as
well as real-life portraits of Reebok endorsers Shawn Kemp and Shaquille O'Neal,
and a marketing campaign for the DMX(R) Run shoe featuring Spencer White,
Reebok's director of research engineering.
Substantial resources were devoted to promotional activities in 1997,
including endorsement agreements with athletes, teams, leagues and sports
federations; event sponsorships; in-store promotions and point-of-sale
materials. In 1997 the Reebok Division gained visibility for the REEBOK brand
through endorsement arrangements with such athletes as 1997 Rookie of the Year
Allen Iverson of the Philadelphia 76ers, with whom Reebok markets a signature
line of footwear and apparel. Other endorsements in basketball in 1997 came from
professional players such as Shaquille O'Neal, Shawn Kemp, Clyde Drexler, Nick
Van Exel and Steve Smith. In 1997 Reebok entered into a multi-year agreement
with NBA Properties for a comprehensive licensed merchandise, marketing and
basketball development program in Latin America. In addition, Reebok sponsors a
number of college basketball programs and has a sponsorship agreement with the
Harlem Globetrotters. Reebok is also the founding sponsor of the ABL and the
official footwear and apparel sponsor of the league; Reebok is the exclusive
supplier of uniforms and practice gear to the league's nine teams and an
official ABL licensee and has entered into endorsement agreements with a number
of ABL players including Saudia Roundtree, Jennifer Azzi and Carolyn Jones.
Reebok is also an official footwear supplier to the Women's National Basketball
Association ("WNBA").
To promote the sale of its cross training footwear in 1997, Reebok used
endorsements by prominent athletes such as National Football League ("NFL")
players Emmitt Smith, Derrick Thomas, John Elway, Ken Norton, Jr., Herman Moore
and Ben Coates, as well as Major League Baseball ("MLB") players Frank Thomas,
Mark McGwire, Juan Gonzalez and Roger Clemens. To promote its cleated football
and baseball shoes, the Company also has endorsement contracts with numerous MLB
and NFL players, 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 uniforms and sideline apparel
bearing NFL team logos. Pursuant to this agreement, in 1997 Reebok supplied
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 was one of only three brands authorized to provide NFL players 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
contracts with Gabriel Batistuta of Fiorentina and the Argentinean national
team, Ryan Giggs of Manchester United
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and Wales, Dennis Bergkamp of Arsenal and the Netherlands, and Guiseppe Signori
of Lazio and Italy, as well as U.S. national team members Eric Wynalda, Brad
Friedel, Michelle Akers and Julie Foudy. The Company also has 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. In addition, Reebok has entered into sponsorship agreements
with such soccer teams as Aston Villa, Borussia Moenchengladbach of Germany,
Bastia of France, Palmeiras of Brazil, Brondby of Denmark and IFK Gothenburg of
Sweden. In 1997, the Company extended its sponsorship of the Bolton Wanderers of
England to include naming rights to the team's new soccer arena, the Reebok
Stadium. Reebok is also the official uniform supplier of U.S. major league
soccer teams the New England Revolution and the Colorado Rapids. In July 1997
the first-ever Reebok Cup, an international soccer tournament featuring four of
the world's most powerful club teams, was held in the United States. In rugby,
the Company sponsors the national rugby teams of Australia and Italy.
Tennis promotions in 1997 included endorsement contracts with
well-known professionals including Michael Chang, Venus Williams, Patrick Rafter
and Arantxa Sanchez-Vicario. Promotional efforts in running included endorsement
contracts with such well-known runners as Ato Boldon, Derrick Adkins, Kim Batten
and Marie Jose Perec.
To promote its women's sports and fitness products, Reebok sponsored
athletes such as Rebecca Lobo of the WNBA, as well as Michelle Akers and Julie
Foudy of the U.S. national soccer team, Lisa Fernandez of the U.S. national
softball team and Liz Masakayan, pro beach volleyball player. In addition,
Reebok sponsors a variety of college basketball and volleyball teams and such
organizations as the ABL and the WNBA.
In 1997 the Reebok Division also continued its promotional efforts in
the fitness area. Reebok fitness programming is featured on Fit TV, a 24-hour
cable network, pursuant to a programming agreement. Through an agreement with
Channel One Communications, in 1997 Reebok provided 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 and the
CYCLE REEBOK studio cycle.
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 approximately 25 individual associated Russian sports
federations; this arrangement was recently extended through the Sydney 2000
Summer Olympic Games. Reebok will also be an official sponsor of the Sydney 2000
Olympic Games and the official sports brand of the 1998 and 2000 Australian
Olympic teams, as well as an official sponsor and supplier of sports footwear
and apparel to the national Olympic teams from Brazil, New Zealand, Poland and
South Africa. In addition, as an extension of its commitment to provide athletes
with technologically advanced products, Reebok has entered into sponsorship
agreements with the Team Scandia and Cristen Powell, a top fuel drag racer on
the National Hot Rod Association circuit, as well as with Eliseo Salazar, one of
the top drivers on the Indy Car racing circuit, and the R&S Indy Racing League
("IRL") Team on the 1998 IRL circuit. Reebok also has school-wide sponsorship
arrangements with colleges such as U.C.L.A., University of Texas, University of
Virginia and University of Wisconsin. In 1997, the Reebok Division also ran
marketing promotions on its Internet website.
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U.S. OPERATIONS
The Reebok Division's U.S. operations unit is responsible for all
footwear and apparel products sold in the United States by the Division. Sales
of footwear in the United States totalled approximately $1.229 billion in 1997
compared to $1.193 billion in 1996. REEBOK(R) brand apparel sales (including
GREG NORMAN(R) apparel) in the U.S. in 1997 totalled approximately $431.9
million, compared to approximately $314.9 million in 1996.
In the U.S., the Reebok Division generally uses an employee sales force
for its principal product lines, although in 1997 it utilized independent sales
representatives for some of its specialty products, such as its REEBOK golf and
tennis 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 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 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.
INTERNATIONAL OPERATIONS
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 Leusden, Holland, which is
responsible for Europe; in Hong Kong, which is responsible for Far East
operations; and in Denham Lock, England, which is responsible for the Middle
East and Africa, although this office will move to Delhi, India in March 1998.
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 29 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) apparel.
In 1997 Reebok finalized its plans to restructure its international
logistics operations over the next several years. This global restructuring
effort includes reducing the number of European warehouses in operation from
nineteen to three, establishing a shared services company to centralize European
administrative operations, and implementing a global management information
system. The global restructuring initiative, which is expected to be completed
in 1999, should enable the Company to achieve operational efficiencies and to
manage its business on a global basis more cost-effectively. In connection with
such restructuring the Company recorded a special pre-tax charge of $33.2
million in 1997.
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During 1997 the contribution of the Division's International operations
unit to overall sales of REEBOK(R) products (including GREG NORMAN(R) apparel)
decreased to $1.471 billion from $1.474 billion in 1996. The Division's 1997
international sales were negatively impacted by changes in foreign currency
exchange rates. In addition, these sales figures do not reflect the full
wholesale value of all REEBOK products sold outside the United States in 1997
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 $1.779 billion in wholesale value, consisting of
approximately 33.2 million pairs of shoes totalling approximately $1.098 billion
in wholesale value of footwear sold outside the United States in 1997 (compared
with approximately 35.7 million pairs totalling approximately $1.189 billion in
1996) and approximately $680.5 million in wholesale value of REEBOK apparel
(including GREG NORMAN apparel) sold outside the United States in 1997 (compared
with approximately $613.8 million in 1996).
SPORTS AND FITNESS EQUIPMENT AND LICENSING
The Company has continued to pursue 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 and services. 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.
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, cycling gloves,
golf gloves and winter 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 line of heart rate monitors and a
pedometer and stopwatch; 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. Reebok also has license agreements with Mead
for a line of REEBOK school supplies and with Haddad Apparel for a line of
REEBOK infant and toddler apparel. In addition, in 1997 Reebok entered into a
licensing agreement with Fab-Knit, Ltd. to manufacture and sell a new line of
REEBOK team uniforms and jackets.
In 1997, Reebok entered into a new video license agreement with BMG
Video, a unit of BMG Entertainment, 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, in January 1998 the Company signed a
license agreement with industry leader, Icon Health & Fitness Inc., to develop,
market and sell a complete line of Reebok fitness equipment products for the
home market. The initial home fitness products from this license debuted at the
Super Show in Atlanta in February 1998. Reebok also has a license agreement with
Cross Conditioning Systems under which Cross Conditioning Systems sells a line
of REEBOK fitness equipment products designed for use in health clubs and other
institutional markets. In 1997, under this relationship, the REEBOK Body Mill,
REEBOK Body Trec(TM), REEBOK Body Peak, REEBOK Studio Cycle and REEBOK Cycle
Plus were sold to health clubs and other institutions.
In addition, as part of the Company's licensing program, WEEBOK(R)
infant and toddler apparel and accessories and a line of WEEBOK(R) footwear are
sold by licensees. WEEBOK is a fashion-oriented, kid specific brand, which
offers apparel in sizes 0-7 and footwear in sizes 0-12.
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THE ROCKPORT COMPANY
The Company's Rockport subsidiary, headquartered in Marlboro,
Massachusetts, designs, produces 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 $64.9 million in 1997,
to $512.5 million from $447.6 million in 1996. Rockport's 1997 sales include
$64.0 million of sales of the RALPH LAUREN footwear business which was acquired
in May 1996.
ROCKPORT BRAND
Designed to address the different aspects of customers' lives, the
ROCKPORT product line includes casual, dress, outdoor performance, golf and
fitness walking shoes. In 1997, Rockport focused on its men's business with the
introduction of its Bourbon Street(TM) collection, refined footwear combining
comfort with style and targeting an expanded customer base including younger
consumers. Rockport also solidified its success with its ProWalker(R) World Tour
Shoe, with an expanded product line.
Internationally, the ROCKPORT brand continues to grow. In 1997 the
ROCKPORT brand's international revenues grew by 46%.
Rockport also expanded its retail presence in 1997 with the opening of
a "concept" shop in San Francisco, California and an increase in the United
States in the number of its ROCKPORT shops -- independent retail shops dedicated
exclusively to the sale of ROCKPORT products -- from 15 to 21. See discussions
under "Retail Stores". In addition, Rockport emphasized retail in its
international business by opening additional "concept" or retail shops outside
of the United States, operated by Rockport distributors or third party
retailers.
Rockport introduced an integrated marketing campaign in 1997 using the
directive, "Be Comfortable. Uncompromise(TM). Start with your feet." The
campaign features real individuals, unique for their nonconformity, wearing
ROCKPORT shoes with a statement of their unique comfort level. The
"Uncompromise" campaign was used as the major marketing platform for the brand
in the Fall of 1997, encompassing television advertising, print advertising,
public relations and retail promotions. In 1997 Rockport continued to expand its
offerings on its Internet website, including the establishment of a
business-to-business direct purchase program enabling employees at participating
companies to purchase ROCKPORT products through Rockport's website.
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 50 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 select
higher-quality national and local shoe store chains, department stores,
independent shoe 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.
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RALPH LAUREN(R) BRAND
In 1997 Rockport continued to develop the RALPH LAUREN footwear
business, which was acquired in May 1996. The RALPH LAUREN footwear line was
expanded in 1997 to include men's English dress shoes. In addition, Collection
Classics were introduced for women's shoes and the Refined Casual segment for
both men's and women's shoes was expanded. Also in 1997, Polo Sport athletic
footwear products were offered. The Polo Sport athletic footwear product line is
expected to expand over the next two years with the introduction of new product
categories.
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
The Company's Greg Norman Division produces a collection of apparel and
accessories 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 upper-end 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 1997 Greg Norman footwear, leather and hosiery products were
sold through licensees of the Company. The Division anticipates entering into a
number of new agreements which will broaden the scope of products offered and
expand distribution internationally.
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 department and
men's specialty stores, on-course pro-shops and golf specialty stores and are
sold by a combination of independent and employee sales representatives. The
GREG NORMAN Collection is also sold in GREG NORMAN dedicated shops within
independently-owned retail stores, as well as GREG NORMAN(sm) concept or company
stores. See discussion under "Retail Stores" below.
RETAIL STORES AND OTHER PROPERTIES.
The Company operates approximately 150 factory direct stores, including
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 operates 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.
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REEBOK retail shops are expected to be an important means of presenting the
brand in relatively new markets such as China, India and Russia and in other
international markets.
The Company is currently working to develop a retail store concept to
showcase the REEBOK brand at retail and expects to incorporate this design into
independently-owned retail stores, dedicated exclusively to the sale of Reebok
products. In 1998 the Company plans to test this concept in a few stores to be
opened in markets around the world.
Rockport has concept or company retail stores in San Francisco,
California, Boston, Massachusetts, Newport, Rhode Island, King of Prussia,
Pennsylvania and New York City. In addition, there are a number of ROCKPORT
shops -- independent stores which sell Rockport products exclusively -- in the
U.S. as well as internationally. 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 a number
of locations in the United States, including New York City and Beverly Hills,
California. In addition, the Ralph Lauren footwear subsidiary has footwear
retail operations in approximately 19 RALPH LAUREN/POLO factory direct stores
and operates one factory direct store in Tannersville, Pennsylvania.
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.
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 from independent manufacturers located 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.
As part of its commitment to human rights, the Company has adopted
certain human rights standards and a monitoring program which applies to
manufacturers of its products. In conjunction with this program, the Company
required its supplier of soccer balls in Pakistan to end the use of child labor
by centralizing all production, including ball stitching, so that the labor
force can be adequately monitored to prevent the use of child labor. Reebok
soccer balls are sold with a guarantee that the balls are made without child
labor.
China, Indonesia, Thailand and the Philippines were the Company's
primary sources for footwear, accounting for approximately 39%, 28%, 15%, and
8%, respectively, of the Company's total footwear production during 1997 (based
on the number of units produced). The Company's largest manufacturer, which has
several factory locations, accounted for approximately 13% of the Company's
total footwear production in 1997.
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
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U.S. and International operations. In addition, this network of affiliates
inspects 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 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, 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 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 1998.
However, the Company does not currently anticipate that restrictions on imports
from China will be imposed by the U.S. during 1998. 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.
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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. This exemption does not, however, cover most of
Rockport's products. Nevertheless, the volume of quota available to Reebok and
Rockport in 1998 is expected to be sufficient to meet the anticipated sales for
ROCKPORT products in EU member countries. If, however, such quota is not
sufficient, there could be an adverse effect on Rockport's international sales.
In addition, the EU has imposed antidumping duties against certain
textile upper footwear from China and Indonesia. A broad exemption from the
dumping duties is provided for athletic textile footwear which covers most
REEBOK models. If the athletic footwear exemption remains in its current form,
few REEBOK product lines will be affected by the duties; however, ROCKPORT
products would be subject to these duties. Nevertheless, the Company believes
that those REEBOK and ROCKPORT products affected by the duties can generally be
sourced from other countries not subject to such duties. If, however, the
Company was unable to implement such alternative sourcing arrangements, certain
of its product lines could be adversely affected by these duties.
The EU also has imposed antidumping duties on certain leather upper
footwear from China, Thailand and Indonesia. These duties will apply only to low
cost footwear, below the import prices of most Reebok and Rockport products.
Thus the Company does not anticipate that its products will be impacted by such
duties.
The EU continues to review the athletic footwear exemption which
applies to both the quota scheme and antidumping duties discussed above. The
Company, through relevant trade associations, is working to prevent imposition
of a more limited athletic footwear exception. Should revisions be adopted
narrowing such exemption, certain of the Company's product lines could 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 or are considering steps to restrict
footwear imports or impose additional customs duties or other impediments, 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: 1997,
footwear (approximately 72%) and apparel (approximately 27%); 1996, footwear
(approximately 75%) and apparel (approximately 24%); 1995, footwear
(approximately 81%) and apparel (approximately 18%).
TRADEMARKS AND OTHER PROPRIETARY RIGHTS
The Company believes that its trademarks, especially the REEBOK and
ROCKPORT trademarks, and its rights to use the GREG NORMAN name and logo, are of
great value, and the Company is vigilant in protecting these marks from
counterfeiting or infringement. Loss of the REEBOK, ROCKPORT or GREG NORMAN
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.
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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
in 1996, the Company entered into a credit agreement underwritten by Credit
Suisse and a syndicate of major banks. The facility included 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 July 1997,
the Company amended and restated this agreement to reduce the revolving credit
portion of the facility to $400 million. As part of this amendment, the
commitment fees the Company is required to pay on the unused portion of the
revolving credit facility, as well as the borrowing margins over the London
Interbank Offer Rate paid on the term loan and used portion of the revolving
credit facility, were reduced. The amendment further removed or relaxed various
covenants including the restrictions on asset acquisitions and sales, capital
expenditures, future indebtedness and investments. The Company elected to make
two prepayments of $50 million each in February and May 1997 on the term loan
reducing the balance of the term loan as of December 31, 1997 to approximately
$497 million.
The Company also has various arrangements with numerous banks which
provide an aggregate of approximately $1.028 billion of uncommitted facilities,
substantially all of which are available to the Company's foreign subsidiaries.
Of this amount, approximately $383 million is available for short-term
borrowings and bank overdrafts, with the remainder available for letters of
credit for inventory purchases. At December 31, 1997, approximately $317 million
was outstanding for open letters of credit for inventory purchases, in addition
to approximately $41 million in notes payable to banks.
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, 1997, 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 first and 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 1997.
BACKLOG
The Company's backlog of orders at December 31, 1997 (many of which are
cancelable by the purchaser), totalled approximately $1.224 billion, compared to
$1.198 billion as of December 31, 1996. The Company expects that substantially
all of these orders will be shipped in 1998, 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.
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<PAGE> 14
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, Adidas and Fila. 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 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. A shift in consumer preferences could also negatively impact the
Company's sales and financial results.
Currently, the industry is experiencing some shift in consumer
preference away from athletic footwear to "brown shoe" or "casual" product
offerings. This change in preference has adversely affected the Company's
business, as well as that of its competitors. The Company is taking steps to
respond to this shift by focusing on its products and technologies and
continuing to grow its Rockport, Ralph Lauren Footwear and Greg Norman brands.
There is, however, substantial uncertainty as to whether the Company actions
will be effective and how significant the adverse impact of the shift in
consumer preference will be on the Company's business. The outcome will be
dependent on a number of factors, including the extent of the change in consumer
preference, consumer and retailer acceptance of the Company's products,
technologies and marketing, and the ability of the Company to effectively
respond to the shift in the marketplace, as well as the other factors described
in this Section.
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. 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
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<PAGE> 15
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, or may find that retailers are cancelling
orders or returning product, all of which may have an adverse effect on the
Company's sales, its margins and brand image. In addition, the Company may be
required to pay for certain tooling if it does not satisfy minimum production
quantities.
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,
currency changes 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. See also discussion below under "Advertising and Marketing Investment."
PRICING AND MARGINS
The prices that the Company is able to charge for its products are
dependent on the type of product offered and the consumer and retailer response
to such product, as well as the prices charged by the Company's competitors. If,
for example, the Company's products provide enhanced performance capabilities,
the Company should be able to achieve relatively higher prices for such
products. The gross margins which the Company earns are dependent on the prices
which the Company can charge and the cost of the goods sold. To the extent that
the Company has higher costs, such as the higher startup costs associated with
technological products, its margins will be lower unless it can increase its
prices. The Company has recently experienced declining margins partially as a
result of the higher cost associated with its new technology products and its
inability to increase its sale prices sufficiently to cover such costs. In order
for the Company to increase its margins, it will need to either reduce its
costs, for example, by achieving production efficiencies or economies of scale,
or increase its selling price. There can be no assurance that either of such
results can be achieved. In addition, because of the shift in the marketplace
and the resulting over-inventoried promotional retail environment, the
Company's full-margin at once business has decreased, resulting in declining
margins. The ability of the Company to increase its full margin business is
dependent on a number of factors including the success of the Company's products
and marketing, the retail environment and general industry conditions.
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. Recently, there has been some shift in the
marketplace away from athletic footwear products and some of the "icon" athletes
supporting
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<PAGE> 16
them. As a result, the Company is re-evaluating its investment in certain sports
marketing deals and is in the process of eliminating or restructuring certain of
its marketing contracts that no longer reflect Reebok's brand positioning. The
Company recorded a one-time pre-tax special charge in 1997 of $25 million
relating to restructuring or eliminating certain of its marketing contracts.
RETAIL OPERATIONS
The Company currently operates approximately 150 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, Thailand or the Philippines, 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
also discussion above under "Trade Policy" and discussion below under "Economic
Factors".
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. A failure by one or more
of the Company's significant manufacturers to meet established criteria for
pricing, product quality or timeliness could negatively impact the Company's
sales and profitability. 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. See also discussion below under "Economic
Factors".
RISK ASSOCIATED WITH INDEBTEDNESS
In connection with the Company's Dutch Auction share repurchase, the
Company incurred $640 million in additional debt to finance the repurchase of
shares (as of December 31, 1997, the outstanding balance of such debt was
approximately $497 million) and has a $400 million revolving
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credit line (as of December 31, 1997, there were no borrowings outstanding under
the revolving credit line). As a result of this 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 liens and the requirements to maintain a minimum
interest coverage ratio and a minimum debt to cash flow 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 the Company's current and planned needs in 1998.
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 increased capital or other
expenditures, as well as increases in the Company's inventory or accounts
receivable) or future events 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.
In 1997, the Company's international sales, gross margins and profits were
negatively impacted by changes in foreign currency exchange rates.
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, ROCKPORT or GREG NORMAN 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.
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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. For example, the recent slowdown in the growth
of the athletic footwear and branded apparel markets has had negative effects on
the Company's business. In addition, as a result of current market conditions, a
number of the Company's competitors have excess inventory which they are
attempting to sell off. This over-inventoried, promotional environment has made
it more difficult for the Company to sell its products and has negatively
impacted the Company's gross margins.
The current financial crisis in the Far East has also had a negative
impact on the Company's business. The economic problems in Asia have had an
adverse effect on the Company's sales to that region. In addition, most of the
Company's products are manufactured in the Far East by third party
manufacturers. The current economic conditions have made it more difficult for
such manufacturers to gain access to working capital and there is a risk that
such manufacturers could encounter financial problems which could affect their
ability to produce products for the Company.
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 or profitability.
GLOBAL RESTRUCTURING ACTIVITIES
The Company is currently undertaking various global restructuring
activities designed to enable the Company to achieve operating efficiencies,
improve logistics and reduce expenses. There can be no assurance that the
Company will be able to effectively execute on its restructuring plans or that
such benefits will be achieved. In addition, in the short-term the Company could
experience difficulties in product delivery or other logistical operations as a
result of its restructuring activities, which could have an adverse effect on
the Company's business. In the short-term, the Company could also be subject to
increased expenditures and charges from such restructuring activities. The
Company is also in the process of eliminating or restructuring certain of its
underperforming marketing contracts. There can be no assurance that the Company
will be able to successfully restructure such agreements or achieve the cost
savings anticipated.
YEAR 2000
The Company has conducted a global review of its computer systems to
identify the systems that could be affected by the technical problems associated
with the year 2000 and has developed an implementation plan to address the "year
2000" issue. As part of its global restructuring, in 1997 the Company began its
global implementation of SAP software, which will replace substantially all
legacy systems. The Company presently believes that, with modifications to
existing software and converting to SAP software, the year 2000 will not pose
significant operational problems for the Company's computer systems. The cost of
such modifications is not expected to be material. The Company expects its SAP
programs to be substantially implemented by 1999 and the implementation is
currently on schedule. However, if the modifications and conversions are not
implemented or completed in a timely or effective manner, the year 2000 problem
could have a material impact on the operations of the Company. In addition, in
converting to SAP software, the Company is relying on its software partner to
develop new software applications and there could be problems in successfully
developing such new applications.
- 18 -
<PAGE> 19
EMPLOYEES
As of December 31, 1997, the Company had approximately 6,948 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, 1997 (the "1997 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 16 on page 36 of the 1997 Annual Report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is submitted as to the executive officers of
the Company:
<TABLE>
<CAPTION>
NAME AGE OFFICE HELD
- ---- --- -----------
<S> <C> <C>
Paul B. Fireman 54 President, Chief Executive Officer and Chairman
of the Board of Directors
Robert Meers 54 Executive Vice President, President and Chief
Executive Officer of the Reebok Division and
Director
Angel R. Martinez 42 Executive Vice President, President and Chief
Executive Officer of The Rockport Company
Kenneth I. Watchmaker 55 Executive Vice President and Chief Financial
Officer
Arthur I. Carver 47 Senior Vice President, Sourcing and Logistics,
Reebok Division
William M. Sweeney 40 Senior Vice President of the Reebok Division and
General Manager - Reebok North America
Roger Best 45 Senior Vice President of the Reebok Division and
General Manager of the Reebok Division's
European Region
James R. Jones, III 53 Senior Vice President of Human Resources,
Reebok Division
Barry Nagler 41 General Counsel and Senior Vice President
</TABLE>
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.
- 19 -
<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 1980.
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 since
February 1996. In July 1997 he became the General Manager of the Reebok
Division's European Region. Prior to that, he was General Manager of Reebok
North America since February 1996. Previously, from April 1995 through February
1996, he was Regional Vice President of the Reebok Division's Northern Europe
Operations and Managing Director of Reebok U.K. and, from January 1992 through
April 1995, he was Managing Director of Reebok U.K. Mr. Best joined the Company
in 1992.
William M. Sweeney has been Senior Vice President of the Reebok
Division and General Manager of Reebok North America since August 1997. Prior to
that, Mr. Sweeney was Regional Vice President of the Reebok Division's
Asia/Pacific Region and President of Reebok Japan since November 1995. He joined
Reebok in 1991 as marketing director for the Asia/Pacific Region and was based
at the regional headquarters in Hong Kong.
James R. Jones, III has been Senior Vice President of Human Resources
for the Reebok Division since April 1997. Prior to that, Mr. Jones was Vice
President of Human Resources of Inova Health System from May 1996 through April
1997. From July 1995 through May 1996, Mr. Jones was the Senior Vice President
of Human Resources of Franciscan Health System. Prior to that, since 1991, Mr.
Jones was the Vice President of Human Resources of The Johns Hopkins University.
Barry Nagler has been Senior Vice President of the Company since
February 1998 and General Counsel since September 1995. Mr. Nagler was
previously a Vice President of the Company since May 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.
- 20 -
<PAGE> 21
Item 2. Properties.
The Company leases most of the properties that are used in its
business. Its corporate headquarters and the offices of the Reebok Division and
its U.S. Operations are located in office facilities in Stoughton,
Massachusetts. At its corporate headquarters, the Company occupies under lease
approximately 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 expected to be completed within the next month. 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 U.K. subsidiary, Reebok International Limited, has a
lease for its corporate headquarters building in Denham Lock, England which is
expected to end in December 1998. The 14,000 square foot corporate headquarters
building also houses a showroom for use by the Reebok sales force in Southern
England. Previously, the Company's International operations were headquartered
in Stockley Park, London where the Company's U.K. subsidiary still leases
approximately 37,000 square feet under a fifteen year lease which is guaranteed
by the Company. Since the Company has moved its International operations to
Stoughton, Massachusetts, this property has been subleased to two parties for
the term of the lease.
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. Reebok
Canada expects to renew this lease thereafter.
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.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
- 21 -
<PAGE> 22
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company is filing herewith selected portions of its 1997 Annual
Report with the Securities and Exchange Commission. The information required by
this Item is incorporated herein by reference from page 40 of the 1997 Annual
Report.
Item 6. Selected Financial Data.
The Company is filing herewith selected portions of its 1997 Annual
Report with the Securities and Exchange Commission. The information required by
this Item is incorporated herein by reference from page 19 of the 1997 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 1997 Annual
Report with the Securities and Exchange Commission. The information required by
this Item is incorporated herein by reference from pages 20 through 24 of the
1997 Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The Company is filing herewith selected portions of its 1997 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 1997, are contained therein and are incorporated herein
by reference from pages 25 through 37 of the 1997 Annual Report. The
supplementary financial information required by this Item is contained in the
1997 Annual Report on page 38 and such information is incorporated by reference
herein. The financial statements, supplementary data, and Report of Independent
Auditors for 1996 and 1995 are listed under Part IV, Item 14 in this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this Item with respect to the Registrant's
directors is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on May 5, 1998,
which will be filed with the Securities Exchange Commission on or before March
27, 1998 (the "1998 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.
- 22 -
<PAGE> 23
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by
reference from the 1998 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 1998 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 1998 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 1997 Annual Report are incorporated by reference in Item 8 of this
Form 10-K:
<TABLE>
<CAPTION>
1997 ANNUAL REPORT PAGE
-----------------------
<S> <C>
Consolidated Balance Sheets at
December 31, 1997 and 1996 25
For each of the three years ended
December 31, 1997, 1996 and 1995:
Consolidated Statements of
Income 26
Consolidated Statements of
Stockholders' Equity 27
Consolidated Statements of
Cash Flows 28
Notes to Consolidated Financial Statements 29-36
</TABLE>
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:
- 23 -
<PAGE> 24
<TABLE>
<CAPTION>
FORM 10-K PAGE
--------------
<S> <C>
Schedule II - Valuation and Qualifying
Accounts F-1
</TABLE>
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)
3.3 By-law Amendment dated February 24, 1998
(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)
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 Lease Agreement, dated March 1, 1988, as amended, between Reebok
International Ltd. and North Stoughton Industrial Park Development
Trust(5), (14)
10.4 Purchase and Sale Agreement between Reebok International Ltd. and
Pentland Group plc dated March 8, 1991(8)
10.5 Agreements with various banks in Hong Kong reflecting arrangements
for letter of credit facilities(8)
10.6 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)
- 24 -
<PAGE> 25
10.7 Amended and Restated Credit and Guarantee Agreement, dated as of
July 1, 1997, among Reebok International Ltd., Reebok International
Limited, the Lenders and Co- Agents named therein, Citibank N.A. as
Documentation Agent and Credit Suisse, as Administrative Agent(18)
Management Contracts and Compensatory Plans.
10.8 Reebok International Ltd. 1994 Equity Incentive Plan, as
amended(17), (18)
10.9 Reebok International Ltd. Equity and Deferred Compensation Plan for
Directors(14)
10.10 Amendments to Reebok International Ltd. Equity and Deferred
Compensation Plan adopted February 1997 and February 1998
10.11 Reebok International Ltd. 1985 Stock Option Plan, as amended(11)
10.12 Reebok International Ltd. 1987 Stock Option Plan for Directors, as
amended(12)
10.13 Reebok International Ltd. 1987 Stock Bonus Plan(3)
10.14 Reebok International Ltd. Excess Benefits Plan(8)
10.15 Reebok International Ltd. Supplemental Executive Retirement Plan(15)
10.16 Reebok International Ltd. Executive Performance Incentive Plan, as
amended(15), (17)
10.17 Stock Option Agreement with Paul B. Fireman(8)
10.18 Split-Dollar Life Insurance Agreement with Paul B. Fireman(11)
10.19 Change of Control Agreement with Paul R. Duncan(18)
10.20 Letter Agreement with Paul R. Duncan dated December 29, 1997
10.21 Employment Agreement with Kenneth Watchmaker(12)
10.22 Change of Control Agreement with Kenneth Watchmaker(18)
10.23 Supplemental Retirement Program for Kenneth Watchmaker(12)
10.24 Change of Control Agreement with Angel Martinez(18)
10.25 Lease with Angel Martinez, as amended(13), (15), (17)
10.26 Quitclaim Deed between Reebok International Ltd. and Angel Martinez
10.27 Employment Agreement dated April 17, 1996 with Roger Best(17)
10.28 Employment Agreements dated September 11, 1997 with Roger Best
10.29 Change of Control Agreement with Robert Meers(18)
10.30 Change of Control Agreement with James R. Jones, III(18)
10.31 Change of Control Agreement with Barry Nagler(18)
- 25 -
<PAGE> 26
10.32 Form of Non-Competition Agreements signed by Arthur Carver, James R.
Jones, III, Angel Martinez, Robert Meers, Barry Nagler, William
Sweeney and Kenneth Watchmaker
(12) Statement Re Computation of Ratio of Earnings to Fixed Charges.
(13) Annual Report to Security Holders.
13.1 Selected Portions of Registrant's 1997 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.
(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.
27.1 Financial Data Schedule for fiscal year ended 12/31/97
27.2 Restated Financial Data Schedule for quarter ended 9/30/97
27.3 Restated Financial Data Schedule for quarter ended 6/30/97
27.4 Restated Financial Data Schedule for quarter ended 3/31/97
27.5 Restated Financial Data Schedule for fiscal year ended 12/31/96
27.6 Restated Financial Data Schedule for quarter ended 9/30/96
27.7 Restated Financial Data Schedule for quarter ended 6/30/96
27.8 Restated Financial Data Schedule for quarter ended 3/31/96
27.9 Restated Financial Data Schedule for fiscal year ended 12/31/95
- -----------------------------
(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.
- 26 -
<PAGE> 27
(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.
(17) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated March 27,
1997 and incorporated by reference herein.
(18) Filed as an Exhibit to Reebok International Ltd. Form 10-Q for the quarter
ended June 30, 1997 and incorporated herein by reference.
- 27 -
<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 25, 1998
- 28 -
<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/ M. KATHERINE DWYER
- --------------------------------------------
M. Katherine Dwyer
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
- 29 -
<PAGE> 30
/s/ WILLIAM M. MARCUS
- --------------------------------------------
William M. Marcus
Director
/s/ GEOFFREY NUNES
- --------------------------------------------
Geoffrey Nunes
Director
Dated: March 25, 1998
- 30 -
<PAGE> 31
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
REEBOK INTERNATIONAL LTD
(Amounts in thousands)
<TABLE>
<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> <C>
YEAR ENDED DECEMBER 31, 1997
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $43,527 $16,471 $15,995 $44,003
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
</TABLE>
(A) Uncollectible accounts written off, net of recoveries
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
3.3 By-law Amendment dated Filed herewith
February 24, 1998
4.1 Indenture, dated as of September 15, Incorporated by
1988. as amended and restated by the reference
First 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 Lease Agreement, dated March 1, 1988, Incorporated by
as amended, between Reebok reference
International Ltd. and North Stoughton
Industrial Park Development Trust
10.4 Purchase and Sale Agreement between Incorporated by
Reebok International Ltd. and Pentland reference
Group plc dated March 8, 1991
10.5 Agreements with various banks in Hong Incorporated by
Kong reflecting arrangements for letter reference
of credit facilities
10.6 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
10.7 Amended and Restated Credit and Incorporated by
Guarantee Agreement, dated as of reference
July 1, 1997, among Reebok
International Ltd., Reebok Inter-
national Limited, the Lenders and
Co-Agents named therein, Citibank
N.A. as Documentation Agent and
Credit Suisse, as Administrative
Agent
10.8 Reebok International Ltd. 1994 Equity Incorporated by
Incentive Plan, as amended reference
<PAGE> 33
10.9 Reebok International Ltd. Equity and Incorporated by
Deferred Compensation Plan for reference
Directors
10.10 Amendments to Reebok International Filed herewith
Ltd. Equity and Deferred
Compensation Plan for Directors
adopted February 1997 and
February 1998
10.11 Reebok International Ltd. 1985 Stock Incorporated by
Option Plan, as amended reference
10.12 Reebok International Ltd. 1987 Stock Incorporated by
Option Plan for Directors, as amended reference
10.13 Reebok International Ltd. 1987 Stock Incorporated by
Bonus Plan reference
10.14 Reebok International Ltd. Excess Incorporated by
Benefits Plan reference
10.15 Reebok International Ltd. Supplemental Incorporated by
Executive Retirement Plan reference
10.16 Reebok International Ltd. Executive Incorporated by
Performance Incentive Plan, as reference
amended
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 Change of Control Agreement with Incorporated by
Paul R. Duncan reference
10.20 Letter Agreement with Paul R. Filed herewith
Duncan dated December 29, 1997
10.21 Employment Agreement with Kenneth Incorporated by
Watchmaker reference
10.22 Change of Control Agreement with Incorporated by
Kenneth Watchmaker reference
10.23 Supplemental Retirement Program for Incorporated by
Kenneth Watchmaker reference
10.24 Change of Control Agreement with Incorporated by
Angel Martinez reference
10.25 Lease with Angel Martinez, as amended Incorporated by
reference
10.26 Quitclaim Deed between Reebok Filed herewith
International Ltd. and Angel Martinez
10.27 Employment Agreement dated April 17, Incorporated by
1996 with Roger Best reference
10.28 Employment Agreements dated Filed herewith
September 11, 1997 with Roger Best
10.29 Change of Control Agreement with Incorporated by
Robert Meers reference
<PAGE> 34
10.30 Change of Control Agreement with Incorporated by
James R. Jones, III reference
10.31 Change of Control Agreement with Incorporated by
Barry Nagler reference
10.32 Form of Non-Competition Agreements Filed herewith
signed by Arthur Carver, James R.
Jones, III, Angel Martinez, Robert
Meers, Barry Nagler, William Sweeney
and Kenneth Watchmaker
12. Statement Re Computation of Ratio Filed herewith
of Earnings to Fixed Charges
13.1 Selected Portions of Registrant's Filed herewith
1997 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
27.1 Financial Data Schedule Filed herewith
for fiscal year ended 12/31/97
27.2 Restated Financial Data Schedule Filed herewith
for quarter ended 9/30/97
27.3 Restated Financial Data Schedule Filed herewith
for quarter ended 6/30/97
27.4 Restated Financial Data Schedule Filed herewith
for quarter ended 3/31/97
27.5 Restated Financial Data Schedule Filed herewith
for fiscal year ended 12/31/96
27.6 Restated Financial Data Schedule Filed herewith
for quarter ended 9/30/96
27.7 Restated Financial Data Schedule Filed herewith
for quarter ended 6/30/96
27.8 Restated Financial Data Schedule Filed herewith
for quarter ended 3/31/96
27.9 Restated Financial Data Schedule Filed herewith
for fiscal year ended 12/31/95
<PAGE> 1
EXHIBIT 3.3
AMENDMENT TO BYLAWS DATED FEBRUARY 24, 1998
2.5. NOTICE OF MEETINGS. A written notice of each meeting of stockholders,
stating the place, date and hour and the purposes of the meeting, shall be given
at least twenty-one days before the meeting to each stockholder entitled to vote
thereat and to each stockholder who, by law, by the articles of organization or
by these bylaws, is entitled to notice, by leaving such notice with him or at
his residence or usual place of business, or by mailing it, postage prepaid,
addressed to such stockholder at his address as it appears in the records of the
corporation. Such notice shall be given by the clerk or an assistant clerk or by
an officer designated by the directors. Whenever notice of a meeting is required
to be given to a stockholder under any provision of the Business Corporation Law
of the Commonwealth of Massachusetts or of the articles of organization or these
bylaws, a written waiver thereof, executed before or after the meeting by such
stockholder or his attorney thereunto authorized and filed with the records of
the meeting, shall be deemed equivalent to such notice.
No business may be transacted at a special meeting of the stockholders
except as specified in the notice of meeting thereof. No business may be
transacted at an annual meeting of the stockholders except that (a) specified in
the notice thereof, or in a supplemental notice given also in compliance with
the provisions hereof, (b) brought before the meeting by or at the direction of
the Board of Directors or the presiding officer, or (c) otherwise properly
brought before the meeting by or on behalf of any stockholder who shall have
been a stockholder of record at the time of giving of notice provided for in
this paragraph and who shall continue to be entitled to vote thereat and who
complies with the notice procedures set forth in this paragraph or, with respect
to the election of directors, the notice procedures set forth in Section 3.2 of
these by-laws. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder (other than a
stockholder proposal included in the corporation's proxy statement pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), the stockholder must have given timely notice thereof in writing to the
clerk of the corporation. In order to be timely given, a stockholder's notice
must be delivered to or mailed and received at the principal executive offices
of the corporation (a) not less than 75 nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders of
the corporation or (b) in the event that the meeting is called for a date
(including any change in date determined by the board pursuant to Section 2.1)
more than 75 days prior to such anniversary date, notice by the stockholder to
be timely given must be so received no later than the close of business on the
10th day following the day on which notice of the date of such
<PAGE> 2
meeting was mailed or public disclosure of the date of such meeting was made,
whichever first occurs. Such stockholder's notice to the clerk shall set forth
as to each matter the stockholder proposes to bring before the meeting (a) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (b) the name and record
address of the stockholder proposing such business, (c) the class and number of
shares of capital stock of the corporation held of record, owned beneficially
and represented by proxy by such stockholder as of the record date for the
meeting (if such date shall then have been made publicly available) and as of
the date of such notice by the stockholder, (d) any material interest of the
stockholder in such business and (e) all other information which would be
required to be included in a proxy statement or other filings required to be
filed with the Securities and Exchange Commission if, with respect to any such
item of business, such stockholder were a participant in a solicitation subject
to Regulation 14A under the Exchange Act (the "Proxy Rules").
Notwithstanding anything in these bylaws to the contrary, no business
shall be conducted at any meeting except in accordance with the procedures set
forth in this Section 2.5; PROVIDED, HOWEVER, that nothing in this Section 2.5
shall be deemed to preclude discussion by any stockholder of any business
properly brought before such meeting.
The chairman of the board or other presiding officer of the meeting may,
if the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the foregoing procedures,
and if he or she should so determine, he or she shall so declare to the meeting
and that business shall be disregarded.
3.2. TENURE AND NOMINATIONS FOR DIRECTOR. Except as otherwise provided by
law, by the articles of organization or by these bylaws, each director shall
hold office until the next annual meeting of the stockholders and until his
successor is duly elected and qualified, or until he sooner dies, resigns, is
removed or becomes disqualified.
Only persons who are nominated in accordance with the following procedures
shall be eligible for election as directors. Nominations of persons for election
to the board of directors may be made at a meeting of stockholders (a) by or at
the direction of the board of directors or any appropriate committee thereof or
(b) by any stockholder of record who is entitled to vote for the election of
directors at the meeting and complies with the notice procedures set forth in
this Section 3.2. Nominations by stockholders shall be made only after timely
notice in writing to the clerk of the corporation. In order to be timely given,
a stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than 75 nor more than
120 days prior to the anniversary date of
<PAGE> 3
the immediately preceding annual meeting of stockholders of the corporation;
provided, however in the event that the meeting is called for a date, including
any change in a date determined by the board pursuant to Section 2.1, more than
75 days prior to such anniversary date, notice by the stockholder to be timely
given must be so received no later than the close of business on the 10th day
following the day on which notice of the date of such meeting was mailed or
public disclosure of the date of such meeting was made, whichever first occurs.
Such stockholder's notice to the clerk shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class and number of shares of capital stock of the corporation, if any, which
are beneficially owned by the person, (iv) any other information regarding the
nominee as would be required to be included in a proxy statement or other
filings required to be filed pursuant to the Proxy Rules, and (v) the consent of
each nominee to serve as a director of the corporation if so elected; and (b) as
to the stockholders giving the notice, (i) the name and record address of the
stockholder, (ii) the class and number of shares of capital stock of the
corporation which are beneficially owned by the stockholder as of the record
date for the meeting (if such date shall then have been made publicly available)
and as of the date of such notice, (iii) a representation that the stockholder
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice, (iv) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder, and (v) such other information
regarding such stockholder as would be required to be included in a proxy
statement or other filings required to be filed pursuant to the Proxy Rules. The
corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the corporation to determine the eligibility of
such proposed nominee to serve as director. No person shall be eligible for
election as a director unless nominated in accordance with the provisions set
forth herein.
The Chairman of the Board or other presiding officer of the meeting may,
if the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the foregoing procedures, and if he or she should so
determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded.
<PAGE> 1
EXHIBIT 10.10
VOTED: That the Equity and Deferred Compensation Plan for Directors (the
"Plan") be and hereby is amended by replacing Section 7(h) of the Plan
with the following:
"If a director's service with the Company terminates for any reason other than
death, all options held by the director that are not then exercisable shall
terminate, provided, however, that in the case of a director who has retired
from the Board after twelve or more years of service and in the case of a
director who retires from the Board at or after age 70, all options held by that
director shall continue to vest during the three years following that director's
last day of service (the "Extended Vesting Period"). Options that are
exercisable on the date of termination shall continue to be exercisable for a
period of three months after the last day of service or, in the case of
directors retiring after twelve or more years of services or at or after age 70,
for three months following termination of the Extended Vesting Period (all
subject, however, to the limitations of Section 6(c) regarding the maximum
exercise period for such options). After completion of the applicable
three-month period, such options shall terminate to the extent not previously
exercised, expired or terminated.
<PAGE> 1
EXHIBIT 10.20
December 29, 1997
Paul Duncan
76 Washington Drive
Sudbury, MA 01776
Re: Reebok Supplemental Executive Retirement Plan ("SERP")
Dear Paul:
As you know, Reebok would like to retain you as a part-time employee
during 1998. In order to induce you to remain as a part-time employee and insure
that the compensation you will receive from Reebok's SERP will not be negatively
affected by you remaining a part-time employee, Reebok hereby agrees with you
that for purposes of determining your Final Average Total Compensation (as
defined in Section 4(e)(1) of the SERP) under the SERP plan, we will use the
average of your Total Compensation (as such term is defined in the SERP) for the
three calendar years during the period 1993 thorough 1997 (inclusive) in which
you had the highest Total Compensation.
This letter agreement shall constitute an amendment of the SERP with
respect to your participation therein.
If the foregoing reflects your agreement, please sign below.
Very truly yours,
REEBOK INTERNATIONAL LTD.
By:/s/ BARRY NAGLER
Agreed to by:
/s/ PAUL R. DUNCAN
Paul Duncan
<PAGE> 1
EXHIBIT 10.26
QUITCLAIM DEED
REEBOK INTERNATIONAL LTD., a duly organized Massachusetts corporation, with a
principal place of business at 100 TECHNOLOGY CENTER DRIVE, STOUGHTON, NORFOLK
COUNTY, MASSACHUSETTS
in consideration of EIGHT HUNDRED EIGHTY-TWO THOUSAND NINE HUNDRED TWENTY-SIX
AND 00/100 ($882,926.00) DOLLARS
grant to ANGEL MARTINEZ and FRANCES MARION MARTINEZ, Husband and Wife, as
Tenants by the Entirety
of 326 MATTISON DRIVE, CONCORD, MASSACHUSETTS 01742
WITH QUITCLAIM COVENANTS
The land in Concord, Middlesex County, Massachusetts, being bounded and
described as follows:
A certain lot of land in Concord, Middlesex County, Massachusetts, being shown
as Lot 2 on a plan of land entitled "Arrowhead Definitive Subdivision of Land in
Concord, Mass., prepared for Overview Development Corporation, Scale: 1"-100'
February, 1986, general revision June 12, 1986, general revision June 18, 1986,
Charles A. Perkins Co., Inc., Civil Engineers and Surveyors, P.O. Box 234,
Clinton, Mass. 01510", which plan is recorded with Middlesex South District
Registry of Deeds as Plan No. 1180 of 1986 on September 3, 1986, in Book 17362,
Page 247, reference to which plan may be had for a more particular description
of said Lot 2.
Together with the right to use the streets and ways as shown on the
aforementioned plan, in common with others entitled thereto, for all purposes
for which streets and ways are commonly used in the Town of Concord.
Subject to easements, agreements, restrictions and rights of way of record, if
any there be, insofar as the same are now in force and applicable.
The premises are conveyed with the further restriction that any structures to be
built upon said Lot 2 shall be built within that area designated as building
envelope on the plan entitled "Plan of Land Showing Building Envelopes for Lots
1, 2 &4 in Concord, Mass., Prepared for Overview Development Corporation, Scale:
1"=40', September 1986, Charles A. Perkins Co., Inc., Civil Engineers &
Surveyors, P.O. Box 234, Clinton, Mass. 01510", which plan is recorded with
Middlesex South District Registry of Deeds as Plan No. 1635 of 1986 in Book
17585, Page 560.
<PAGE> 2
There is hereby specifically excluded from this conveyance the fee in the
streets and ways shown on the above-mentioned plan.
Being the same premises conveyed to Grantor by Deed of Richard F. Fordyce and R.
Renee Fordyce, dated October 30, 1992, and recorded in Middlesex South District
Registry of Deeds in Book _______________, Page _______________.
This is not a sale of all or substantially all of the Grantor's assets, and this
Grant is being made in the usual course of business.
Executed as a sealed instrument this 26th day of March 1997.
REEBOK INTERNATIONAL LTD.
by:/s/ KENNETH I. WATCHMAKER
KENNETH I. WATCHMAKER
its Executive Vice President and
Chief Financial Officer
COMMONWEALTH OF MASSACHUSETTS
NORFOLK, SS MARCH 26, 1997
Before me personally appeared the above-named KENNETH I. WATCHMAKER,
Executive Vice President and Chief Financial Officer of REEBOK INTERNATIONAL
LTD., and acknowledged the foregoing to be the free act and deed of the REEBOK
INTERNATIONAL LTD.
/s/ KERRIE K. HANLEY
Notary Public
My Commission Expires:
Kerrie K. Hanley, Notary Public
My Commission Expires February 3, 2000
PROPERTY ADDRESS: 326 MATTISON DRIVE, CONCORD, MASSACHUSETTS 01742
<PAGE> 1
EXHIBIT 10.28
PRIVATE AND CONFIDENTIAL
Roger Best
Stanner House
Preston Road
Grimsargh
Preston PR2 5JE
11th September 1997
Dear Roger
Re: OFFER OF EMPLOYMENT
I am writing to confirm formally the following terms of employment between you
and Reebok International Limited, ("RIL"). If you accept the terms and
conditions as set out herein, this will form your contract of employment with
RIL.
I. PRIOR AGREEMENTS
This letter is intended to confirm your terms of employment in your new
position, it having been agreed that these terms, when combined with the terms
of your Dutch employment, will not in any circumstance result in your total
compensation and benefits, nor the terms of any severance, being less in net
value than the compensation and benefits provided to you in the letter agreement
between RIL(US) and yourself dated 17th April 1996. That letter agreement will
remain in effect insofar as it deals with stock options and other matters not
specifically dealt with herein. You accept that the pension and insurance
benefits provided hereunder are an equitable substitute for those provided for
in the 12 April 1996 letter. A copy of that agreement is attached hereto and is
incorporated herein by reference.
II. JOB TITLE/GRADE
You have accepted the position of Senior Vice President Marketing Europe in
which capacity you will report to the Managing Director of RIL or such person as
the President of RIL (US) shall so designate.
III. COMPENSATION AND BENEFITS
A. Your base salary will be one hundred and thirty thousand pounds (130,000
pounds sterling) per annum to be paid in twelve equal instalments (or pro rata
where you are employed hereunder during part of a month), into your bank account
by credit transfer.
<PAGE> 2
B. Your salary will be reviewed in March of 1998 and each year thereafter.
The decision with regard to reviewing salary will be entirely at RIL's
discretion.
C. You will be responsible for the payment of your own taxes save that in
the event that the vesting or exercise of any share options results in a total
tax liability greater than the tax liability which you would have incurred had
you been solely resident and employed in the UK, RIL will pay to you an amount
equivalent to any additional tax. Further, recognising that the vesting of
previously granted stock options may create an additional Dutch tax liability,
RIL agrees in such event to advance to you in the form of a loan and upon the
receipt of appropriate documentation, an additional sum of money to cover this
incremental tax burden. You will repay this sum of money back to RIL at such
time as the excess Dutch foreign tax credits created by this tax liability are
utilised on your UK return.
D. You will be entitled to participate in RIL's senior management bonus
scheme. The target incentive compensation is agreed to be 50% of your base
salary with the actual amount of the award to be determined in line with the
terms and conditions of the company scheme. Payment of any bonus is dependent
upon your individual performance and the overall financial position of the
company.
IV. PENSION
You will be entitled to a non-contributory pension allowance equivalent
to sixteen percent (16%) of your total base salary and any bonuses earned both
pursuant to this Agreement and that paid to you as a result of your employment
by Reebok Europe BV. The maximum permitted by UK law will be paid tax free into
RIL's Pension Scheme which you are expected to join and any amount above this
limit will be subject to tax and paid into a funded scheme to be mutually
agreed.
V. HOLIDAY ENTITLEMENT
Your annual holiday entitlement will be 25 days per calendar year (or
pro-rata where you are employed hereunder during part of the calendar year). In
addition you will receive normal public and religious holiday entitlement. Any
entitlement to holiday remaining at the end of any calendar year shall lapse
without entitlement to payment in lieu thereof. You will be entitled on the
termination of your employment to pay in respect of any accrued but untaken
holiday on a pro-rata basis. This holiday entitlement is to be taken at the same
time as any holiday entitlement taken pursuant to your role as an employee of
Reebok Europe BV.
VI. MEDICAL AND HEALTH INSURANCE
RIL operates a private medical insurance scheme (currently BUPA), which
you will be invited to join. This provides you and
<PAGE> 3
your family with cover at RIL's expense. You will also be provided with critical
illness and disability insurance in line with company policy. For further
details please contact the Human Resources Department.
VII. LIFE INSURANCE
You will receive life insurance cover of three times your combined base
salaries from RIL and Reebok Europe BV.
VIII. TAX ADVICE
It is expected that Ernst and Young will assist you at the Company's
expense in the filing of your UK and Dutch tax returns as well as any US returns
required as a result of your recent US posting. RIL will also reimburse you on a
one time basis for fees incurred in your obtaining your own tax advice at the
outset of this assignment up to a maximum of UK 5,000 pounds sterling.
IX. TERMINATION OF EMPLOYMENT
Should you wish to terminate your employment at any time you will be
expected to give RIL twelve (12) months' written notice to that effect.
Similarly, should RIL wish to terminate your employment, it will give you twelve
(12) months' notice in writing. Under no circumstances except for "justified
cause" may your employment be terminated prior to 31st January 1999, unless RIL
pay you the equivalent of the greater of twelve months' compensation and
allowances or the total compensation and allowances due through 31st January
1999. In the event of your death your employment will cease with immediate
effect.
X. TERMINATION OF EMPLOYMENT FOR JUSTIFIED CAUSE WITHOUT NOTICE
Your employment may be terminated by RIL without notice or payment in
lieu of notice for, amongst other matters, serious or repeated misconduct or
breaches of this Contract, mental or long-term illness or if you are convicted
of a felony or a misdemeanour involving moral turpitude.
XI. CONFIDENTIALITY
You will be aware that RIL operates in a highly competitive industry.
RIL regards all of the information to which you will have access as being of a
confidential nature and you are required to sign the separate Confidentiality
Declaration attached hereto which forms part of your terms and conditions of
employment.
XII. NON-COMPETITION
You further agree that during the period of your employment by RIL and
for a period of one year thereafter you will not (without the Company's written
consent) accept any position with
<PAGE> 4
any organization which competes anywhere in the world where Reebok products are
sold, with the Reebok Brands Division or with other businesses of RIL 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
granted to you by RIL (US) are 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 that 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 profits made by you as a result of such exercise and sale. You agree that
the provisions with respect to the duration, geographic, 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.
XIII. START DATE
Your employment by RIL commenced on 7th July 1997.
XIV. GOVERNING LAW AND JURISDICTION
A. This contract shall be governed by and construed in
accordance with the Laws of England.
B. You agree with RIL to submit to the exclusive jurisdiction of the
English courts as regards any claim, dispute or matter arising out of or
relating to this contract.
XV. ACCEPTANCE
I would be grateful if you would confirm your acceptance of this offer
by signing the acceptance copy of this letter and the Confidentiality
Declaration and return these to me as soon as possible. (Copies are enclosed for
you to retain.)
Yours sincerely
/s/ M L STEPHENS
M L Stephens
Company Secretary
<PAGE> 5
I have read and understand the offer of employment, and confirm my acceptance of
the same.
Signed /s/ ROGER BEST Date 18/9/97
Name: Roger Best
<PAGE> 6
ROGER BEST
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made this 11th day of September, 1997, by and between Roger
Best, residing at Stanner House, Preston Road, Grimsargh, Preston PR2 5JE,
(hereinafter BEST), and Reebok Europe BV, a Dutch corporation, with its
registered office at Moret Ernst & Young, Marten Meesweg 51, 306a AV Rotterdam,
The Netherlands (hereinafter REEBOK).
WITNESSETH
WHEREAS REEBOK wishes to employ BEST as its Managing Director; and
WHEREAS REEBOK is a wholly owned subsidiary of Reebok International Ltd (US)
(hereinafter RIL); and
WHEREAS BEST has agreed to accept the position of Managing Director and as a
statutory Director of REEBOK; and
WHEREAS the shareholders of REEBOK will appoint BEST as Director ("bestuurder")
of REEBOK with effect from this date;
NOW THEREFORE, in consideration of the mutual covenants and obligations
contained herein, and intending to be legally bound, the parties, subject to the
terms and conditions set forth herein, agree as follows:
1. EMPLOYMENT
BEST, subject to the rights of termination contained herein, has been
employed as from 7th July 1997 in the position of Managing Director of REEBOK
and such employment will continue for an indefinite period. BEST will report to
RIL's Senior Vice President International or such person as the President of RIL
may from time to time direct.
2. DUTIES
During the term of his employment BEST shall devote his time, skill and
efforts to the performance of his duties which shall include, without
limitation, the duties as are customarily performed by the Managing Director of
such companies. In his capacity as Managing Director of REEBOK he shall have
such power and authority as shall reasonably be required to enable him to
perform his duties hereunder in an efficient manner; provided that in exercising
such power and authority and performing such duties, he shall at all times be
subject to the authority and control of the President of RIL and shall at all
times adhere to the financial controls and other policies of RIL. BEST shall
have the power as Managing Director to bind REEBOK and act solely in its behalf
in accordance with the law and the Articles of
<PAGE> 7
Association of REEBOK.
3. COMPENSATION
REEBOK shall pay BEST, and BEST hereby agrees to accept, as compensation
for all services rendered hereunder, the gross yearly sum of one hundred and
thirty thousand pounds sterling (130,000 pounds sterling) as base salary.
Included in the gross annual base salary is an eight per cent (8%) holiday
allowance and full compensation for any overtime worked by BEST. This
compensation shall be paid in arrears in equal monthly installments. This
compensation will be reviewed annually thereafter. It is REEBOK's intention that
thirty five per cent (35%) of this shall be paid to BEST as a tax free
allowance, subject to the approval of the Dutch tax authorities.
4. PERFORMANCE BONUS
BEST will be entitled to participate in RIL's International Bonus Scheme.
BEST's target bonus rate shall be fifty per cent (50%) of his base salary.
5. HOLIDAY ENTITLEMENT
BEST shall be entitled to 25 days paid holiday per annum, excluding public
holidays. The exact dates of such holiday must be agreed by BEST's immediate
superior. This holiday shall be taken at the same time as holiday entitlement
from Reebok International Limited.
6. EXPENSES
REEBOK shall pay or reimburse BEST for all reasonable travel and other
expenses incurred by him in connection with the performance of his services
under this Agreement.(1) Payment shall be made upon presentation of expense
statements or vouchers and such other supporting information as REEBOK may from
time to time request.
- -----------
(1) It has been agreed that REEBOK will reimburse BEST for his accommodation
expenses in the Netherlands as well as a weekly return flight to the United
Kingdom.
7. OWNERSHIP OF WORK
All concepts and ideas, drawings, patents, patent applications and other
product development programs and campaigns developed by BEST in the performance
of this Agreement shall be the sole and exclusive property of REEBOK, and, upon
its request at any time, or from time to time, during the term of or after the
termination of his employment, BEST shall deliver to REEBOK all drawings,
sketches and other material and records relating
<PAGE> 8
to such concepts, ideas, programs and campaigns that may be in his possession or
otherwise available to him.
8. CONFIDENTIALITY
Both during the term of his employment by REEBOK and thereafter, BEST
shall not, without the prior written consent of REEBOK, divulge to any third
party or use for his own benefit, or for any purpose other than the exclusive
benefit of REEBOK, any confidential information concerning its business affairs
obtained by him during the term of his employment, including, but not limited
to, information relating to advertising and marketing campaigns and to REEBOK's
relationship with actual or potential clients or customers and the needs and
requirements of any such actual or potential customers; it being the intent
hereof that he shall not so divulge or use any such information which is
unpublished or not readily available to the general public; provided that
nothing provided herein shall restrict his ability to make such disclosures
during the course of his office as may be necessary or appropriate to the
effective or efficient discharge of his duties to REEBOK.
9. NON-COMPETITION
BEST agrees that for a period of one (1) year following termination of his
employment with REEBOK, BEST will not engage in or have interest in, either
directly or indirectly, any of the companies listed below, whether as a
principal, partner, director, officer, employee, consultant, agent, distributor,
security holder or otherwise (except ownership of one percent (1%) or less of
the equity securities of any publicly traded company):
Adidas, Asaki, Asics, Bata, British knights, Brooks, Champion, Converse,
Diadora, Dunlop, Ellesse, Etonic, Fila, Footjoy, Head, Hi-Tec, Hyde, Kappa,
Kangaroo, K-Swiss, LA Gear, Le Coq Sportif, Lotto, Mitre, Mizuno, New Balance,
Nike, Pentland, Prince, Puma, Ryka, Saucony, Sergio Tacchini, Spalding,
Timberland, Tretorn or Umbro.
BEST further agrees that for a period of two (2) years following
termination of his employment with REEBOK, BEST will not directly or indirectly:
(a) solicit the employment of any person employed by REEBOK, RIL, Reebok
International Limited or any of their subsidiaries, affiliates, joint ventures,
distributors, etc. as of the date of such termination, or attempt to persuade
any such person to leave the employment of those entities, or (b) solicit a
contractual relationship with any third party currently under contract with RIL
as a distributor, joint venture partner, licensee or footwear supplier or
attempt to persuade any such party to terminate its relationship with RIL or
REEBOK.
10. CESSATION OF DUTIES
<PAGE> 9
Without prejudice to BEST's right to salary and other benefits under this
Agreement, REEBOK may at any time require BEST not to attend the premises of
REEBOK and not to perform his duties under this Agreement for all or any part of
the notice period set out in Paragraph 12 below, or in the event that REEBOK
decides to request rescission of the employment agreement until a court has
rendered its decision to this request, without prejudice to the right of REEBOK
to suspend BEST.
11. SEVERANCE PAY
If REEBOK terminates this Agreement (other than for "justified cause")
prior to 31st January 1999, as a result of notice being given by REEBOK or
rescission requested by REEBOK, BEST shall be entitled to compensation equal to
the greater of his full salary and allowances through 31st January 1999 or
twelve (12) months' gross base salary and allowances as described in Paragraph 3
above. If Reebok terminates this Agreement (other than for "justified cause")
after 31st January 1999, then BEST shall be entitled in lieu of the notice
provided for in Paragraph 12 below, to the equivalent of twelve months gross
salary and allowances. This agreement shall be deemed terminated by REEBOK if it
is rescinded by a Court following a request from REEBOK as provided in article
7A: 1639w NCI. The compensation shall only be due if the termination is not due
to a "justified cause."
The parties hereto agree that the dismissal of BEST shall not be obviously
unreasonable if the above compensation is paid to BEST and that the compensation
is regarded as being appropriate for the purposes of a proceeding as described
in article 7A: 1639w NCI.
12. NOTICE/TERMINATION
Subject to the laws of the Netherlands regarding employees and directors,
BEST and REEBOK may terminate this Agreement by mutual consent at any time, or
unilaterally by providing to the other party twelve (12) months' notice in
writing. In the case of justified cause, REEBOK may terminate this Agreement
with immediate effect. Should BEST be incapacitated or otherwise unable to
fulfill his duties as Managing Director, then REEBOK may, at its discretion,
terminate this Agreement by notice in writing, after such period as required by
Dutch law. In the event of BEST's death, this Agreement shall terminate with
immediate effect. In the event of "justified cause" REEBOK may terminate this
Agreement with immediate effect and without compensation. "Justified cause"
shall mean amongst other things serious or repeated misconduct or breaches of
this Agreement or if you are convicted of a felony or misdemeanor involving
moral turpitude.
13. SUCCESSORS AND ASSIGNEES
<PAGE> 10
This Agreement shall not be assignable by BEST and shall enure to the
benefit of and be binding upon him and REEBOK, its successors and assignees.
14. WAIVER
The waiver of the breach of any term or provision of this Agreement shall
not operate as or be construed to be a waiver of any other or subsequent breach
of this Agreement.
15. GOVERNING LAW AND JURISDICTION
This Agreement shall be construed and enforced in accordance with the laws
of the Netherlands. The parties have agreed that the courts of the Netherlands
shall have exclusive jurisdiction over any claims arising hereunder.
/s/ M L STEPHENS /s/ ROGER BEST
By: M L Stephens By: Roger Best
Director
Reebok Europe BV
<PAGE> 1
EXHIBIT 10.32
NON-COMPETITION AGREEMENT
This Agreement ("Agreement") is entered into on this _______ day of
____________, 1997, between Reebok International Ltd. ("Reebok") and
_____________________("you") .
WHEREAS, you have been made aware of or may hereafter be made aware of
highly confidential and sensitive information owned or controlled by Reebok, and
WHEREAS, Reebok desires to protect its highly confidential and sensitive
information from use by or disclosure to parties other than Reebok;
In consideration of the mutual promises contained herein, the parties
agree as follows:
I. NON-COMPETITION
A. During Term of Employment.
You agree that while employed by Reebok, you will not, directly or
indirectly, own, manage, operate, control, invest in, make loans or advances to,
be employed by, act as an officer, director, agent or consultant for, or be in
any other way connected with, any enterprise anywhere in the world which is
engaged in the athletic footwear business, athletic apparel business, or any
other business which competes with Reebok or any of its subsidiaries or
affiliates (the "Non-Competition Requirement").
B. After Termination of Employment.
(1) In the event that you terminate your employment with Reebok for any
reason or if Reebok terminates your employment, Reebok will have the right, in
its sole discretion, to extend the duration of the Non-Competition Requirement
described in Section I.A. for a period of up to one (1) year after termination
by providing written notice to you within fourteen (14) days after your
effective date of termination. The written notice will specify the length of
time that Reebok desires to extend the Non- Competition Requirement. Except as
otherwise provided in this Agreement, Reebok will provide you with the following
benefits for the Non-Competition period specified in Reebok's written notice:
(a) Reebok will pay to you an amount equal to one-half (1/2) of your base salary
as of the date of your termination in accordance with Reebok's customary pay
practices in effect at the time each payment is made; and (b) you will be able
to keep your pre-existing medical coverage in effect, and Reebok will continue
the contributions it had previously made towards your medical coverage;
provided, however, that if Reebok terminates your employment without "cause" (as
hereinafter defined), you shall be entitled under clause (a) above to 100% of
your base salary as of the date of termination, which amount shall be reduced by
the
<PAGE> 2
amount of any severance you receive from Reebok. Reebok has the option, for
whatever reason, to elect to waive all or any portion of the Non-Competition
period by giving you written notice of such election at least thirty (30) days
in advance. In such event, Reebok shall not be obligated to pay you the benefits
specified above for any period for which the Non-Competition Requirement has
been waived.
(2) You agree that for a period of one (1) year following the date of
termination of your employment at Reebok, you will inform Reebok, prior to the
acceptance of any job or any work as an independent contractor, of the identity
of any new employer or other entity to which you are providing consulting or
other services, along with your starting date, title, job description and any
other information which Reebok may reasonably request to confirm your compliance
with the terms of this Agreement.
(3) For the purposes of this Agreement, "cause" will be determined by
Reebok in its discretion, and will include, but not be limited to, any acts,
which in Reebok's opinion constitute (i) insubordination; (ii) dishonesty; (iii)
something which would bring you into public disrepute, scandal or ridicule, tend
to shock the moral conscience or reflect unfavorably upon Reebok or any of its
products; (iv) a violation of your Reebok Employee Agreement (copy attached) or
(v) a continual and repeated neglect of any other of your duties.
II. NON-RECRUITMENT
You agree that while employed by Reebok, and for a period of one (1) year
following the termination of your employment with Reebok (regardless of who
initiated the termination and the circumstances of the termination), you will
not solicit, hire, attempt to hire, or assist in the hiring of any employee of
Reebok or any of its subsidiaries or affiliates, or otherwise persuade or
attempt to persuade any such employee to discontinue his/her employment
relationship with Reebok or any of its subsidiaries or affiliates. This
requirement is independent of the Non-Competition Requirement set forth in
Section I of this Agreement and is not dependent on pay or benefit continuation
of any kind.
III. GENERAL
A. In the event that you violate Section I or Section II of this
Agreement, the time period during which that Section remains in effect will be
extended during the time that you are in breach.
B. It is acknowledged that the provisions of this Agreement are reasonable
and a condition of your employment by Reebok. However, should any provision of
this Agreement be found unreasonable or invalid by any court of competent
jurisdiction, the parties agree to accept, in its stead, any lesser
<PAGE> 3
restrictions which the court deems reasonable. In the event of your breach of
this Agreement, it is agreed that Reebok may cease making payments to you under
this Agreement and that you will be obligated to refund to Reebok all payments
made to you or on your behalf under this Agreement. In addition, you agree that
the remedy at law for any breach of the provisions of this Agreement will be
inadequate and that, in the event of breach, Reebok will be entitled to
injunctive relief in addition to any other remedy it may have.
C. This Agreement supplements, and does not supersede, your Reebok
Employee Agreement. This Agreement will be construed under and governed by the
laws of the Commonwealth of Massachusetts. The Massachusetts courts (state and
federal) will have exclusive jurisdiction of any controversy between you and
Reebok, and no court action may be brought by either party against the other
outside of Massachusetts. This Agreement does not create an obligation on the
part of Reebok or any other person to continue your employment. This Agreement
may not be modified or amended except by a written amendment signed by you and
an authorized officer of Reebok. A breach of any provision of this Agreement may
only be waived by an authorized officer of Reebok and such a waiver will not be
construed as a waiver of any later breach.
Accepted by: Agreed to:
Reebok International Ltd.
By:______________________ ________________________
Signature Signature of Employee
_________________________ ________________________
Title Employee's Typed or Printed Name
_________________________ Dated: _________________
Date
<PAGE> 1
EXHIBIT 12
REEBOK INTERNATIONAL LTD.
(Amounts in Thousands)
Exhibit 12 -- Statement Re: Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
December December
1997 1996
-------- --------
<S> <C> <C>
Earnings
Pretax Income ............................. $147,609 $223,033
Add:
Interest on indebtedness ................ 64,365 42,246
Amortization of debt discount and
issuance costs ........................ 399 394
Interest on Letters of Credit included
in cost of goods sold .................
Portions of rent representative of
the interest factor ................... 15,123 15,424
-------- --------
Income as adjusted ...................... $227,496 $281,097
======== ========
Fixed Charges
Interest on indebtedness ................ $ 64,365 $ 42,246
Amortization of debt discount and
issuance costs ........................ 399 394
Interest on Letters of Credit included
in cost of goods sold .................
Portions of rent representative of
the interest factor ................... 15,123 15,424
-------- --------
Fixed charges ............................. $ 79,887 $ 58,064
======== ========
Ratio of earnings to fixed charges ........ 2.85 4.84
</TABLE>
<PAGE> 1
EXHIBIT 13.1
FINANCIAL RESULTS AND CORPORATE INFORMATION
<TABLE>
<S> <C>
FINANCIAL DATA
SELECTED FINANCIAL DATA 19
QUARTERLY RESULTS OF OPERATIONS 38
MD&A
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION 20
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 25
CONSOLIDATED STATEMENTS OF INCOME 26
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY 27
CONSOLIDATED STATEMENTS OF CASH FLOWS 28
NOTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 29
REPORTS
REPORT OF INDEPENDENT AUDITORS 37
REPORT OF MANAGEMENT 37
CORPORATE INFORMATION
DIRECTORS AND OFFICERS 39
SHAREHOLDER INFORMATION 40
</TABLE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993
=====================================================================================================
<S> <C> <C> <C> <C> <C>
Net sales $3,643,599 $3,478,604 $3,481,450 $3,280,418 $2,893,900
Income before income taxes
and minority interest 158,085 237,668 275,974 417,368 371,508
Net income 135,119 138,950 164,798 254,478 223,415
Basic earnings per share 2.41 2.06 2.10 3.09 2.58
Diluted earnings per share 2.32 2.03 2.07 3.02 2.53
Cash dividends per common share -- .225 .300 .300 .300
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995 1994 1993
=====================================================================================================
<S> <C> <C> <C> <C> <C>
Working capital $ 887,367 $ 946,127 $ 900,922 $ 831,856 $ 730,757
Total assets 1,756,097 1,786,184 1,651,619 1,649,461 1,391,711
Long-term debt 639,355 854,099 254,178 131,799 134,207
Stockholders' equity 507,157 381,234 895,289 990,505 846,617
------------------------------------------------------------------
</TABLE>
The earnings per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." For further discussion regarding the calculation of earnings per share,
see Note 1 to the Consolidated Financial Statements.
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. 1997 results include an
income tax benefit of $40,000 related to the conclusion in 1997 of outstanding
tax matters associated with the sale of Avia. 1997 also includes total special
after-tax charges of $39,161 relating to restructuring activities in the
Company's global operations.
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.
REEBOK INTERNATIONAL LTD. 19
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM 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. 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 INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AND
THOSE DESCRIBED IN THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-K UNDER THE
HEADING "ISSUES AND UNCERTAINTIES".
OPERATING RESULTS 1997
Net sales for the year ended December 31, 1997 were $3.644 billion, a 4.7%
increase from the year ended December 31, 1996 sales of $3.479 billion, which
included $49.4 million of sales from the Company's Avia subsidiary that was sold
in June 1996. The Reebok Division's worldwide sales (including Greg Norman) were
$3.131 billion in 1997, a 5.0% increase from comparable sales of $2.982 billion
in 1996. The stronger U.S. dollar has adversely impacted Reebok Brand worldwide
sales comparisons with the prior year. On a constant dollar basis, sales for the
Reebok Brand worldwide increased 8.3% in 1997 as compared to 1996. The Reebok
Division's U.S. footwear sales increased 3.0% to $1.229 billion in 1997 from
$1.193 billion in 1996. The increase in the Reebok Division's U.S. footwear
sales is attributed primarily to increases in the running, walking and men's
cross-training categories. The increase in sales in these categories was
partially offset by decreases in Reebok's basketball, outdoor and women's
fitness categories. The underlying quality of Reebok footwear sales in the U.S.
improved from last year. Sales to athletic specialty accounts increased
approximately 31%, and the amount of off-price sales declined from 7.6% of total
Reebok footwear sales in 1996 to 3.2% of total Reebok footwear sales in 1997.
The Reebok Division's U.S. apparel sales increased by 37.2% to $431.9 million
from $314.9 million in 1996. The increase resulted primarily from increases in
branded core basics, licensed and graphic categories. The Reebok Division's
International sales (including footwear and apparel) were $1.471 billion in
1997, approximately equal to the Division's International sales in 1996 of
$1.474 billion. The International sales comparison was negatively impacted by
changes in foreign currency exchange rates. On a constant dollar basis, for the
year ended December 31, 1997, the International sales gain was 6.4%. All
International regions generated sales increases over the prior year on a
constant dollar basis. For International sales, increases in the running,
classic and walking categories were offset by decreases in the basketball and
tennis categories. Generally in the industry there is a slowdown in branded
athletic footwear and apparel at retail, and there is a significant amount of
promotional product offered across all distribution channels. As a result of
this situation and the expected ongoing negative impact from currency
fluctuations, it will be difficult to increase reported sales for the Reebok
Brand in 1998.
Rockport's sales for 1997 increased by 14.5% to $512.5 million from $447.6
million in 1996. Exclusive of the Ralph Lauren footwear business, which was
acquired in May 1996, Rockport's sales increased 7.3% in 1997. International
revenues, which grew by 46.0%, accounted for approximately 21.0% of Rockport's
sales (excluding Ralph Lauren Footwear) in 1997, as compared to 16.0% in 1996.
Increased sales in the walking and men's categories were partially offset by
decreased sales in the women's lifestyle category. The decrease in the women's
lifestyle category was the result of a strategic initiative to re-focus the
women's business around an outdoor, adventure and travel positioning and reduce
the product offerings in the refined women's dress shoe segment. Rockport
continues to attract younger customers to the brand with the introduction of a
wider selection of dress and casual products. The Ralph Lauren footwear business
performed well in 1997 and is beginning to generate sales growth in its
traditional segments, reflecting the benefits of improved product design and
development and increased distribution. Rockport plans to expand the current
product line of Ralph Lauren Polo Sport athletic footwear during 1998 with
additional products which will be available at retail during 1999.
The Company's gross margin declined from 38.4% in 1996 to 37.0% in 1997.
Margins are being negatively impacted by both start-up costs and initially
higher manufacturing costs on the Company's new technology products (DMX 2000
and 3D Ultralite). In addition, the decline reflects a significant impact from
currency fluctuations as a result of the stronger U.S. dollar and a decrease in
full-margin at-once business as a result of an over-inventoried promotional
retail environment. The Company estimates that 100 basis points of the margin
decline is due to currency. Looking forward, the Company expects margins to
continue to be under pressure through at least the first half of 1998. However,
the Company believes that if the technology product line expands and gains
greater critical mass and with improving production capabilities, the new
technology products are capable of generating margin improvement.
Selling, general and administrative expenses decreased as a percentage of
sales from 30.6% in 1996 to 29.4% in 1997. The reduction is primarily due to the
absence of certain advertising and marketing expenses associated with the 1996
Summer Olympics. In addition, non-brand building general and administrative
infrastructure expenses declined. Research, design and development expenses
increased 27.0% for the year and retail operating expenses increased in support
of new store openings. At December 31, 1997, the Company operated 157 Reebok,
Rockport and Greg Norman retail stores in the U.S. as compared to 141 at the end
of 1996.
As described in Note 2 to the Consolidated Financial Statements, the
Company recorded special pre-tax charges of $58.2 million relating to
restructuring activities in the Company's global operations. The restructuring
should enable the Company to achieve operating efficiencies, including improved
inventory management, credit management, purchasing power and customer service
and should provide the organization with access to a single global data base of
company, supplier and customer information. The restruc-
20 REEBOK INTERNATIONAL LTD.
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
turing initiatives should also improve logistics, allow the Company to focus its
spending on those key athletes and teams who are more closely aligned with its
brand positioning and produce cost savings once completed during 1999.
Interest expense increased as a result of the additional debt the Company
incurred to finance the shares acquired during the 1996 Dutch Auction share
repurchase.
As described in Note 14 to the Consolidated Financial Statements, the
Internal Revenue Service notified the Company in August 1997 that it had
approved the Company's tax treatment of certain losses related to the sale of
its Avia subsidiary. Accordingly, the Company recorded a tax benefit in the
quarter ended September 30, 1997 totaling $40.0 million. Excluding the favorable
impact of this special income tax credit, the Company's effective tax rate was
33.2% in 1997, as compared with 35.4% in 1996. The decrease in the rate is
attributable to a change in the mix of the earnings between domestic and
international subsidiaries. The Company expects its effective tax rate in 1998
to be further reduced to 31.0% - 32.0% as a result of the change in geographic
mix of earnings and ongoing efforts to improve cash flow through various tax
planning initiatives.
The $10.5 million increase in other expense in 1997 relates primarily to
currency losses due to the stronger U.S. dollar.
Year-to-year earnings per share comparisons benefited from the Company's
share repurchase programs including the Dutch Auction share repurchase which was
completed in August 1996. Weighted average common shares outstanding (dilutive)
for the year ended December 31, 1997 declined by 15.0% to 58.3 million shares,
as compared to 68.6 million shares for the year ended December 31, 1996.
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 its
foreign policy. Further debate on these issues is expected to continue in 1998.
However, the Company does not currently anticipate that restrictions on imports
from China will be imposed by the U.S. during 1998. 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. This exemption does not, however, cover most of
Rockport's products. Nevertheless, the volume of quota available to Reebok and
Rockport in 1998 is expected to be sufficient to meet the anticipated sales for
ROCKPORT products in EU member countries. If, however, such quota is not
sufficient, there could be an adverse effect on Rockport's international sales.
In addition, the EU has imposed antidumping duties against certain textile
upper footwear from China and Indonesia. A broad exemption from the dumping
duties is provided for athletic textile footwear which covers most REEBOK
models. If the athletic footwear exemption remains in its current form, few
REEBOK product lines will be affected by the duties; however, ROCKPORT products
would be subject to these duties. Nevertheless, the Company believes that those
REEBOK and ROCKPORT products affected by the duties can generally be sourced
from other countries not subject to such duties. If, however, the Company was
unable to implement such alternative sourcing arrangements, certain of its
product lines could be adversely affected by these duties.
The EU also has imposed antidumping duties on certain leather upper
footwear from China, Thailand and Indonesia. These duties will apply only to low
cost footwear, below the import prices of most Reebok and Rockport products.
Thus the Company does not anticipate that its products will be impacted by such
duties.
The EU continues to review the athletic footwear exemption which applies
to both the quota scheme and antidumping duties discussed above. The Company,
through relevant trade associations, is working to prevent imposition of a more
limited athletic footwear exemption. Should revisions be adopted narrowing such
exemption, certain of the Company's product lines could 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 or are considering steps to restrict
footwear imports or impose additional customs duties or other impediments, 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.
REEBOK INTERNATIONAL LTD. 21
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 their International sales was 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 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 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 is expected 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 16% 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 includes 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, 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 (dilutive) for the year
ended December 31, 1996 declined to 68.6 million, compared to 79.5 million
shares for the year ended December 31, 1995.
REEBOK BRAND BACKLOG
The Reebok Brand backlog (including Greg Norman apparel) of open customer orders
for the period January 1, 1998 through June 30, 1998 was essentially flat as
compared to the same period last year. On a constant dollar basis, the Reebok
Brand back-
22 REEBOK INTERNATIONAL LTD.
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
log increased 3.4%. North American backlog for the Reebok Brand, which includes
the U.S. and Canada, increased 2.8% and the International backlog decreased
5.7%. On a constant dollar basis, the International backlog increased 4.4%.
Reebok U.S. footwear backlog increased 2.1% and Reebok U.S. apparel backlog
(including Greg Norman apparel) decreased 1.7% as compared to the same period
last year. Management believes the slowdown in the Reebok Division's domestic
footwear and apparel bookings is the result of retailers becoming more cautious
in placing future orders, given current market conditions. The Company continues
to see improvement in the shape of the Reebok Brand U.S. footwear order book,
with athletic specialty backlog up 57% for the next six months and the volume
channel down 11%. The percentage changes in open backlog are not necessarily
indicative of future sales trends. The reasons for this are that many orders are
cancelable, sales by company-owned retail stores can vary from year-to-year and
the ratio of orders booked early to at-once shipments can vary from period to
period. For example, the percentage of Reebok U.S. footwear futures to total
Reebok U.S. footwear sales was approximately 87% in 1997 as compared to 78% in
1996.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's financial position remains strong. Working capital was $887.4
million at December 31, 1997 and $946.1 million at December 31, 1996. The
current ratio at December 31, 1997 was 2.5 to 1 compared to 2.8 to 1 at December
31, 1996. The decline in the current ratio is primarily the result of the
medium-term notes of $50.0 million due in 1998, which were previously classified
as long-term debt, being classified as a current liability at December 31, 1997
and the pre-payment of $100.0 million of long-term debt during 1997.
Accounts receivable decreased by $28.8 million from December 31, 1996, a
decrease of 4.8%. This is the result of the Reebok Division reducing the average
days sales outstanding in U.S. receivables by 7 days as compared to last year
end. Inventory increased by $19.2 million, or 3.5% from December 31, 1996. U.S.
footwear inventories of the Reebok Brand increased 24% at year end in dollars
versus a year ago but only 5% in pairs, reflecting higher average per unit costs
due to the inclusion of a greater percentage of technology products and a
greater percentage of on-time delivery from the Far East factories as they began
to catch up with demand, given the general slowdown in the industry. Reebok U.S.
apparel inventories were down 23.7% and Reebok retail outlet inventories were
down 12% despite adding ten additional stores over the course of the year and
achieving same store sales increases of 7.3% in 1997.
During the year ended December 31, 1997, cash and cash equivalents
decreased $22.6 million and outstanding borrowings decreased by $138.7 million.
The Company elected to make pre-payments of $50.0 million in February 1997 and
$50.0 million in May 1997 on its long-term debt facility used to fund the Dutch
Auction share repurchase in August 1996. Cash provided by operations during 1997
was $126.9 million, as compared to cash provided by operations of $280.3 million
during 1996. The change in operating cash flow year-to-year is attributable to
improved inventory management practices which had a significant impact in
reducing 1996 inventory levels from the prior year thereby generating
significant cash in that year. 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 1998 cash requirements.
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, future events that might have the effect of
reducing the Company's available cash balances (such as unexpected operating
losses or increased capital or other expenditures), as well as future events
that might reduce or eliminate the availability of external financial resources.
As a result of the current industry conditions and the Company's near-term
business outlook, the Company has announced plans to further restructure its
operations in order to manage its business more efficiently in the near-term.
Key initiatives will include simplifying and flattening the organizational
structure by eliminating management layers, combining and redefining business
units and centralizing operations. The intention is to focus the business on
fewer near-term opportunities, postpone certain longer-term investments, and
simplify the process flows to gain greater efficiencies. As a result of this
effort, the Company expects to take a special charge in the first quarter of
1998 of between $25 million to $35 million on a pre-tax basis. The on-going
effect of the restructuring will be to reduce operating costs to a level more
commensurate with the anticipated short-term business outlook.
The Company has conducted a comprehensive global review of its computer
systems to identify the systems that could be affected by the "Year 2000" issue
and has developed an implementation plan to address the issue. During 1997, the
Company started its global implementation of SAP software which will replace
substantially all legacy systems. The Company presently believes that, with
modifications to existing software and converting to SAP software, the year 2000
issue will not pose significant operational problems for the Company's computer
systems as so modified and converted. The Company expects the global
implementation of SAP to be substantially completed by 1999 and the
implementation is currently on schedule. However, if such modifications and
conversions are not completed timely or effectively, the year 2000 problem could
have a material impact on the operations of the Company.
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.
REEBOK INTERNATIONAL LTD. 23
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 losses realized from settlements of transactions included
in net income for the year ended December 31, 1997 were $8.1 million. Realized
gains and losses from settlements of transactions for the years ended December
31, 1996 and 1995 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, 1997, the Company had forward currency exchange contracts
and options, all having maturities of less than one year, with a notional amount
aggregating $357.9 million. The contracts involved twelve different foreign
currencies. No single currency represented more than 20% of the aggregate
notional amount. The notional amount of the contracts intended to hedge
merchandise purchases was $165.3 million. Deferred gains (losses) on these
contracts were not material at December 31, 1997 and 1996.
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, 1997, the notional amount of interest rate swaps outstanding was $245.0
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 high credit 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.
24 REEBOK INTERNATIONAL LTD.
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA
<TABLE>
<CAPTION>
DECEMBER 31 1997 1996
================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 209,766 $ 232,365
Accounts receivable, net of allowance for
doubtful accounts (1997, $44,003; 1996, $43,527) 561,729 590,504
Inventory 563,735 544,522
Deferred income taxes 75,186 69,422
Prepaid expenses and other current assets 54,404 26,275
---------------------------
Total current assets 1,464,820 1,463,088
---------------------------
Property and equipment, net 156,959 185,292
NON-CURRENT ASSETS:
Intangibles, net of amortization 65,784 69,700
Deferred income taxes 19,371 7,850
Other 49,163 60,254
---------------------------
134,318 137,804
---------------------------
Total Assets $ 1,756,097 $ 1,786,184
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ 40,665 $ 32,977
Current portion of long-term debt 121,000 52,684
Accounts payable 192,142 196,368
Accrued expenses 219,386 169,344
Income taxes payable 4,260 65,588
---------------------------
Total current liabilities 577,453 516,961
---------------------------
Long-term debt, net of current portion 639,355 854,099
Minority interest 32,132 33,890
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; authorized 250,000,000 shares;
issued 93,115,835 shares in 1997, 92,556,295 shares in 1996 931 926
Retained earnings 1,145,271 992,563
Less 36,716,227 shares in treasury at cost (617,620) (617,620)
Unearned compensation (140) (283)
Foreign currency translation adjustment (21,285) 5,648
---------------------------
507,157 381,234
---------------------------
Total Liabilities and Stockholders' Equity $ 1,756,097 $ 1,786,184
===========================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
REEBOK INTERNATIONAL LTD. 25
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1997 1996 1995
===============================================================================================
<S> <C> <C> <C>
Net sales $ 3,643,599 $ 3,478,604 $ 3,481,450
Other income (expense) (6,158) 4,325 3,126
-------------------------------------------
3,637,441 3,482,929 3,484,576
-------------------------------------------
COSTS AND EXPENSES:
Cost of sales 2,294,049 2,144,422 2,114,084
Selling, general and administrative expenses 1,069,433 1,065,792 999,731
Special charges 58,161 72,098
Amortization of intangibles 4,157 3,410 4,067
Interest expense 64,366 42,246 25,725
Interest income (10,810) (10,609) (7,103)
-------------------------------------------
3,479,356 3,245,261 3,208,602
-------------------------------------------
Income before income taxes and minority interest 158,085 237,668 275,974
Income taxes 12,490 84,083 99,753
-------------------------------------------
Income before minority interest 145,595 153,585 176,221
Minority interest 10,476 14,635 11,423
-------------------------------------------
Net income $ 135,119 $ 138,950 $ 164,798
===========================================
Basic earnings per share $ 2.41 $ 2.06 $ 2.10
===========================================
Diluted earnings per share $ 2.32 $ 2.03 $ 2.07
===========================================
Dividends per common share $ -- $ 0.225 $ 0.300
===========================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
26 REEBOK INTERNATIONAL LTD.
<PAGE> 9
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DOLLAR AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
---------------------------------------------------------------
Foreign
Common Stock Additional Currency
------------------------ Paid-in Retained Treasury Unearned Translation
Shares Par Value Capital Earnings Stock Compensation Adjustment
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 117,155,611 $1,172 $ 167,953 $1,428,058 $(603,241) $(2,598) $ (839)
------------------------------------------------------------------------------------------
Net income 164,798
Adjustment for foreign
currency translation 12,475
Issuance of shares to certain employees 43,545 1,558 (1,558)
Amortization of unearned compensation 1,008
Shares repurchased and retired (6,639,600) (66) (182,569) (42,835)
Shares retired (67,200) (1) (1,385) (554) 1,940
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) (1,208) 11,636
------------------------------------------------------------------------------------------
Net income 138,950
Adjustment for foreign
currency translation (5,988)
Treasury shares repurchased (14,379)
Issuance of shares to certain employees 43,278 1,505 (55)
Amortization of unearned compensation 292
Shares repurchased and retired (18,931,403) (190) (672,900) 688
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) (283) 5,648
------------------------------------------------------------------------------------------
Net income 135,119
Adjustment for foreign
currency translation (26,933)
Issuance of shares to certain employees 9,532 431 (431)
Amortization of unearned compensation 566
Shares repurchased and retired (313) 8
Shares issued under employee
stock purchase plans 151,210 1 4,362
Shares issued upon exercise
of stock options 399,111 4 10,040
Income tax reductions relating to
exercise of stock options 2,756
------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 93,115,835 $ 931 $ 0 $1,145,271 $(617,620) $ (140) $(21,285)
------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
REEBOK INTERNATIONAL LTD. 27
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
AMOUNTS IN THOUSANDS
<TABLE>
YEAR ENDED DECEMBER 31 1997 1996 1995
=====================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 135,119 $ 138,950 $ 164,798
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 47,423 42,927 39,579
Minority interest 10,476 14,635 11,423
Deferred income taxes (17,285) (6,333) (1,573)
Special charges 55,697 62,743
Changes in operating assets and liabilities, exclusive
of those arising from business acquisitions:
Accounts receivable (13,915) (107,082) 16,157
Inventory (47,937) 77,286 (29,531)
Prepaid expenses (28,613) 22,650 7,841
Other 24,458 11,042 (18,830)
Accounts payable and accrued expenses 20,759 67,769 (25,327)
Income taxes payable (59,257) 18,419 (55,553)
-------------------------------------
Total adjustments (8,194) 141,313 6,929
-------------------------------------
Net cash provided by operating activities 126,925 280,263 171,727
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments to acquire property and equipment (23,910) (29,999) (63,610)
Proceeds from business divestitures 6,887
-------------------------------------
Net cash used for investing activities (23,910) (23,112) (63,610)
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) of notes payable to banks 27,296 (36,947) 2,426
Proceeds from issuance of common stock to employees 17,163 13,362 11,216
Dividends paid (20,922) (23,679)
Repayments of long-term debt (156,966) (1,290) (112,445)
Net proceeds from long-term debt 632,108 230,000
Proceeds from premium on equity put options 717 3,233
Dividends to minority shareholders (3,900) (7,426) (2,885)
Repurchases of common stock (686,266) (225,470)
-------------------------------------
Net cash used for financing activities (116,407) (106,664) (117,604)
-------------------------------------
Effect of exchange rate changes on cash (9,207) 1,485 5,944
-------------------------------------
Net increase (decrease) in cash and cash equivalents (22,599) 151,972 (3,543)
Cash and cash equivalents at beginning of year 232,365 80,393 83,936
-------------------------------------
Cash and cash equivalents at end of year $ 209,766 $ 232,365 $ 80,393
-------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 59,683 $ 38,738 $ 23,962
Income taxes paid 115,985 77,213 152,690
-------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
28 REEBOK INTERNATIONAL LTD.
<PAGE> 11
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 and footwear under RALPH LAUREN and POLO SPORT.
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 $164,870, $201,584 and $157,573 for the years ended December 31,
1997, 1996 and 1995, respectively.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In 1996, the Company adopted Statement of Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("Statement 123"). As permitted by
Statement 123, the Company continues to account for its stock-based plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and provides pro forma disclosures of the compensation expense
determined under the fair value provisions of Statement 123.
CASH EQUIVALENTS
Cash equivalents are defined as highly liquid investments with maturities of
three months or less at date of purchase.
INVENTORY VALUATION
Inventory, substantially all finished goods, is recorded at the lower of cost
(first-in, first-out method) or market.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is computed principally
on the straight line method over the assets' estimated useful lives. Leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful lives of the assets.
INTANGIBLES
Excess purchase price over the fair value of assets acquired is amortized using
the straight line method over periods ranging from 5 to 40 years. Other
intangibles are amortized using the straight line method over periods ranging
from 3 to 40 years.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of most of the Company's foreign subsidiaries are
translated at current exchange rates. Revenues, costs and expenses are
translated at the average exchange rates for the period. Translation adjustments
resulting from changes in exchange rates are reported as a separate component of
stockholders' equity. Other foreign currency transaction gains and losses are
included in the determination of net income.
For those foreign subsidiaries operating in a highly inflationary economy
or having the U.S. dollar as their functional currency, net nonmonetary assets
are translated at historical rates and net monetary assets are translated at
current rates. Translation adjustments are included in the determination of net
income.
INCOME TAXES
The Company accounts for income taxes in accordance with FASB Statement No. 109,
"Accounting for Income Taxes" ("Statement 109"). Tax provisions and credits are
recorded at statutory rates for taxable items included in the consolidated
statements of income regardless of the period for which such items are reported
for tax purposes. Deferred income taxes are recognized for temporary differences
between financial statement and income tax bases of assets and liabilities.
NET INCOME PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" ("Statement 128"). Statement 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and have been restated, to conform to Statement 128 requirements.
RECENTLY ISSUED ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" ("Statement 130"). The Company will adopt the
provisions of Statement 130 during fiscal 1998. At that time, the Company will
be required to disclose comprehensive income. Comprehensive income is generally
defined as all changes in stockholders' equity exclusive of transactions with
owners such as capital investments and dividends.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("Statement 131"), which is required to be adopted for years beginning after
December 15, 1997. Management of the Company does not expect the adoption of
Statement 131 to have a material impact on the Company's financial statement
disclosures.
29
REEBOK INTERNATIONAL LTD.
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
RECLASSIFICATION
Certain amounts in prior years have been reclassified to conform to the 1997
presentation.
2
SPECIAL CHARGES
The financial results for 1997 include special pre-tax charges of $58,161
($39,200 after tax or $0.67 per diluted share) relating to restructuring
activities in the Company's global operations. The restructuring charge relates
to facilities consolidation and elimination, asset write-downs, personnel
related expenses and the termination or restructuring of certain underperforming
marketing contracts that no longer reflect the Company's brand positioning. The
restructuring activities include reducing the number of European warehouses from
19 to 3; establishing a shared services company that will centralize European
administrative operations; and implementing a global management information
system. The charge will cover certain one-time costs, of which approximately 70%
will affect cash. In connection with the plan, the Company may incur other
additional costs that are not recognizable at this time or cannot be reasonably
estimated. The components of the charge are as follows:
<TABLE>
<CAPTION>
1997 BALANCE
ORIGINAL UTILIZATION DEC. 31, 1997
-------- ----------- -------------
<S> <C> <C> <C>
Marketing
contracts $ 25,000 $ -- $ 25,000
Fixed asset
write-downs 16,500 (9,600) 6,900
Employee
retention and
severance 9,200 (800) 8,400
Termination
of leases 6,500 (700) 5,800
Other 961 -- 961
--------- ---------- ---------
$ 58,161 ($ 11,100) $ 47,061
========= ========== =========
</TABLE>
The fixed asset write-downs relate to assets that will be abandoned or
sold.
The restructuring should enable the Company to achieve operating
efficiencies, including improved inventory management, credit management,
purchasing power and customer service and should provide the organization with
access to a single global data base of company, supplier and customer
information. The restructuring initiative should also improve logistics, allow
the Company to focus its spending on those key athletes and teams who are more
closely aligned with its brand positioning and produce cost savings once
completed during 1999.
In 1995, the Company recorded a special pre-tax charge of $72,098 ($44,934
after tax or $0.56 per diluted share) principally related to the adjustment of
the carrying value of Avia to its estimated fair value on sale. Actual amounts
recorded in 1996 did not differ materially from the Company's estimates.
3
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. Concurrent with the Dutch Auction share repurchase, the
Company's Board of Directors elected to suspend subsequent declarations of
quarterly cash dividends on the Company's stock. Accordingly, the last dividend
declared was for shareholders of record as of September 11, 1996. Suspension of
the dividend will conserve substantial cash which the Company plans to utilize
to reduce debt incurred as a result of the share repurchase.
4
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
DECEMBER 31 1997 1996
- ----------- ---- ----
<S> <C> <C>
Land $ 9,037 $ 29,283
Buildings 75,380 75,044
Machinery and equipment 221,114 204,354
Leasehold improvements 48,663 48,757
---------- -----------
354,194 357,438
Less accumulated depreciation
and amortization 197,235 172,146
---------- -----------
$ 156,959 $ 185,292
========== ===========
</TABLE>
5
INTANGIBLES
INTANGIBLES CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
DECEMBER 31 1997 1996
- ----------- ---- ----
<S> <C> <C>
Excess of purchase price over
fair value of assets acquired
(net of accumulated
amortization of $8,098 in
1997 and $6,326 in 1996) $ 25,481 $ 27,696
Other intangible assets:
Purchased technology 52,827 52,827
Company tradename
and trademarks 47,254 49,092
Other 13,699 13,693
---------- -----------
113,780 115,612
Less accumulated amortization 73,477 73,608
---------- -----------
40,303 42,004
---------- -----------
$ 65,784 $ 69,700
========== ===========
</TABLE>
30
REEBOK INTERNATIONAL LTD.
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
6
SHORT-TERM BORROWINGS
The Company has various arrangements with numerous banks which provide an
aggregate of approximately $1,053,000 of uncommitted facilities, substantially
all of which are available to the Company's foreign subsidiaries. Of this
amount, $407,328 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 $317,718
was outstanding for open letters of credit for inventory purchases at December
31, 1997.
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
included a $750,000 revolving credit facility, expiring on August 31, 2002 which
replaced the Company's previous $300 million credit line. The balance of the
facility was a $640,000 six-year term loan (see Note 8).
On July 1, 1997, the Company amended and restated the credit agreement.
The amendment reduced the revolving credit portion of the facility from $750,000
to $400,000. 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, 1997
and 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. As
part of the amendment, the commitment fees the Company is required to pay on the
unused portion of the revolving credit facility as well as the borrowing margins
over the London Interbank Offer Rate on the used portion of the revolving credit
facility were reduced. The amendment further removed or relaxed various
covenants. All other material terms and conditions of the credit agreement
remained unchanged.
The Company utilizes a commercial paper program under which it can borrow
up to $200,000 for periods not to exceed 270 days. This program is supported, to
the extent available, by the unused portion of the $400,000 revolving credit
facility. At December 31, 1997, the Company had no commercial paper obligations
outstanding.
The weighted average interest rate on notes payable to banks was 7.1% and
5.5% at December 31, 1997 and 1996, 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 1998 and 2007. Minimum annual rentals under operating leases
for the five years subsequent to December 31, 1997 and in the aggregate are as
follows:
<TABLE>
<S> <C>
1998 $ 35,809
1999 30,196
2000 20,319
2001 12,268
2002 8,308
2003 and thereafter 15,756
-----------
Total minimum lease obligations $ 122,656
===========
</TABLE>
Total rent expense for all operating leases amounted to $45,827, $46,751
and $40,602 for the years ended December 31, 1997, 1996 and 1995, respectively.
8
LONG-TERM DEBT
LONG-TERM DEBT CONSISTS OF THE FOLLOWING:
<TABLE>
<CAPTION>
DECEMBER 31 1997 1996
- ----------- ---- ----
<S> <C> <C>
Variable Rate Term Loan due
August 31, 2002 with
interest payable quarterly $ 497,398 $ 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 98,953 98,803
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 14,004 17,980
----------- -----------
760,355 906,783
Less current portion 121,000 52,684
----------- -----------
$ 639,355 $ 854,099
=========== ===========
</TABLE>
31
REEBOK INTERNATIONAL LTD.
<PAGE> 14
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 3). 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 included
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. On July 1, 1997, the Company
amended and restated the credit agreement. This amendment left the remaining
portion of the six-year term loan of $522,398 (as of December 31, 1997) on
substantially the same payment schedule, after adjusting for the $100,000 in
optional prepayments made in 1997. The amendment also removed or relaxed
covenants pertaining to restrictions on asset acquisitions and sales, capital
expenditures, future indebtedness and investments and reduced the borrowing
margins charged by the banks on the variable rate term loan. All other material
terms and conditions of the credit agreement remain unchanged.
At December 31, 1997 and December 31, 1996, the effective rate of interest
on the variable term loan was approximately 6.19% and 6.20%, respectively. 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, 2002 are $121,000 in 1998, $95,576 in 1999, $185,000 in 2000, $110,000 in
2001 and $147,398 in 2002.
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 1997, 1996 and 1995 were $13,696, $11,755 and $11,644,
respectively.
10
STOCK PLANS
The Company has stock 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. 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 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 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.
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. Accordingly, no
options are outstanding at December 31, 1997 and 1996. During 1997, 1996 and
1995, respectively, 151,210, 157,134 and 161,377 shares were issued pursuant to
these plans.
In June 1990, the Company adopted a shareholders' rights plan and declared
a dividend distribution of one common stock purchase right ("Right") for each
share of common stock outstanding. Each Right entitles the holder to purchase
one share of the Company's common stock at a price of $60 per share, subject to
adjustment. The Rights will be exercisable only if a person or group of
affiliated or associated persons acquires beneficial ownership of 10% or more of
the outstanding shares of the Company's common stock or commences a tender or
exchange offer that would result in a person or group owning 10% or more of the
outstanding common stock, or in the event that the Company is subsequently
acquired in a merger or other business combination. When the Rights become
exercisable, each holder would have the right to purchase, at the then-current
exercise price, common stock of the surviving company having a market value of
two times the exercise price of the Right. The Company can redeem the Rights at
$.01 per Right at any time prior to expiration on June 14, 2000.
At December 31, 1997, 13,705,700 shares of common stock were reserved for
issuance under the Company's various stock plans and 70,105,308 shares were
reserved for issuance under the shareholders' rights plan.
32
REEBOK INTERNATIONAL LTD.
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
THE FOLLOWING SCHEDULE SUMMARIZES THE CHANGES IN STOCK OPTIONS DURING THE THREE
YEARS ENDED DECEMBER 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDER OPTION
-----------------------------
WEIGHTED
AVERAGE
NON-QUALIFIED OPTION EXERCISE
STOCK OPTIONS PRICE PER SHARE PRICE
------------- --------------- -----
<S> <C> <C> <C>
Outstanding at
December 31,
1994 5,879,575 $ 8.75 - $39.77 $ 22.83
Granted 1,361,502 28.75 - 36.75 34.90
Exercised (361,400) 8.75 - 33.25 16.75
Canceled (722,760) 11.38 - 39.77 30.57
---------- ----------------- ---------
Outstanding at
December 31,
1995 6,156,917 8.75 - $38.88 24.96
Granted 4,436,947 26.75 - 41.63 31.32
Exercised (272,153) 8.75 - 37.02 25.41
Canceled (406,005) 11.38 - 37.02 31.10
---------- ----------------- ---------
Outstanding at
December 31,
1996 9,915,706 8.75 - $41.63 27.54
Granted 1,205,704 33.75 - 49.25 35.51
Exercised (399,111) 8.75 - 36.75 25.72
Canceled (534,680) 24.00 - 41.63 33.14
---------- ----------------- ---------
Outstanding at
December 31,
1997 10,187,619 $ 10.63 - $49.25 $ 28.26
========== ======== ====== =========
</TABLE>
At December 31, 1997, the exercise prices for outstanding options ranged
from $10.63 - $49.25. Within that range, 2,771,254 options were outstanding
between $10.63 and $19.37. All of these options were exercisable at December 31,
1997. The weighted average exercise price and average remaining contractual life
of these options is $17.43 and 2.5 years, respectively. Additionally, 7,416,365
options were outstanding between $20.46 and $49.25. Included in this range are
1,552,954 options exercisable at a weighted average exercise price of $30.23.
The weighted average exercise price and average remaining contractual life of
these outstanding options is $32.33 and 8 years, respectively.
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, 1997, 1996 and 1995, options to purchase 4,324,208,
3,983,278 and 3,956,545 shares of common stock were exercisable, and 3,032,790,
1,225,051 and 3,369,311 shares, respectively, were available for future grants
under the Company's stock equity plans.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which requires that the information be determined as
if the Company has 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,
1996 and 1997, respectively: risk-free interest rates ranging from 5.2% to 7.7%;
dividend yields of .89%, .68% and .0%; volatility factors of the expected market
price of the Company's common stock of .27 in 1995 and 1996 and .35 in 1997; and
a weighted-average expected life of the option of 4.2 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.
THE COMPANY'S PRO FORMA INFORMATION FOLLOWS (IN THOUSANDS, EXCEPT FOR EARNINGS
PER SHARE INFORMATION):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Pro forma net
income $ 127,506 $ 134,017 $ 163,404
Pro forma basic
earnings
per share $ 2.31 $ 2.03 $ 2.09
Pro forma
diluted
earnings
per share $ 2.23 $ 2.00 $ 2.07
</TABLE>
The weighted average fair value of options granted in 1997, 1996 and 1995
is $13.09, $10.76 and $11.63, respectively.
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 2001.
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, 1997, the Company had
approximately $129,800 available for future repurchases of common stock under
these programs.
During 1996 and 1995, the Company issued equity put options as part of its
share repurchase program. These options provided the Company with an additional
source to supplement open market purchases of its common stock. At December 31,
1997 and 1996, no shares of outstanding common stock are subject to repurchase
under the terms and conditions of these options.
33
REEBOK INTERNATIONAL LTD.
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
12
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, Reebok completed the sale of substantially all of the
operating assets and business of its subsidiary, Avia Group International, Inc.
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 and options: the fair value of the Company's
foreign currency exchange contracts is estimated based on current foreign
exchange rates. Fair market value of interest rate swaps: the fair value of the
Company's interest rate swaps is estimated based on current interest rates.
THE CARRYING AMOUNTS AND FAIR VALUE OF THE COMPANY'S FINANCIAL INSTRUMENTS ARE
AS FOLLOWS:
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
--------------- ----------
DECEMBER 31 1997 1996 1997 1996
- ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Long-term debt $760,355 $ 906,783 $ 759,049 $881,372
Unrealized gains on
foreign currency
exchange contracts
and options 4,619 173 6,256 1,394
Interest rate swaps 0 0 344 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 losses realized from settlements of transactions included
in net income for the year ended December 31, 1997 were $8.1 million. Realized
gains and losses from settlements of transactions for the years ended December
31, 1996 and 1995 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, 1997, the Company had option and forward currency exchange
contracts, all having maturities of less than one year, with a notional amount
aggregating $357,913. The contracts involved 12 different foreign currencies. No
single currency represented more than 20% of the aggregate notional amount. The
notional amount of contracts intended to hedge merchandise purchases was
$165,324. Deferred gains (losses) on these contracts were not material at
December 31, 1997 and 1996.
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, 1997 and 1996, the notional amount of
interest rate swaps outstanding was $245,000 and $320,000, respectively. In
January 1998, the Company entered into additional interest rate swaps in the
amount of $150,000 with respect to the variable rate term loan.
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 high credit 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.
34
REEBOK INTERNATIONAL LTD.
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
14
INCOME TAXES
THE COMPONENTS OF INCOME BEFORE INCOME TAXES AND MINORITY INTEREST ARE AS
FOLLOWS:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Domestic $ (32,783) $ (12,720) $ 14,292
Foreign 190,868 250,388 261,682
---------- ----------- -----------
$ 158,085 $ 237,668 $ 275,974
========== =========== ===========
</TABLE>
THE PROVISION FOR INCOME TAXES CONSISTS OF THE FOLLOWING:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CURRENT:
Federal $ (34,314) $ 1,961 $ 3,998
State (324) 4,534 13,878
Foreign 64,413 83,921 83,450
---------- ----------- -----------
29,775 90,416 101,326
========== =========== ===========
DEFERRED:
Federal (8,940) (1,705) (1,594)
State (1,900) (689) (3,112)
Foreign (6,445) (3,939) 3,133
----------- ------------ -----------
(17,285) (6,333) (1,573)
----------- ------------ -----------
$ 12,490 $ 84,083 $ 99,753
=========== ============ ===========
</TABLE>
During 1992, the Company recorded a write-down in the carrying value of
its Avia subsidiary in the amount of $100,000 with no corresponding tax benefit
recognized in that year due to the uncertainty concerning the ultimate
deductibility of the charge. In June 1996, substantially all of the operating
assets and business of Avia were sold. After the sale, in December 1996, the
Company requested a pre-filing determination from the Internal Revenue Service
("IRS") regarding the deductibility of certain losses pertaining to the sale of
Avia. In August 1997, the IRS notified the Company that it had approved the
Company's tax treatment concerning the deductibility of the Avia losses and
accordingly, a corresponding reduction in income taxes totaling $40,000 was
recorded in the third quarter of 1997 and is reflected in the current federal
and state provisions.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $405,265, $517,309 and $410,402 at December 31, 1997, 1996 and
1995, respectively. Those earnings are considered to be indefinitely reinvested.
Upon distribution of those earnings in the form of dividends or otherwise, a
portion would be subject to both U.S. income taxes and foreign withholding
taxes, less an adjustment for applicable foreign tax credits. Determination of
the amount of U.S. income tax liability that would be incurred is not
practicable because of the complexities associated with its hypothetical
calculation; however, unrecognized foreign tax credits would be available to
reduce some portion of any U.S. income tax liability.
INCOME TAXES COMPUTED AT THE FEDERAL STATUTORY RATE DIFFER FROM AMOUNTS PROVIDED
AS FOLLOWS:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax at statutory
rate 35.0% 35.0% 35.0%
State taxes,
less federal
tax effect 1.5 1.7 2.7
Effect of tax
rates of foreign
subsidiaries and
joint ventures (4.3) (1.6) (2.0)
Tax benefit from
Avia losses (25.3)
Amortization of
intangibles 0.4 0.4 0.4
Other, net 0.6 (0.1) 0.1
---- ---- ----
Provision for
income taxes 7.9% 35.4% 36.2%
==== ==== ====
</TABLE>
Net 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 TAX ASSETS ARE ATTRIBUTABLE TO THE FOLLOWING TEMPORARY DIFFERENCES AT
<TABLE>
<CAPTION>
DECEMBER 31 1997 1996
- ----------- ---- ----
<S> <C> <C>
Inventory $ 30,238 $ 35,212
Accounts receivable 24,973 23,085
Liabilities 26,714 9,661
Depreciation 6,117 5,528
Other, net 6,515 3,786
--------- ---------
Total $ 94,557 $ 77,272
========= =========
</TABLE>
35
REEBOK INTERNATIONAL LTD.
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
15
EARNINGS PER SHARE
THE FOLLOWING TABLE SETS FORTH THE COMPUTATION OF BASIC AND DILUTED EARNINGS PER
SHARE:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NUMERATOR:
Net Income $ 135,119 $ 138,950 $ 164,798
---------- ----------- -----------
DENOMINATOR:
Denominator for
basic earnings
per share --
weighted-
average shares 56,162 67,370 78,317
Dilutive
employee
stock options 2,147 1,247 1,170
---------- ----------- -----------
Denominator for
diluted
earnings per
share --
adjusted
weighted-
average shares
and assumed
conversions 58,309 68,617 79,487
---------- ----------- -----------
Basic earnings
per share $ 2.41 $ 2.06 $ 2.10
---------- ----------- -----------
Diluted earnings
per share $ 2.32 $ 2.03 $ 2.07
========== =========== ===========
</TABLE>
16
OPERATIONS BY GEOGRAPHIC AREA
NET SALES TO UNAFFILIATED CUSTOMERS, NET INCOME AND IDENTIFIABLE ASSETS BY
GEOGRAPHIC AREA ARE SUMMARIZED BELOW:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET SALES:
United States $ 2,000,883 $ 1,935,724 $ 2,027,080
United Kingdom 661,358 566,196 492,843
Europe 510,981 623,209 642,622
Other countries 470,377 353,475 318,905
------------ ------------- ------------
$ 3,643,599 $ 3,478,604 $ 3,481,450
============ ============= ============
NET INCOME:
United States $ 83,894 $ 41,522 $ 52,314
United Kingdom 50,441 60,050 74,175
Europe (567) 21,854 28,138
Other countries 1,351 15,524 10,171
------------ ------------- ------------
$ 135,119 $ 138,950 $ 164,798
============ ============= ============
IDENTIFIABLE
ASSETS:
United States $ 938,027 $ 887,217 $ 813,935
United Kingdom 372,526 391,865 291,825
Europe 278,606 282,057 311,903
Other countries 166,938 225,045 233,956
------------ ------------- ------------
$ 1,756,097 $ 1,786,184 $ 1,651,619
============ ============= ============
</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. Sales or transfers between geographic areas are not
material.
17
CONTINGENCIES
The Company is involved in various legal proceedings generally incidental to its
business. These include a lawsuit filed by a former distributor in Brazil in
which the plaintiff has asserted a claim for damages in excess of $50,000. While
it is not feasible to predict or determine the outcome of these proceedings,
management does not believe that they should result in a materially adverse
effect on the Company's financial position, results of operations or liquidity.
36
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, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
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, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
- ---------------------
BOSTON, MASSACHUSETTS
FEBRUARY 2, 1998
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,
1997, 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, EXECUTIVE VICE PRESIDENT
PRESIDENT AND CHIEF AND CHIEF FINANCIAL OFFICER
EXECUTIVE OFFICER
37
REEBOK INTERNATIONAL LTD.
<PAGE> 20
QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 1997 QUARTER QUARTER QUARTER QUARTER
- ------------------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 930,041 $841,059 $1,009,053 $ 863,446
Gross profit 356,229 323,511 370,211 299,599
Net income 40,184 20,322 73,968 645
Basic earnings per share .72 .36 1.32 .01
Diluted earnings per share .69 .35 1.26 .01
--------- -------- ---------- ---------
YEAR ENDED DECEMBER 1996
- ------------------------
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
Basic earnings per share .65 .27 .76 .36
Diluted earnings per share .64 .27 .75 .35
Cash dividends per common share .075 .075 .075 .000
--------- -------- ---------- ---------
</TABLE>
Net income for the fourth quarter of 1997 includes a special charge of
$18,000 after taxes, or $0.31 per diluted share, for the restructuring of a
number of marketing contracts.
Net income for the third quarter of 1997 includes a tax credit of $40,000,
or $0.68 per diluted share, as well as a special charge of $21,161 after taxes,
or $0.36 per diluted share, for facilities consolidation and elimination, asset
adjustments and personnel-related expenses associated with global restructuring
activities.
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.
The earnings per share amounts are presented to comply with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." For further
discussion regarding the calculation of earnings per share, see Note 1 to the
Consolidated Financial Statements.
38
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.
M. KATHERINE DWYER
President
Revlon Consumer Products, USA
Revlon, Inc.
WILLIAM F. GLAVIN
President Emeritus
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
Reebok International Ltd.
President & Chief Executive Officer
Reebok Division
GEOFFERY NUNES
Retired Senior Vice President & General Counsel
Millipore Corporation
CORPORATE OFFICERS
PAUL FIREMAN
Chairman, President & Chief Executive Officer
PAUL R. DUNCAN
Executive Vice President
ANGEL R. MARTINEZ
Executive Vice President
President & Chief Executive Officer
The Rockport Company, Inc.
ROBERT MEERS
Executive Vice President
President & Chief Executive Officer
Reebok Division
KENNETH WATCHMAKER
Executive Vice President
Chief Financial Officer
BARRY NAGLER
Senior Vice President
General Counsel
LEO S. VANNONI
Treasurer
39
REEBOK INTERNATIONAL LTD.
<PAGE> 22
SHAREHOLDER INFORMATION
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
TRANSFER AGENT AND REGISTRAR
BankBoston, N.A. 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 as well as old and new information about the
account.
BankBoston, N.A.
c/o Boston EquiServe
Post Office Box 8040
Boston, MA 02266-8040
Phone: (781) 575-3400
Facsimile: (781) 828-8813
Toll-free number outside Massachusetts: (800) 733-5001
http://www.equiserve.com
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
Tuesday, May 5, 1998 at BankBoston, Second Floor Long Lane Conference Room, 100
Federal Street, Boston, Massachusetts.
Shareholders of record on March 11, 1998 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 sales prices during 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First 52 7/8 40 5/8 31 3/8 25 3/8
Second 49 7/8 37 1/8 33 3/4 26
Third 52 1/4 43 5/8 36 7/8 29 1/4
Fourth 49 1/2 27 5/8 45 1/4 32 1/2
</TABLE>
The number of record holders of the Company's common stock at February 20, 1998
was 7,050.
REEBOK, the Vector Logo [REEBOK LOGO], THE PUMP, DMX, the Human Rights Logo and
HEXALITE are registered trademarks, and HYDROMOVE, ATTACK LIFE, PRO FUNCTION and
3D ULTRALITE are trademarks of Reebok.
ROCKPORT is a registered trademark and UNCOMPROMISE is a trademark 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
Corporation.
(C)1998 Reebok International Ltd. All Rights Reserved.
[RECYCLE LOGO] Portions of this Annual Report are printed on recycled paper.
DESIGN: BELK MIGNOGNA ASSOCIATES, NEW YORK
PHOTOGRAPHY: (PAGES 1 - 5) DAVIES + STARR, (PAGES 14, 16) ROB HOWARD
QUOTE OPPOSITE PAGE 12: (C)1997 THE ECONOMIST NEWSPAPER GROUP, INC. REPRINTED
WITH PERMISSION. FURTHER REPRODUCTION PROHIBITED.
40
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
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
Rockport Mexico S.A. DE C.V. Mexico
Reebok Distribution B.V. The Netherlands
Reebok (Europe) B.V. The Netherlands
Reebok International Finance B.V. The Netherlands
Reebok Nederland B.V. The Netherlands
Rockport (Europe) B.V. The Netherlands
<PAGE> 3
EXHIBIT 21.1 - Page 3
SUBSIDIARIES OF REEBOK INTERNATIONAL LTD.
Jurisdiction of
Incorporation or
Name Organization
Rockport (Nederland) B.V. The Netherlands
Reebok (Philippines) Services Co., Inc. Philippines
Reebok Poland SA Poland
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
Subsidiary enterprise Reebok Ukraine Ukraine
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
<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 February 2, 1998, included in
the 1997 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
February 2, 1998, 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 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
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.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 209,766
<SECURITIES> 0
<RECEIVABLES> 605,132
<ALLOWANCES> 44,003
<INVENTORY> 563,735
<CURRENT-ASSETS> 1,464,820
<PP&E> 354,194
<DEPRECIATION> 197,235
<TOTAL-ASSETS> 1,756,097
<CURRENT-LIABILITIES> 577,453
<BONDS> 671,487
0
0
<COMMON> 931
<OTHER-SE> 506,226
<TOTAL-LIABILITY-AND-EQUITY> 1,756,097
<SALES> 3,643,599
<TOTAL-REVENUES> 3,637,441
<CGS> 2,294,049
<TOTAL-COSTS> 2,294,049
<OTHER-EXPENSES> 1,131,417
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,366
<INCOME-PRETAX> 147,609
<INCOME-TAX> 12,490
<INCOME-CONTINUING> 135,119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135,119
<EPS-PRIMARY> 2.41
<EPS-DILUTED> 2.32
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1997 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF
INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000770949
<NAME> REEBOK INTERNATIONAL LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 139,906
<SECURITIES> 0
<RECEIVABLES> 792,257
<ALLOWANCES> 47,597
<INVENTORY> 562,829
<CURRENT-ASSETS> 1,610,929
<PP&E> 363,611
<DEPRECIATION> 194,589
<TOTAL-ASSETS> 1,908,499
<CURRENT-LIABILITIES> 677,785
<BONDS> 721,832
0
0
<COMMON> 930
<OTHER-SE> 507,952
<TOTAL-LIABILITY-AND-EQUITY> 1,908,499
<SALES> 2,780,153
<TOTAL-REVENUES> 2,777,325
<CGS> 1,730,202
<TOTAL-COSTS> 1,730,202
<OTHER-EXPENSES> 851,573
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,526
<INCOME-PRETAX> 154,024
<INCOME-TAX> 19,550
<INCOME-CONTINUING> 134,474
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,474
<EPS-PRIMARY> 2.40
<EPS-DILUTED> 2.30
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000770949
<NAME> REEBOK INTERNATIONAL LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 122,307
<SECURITIES> 0
<RECEIVABLES> 708,251
<ALLOWANCES> 51,419
<INVENTORY> 580,933
<CURRENT-ASSETS> 1,470,817
<PP&E> 370,501
<DEPRECIATION> 187,705
<TOTAL-ASSETS> 1,785,378
<CURRENT-LIABILITIES> 578,788
<BONDS> 768,228
0
0
<COMMON> 929
<OTHER-SE> 438,362
<TOTAL-LIABILITY-AND-EQUITY> 1,785,378
<SALES> 1,771,100
<TOTAL-REVENUES> 1,771,413
<CGS> 1,091,360
<TOTAL-COSTS> 1,091,360
<OTHER-EXPENSES> 554,121
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,726
<INCOME-PRETAX> 98,206
<INCOME-TAX> 37,700
<INCOME-CONTINUING> 60,506
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,506
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT 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>
<RESTATED>
<CIK> 0000770949
<NAME> REEBOK INTERNATIONAL LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 174,617
<SECURITIES> 0
<RECEIVABLES> 775,223
<ALLOWANCES> 48,584
<INVENTORY> 518,101
<CURRENT-ASSETS> 1,521,921
<PP&E> 359,280
<DEPRECIATION> 178,039
<TOTAL-ASSETS> 1,835,698
<CURRENT-LIABILITIES> 644,533
<BONDS> 777,155
0
0
<COMMON> 928
<OTHER-SE> 413,082
<TOTAL-LIABILITY-AND-EQUITY> 1,835,698
<SALES> 930,041
<TOTAL-REVENUES> 931,137
<CGS> 573,182
<TOTAL-COSTS> 573,182
<OTHER-EXPENSES> 342,042
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,913
<INCOME-PRETAX> 65,884
<INCOME-TAX> 25,700
<INCOME-CONTINUING> 40,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,184
<EPS-PRIMARY> .72
<EPS-DILUTED> .69
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDUEL 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>
<RESTATED>
<CIK> 0000770949
<NAME> REEBOK 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> 357,438
<DEPRECIATION> 172,146
<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> 2.06
<EPS-DILUTED> 2.03
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1996 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF
INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000770949
<NAME> REEBOK INTERNATIONAL LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 143,899
<SECURITIES> 0
<RECEIVABLES> 771,798
<ALLOWANCES> 46,683
<INVENTORY> 540,807
<CURRENT-ASSETS> 1,496,830
<PP&E> 355,139
<DEPRECIATION> 167,104
<TOTAL-ASSETS> 1,831,352
<CURRENT-LIABILITIES> 574,161
<BONDS> 922,298
0
0
<COMMON> 917
<OTHER-SE> 333,976
<TOTAL-LIABILITY-AND-EQUITY> 1,831,352
<SALES> 2,690,575
<TOTAL-REVENUES> 2,692,250
<CGS> 1,646,645
<TOTAL-COSTS> 1,646,645
<OTHER-EXPENSES> 838,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,450
<INCOME-PRETAX> 190,755
<INCOME-TAX> 71,915
<INCOME-CONTINUING> 118,840
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 118,840
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.65
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1996 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000770949
<NAME> REEBOK INTERNATIONAL LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 109,062
<SECURITIES> 0
<RECEIVABLES> 703,957
<ALLOWANCES> 49,408
<INVENTORY> 607,080
<CURRENT-ASSETS> 1,470,703
<PP&E> 352,499
<DEPRECIATION> 160,566
<TOTAL-ASSETS> 1,796,094
<CURRENT-LIABILITIES> 579,234
<BONDS> 326,334
1,082
0
<COMMON> 0
<OTHER-SE> 889,444
<TOTAL-LIABILITY-AND-EQUITY> 1,810,929
<SALES> 1,720,495
<TOTAL-REVENUES> 1,722,023
<CGS> 1,057,095
<TOTAL-COSTS> 1,057,095
<OTHER-EXPENSES> 542,064
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,336
<INCOME-PRETAX> 109,528
<INCOME-TAX> 41,300
<INCOME-CONTINUING> 68,228
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,228
<EPS-PRIMARY> .93
<EPS-DILUTED> .92
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1996 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000770949
<NAME> REEBOK INTERNATIONAL LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 64,844
<SECURITIES> 0
<RECEIVABLES> 734,509
<ALLOWANCES> 50,513
<INVENTORY> 579,726
<CURRENT-ASSETS> 1,456,921
<PP&E> 340,343
<DEPRECIATION> 150,838
<TOTAL-ASSETS> 1,766,622
<CURRENT-LIABILITIES> 523,126
<BONDS> 341,568
1,086
0
<COMMON> 0
<OTHER-SE> 900,842
<TOTAL-LIABILITY-AND-EQUITY> 1,766,622
<SALES> 902,923
<TOTAL-REVENUES> 903,685
<CGS> 551,791
<TOTAL-COSTS> 551,791
<OTHER-EXPENSES> 267,654
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,528
<INCOME-PRETAX> 77,712
<INCOME-TAX> 29,297
<INCOME-CONTINUING> 48,415
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,415
<EPS-PRIMARY> .65
<EPS-DILUTED> .64
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1995 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000770949
<NAME> REEBOK INTERNATIONAL LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 80,393
<SECURITIES> 0
<RECEIVABLES> 552,964
<ALLOWANCES> 46,401
<INVENTORY> 635,012
<CURRENT-ASSETS> 1,332,870
<PP&E> 335,844
<DEPRECIATION> 143,811
<TOTAL-ASSETS> 1,651,619
<CURRENT-LIABILITIES> 431,948
<BONDS> 285,259
0
0
<COMMON> 1,096
<OTHER-SE> 894,193
<TOTAL-LIABILITY-AND-EQUITY> 1,651,619
<SALES> 3,481,450
<TOTAL-REVENUES> 3,484,576
<CGS> 2,114,084
<TOTAL-COSTS> 2,114,084
<OTHER-EXPENSES> 1,080,216
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,725
<INCOME-PRETAX> 264,551
<INCOME-TAX> 99,753
<INCOME-CONTINUING> 164,798
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164,798
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 2.07
</TABLE>
