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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, 2000
COMMISSION FILE NUMBER 1-9340
REEBOK INTERNATIONAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

MASSACHUSETTS 04-2678061
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

1895 J.W. FOSTER BOULEVARD, 02021
CANTON, MASSACHUSETTS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (781) 401-5000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------

COMMON STOCK, PAR VALUE, $.01 PER SHARE NEW YORK STOCK EXCHANGE
COMMON STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of March 16, 2001, the aggregate market value of the registrant's voting
stock held by non-affiliates of the registrant was approximately $1,167,580,167.

As of March 16, 2001, 58,500,829 shares of the registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE

Definitive Proxy Statement dated March 26, 2001 for the Annual Meeting of
Shareholders to be held on May 1, 2001 (certain parts as indicated herein in
Part III).
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REEBOK INTERNATIONAL LTD.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I
Item 1. Business.......................................... 1
General................................................ 1
THE REEBOK DIVISION....................................... 1
Technology............................................. 2
Marketing and Promotional Activities................... 3
U.S. Operations........................................ 6
International Operations............................... 7
Licensing.............................................. 8
Retail................................................. 9
THE ROCKPORT COMPANY...................................... 9
RALPH LAUREN BRAND........................................ 10
GREG NORMAN COLLECTION.................................... 11
MANUFACTURING............................................. 12
SOURCES OF SUPPLY......................................... 13
TRADE POLICY.............................................. 14
PRINCIPAL PRODUCTS........................................ 15
TRADEMARKS AND OTHER PROPRIETARY RIGHTS................... 15
WORKING CAPITAL ARRANGEMENTS.............................. 16
SEASONALITY............................................... 17
SINGLE CUSTOMER........................................... 17
BACKLOG................................................... 17
COMPETITION AND COMPETITORS............................... 17
ISSUES AND UNCERTAINTIES.................................. 18
Competition and Consumer Preferences................... 19
Inventory Risk......................................... 20
Sales Forecast......................................... 21
Pricing and Margins.................................... 21
Backlog................................................ 21
Advertising and Marketing Investment................... 22
Retail Operations...................................... 22
Timeliness of Product.................................. 22
International Sales and Production..................... 22
Sources of Supply...................................... 23
Risk Associated with Indebtedness...................... 23
Risk of Currency Fluctuations.......................... 24
Euro Conversion........................................ 24
Customers.............................................. 24
Intellectual Property.................................. 25

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Litigation............................................. 25
Economic Factors....................................... 25
Tax Rate Changes and Deferred Tax Assets............... 25
Global Restructuring Activities........................ 26
EMPLOYEES................................................. 27
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS............................................. 27
RESEARCH AND DEVELOPMENT.................................. 27
EXECUTIVE OFFICERS OF THE REGISTRANT...................... 27
Item 2. Properties........................................ 29
Item 3. Legal Proceedings................................. 30
Item 4. Submission of Matters to a Vote of Security
Holders................................................ 30
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................... 31
Item 6. Selected Financial Data........................... 31
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 32
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk............................................ 42
Item 8. Financial Statements and Supplementary Data....... 43
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 67
PART III
Item 10. Directors and Executive Officers of the
Registrant............................................. 67
Item 11. Executive Compensation........................... 67
Item 12. Security Ownership of Certain Beneficial Owners
and Management......................................... 67
Item 13. Certain Relationships and Related Transactions... 67
PART IV..................................................... 67
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.................................... 67

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PART I

This Annual Report on Form 10-K contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, including
statements with regard to Reebok's revenues, earnings, spending, margins, cash
flow, orders, inventory, products, actions, plans, strategies and objectives.
Forward-looking statements include, without limitation, any statement that may
predict, forecast, indicate or imply future results, performance or
achievements, and may contain the words "believe," "anticipate," "expect,"
"estimate," "intend," "plan," "project," "will be," "will continue," "will
result," "could," "may," "might," or any variations of such words or other words
with similar meanings. Any such statements are subject to risks and
uncertainties that could cause Reebok's actual results to 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. For a description
of such risks, see the section below entitled ISSUES AND UNCERTAINTIES.

ITEM 1. BUSINESS.

GENERAL

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.
Reebok has four major brand groups: (1) the Reebok Division, which is primarily
responsible for Reebok's REEBOK(R) brand; (2) The Rockport Company, LLC
(successor in interest to The Rockport Company, Inc.), a subsidiary of Reebok
("Rockport"), which is primarily responsible for the ROCKPORT(R) brand; (3)
Ralph Lauren Footwear Co., Inc., a subsidiary of Reebok ("Ralph Lauren
Footwear"), which is responsible for footwear sold under the RALPH LAUREN(R) and
POLO(R) brands; and (4) the Greg Norman Division, which is responsible for the
GREG NORMAN(R) brand. (Reebok International Ltd. is referred to herein, together
with its subsidiaries, as "Reebok" or "the Company" unless the context requires
otherwise.)

During calendar year 2000, net income for Reebok increased to $80.9
million, or $1.40 per diluted share from $11.0 million, or $.20 per diluted
share (inclusive of $39.4 million (after-tax) special charges in connection with
Reebok's global restructuring efforts and for Reebok's settlement of its lawsuit
with Supracor, Inc.) for the calendar year 1999. Net sales for Reebok decreased
by 1.2%, from $2.899 billion in 1999 to $2.865 billion in 2000.

THE REEBOK DIVISION

The Reebok Division designs, produces and markets sports, fitness and
casual footwear, apparel and accessories that combine the attributes of athletic
performance and style, as well as related sports and fitness products. The
Reebok Division's products include footwear for a variety of sports and fitness
categories, lifestyle footwear marketed under the Reebok Classic brand, and
sports and fitness apparel and accessories. The Reebok Division's products also
include footwear and apparel for children sold under both the REEBOK and
WEEBOK(R) brands. The Reebok Division continues to expand its product scope
through its strategic

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licensing program, pursuant to which Reebok's technologies and/or trademarks are
licensed to third parties for fitness equipment, sporting goods, accessories,
sports and fitness videos and related products and services.

The Reebok Division is structured into five strategic business units
("SBU's"), each of which has responsibility for the development and marketing of
particular REEBOK products in line with Reebok's overall brand strategy. The
SBU's are:

The Lifestyle Business Unit, which is responsible for Classic footwear and
children's footwear, including Reebok's Traxtar children's shoe, and other
lifestyle-oriented products;

The Sports Business Unit, which is responsible for Basketball,
Cross-Training, Running, Adventure/Outdoor, Soccer, U.S. Cleated Sports
(Football and Baseball), and Tennis;

The Fitness Business Unit, which is responsible for Walking and Women's
Fitness footwear categories;

The Apparel Business Unit, which is responsible for sports and fitness
apparel worldwide; and

The Retail Operations Business Unit, which is responsible for retail and
factory direct stores selling REEBOK, ROCKPORT and GREG NORMAN products as
well as certain RALPH LAUREN footwear products.

Since 1999 the Global Marketing Services Group of the Reebok Division has
added responsibility for the Reebok licensing business, which includes offerings
of both commercial and home REEBOK fitness equipment, related performance
enhancement sports and fitness products and accessories sold by licensees,
REEBOK UNIVERSITY(R) videos and programs and REEBOK Sports Clubs and infant and
toddler clothing and footwear sold under the REEBOK or WEEBOK brands.

During 2000, the Reebok Division focused its efforts on increasing the
fashion of its products by introducing new designs and collections, as well as
new technologies. The Reebok Division strives to broaden its customer base
beyond athletes, to include consumers of all ages who seek sports, fitness, and
lifestyle products that will help them lead healthier and happier lives. By
building upon its heritage and strengths in the women's fitness and lifestyle
categories, the Reebok Division's strong technology platform and its reputation
as an authentic performance brand, Reebok plans to offer products that appeal to
a broad segment of the marketplace.

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.

As part of its commitment to offer leading footwear technologies, the
Reebok Division engages in product research, development and design activities
in Reebok's Massachusetts headquarters, where it has a state-of-the-art product
development facility which is dedicated to the design and development of
technologically advanced athletic and fitness footwear. Reebok also has product
development centers in Korea, China and Taiwan to enable its development
activities to be more closely integrated with production.

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Reebok's most significant proprietary technology is its DMX(R) technology,
which provides superb cushioning utilizing a heel-to-forefoot, active airflow
system that delivers cushioning when and where it is needed. Originally
introduced in 1995, Reebok has enhanced and expanded this technology by
developing multiple versions of DMX to meet the performance demands of various
activities to take into account performance attributes, aesthetics, and price
among the various versions, which include: a six-pod system (the DMX(6)), a
ten-pod system (the DMX(10)), two two-pod systems (the DMX(2) and DMX(2x)), a
DMX sockliner, and the DMX "Stimpak." In late 2000, Reebok introduced the latest
iteration of its DMX technology with Viz-DMX, in both six- and ten-pod systems,
with pods that are exposed at the perimeter of the midsole and outsole, allowing
for a greater amount of compression and cushioning while maintaining stability.
Throughout 2000, Reebok continued to increase the range of products featuring
DMX technology with the introduction of numerous new shoe models. Reebok also
continued to incorporate 3D ULTRALITE, Reebok's proprietary material allowing
midsole and outsole to be combined in a single injection molded unit, in its
performance footwear. 3D ULTRALITE provides a unique blend of lightweight,
flexible, and durable properties.

During 2000, Reebok also introduced an enhanced version of its Traxtar shoe
for children, which utilizes "smart" technology to measure a wearer's athletic
performance and provides interactive feedback through a sound and light display
unit on the shoe's tongue. Reebok continues to develop this technology and
expects to introduce additional products, including those for adult use, during
2001.

Finally, Reebok has incorporated advanced technologies into certain of its
apparel products with its HYDROMOVE(R) moisture-management system. This
moisture-wicking technology help to keep athletes dry, and thereby facilitates
regulation of the wearer's body temperature. Performance apparel incorporating
the HYDROMOVE technology first became available at retail at the end of 1996,
and Reebok plans to expand the range of its apparel products incorporating
moisture-management technology going forward.

MARKETING AND PROMOTIONAL ACTIVITIES

The Reebok Division devotes significant resources to advertising its
products to a variety of audiences through television, radio, print and other
media and utilizes its relationships with major sports figures to maintain and
enhance visibility for the REEBOK brand. During 2000, Reebok's marketing
centered on a return to its heritage, re-focusing on the women's and fitness
markets and updating its Classic products, while continuing to promote its DMX
technology. Reebok's strategy involved a combination of advertising, PR and
in-store merchandising support to increase its "share of voice" and consumer
demand.

In January 2000, the Reebok Division implemented a product segmentation
strategy for its Classic products which included certain new product
introductions. These included a Premier Collection, a high-end line with
superior comfort technology; a Heritage Collection, featuring the original
styles of Classic footwear updated with new materials and contemporary
treatments; and a Fashion Athletics Collection, which features new
interpretations of bring-back and retro styles in fashion-forward colors and
sporty fabrics. To support this new Classic product introduction, the Reebok
Division launched in February 2000 a new print advertising campaign featuring a
series of twelve black and white photographs by photographer Bert Stern

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depicting both celebrities and non-celebrities wearing REEBOK Classic footwear.
The portraits, which appeared in leading style publications including W,
Mademoiselle, Vogue, GQ, InStyle, and Vanity Fair, were designed to evoke the
clean, timeless style of the Classic designs.

In addition, the Reebok Division established new retail relationships with
fashion boutiques Fred Segal and Madison in Los Angeles, and Gimme Shoes in San
Francisco, enabling Reebok to debut its Fashion Athletics Collection and
capitalize on the growing popularity of retro footwear and fashion sneakers.

Reebok sponsored the highly successful CBS television show "Survivor,"
which aired in the Summer 2000. As the exclusive title sponsor of all footwear
and apparel to the show's cast and crew, Reebok gained significant brand
exposure through product placement on the show. In conjunction with its
sponsorship, Reebok also ran a popular series of "spoof" advertisements on
"Survivor" featuring Nate and Brian, two would-be survivalists who find
themselves in seemingly harrowing, yet ultimately humorous, survival situations.
To leverage its sponsorship, Reebok entered into an exclusive relationship with
one of its key retailers. Reebok utilized in-store support, including a consumer
sweepstakes, tied to offerings of product appearing on the series and in the
ads. In particular, Reebok showcased its Mistral running shoe, worn by Nate and
Brian, which uses Reebok's DMX Lite technology. Reebok has signed on as the
exclusive footwear and apparel title sponsor for Survivor II, which began airing
in January 2001. In addition to further product placement and a new series of
commercials, Reebok's relationship to the show will be highlighted on the
"Survivor II" section of the CBS website, CBS.com.

While in 2000 the Reebok Division focused on fewer key athlete, team, and
league sponsorships to achieve a greater balance in its marketing activities and
to promote fitness and other activities in addition to sports, the Reebok
Division remains involved in athletic endorsements and sport sponsorships,
including those highlighted below.

In December 2000, Reebok re-signed tennis star Venus Williams, winner of
Wimbledon, the U.S. Open, and the Olympic gold medal in singles and doubles, to
an endorsement contract. This endorsement relationship reaffirms Reebok's
heritage of commitment to women's sports and fitness. Reebok plans to showcase
Venus as a lifestyle icon by featuring her in its advertising campaign entitled
"Defy Convention," which launched in January 2001. In addition, Reebok currently
plans for Venus to promote two distinct footwear and apparel lines scheduled to
debut in 2002, and for Venus, who is currently also studying fashion design, to
help co-design these collections.

In 2000, athlete endorsements to promote the sale of basketball shoes
included an endorsement arrangement with Allen Iverson of the Philadelphia 76ers
in the NBA, with whom Reebok markets a signature line of footwear and apparel;
and an endorsement arrangement with Steve Francis of the Houston Rockets,
co-winner of the 2000 Rookie of the Year award, whom Reebok featured in an
integrated marketing program including TV, radio, and print advertising to
support the re-launch of its BLACKTOP(R) product line of basketball shoes. In
addition, Reebok has sponsorship arrangements with Jalen Rose of the Indiana
Pacers, winner of the 2000 Most Improved Player award, and a number of college
basketball programs, including those at the University of Utah, University of
Virginia, University of Wisconsin, University of Arkansas, University of
Memphis, and Xavier University.

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To promote the sale of cross training and cleated baseball and football
footwear in 2000, Reebok used sponsorship arrangements with universities such as
the University of Texas, Boston College, and the Air Force Academy, and
endorsements by prominent athletes such as National Football League Pro Bowl
players Edgerin James and Jevon Kearse, as well as Major League Baseball players
Andy Pettite, Kevin Brown, and five-time Cy Young and 1986 MVP winner Roger
Clemens.

In soccer, Reebok has a number of sponsorship agreements including
contracts with Ryan Giggs of current English league champion Manchester United;
Dennis Bergkamp of Arsenal and the Netherlands; goalkeeper Iker Casillas, who
plays for Real Madrid and Spain; and Gabriel Batistuta of Italian Serie A club
Roma. In 2000, Reebok re-signed Liverpool FC, one of the world's best-known club
soccer teams, and has a major sponsorship agreement with the Argentina Football
Association, a two-time World Cup winner. In addition, Reebok has a sponsorship
arrangement with the Colombian national team, and sponsors other club teams
including Sporting Lisbon, which in May 2000 won the Portuguese league
championship for the first time in over 20 years, and Bolton Wanderers of
England which includes the naming rights to the team's soccer arena, the "Reebok
Stadium."

To gain further visibility for the REEBOK brand, Reebok outfitted
approximately 2,500 athletes, coaches, and officials in training apparel and
footwear at the 2000 Summer Olympic Games in Sydney, Australia. Reebok sponsored
several National Olympic Committees, including Russia, Jamaica, Poland, New
Zealand, South Africa, and Trinidad and Tobago. In addition, Reebok supported
many of the world's greatest athletes, among whom were Stacy Dragila (USA, Pole
Vault) and Michellie Jones (Australia, Triathlon). Ms. Dragila won the gold
medal in the first women's pole vault competition, and Ms. Jones captured the
silver medal in the first women's triathlon. Reebok-sponsored athletes won a
total of 127 medals at the Games. The Olympic apparel with which Reebok provided
its athletes featured Reebok's proprietary HYDROMOVE technology, and many of the
athletes trained in footwear incorporating DMX and 3D ULTRALITE technologies
(see TECHNOLOGY, above). Certain Reebok athletes also debuted the Joe Foster
line of track and field spikes, which are designed for superior comfort and
performance.

To further promote the REEBOK brand in general as well as specific
products, Reebok has entered into additional endorsement arrangements. Such
endorsements and sponsorships include professional tennis players Patrick Rafter
and Andy Roddick, one of the game's rising young players; runners such as Abel
Anton and Christine Arron; and U.S. national soccer team member Julie Foudy. To
promote the Traxtar children's athletic shoe, Reebok utilized its endorsement
arrangement with the Harlem Globetrotters.

The Reebok Division continued its promotional and educational efforts in
2000 in the fitness area seeking to leverage and expand Reebok's position as a
leading source of fitness programming and education. Reebok formed a Fitness and
Interactive Marketing Group in March 2000 to fulfill these goals. Specifically,
Reebok initiated a multi-tiered Global Fitness Program, created by REEBOK
UNIVERSITY and driven by Reebok's website. The Program encompasses strategic
alliances, retail partnerships, interactive fitness programming, e-commerce,
interactive marketing, consumer initiatives, and product offerings. Central to
the development of the Global Fitness Program is the latest Reebok fitness
program, called Core Training. Core Training launched during the summer of 2000
and is designed to improve cardiovascular performance and enhance functional
strength, balance and flexibility. The

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training utilizes the REEBOK Core Board, the first exercise board that tilts,
twists, torques, and recoils 360(LOGO) in three dimensions in response to a
user's movements. To promote Core Training, Reebok conducted a twenty city tour
between September and November of 2000 designed to bring REEBOK Core Training
and the REEBOK Core Board to local facilities for the education of club owners,
fitness instructors, personal trainers, and club members on the techniques and
benefits of Core Training.

In addition, through REEBOK UNIVERSITY, its network of Master Trainers
(including Gin Miller and Petra Kolber), and its Alliance fitness instructors,
the Reebok Division continues to develop and promote numerous other fitness
programs. These programs were complemented by the marketing and sale of a line
of REEBOK fitness videos, as well as the marketing and sale of REEBOK fitness
equipment products such as the STEP REEBOK(R) exercise platform, the REEBOK BODY
TREC(R), the REEBOK ACD line of home treadmills and the REEBOK home exercise
bike collection. The REEBOK Professional Alliance Program is a membership
organization consisting of more than 50,000 fitness professionals in the United
States alone. Although the Alliance has existed for over 15 years, Reebok saw a
membership expansion in 2000 of approximately 15% in the United States. Key
markets outside of the United States have their own Alliance program with over
150,000 fitness professional members. These Alliance members now access industry
news, register for REEBOK UNIVERSITY seminars, and purchase REEBOK product
through Reebok's website, www.reebok.com.

The Reebok Division also runs marketing promotions and brand extension
programs on its website. Reebok shifted its internet strategy in 2000 from
selling direct to consumers to driving sales to Reebok's retail partners. Reebok
now uses the website as a relationship building platform through the delivery of
fitness-based information and services. In 2000, Reebok focused its online brand
marketing on training and fitness through an on-line platform for REEBOK
UNIVERSITY programs and instructions. The unique content of the REEBOK
UNIVERSITY site on reebok.com was developed in partnership with the American
College of Sports Medicine. Reebok also had great success on its internet site
with material focused on the "Survivor" show. In the month of August 2000 alone,
over 490,000 people viewed Reebok commercials from Reebok's "Nate and Brian"
advertising campaign, which aired during "Survivor" broadcasts, and
approximately 2.5 million page views occurred on the website.

U.S. OPERATIONS

The Reebok Division's U.S. operations unit is responsible for all footwear
and apparel products that the Reebok Division sells in the United States. This
unit is also responsible for operations in Canada, which are managed by a wholly
owned subsidiary of Reebok. Sales of footwear in the United States totaled
approximately $926.4 million in 2000 compared to $908.8 million in 1999. REEBOK
brand apparel sales (including GREG NORMAN apparel) in the United States in 2000
totaled approximately $233.7 million, compared to approximately $263.6 million
in 1999.

In the United States, the Reebok Division uses both an employee sales force
as well as independent sales representatives to sell its products. Reebok's U.S.
national sales staff and locally-based sales employees and sales representatives
are supported by retail marketing representatives employed by Reebok who travel
to assist in retail merchandising efforts and

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provide information to consumers and retailers regarding the features of
Reebok's products. The Reebok Division's U.S. distribution strategy emphasizes
high-quality retailers and seeks to avoid lower-margin mass merchandisers and
discount outlets. REEBOK footwear and apparel products are distributed primarily
through athletic retailers, sporting goods stores and department stores, with
specialty products also being distributed in certain specialty channels. The
Reebok Division also sells its products through REEBOK concept or company stores
and factory direct stores, as described below in the section entitled RETAIL.

INTERNATIONAL OPERATIONS

The Reebok Division's international sales are coordinated from Reebok's
corporate headquarters in Canton, Massachusetts, which is also where the Reebok
Division's regional operations responsible for Latin America are located. There
are also regional offices in Lancaster and London, England, which are
responsible for operations in Europe, the Middle East and Africa, and in Hong
Kong and Tokyo, which are responsible for Far East operations. The Canadian
operations of the Reebok Division are managed through its wholly owned
subsidiary headquartered outside of Toronto, Canada. The Reebok Division markets
REEBOK products internationally through its wholly owned subsidiaries in
Austria, Belgium, Canada, France, Germany, Ireland, The Netherlands, Italy,
Poland, Portugal, Sweden (covering Sweden, Denmark and Norway), the United
Kingdom, Japan and South Korea; and through majority-owned subsidiaries in
India, Spain and South Africa. As of December 2000, Reebok agreed to sell its
South African distributor. The Company also markets product internationally
through thirty-three independent distributors and joint ventures in which Reebok
holds a minority interest. Reebok or its wholly owned U.K. subsidiary holds
partial ownership interests in four 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 in approximately 170 countries and territories.

For the past several years, Reebok has undertaken various global
restructuring activities designed to enable Reebok to achieve operating
efficiencies, improve logistics and reduce expenses. These restructuring
activities support Reebok's decision to: (i) transition globally to SAP
enterprise software, a global management information system; (ii) consolidate
certain of Reebok's European logistics operations into a 700,000 square-foot
distribution center in Rotterdam; and (iii) consolidate financial and
administrative operations in a new Rotterdam shared-services center and a new
corporate facility in Canton, Massachusetts. The implementation of a new version
of SAP software specifically designed to support the footwear and apparel
industries generated some technical issues that had to be resolved before the
system could be implemented Company-wide. During 2000 most of these issues were
resolved. Ralph Lauren Footwear implemented SAP enterprise software in January
2001. The Company's current intention is to implement SAP software at the
Rockport Company in January 2002, followed by Reebok North America in
Spring/Summer 2002. Dependent upon various factors, such as the performance of
new system upgrades, this schedule could be accelerated or delayed. The timing
of the remaining installations will depend on the general business climate and
the organization's ability to manage the changes required when implementing SAP.

During 2000 the contribution of the Reebok Division's international
operations unit to overall sales of REEBOK products (including GREG NORMAN
apparel) decreased to $1.176 billion from $1.196 billion in 1999. The Reebok
Division's 2000 international sales were

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adversely impacted by the weakening of various foreign currencies, particularly
the Euro and British Pound Sterling, and by changes to Reebok's international
distribution network. Effective January 1, 2000 Reebok's Switzerland and Russia
subsidiaries were sold and became independent distributors. These sales figures
do not reflect the full wholesale value of all REEBOK products sold outside the
United States in 2000 or 1999 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 $1.330 billion
in wholesale value, consisting of approximately 29.1 million pairs of shoes
totaling approximately $719.6 million in wholesale value of footwear sold
outside the United States in 2000 (compared with approximately 25.8 million
pairs totaling approximately $692.0 million in 1999) and approximately $610.0
million in wholesale value of REEBOK apparel (including GREG NORMAN apparel)
sold outside the United States in 2000 (compared with approximately $584.5
million in 1999).

LICENSING

Reebok has continued to pursue its strategic trademark and technology
licensing program begun in 1991. This program is designed to pursue
opportunities for licensing Reebok's trademarks, patents and other intellectual
property to third parties for sporting goods, equipment, apparel, and related
products and services. The licensing program is designed to expand the REEBOK
brand into new sports and fitness markets, to grow the REEBOK brand in new
non-sports and fitness markets, and to enhance the reputation of Reebok's brands
and technologies. Reebok believes that its licensing program reinforces Reebok's
reputation as a market leader.

Pursuant to its licensing program, Reebok has a full line of REEBOK fitness
equipment products for the home market, as well as fitness equipment products
designed for use in health clubs and other institutional markets. Home fitness
products include the REEBOK ACD line of home treadmills, the REEBOK elliptical
cross-trainer and the REEBOK home exercise bike collection, as well as a line of
portable products including weights and resistance bands. Reebok's line of
health club fitness products include various REEBOK elliptical cross-trainers,
the REEBOK Studio Cycle, a REEBOK stationary cycle and a line of portable
products. In January 2001, Reebok launched in the club market the REEBOK Core
Board, an innovative multi-dimensional cross-training system, and expects to
launch the Core Board in the home market later this year. Through a licensee,
Reebok also markets and sells a line of strength equipment products in Europe
and the United States, including REEBOK weights, weight machines and weight
belts, both with and without Reebok's INSTAPUMP(R) technology. In addition,
Reebok has entered into various license agreements for the sale of the REEBOK
fitness equipment products internationally. Through a license agreement entered
into in 1999, Reebok also began selling REEBOK heart rate monitors in December
2000.

As part of Reebok's licensing program, WEEBOK infant and toddler apparel
and 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.
Additionally, the license program features a collection of REEBOK infant and
toddler apparel, as well as a line of kids apparel.

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Reebok's licensing program also includes such products as REEBOK team
uniforms and jackets, athletic gloves featuring the REEBOK trademark and
Reebok's Vector Logo, REEBOK performance sport sunglasses, REEBOK watches, and
REEBOK fitness videos and audio tapes.

Reebok is 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 five floors of the Lincoln Square
project. Reebok has also entered into a license agreement under which its
licensee developed a Reebok Sports and Fitness Center in Bologna, Italy, which
opened in early 1999. Reebok also has REEBOK Sports Clubs in Madrid, Spain and
Sao Paolo, Brazil, both of which opened in 2000.

RETAIL

Reebok operates approximately 204 store fronts in the United States
(including REEBOK, ROCKPORT, RALPH LAUREN footwear, and GREG NORMAN stores and
counting multiple store fronts in combination stores as separate store fronts)
that sell a variety of footwear, apparel and accessories marketed under Reebok's
various brands. Reebok does not anticipate any significant expansion in the
number of its factory direct stores in the United States for either REEBOK or
ROCKPORT. Reebok believes there is the potential for additional RALPH LAUREN
footwear and GREG NORMAN 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.

Reebok also operates a Reebok "concept" or Company retail store in New York
City and a multi-branded store located in its new world headquarters campus. The
store located at the new world headquarters, which is only available for
purchases by employees and visitors to the building, opened in October 2000. In
addition to the Reebok concept stores, Reebok also operates ROCKPORT concept
stores. These concept stores sell a wide selection of current, in-line Reebok or
Rockport footwear, apparel and accessories. Internationally, there are a number
of Reebok retail stores owned by Reebok, its subsidiaries or its independent
distributors. Reebok continues to open retail stores either directly or through
its distributors in numerous international markets. Reebok retail shops are
important means of presenting the brand in markets such as China, India, Korea,
Russia and South America, as well as in other international markets.

In 2000, Reebok allowed select retailers to sell REEBOK and GREG NORMAN
products to consumers through the Internet. Such e-commerce arrangements are
expected to continue in 2001.

THE ROCKPORT COMPANY

Reebok's Rockport subsidiary, currently headquartered in Marlborough,
Massachusetts, designs, produces and distributes specially-engineered comfort
footwear for men and women worldwide under the ROCKPORT brand, as well as
apparel through a licensee. In 2001, Rockport intends to move its corporate
headquarters to Reebok's new facilities in Canton, Massachusetts. Rockport
expects to sell the Marlborough building during 2001.

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Rockport's net sales decreased by approximately $12.6 million in 2000 to
$422.4 million from approximately $435.0 million in 1999. In 2000 the Rockport
brand's international revenues increased approximately 2.4% from 1999
international revenues.

Designed to address the different aspects of consumers' lives, the ROCKPORT
product line includes performance, casual and dress shoes. In 2000, Rockport
focused on updating its core product offerings to address the modern consumer
and relocated its men's product management group to New York City to further
focus its efforts on product offerings with contemporary styling. One result of
this effort was the launch in Fall 2000 of its World Tour 2000, an expansion
into more contemporary styles based upon Rockport's World Tour Classic shoe.
Rockport has continued its renewed focus on its women's business which commenced
in the Fall of 1999, resulting in updated styling and incremental growth in the
women's side of the business. Rockport also continued to use proprietary
technologies to enhance comfort by expanding its product offerings in men's
PROWALKER(R) DMX styles (which incorporate DMX technology) and incorporating
into a broader range of men's and women's products the Rockport "Comfort by DMX"
footbed, which provides relaxation and comfort through a system of air channels
that deliver massage like stimulation.

Rockport's direct consumer purchase program allows consumers to purchase
select ROCKPORT products through Rockport's website located at www.rockport.com.
The Rockport website was re-launched in 2000 to incorporate its modern comfort
position and appeal to a broader consumer base.

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 distributors in
approximately 50 foreign countries and territories. Many of the international
distributors are subsidiaries of Reebok, or are otherwise joint venture partners
or independent distributors which also sell REEBOK brand products.

Rockport distributes its products in the United States 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 in ROCKPORT concept or company stores in San
Francisco (California), Newport (Rhode Island), King of Prussia (Pennsylvania),
Boston (Massachusetts), New York City (New York), Santa Monica (California),
Braintree (Massachusetts) and Las Vegas (Nevada). In addition, there are a
number of ROCKPORT shops -- independent stores which sell Rockport products
exclusively -- in and outside the United States. Rockport has not pursued mass
merchandisers or discount outlets for the distribution of its products.

RALPH LAUREN BRAND

In 2000, the RALPH LAUREN footwear business, which was acquired in May
1996, continued to grow. Net sales for Ralph Lauren Footwear increased to
approximately $106.7 million in 2000 from approximately $96.0 million in 1999.
Ralph Lauren Footwear launched a children's line and POLO JEANS CO.(R) line in
the Fall 2000 season. POLO JEANS CO., targeted to males between the ages of 16
and 25, is a more fashion forward collection, which Ralph Lauren Footwear sells
in major department stores and POLO JEANS CO. stores. Ralph

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Lauren children's is targeted to boys and girls between the ages of 5 and 12.
Its product line features traditional classics in addition to POLO SPORT(R) and
dressier fashion silhouettes influenced by the LAUREN(R) product line.

Internationally, Ralph Lauren Footwear has distributors in Japan and Canada
and one in Central America for Central and South America that market RALPH
LAUREN footwear products in approximately 8 foreign countries and territories.
Ralph Lauren Footwear markets its products to authorized retailers principally
through an employee staff. Products are distributed primarily through
higher-quality department stores and, in the case of RLX(R) footwear, through
specialty retailers focusing on athletic, running, outdoor and skiing products.
Products are also sold through space licensing arrangements at approximately 29
RALPH LAUREN/POLO retail stores. Ralph Lauren Footwear operates concept footwear
departments in POLO RALPH LAUREN stores in a number of locations in the United
States, including New York City (New York), Beverly Hills (California), Chicago
(Illinois), and Palm Beach (Florida). In addition, Ralph Lauren Footwear has
footwear retail operations in approximately 17 POLO RALPH LAUREN factory direct
stores and operates three factory direct stores, which all opened in 2000:
Ellenton (Florida), Orlando (Florida), and Wrentham (Massachusetts).

GREG NORMAN COLLECTION

Reebok's Greg Norman Division produces a range of men's apparel and
accessories marketed under the GREG NORMAN name and logo. Originally a golf
apparel line, the GREG NORMAN Collection has grown to be a complete collection
of men's sportswear with products ranging from leather jackets and sweaters to
activewear and swimwear. In addition, the Greg Norman Division offers GREG
NORMAN belts, small leather goods and hosiery products, which are sold through
licensees of Reebok. Products are sold principally at upper-end price points in
department and men's specialty stores, on-course pro shops and golf specialty
stores, as well as in GREG NORMAN-dedicated shops.

In December 1999, the Greg Norman Division expanded its line of products by
assuming responsibility for the golf footwear business from the Reebok Division.
In connection with this new responsibility, the Greg Norman Division has
concentrated its marketing efforts on the DMX Trac technology used in REEBOK
golf shoes. A new line of golf footwear was launched in October 2000 and is
being followed up with a new fixturing and point of sale program in Spring 2001.
The new line features an update to the proprietary Trac sole technology as well
as improved styling of the uppers.

In the Spring of 2000, the Greg Norman Division introduced a line of
moisture management golf shirts marketed under the trademark PLAY DRY(TM). The
Greg Norman Division plans to launch additional PLAY DRY branded products,
including shorts, socks, hats, and outerwear in Spring 2001.

During 2000, the Greg Norman Division entered into licensing arrangements
for three categories of products: hats and accessories, leather goods and travel
goods, and corporate sales. Licensing its corporate sales business offers the
Greg Norman Division an opportunity to gain royalties and increase brand
exposure without incurring the risk of maintaining a large inventory, as would
typically be required in this channel. Additionally, the Greg Norman Division
utilizes a combination of distributors and licensees to market and distribute
GREG

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NORMAN branded product internationally. The brand is currently represented in
Australia, Singapore, Malaysia, and Indonesia in the Far East; in several Middle
East countries; in England, Ireland, Scotland, Portugal, Germany, France, and
the Benelux countries in Europe; in Canada; and in Mexico. The Greg Norman
Division plans to further develop the Far East and Latin American markets.

During 2001, the Greg Norman Division will continue to offer a broad
variety of lifestyle products and to expand into international markets, as well
as corporate accounts, through various licensing and distribution arrangements.

The GREG NORMAN brand is marketed through its endorsement by professional
golfer Greg Norman, and a marketing and advertising campaign designed to reflect
his multi-faceted, powerfully active and elegant lifestyle. Marketing activities
include print advertising in consumer and trade periodicals, retail in-store
promotions, trade shows, and a worldwide merchandise fixturing program, which
ensures a consistent aesthetic presentation on a global basis. GREG NORMAN
Collection products are sold by a combination of independent sales
representatives and employee account executives. In 2000, the GREG NORMAN
Collection opened its third free-standing GREG NORMAN store in the United
States, located at the Doral golf resort and spa in Miami, Florida.

MANUFACTURING

Reebok's products are produced by independent manufacturers, virtually all
of which are located outside the United States (some of Reebok's apparel and
some of the component parts used in Reebok's footwear are sourced from
independent manufacturers located in the United States). Each of Reebok'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 Reebok 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, Reebok has not encountered any
significant problem with product rejection or customer returns due to quality
problems. Reebok generally considers its relationships with its contract
manufacturers to be good.

As part of its commitment to human rights, Reebok requires agents and/or
manufacturers of its products to adopt Reebok's human rights standards, which
set forth acceptable factory policies and workplace conditions. Reebok uses a
global monitoring program to implement these standards. Through its human rights
initiatives, Reebok has eliminated the need for toluene from all cold cement
shoe production (representing approximately 98% of Reebok athletic shoe
production in Asia), has an ongoing program to provide technical assistance to
improve air quality in factories producing REEBOK footwear, has implemented a
worker communication system to resolve conflicts in such factories and has taken
other steps to improve workplace conditions consistent with Reebok's human
rights standards. In conjunction with its human rights program, Reebok 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.

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China, Indonesia and Thailand were Reebok's primary sources for footwear,
accounting for approximately 48%, 28% and 15%, respectively, of Reebok's total
footwear production during 2000 (based on the number of units produced).
Reebok's largest manufacturer, which has several factory locations, accounted
for approximately 16% of Reebok's total footwear production in 2000.

Reebok's wholly-owned Hong Kong subsidiary and a network of affiliates in
China, Indonesia, India, Thailand, Taiwan, and South Korea, provide quality
assurance and inspection services with respect to footwear purchased by the
Reebok Division's 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. This network of affiliates also
facilitates the shipment of footwear from the shipping point to the point of
destination, and helps to arrange for the issuance of letters of credit or wire
transfers, the primary means used to pay the unrelated footwear manufacturers
for finished products. ROCKPORT footwear products are produced by independent
contractors that are retained and managed through country managers employed by
Rockport. Reebok's apparel group utilizes the services of independent third
parties, as well as Reebok's Hong Kong subsidiary and its affiliates in the Far
East, to assist in the placement, inspection and shipment of apparel and
accessories orders internationally. Reebok's apparel group retains and manages
those independent contractors responsible for production of apparel in the
United States. The remainder of Reebok's order placement, quality assurance and
inspection work is handled by a combination of employees and independent
contractors for the various countries in which its products are made.

SOURCES OF SUPPLY

The principal materials used in Reebok'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. For example, Reebok believes that if the effects
of mad cow and foot-and-mouth diseases in Europe and Great Britain continue,
there is a likelihood that the supply of hides will become limited, resulting in
cost increases for the leather used in some of Reebok's footwear. Some of the
components used in Reebok's technologies are obtained from only one or two
sources, and thus a loss of supply could disrupt production. The principal
materials used in Reebok's apparel products are cotton, fleece, nylon and
spandex. These materials can be obtained from a number of sources.

The footwear products of Reebok 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 Reebok range from 5.1% to 66% (plus a unit charge
in some cases of $1.58), depending on the construction and whether the principal
component is leather or some other material.

As with its international sales operations, Reebok'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, as more
fully described below in the section entitled TRADE POLICY. Reebok 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

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prevent Reebok from acquiring products from its suppliers in China, Indonesia,
or Thailand, or significantly increase the cost to Reebok of such products,
Reebok'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 United States, including
footwear, have been threatened with higher or prohibitive tariff rates, either
through statutory action or intervention by the Executive Branch, due to concern
over China's trade policies, human rights, foreign weapons sales practices, and
foreign policy. Further debate on these issues is expected to continue in 2001.
If China is admitted to the World Trade Organization (the "WTO"), the likelihood
of future trade restrictions on China-sourced products by the United States and
other nations would be reduced. If China joins the WTO by the 3rd quarter of
2001, it will be granted Permanent Normal Trade Relations (PNTR) status,
eliminating the annual review process regarding trade status and further
reducing the likelihood of future trade restrictions on China-sourced products
by the United States. Should China not join the WTO, Congress will again debate
PNTR. Whether or not China is admitted to the WTO and/or granted Permanent
Normal Trade Relations status, Reebok does not currently anticipate that
restrictions on imports from China will be imposed by the United States during
2001. If adverse action is taken with respect to imports from China, it could
have an adverse effect on some or all of Reebok's product lines, which could
result in a negative financial impact. Reebok has put in place contingency plans
that should allow it to diversify some of its sourcing to countries other than
China if any such adverse action occurred. In addition, Reebok does not believe
that it would be more negatively 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 Reebok, as compared to its
competitors, is on production in China, and the effectiveness of the contingency
plans put in place.

The European Union (the "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 and some ROCKPORT products. The EU and individual EU
member states continue to review the athletic footwear exemption, which applies
to both the quota scheme and antidumping duties discussed below. Reebok, on its
own as well as 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 Reebok's product lines could be
affected adversely, requiring sourcing from countries other than China, or minor
design modification. Should any narrowing of the exemption be imposed, Reebok
does not expect that its products would be more severely affected than those of
its major competitors.

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affected by the duties can generally be sourced from other countries not subject
to such duties. If, however, Reebok were 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 apply only to low-cost
footwear, below the import prices of most REEBOK and ROCKPORT products. Thus
Reebok's products have not been significantly impacted by such duties.

The EU continues to expand the list of restricted substances in consumer
products. Reebok has taken aggressive steps to assure that its suppliers and
factories are in full compliance with EU Directives and enforcement initiatives
of EU member states in accordance with the terms of their agreements. Despite
these efforts, from time to time Reebok may have some product already in the
distribution chain which does not comply with the most recent EU Directives.
This could cause some disruption to the delivery of product to the market. As a
result, it may be necessary to substitute styles, to delay deliveries or even to
forego sales. Reebok believes that its major competitors are similarly impacted
by these EU restrictions.

Reebok is also aware of possible consumer rejection of products containing
substances not restricted by the EU or any Member State for environmental,
health and human rights concerns. Such consumer action, and the response of
retailers, could disrupt Company distribution and cause withdrawal of the
product from the market, which would substantially impact Reebok's sales of
those specific products. To date Reebok has not encountered rejection on any of
its products, but is aware of such consumer action against certain competitors'
products, which has led to the voluntary recall of such products. While it is
impossible to predict such consumer action, Reebok is closely monitoring the
demands of non-governmental organizations active in Europe. Reebok believes that
it is no more exposed to such adverse action than 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 Reebok as well as other footwear importers. Reebok, in
conjunction with other footwear importers, is aggressively challenging such
restrictions and is attempting to develop new production capacity in countries
not subject to those restrictions. Nevertheless, such restrictions have in some
cases had a significant adverse effect on Reebok's sales in some such countries,
most notably Argentina, although they have not had a material adverse effect on
Reebok as a whole.

PRINCIPAL PRODUCTS

Sales of the following categories of products contributed more than 10% to
Reebok's total consolidated revenue in the years indicated: 2000, footwear
(approximately 73%) and apparel (approximately 27%); 1999, footwear
(approximately 71%) and apparel (approximately 29%); and 1998, footwear
(approximately 72%) and apparel (approximately 28%).

TRADEMARKS AND OTHER PROPRIETARY RIGHTS

Reebok believes that its trademarks, especially the REEBOK and ROCKPORT
trademarks, and its rights to use GREG NORMAN and RALPH LAUREN names and logos,
are of great value, and Reebok is vigilant in protecting these marks from
counterfeiting or

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infringement. Loss of the REEBOK, ROCKPORT, RALPH LAUREN or GREG NORMAN
trademark rights could have a serious impact on Reebok's business. Reebok owns
the REEBOK and ROCKPORT trademarks and has contractual rights that survive in
perpetuity to use the GREG NORMAN name and logo. Reebok also has rights to use
the RALPH LAUREN name and logo under a 1996 agreement that has an initial term
of five years and is subject to two five-year extensions.

Reebok also believes that its technologies and designs are of great value
and Reebok is vigilant in procuring and enforcing its patents and other
proprietary rights in the United States and other countries.

WORKING CAPITAL ARRANGEMENTS

In conjunction with Reebok's repurchase of approximately 17 million shares
of its common stock pursuant to a Dutch Auction self-tender offer in 1996,
Reebok 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 Reebok's previous $300 million revolving credit
facility. The balance of the facility is a $640 million six-year term loan that
was used to finance the share repurchase. In July 1997, Reebok 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 Reebok 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. Reebok subsequently amended its credit
arrangements in October 1998 to relax the debt coverage ratio covenants in such
agreements. In March 2000, Reebok amended and restated this agreement to reduce
the revolving credit portion of the facility to $300 million. As part of this
amendment, the commitment fees Reebok 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 increased. The amendment established a Letter of
Credit sub-facility in the amount of $200 million and relaxed various covenants,
including restrictions on future indebtedness. The balance of the term loan as
of December 31, 2000 was approximately $258 million. On February 28, 2001 Reebok
sold $250 million in 20-Year Convertible Debentures in the 144A private
placement market. The sale was completed with a coupon of 4.25%, payable in cash
semi-annually. The Debentures are convertible into shares of Reebok common stock
at a price of $38.56. Reebok intends to use the net proceeds to re-pay its
existing term loan due August 31, 2002.

Reebok also has various arrangements with numerous banks which provide an
aggregate of approximately $531 million of uncommitted facilities, substantially
all of which are available to Reebok's foreign subsidiaries. Of this amount,
approximately $200 million is available for short-term borrowings and bank
overdrafts, with the remainder available for letters of credit for inventory
purchases. At December 31, 2000, approximately $161 million was outstanding for
open letters of credit for inventory purchases, in addition to approximately $9
million in notes payable to banks, and $18 million was outstanding under standby
letter of credit.

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Reebok 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, 2000, Reebok had no commercial
paper obligations outstanding.

In February 2001, Standard & Poor's Rating Group ("S&P") removed its
negative credit watch from Reebok's credit rating. As a result of Reebok selling
$250 million in 20-Year Convertible Debentures in the 144A private placement
market, Moody's Investor Service, Inc. ("Moody's") and S&P reaffirmed Reebok's
credit ratings

With respect to working capital items, Reebok must commit to production
tooling and in some cases to production in advance of orders because of the
relatively long lead times for design and production in the footwear industry.
Reebok must also maintain inventory to fulfill "at once" shipments. Reebok
believes its practices with respect to working capital items are consistent with
the footwear and apparel industry in general.

SEASONALITY

Sales by Reebok of athletic and casual footwear tend to be seasonal in
nature, with the strongest sales occurring in the first and third quarters.
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 Reebok that accounted for 10% or more of
Reebok's overall net sales in 2000. Reebok is not dependent on a single
customer, nor a few customers, the loss of any of which would have a material
adverse impact on Reebok.

BACKLOG

As of December 31, 2000 Reebok's backlog of orders that Reebok believes to
be firm (albeit cancelable by the purchaser) totaled approximately $1.034
billion, compared to $1.004 billion as of December 31, 1999. The backlog
position is not necessarily indicative of future sales because the ratio of
future orders to "at once" shipments and sales by Company-owned retail stores
may vary from year to year. In addition, many markets in South America and Asia
Pacific are not included in the backlog since sales are made by independent
distributors.

COMPETITION AND COMPETITORS

Competition in sports and fitness footwear and apparel sales is intense,
with new entrants and established companies providing challenges in every
category. Footwear competitors include a number of sports and fitness footwear
and apparel companies, such as Nike, adidas, Fila, New Balance and others.
Apparel competitors include numerous brands such as Nike, adidas, Fila, FUBU,
Mecca, and 2NYCE.

Reebok's other product lines also continue to confront strong competition.
The casual footwear market into which the ROCKPORT product lines fall is also
highly competitive. Due to the diversity of product designs and intended end
uses, however, there are very few companies that Rockport competes with directly
in every product category. Companies that could be described as competitors in
specific product categories include, among others,

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Timberland, Clarks, Ecco, Mephisto, Bass, Bostonian, Merrell, Easy Spirit, Nine
West and Gabor. ROCKPORT occupies a strong position in the comfort and walking
shoe market. Competition in this area has intensified as the activity of walking
has grown in popularity and as athletic shoe companies have entered the market.
In addition, ROCKPORT also produces men's and women's dress shoes and competes
in this market with other leading makers of dress shoes.

The GREG NORMAN line competes with Tommy Hilfiger, Ralph Lauren, Nautica,
Ashworth, Cutter & Buck and other makers of men's casual sportswear and golf
apparel and footwear. The RALPH LAUREN footwear brand competes with such brands
as Cole Haan, Timberland, Tommy Hilfiger, Prada and Gucci. In addition, the
RLX/POLO SPORT line competes with major athletic shoe companies, including
Reebok.

ISSUES AND UNCERTAINTIES

Risks and uncertainties that could affect Reebok's actual results and could
cause such results to differ materially from those contained in forward-looking
statements made by or on behalf of Reebok include, but are not limited to, the
following: technological, marketing, product, promotional or other success by
one of more of Reebok's competitors; changes in consumer preferences; failure by
Reebok to adequately forecast consumer demand and sales volume, leading to
increased spending, inventory risk, tooling and other costs; inability to obtain
desired pricing margins and profitability because of industry conditions,
production inefficiencies, increased costs of goods, currency trends, the
general retail environment or the lack of success of Reebok's products or
marketing; higher-than-anticipated levels of customer cancellations or returns;
lack of success in Reebok's retail operations due to general retail market
conditions or loss of market share to competitors; failure to meet delivery
deadlines because of design, production or distribution problems; the inability
to successfully negotiate and enter into a definitive agreement with the NFL,
currency fluctuations, government actions, import regulations, political
instability or general economic factors that negatively impact Reebok's business
in one or more international regions; interruption or unavailability of sources
of supply; the lack of an active trading market for its Convertible Debentures;
inability to raise funds necessary to finance a change in control purchase or a
purchase at the option of the holder under the Debentures; inability to make
timely payments on Reebok's indebtedness or to meet debt covenants; loss of one
or more significant customers; inability to protect significant

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trademarks, patents or other intellectual property of Reebok; negative results
in litigation; general economic factors impacting consumer purchasing power and
preferences; changes in Reebok's tax rate or its ability to fully utilize
deferred tax assets; Reebok's ability to achieve desired operating and
logistical efficiencies in the areas of distribution and information systems;
start-up and software complications related to its global restructuring efforts;
and other factors mentioned or incorporated by reference in this report or other
reports.

This list of risk factors is not exhaustive. Certain factors that could
affect Reebok's actual results and cause actual results to differ materially
from those contained in forward-looking statements made by or on behalf of
Reebok include, but are not limited to, those discussed below as well as those
discussed in other reports filed by Reebok with the Securities and Exchange
Commission (the "SEC"), such as reports on Forms 8-K and 10-Q. In addition,
Reebok operates in a highly competitive and rapidly changing environment.
Therefore, new risk factors can arise, and it is not possible for management to
predict all such risk factors, nor to assess the impact of all such risk factors
on Reebok's business or the extent to which any individual risk factor, or
combination of factors, may cause results to differ materially from those
contained in any forward-looking statement. Accordingly, investors should not
place undue reliance on forward-looking statements as predictions of actual
results.

COMPETITION AND CONSUMER PREFERENCES

The footwear and apparel industry is intensely competitive. Competition in
the markets for Reebok'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 footwear and apparel industry is
also subject to rapid changes in consumer preference and technology development.
An unanticipated shift in consumer preferences could negatively affect Reebok's
sales and financial results. A major marketing or promotional success, or
technological innovation, by one of Reebok's competitors could also adversely
impact Reebok's competitive position. The intensity of the competition faced by
the various operating units of Reebok and the rapid changes in consumer
preference and technology that can occur in the footwear and apparel markets
constitute significant risk factors in Reebok's operations.

Consumer demand for athletic footwear and apparel is heavily influenced by
"brand image." In 2000, Reebok took several steps to strengthen the REEBOK brand
image, including extensive market research, the introduction of new designs
emphasizing fashion, and an advertising campaign focused on communicating a
consistent brand message (see MARKETING AND PROMOTIONAL ACTIVITIES, above). 2000
saw a shift in the athletic footwear industry from "casual" or "brown shoe"
product offerings to "fashion athletic" footwear: comfortable, stylish shoes
that function in athletic contexts yet can be worn in social settings. Reebok
was well positioned with respect to this shift, introducing a new range of
styles to its Classic line and debuting its Diamond Collection of premium
footwear.

While the significance of "performance" as a factor influencing consumer
choice has recently diminished somewhat in relation to comfort and style,
authenticity of sports performance remains an important bedrock in the athletic
footwear industry. Reebok introduced in 2000 the latest iteration of its premier
technology, DMX, in Viz DMX (see TECHNOLOGY, above). Reebok also launched the
Traxtar 2.0, the latest version of its interactive children's shoe, and plans to
launch adult footwear with similar smart technology in 2001. Whether

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Reebok's technologies will be successful on a long-term basis is dependent on
numerous factors, including Reebok's ability to utilize such technology and to
extend it to other products, competitive product offerings, as well as other
factors described herein.

In countries where the athletic footwear market is mature (including the
United States), sales growth may depend in part on Reebok increasing its market
share at the expense of its competitors, which may be difficult to accomplish.
During 2000, the athletic footwear market in the United States improved overall,
as consumer demand experienced a positive turnaround. This trend in consumer
preferences may have been bolstered by promotional activities surrounding the
Summer Olympics competition. The Rockport Company in 2000 focused on updating
its core product offerings with more contemporary styling, and expanded its
PROWALKER DMX offerings. Ralph Lauren Footwear introduced a children's line and
its POLO JEANS CO. line during 2000.

Reebok also faces strong competition with respect to its apparel lines,
including the GREG NORMAN Collection. Key competitors include Ashworth and
Cutter & Buck. Both companies enjoyed significant growth in 2000, with Ashworth
growing 17% and Cutter & Buck rising 42%. Growth came primarily through
corporate sales, new distribution and geographic expansion. Notably, a slow-down
began to occur at Cutter & Buck during the fourth quarter due to softening of
their retail sell-throughs. Golf apparel growth for 2001 is estimated at 5-8%.

Reebok continues to take steps to meet market conditions in the athletic
footwear and apparel industry. Investments in product development, advertising,
marketing and merchandising have been, and will continue to be, made in
conjunction with such conditions. The success of such efforts, however, will
depend on a number of factors including the extent of changes in consumer
preference, consumer and retailer acceptance of Reebok's products and
technologies, the effectiveness of Reebok's advertising and marketing, as well
as other factors described herein.

INVENTORY RISK

The footwear industry has relatively long lead times for the design and
production of product and thus, Reebok must commit to production tooling and in
some cases to production in advance of orders. If Reebok fails to forecast
consumer demand accurately or if there are changes in consumer preference or
market demand after Reebok has made such production commitments, Reebok may
encounter difficulty in filling customer orders or in liquidating excess
inventory, or may find that retailers are canceling orders or returning product,
all of which may have an adverse effect on Reebok's sales, margins and brand
image. Retailer consolidation may make inventory management more difficult and
require more liquidation of excess inventory, as certain retailers may cancel
orders. Reebok may also be required to pay for certain tooling if it does not
satisfy minimum production quantities. Difficulties related to distribution,
such as those encountered at the new Rotterdam distribution center in 1999 (as
described above more fully in the section entitled INTERNATIONAL OPERATIONS),
may have an adverse impact on Reebok's business by increasing the amount of
inventory and the cost of warehousing inventory.

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SALES FORECAST

Reebok's investment in advertising and marketing and in certain other
expenses is based on sales forecasts and is necessarily made in advance of
actual sales. The markets in which Reebok does business are highly competitive,
and Reebok'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 Reebok will experience higher inventory levels and associated
carrying costs, all of which would adversely impact Reebok's financial condition
and results. See also the discussion below under ADVERTISING AND MARKETING
INVESTMENT.

PRICING AND MARGINS

The prices that Reebok is able to charge for its products depend on the
type of product offered and the consumer and retailer response to such product,
as well as the prices charged by Reebok's competitors. If, for example, Reebok's
products provide enhanced performance capabilities, Reebok should be able to
achieve relatively higher prices for such products. The gross margins that
Reebok earns depend on the prices that Reebok can charge for these goods and the
costs incurred in acquiring the products for sale. To the extent that Reebok has
higher costs, such as the higher start-up costs associated with technological
products, its margins will be lower unless it can increase its prices or reduce
its costs. The Company expects margin pressures in 2001, due to the adverse
impact of foreign currency fluctuations, an increase in the price of leather and
the costs associated with technology product. These factors are expected to be
somewhat offset by manufacturing efficiencies and reduced pricing on various
components such as midsole technology. Pricing and margins may also be adversely
affected by liquidation sales by retailers in a consolidating environment. In
addition, a shift in the marketplace may occur that produces an over-inventoried
promotional retail environment, resulting in Reebok encountering increased
returns and cancellations from retailers, which may adversely affect its
margins. If an over-inventoried environment is produced, retailers may be more
reluctant to place future orders for product than they would be otherwise,
resulting in fewer future orders for Reebok and requiring Reebok to take more
inventory risk to fulfill "at once" business. The ability of Reebok to increase
its full margin business is dependent on a number of factors including the
success of Reebok's products and marketing, the retail environment and general
industry conditions. Additionally, fluctuations in foreign currency exchange
rates may have an adverse impact on Reebok's margins. See the section below
entitled RISK OF CURRENCY FLUCTUATIONS for more details.

BACKLOG

Reebok reports its backlog of open orders for the REEBOK brand. However,
its backlog position is not necessarily indicative of future sales because the
ratio of future orders to "at once" shipments, as well as sales by Company-owned
retail stores, may vary from year to year. In addition, many customer orders are
cancelable. Any slowdown at retail and consolidation of the retail industry may
result in higher cancellations and returns. Additionally, many markets in South
America and Asia Pacific are not included in the backlog since sales are made by
independent distributors.

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ADVERTISING AND MARKET INVESTMENT

Because consumer demand for athletic footwear and apparel is heavily
influenced by brand image, Reebok's business requires substantial investments in
marketing and 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 purchases of Reebok's products, there could be an adverse impact on
Reebok's financial results. There has been some shift in the marketplace away
from certain "icon" athletes and the products they endorse. As a result, Reebok
has re-evaluated its investment in certain sports marketing deals and has
eliminated or restructured certain of its marketing contracts that no longer
reflect Reebok's brand positioning.

RETAIL OPERATIONS

Reebok currently operates approximately 204 retail storefronts in the
United States (including REEBOK, ROCKPORT, GREG NORMAN and RALPH LAUREN footwear
stores and counting multiple store fronts in combination stores as separate
store fronts) and a significant number of retail stores internationally that are
operated either directly or through Reebok's distributors or other third
parties. Reebok has made a significant capital investment in opening these
stores and incurs significant expenditures in operating these stores. To the
extent Reebok continues to expand its retail organization, Reebok's performance
could be adversely affected by lower-than-anticipated sales at its retail
stores. The performance of Reebok's retail organization is also subject to
general retail market conditions. The difficult climate at full price retail in
the fourth quarter of 2000 has resulted in an increased amount of promotional
activity in traditionally full price retail channels. This promotional activity
has temporarily diminished the comparative values found in factory outlet
stores. However, the retail unit still reported a 1.8% comparative store growth
for 2000, while meeting or exceeding their profit objectives for the year.

TIMELINESS OF PRODUCT

Timely product deliveries are essential in the footwear and apparel
business since Reebok's orders are cancelable by customers if agreed-upon
delivery windows are not met. If Reebok is late in delivering product as a
result of design, production or distribution problems, it could have an adverse
impact on its sales and/or profitability.

INTERNATIONAL SALES AND PRODUCTION

A substantial portion of Reebok's products are manufactured abroad and
approximately 44% of Reebok's sales are made outside of the United States.
Reebok'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 Reebok from selling products in any significant
international market or prevented Reebok from acquiring products from its
suppliers in China, Indonesia, Thailand or the Philippines, or significantly
increased the cost to Reebok of such products, Reebok's operations could be

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seriously disrupted until alternative suppliers were found or alternative
markets were developed, with a significant negative impact. In addition,
Reebok's European operations may be impacted by the start-up and software
complications encountered at the Rotterdam distribution center which have
delayed implementation of the distribution center, forcing Reebok to incur
significant duplicate distribution costs. See also discussion below under
ECONOMIC FACTORS.

SOURCES OF SUPPLY

Reebok 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 Reebok's
significant manufacturers to meet established criteria for pricing, product
quality or timeliness could negatively impact Reebok's sales and profitability.
In addition, if Reebok were to experience significant shortages in raw materials
or components used in its products, it could have a negative effect on Reebok's
business, including increased costs or difficulty in delivering product. Some of
the components used in Reebok's technologies are obtained from only one or two
sources and thus a loss of supply could disrupt production.

RISK ASSOCIATED WITH INDEBTEDNESS

Reebok has a substantial credit facility which consists of a $640 million
term loan (as of December 31, 2000, the outstanding balance of such debt was
approximately $258 million) and has a $300 million revolving credit line (as of
December 31, 2000, there were no borrowings outstanding under the revolving
credit line). On February 28, 2001 Reebok sold $250.0 million in 20-Year
Convertible Debentures in the 144A private placement market. Reebok intends to
use the net proceeds to re-pay its existing term loan due August 31, 2002. As a
result of this indebtedness, Reebok currently faces significant interest expense
and debt amortization. The credit arrangement contains 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 Reebok's future actions and which may also limit Reebok's
financial, operating and strategic flexibility. In addition, Reebok'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.

Reebok believes that its cash, short-term investments and access to credit
facilities, together with its anticipated cash flow from operations, are
adequate for Reebok's current and planned needs in 2001. However, Reebok'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 Reebok's available cash balances (such as unexpected
operating losses or increased capital or other expenditures, as well as
increases in Reebok's inventory or accounts receivable) or future events that
might reduce or eliminate the availability of external financial resources.

As indicated above (see WORKING CAPITAL ARRANGEMENTS), In February 2001,
Standard & Poor's Rating Group ("S&P") removed its negative credit watch from
Reebok's credit rating. As a result of Reebok selling $250 million in 20-Year
Convertible Debentures in the 144A private placement market, Moody's Investor
Service, Inc. ("Moody's") and S&P reaffirmed Reebok's credit ratings.

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RISK OF CURRENCY FLUCTUATIONS

Reebok conducts operations in various international countries and a
significant portion of its sales are transacted in local currencies. As a
result, Reebok's revenues are subject to foreign exchange rate fluctuations.
Reebok 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. Reebok 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 Reebok's revenues, net profits or financial condition. In 2000, Reebok's
international sales, gross margins and profits were negatively impacted by
changes in foreign currency exchange rates.

EURO CONVERSION

On January 1, 1999, eleven of the fifteen member countries of the European
Union adopted a single currency called the "Euro." On this date, fixed
conversion rates between the existing currencies of these countries ("the legacy
currencies") and the Euro were established and the Euro is now traded in the
currency markets and may be used in business transactions. The legacy currencies
will remain as legal tender together with the Euro until at least January 1,
2002 (but not later than July 1, 2002). During the transition period, parties
may settle transactions using either the Euro or a participating country's
legacy currency.

The use of a single currency in the eleven participating countries may
result in increased price transparency that may affect Reebok's ability to price
its products differently in various European markets. Although it is not clear
what the result of this price harmonization might be, one possible result is
lower average prices for products sold in certain of these markets. Conversion
to the Euro is not expected to have a significant impact on the amount of
Reebok's exposure to changes in foreign exchange rates since most of Reebok's
exposure is incurred against the U.S. dollar, as opposed to other legacy
currencies. Reebok's foreign exchange hedging costs should also not change
significantly. Nevertheless, because there will be less diversity in Reebok's
currency exposures, changes in the Euro's value against the U.S. dollar could
have a more pronounced effect, whether positive or negative, on Reebok.

Reebok is making the necessary changes in its internal and banking systems
in Europe to accommodate introduction of the Euro and can make and receive
payments in Europe using the Euro. As part of its global restructuring, Reebok
is in the process of implementing SAP software on a global basis; the SAP system
will be Euro-compatible. Other business functions should be converted for the
Euro by the end of the transition period or earlier to meet business needs.
Reebok does not expect such conversion costs to be material.

Although Reebok was not materially affected in 1999 or 2000 by the
conversion to the Euro, it has incurred a substantial loss of purchasing power
because of the devaluation of the Euro since its introduction.

CUSTOMERS

Although Reebok has no single customer that represents 10% or more of its
sales, Reebok has certain significant customers, the loss of which could have an
adverse effect on its business.

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There could also be a negative effect on Reebok's business if any such
significant customer became insolvent or otherwise failed to pay its debts. See
also discussion below under ECONOMIC FACTORS.

INTELLECTUAL PROPERTY

Reebok believes that its trademarks, patents, technologies and designs are
of great value. From time to time Reebok has been, and may in the future be, the
subject of litigation challenging its ownership of certain intellectual
property. Loss of the REEBOK, ROCKPORT, RALPH LAUREN or GREG NORMAN trademark
rights could have a serious impact on Reebok's business. Because of the
importance of such intellectual property rights, Reebok's business is subject to
the risk of counterfeiting, parallel trade or intellectual property
infringement. Reebok is, however, vigilant in protecting its intellectual
property rights.

LITIGATION

Reebok is subject to the normal risks of litigation with respect to its
business operations. See Item 3 below for a further description of litigation
involving Reebok.

ECONOMIC FACTORS

Reebok's business is subject to economic conditions in Reebok'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
Reebok's business. For example, an economic slowdown in the United States during
2000 saw poor performance in the equity market, consolidations throughout the
workforce, and decreases in disposable income and personal spending. These
factors could have negative effects on Reebok's business despite improvements
for the U.S. athletic footwear market in 2000 (see COMPETITION AND CONSUMER
PREFERENCES, above).

Although financial conditions in the Far East appeared to have stabilized
following the crisis of the late 1990s, and Reebok's sales in that region
increased 13.8% during 2000, this region again is experiencing economic
problems. The financial climate improved in Latin America, and Reebok's sales to
its independent distributors in the region grew 37% to meet local consumer
demand. However, net sales by Reebok in Europe decreased by 9.2%, largely due to
devaluation of the Euro and the British Pound. Although Reebok enters into
forward currency exchange contracts and options to manage fluctuations in the
value of foreign currencies, such fluctuations cannot be predicted with
certainty and Reebok's recorded earnings have been and may be adversely impacted
by unanticipated moves in a particular region's currency.

TAX RATE CHANGES AND DEFERRED TAX ASSETS

If Reebok 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. In addition, the tax rate can be affected by Reebok's geographic
mix of earnings. If more taxable income is earned in markets where the tax rate
is relatively higher, Reebok's effective tax rate will increase. Reebok expects
that the full year 2001 tax rate will be somewhat lower than the rate for 2000.

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Reebok has approximately $120 million of net deferred tax assets, of which
approximately $71 million is attributable to the expected utilization of tax net
operating loss carryforwards and tax credit carryforwards. There can be no
assurance that Reebok will realize the full value of such deferred tax assets,
although Reebok has tax planning strategies which are designed to utilize at
least a portion of the tax net operating loss carryforwards and thereby reduce
the likelihood that they expire unused. Reebok believes it is more likely than
not that its deferred tax assets will be realized. However, realization of the
deferred tax assets will be dependent on a number of factors including the level
of taxable income generated by Reebok, the countries in which such income is
generated, as well as the effectiveness of Reebok's tax planning strategies. If
Reebok's estimates of future taxable income are not realized in the near-term,
the net carrying value of the deferred tax assets could be reduced, thereby
reducing future net income.

GLOBAL RESTRUCTURING ACTIVITIES

Reebok has been in the process of undertaking various global restructuring
activities designed to enable Reebok to achieve operating efficiencies, improve
logistics and reduce expenses. There can be no assurance that Reebok will be
able to effectively execute on its restructuring plans or that such benefits
will be achieved. Moreover, in the short-term Reebok has experienced, and may in
the future experience, difficulties in product delivery or other logistical
operations as a result of its restructuring activities, which have had, and in
the future could have, an adverse effect on Reebok's business. For example, in
1999 Reebok's German and Austrian subsidiaries began to use the Rotterdam
distribution center. These distributors experienced start-up and software
complications which contributed to a decline in their business. Reebok estimates
that this was one factor which accounted for approximately a 40 percent decline
in sales in Germany in 1999. In the short term, Reebok could also be subject to
increased expenditures and charges because of inefficiencies resulting from such
restructuring activities. For example, in 1999 Reebok decided to defer the
consolidation of its warehouse facilities in Europe into its Rotterdam
distribution center, as well as to delay implementation of certain aspects of
its planned SAP implementation. This decision was made with the intention of
removing certain logistical risks from Reebok's business in the year 2000.
However, as a result of this decision, certain logistical advantages and
efficiencies that may result from a complete consolidation of Reebok's European
distribution facilities and full implementation of SAP will be lost until such
time as such consolidation and implementation is completed. In addition, Reebok
incurred significant duplicate distribution and start-up expenses in 1999 and
2000, and it is likely that such duplicate expenses will continue into 2001
because of the decision to defer warehouse consolidation and full implementation
of SAP. The complete implementation of SAP may also be delayed further and
encounter further complications in part because of the nature of the system. The
SAP system did not previously have an appropriate application for the footwear
and apparel industry, requiring Reebok, together with its software vendor and
another company in the apparel industry, to develop a new software application
for the footwear and apparel industry. This adaptation to the footwear and
apparel business may cause future complications that will require Reebok to
invest additional resources and further delay implementation.

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EMPLOYEES

As of December 31, 2000, Reebok had approximately 6,000 employees in all
operating units. None of these employees is represented by a labor union. Reebok
has never suffered a material interruption of business caused by labor disputes
with employees. Management considers employee relations to be good.

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS

Financial information about geographic operations appears in Note 13 of the
consolidated financial statements on page 63.

RESEARCH AND DEVELOPMENT

Incorporation of new technologies into its footwear and apparel products is
integral to Reebok's success. Reebok has been, and will continue to be,
committed to product research and development that will bring innovative
technology to its consumers.

In 2000 Reebok spent approximately $49.8 million on product research,
development and evaluation, compared to $55.4 million in 1999, and $65.7 million
in 1998.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following information is submitted as to the executive officers of
Reebok:

NAME AGE OFFICE HELD
- ---- --- -----------

Paul B. Fireman.................................... 57 President, Chief Executive Officer and Chairman
of the Board of Directors
Paul R. Duncan..................................... 60 Executive Vice President
Jay M. Margolis.................................... 51 Executive Vice President and President of the
Specialty Business Groups
Angel R. Martinez.................................. 45 Executive Vice President, Chief Marketing
Officer
Kenneth I. Watchmaker.............................. 58 Executive Vice President, Chief Financial
Officer and Treasurer
James R. Jones, III................................ 56 Senior Vice President and Chief Human Resources
Officer
David A. Pace...................................... 40 Senior Vice President, General Counsel and Clerk
David A. Perdue.................................... 51 Senior Vice President, President and Chief
Executive Officer of the Reebok Division
Terry R. Pillow.................................... 47 Senior Vice President, President and Chief
Executive Officer of The Rockport Company

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 Reebok and has served as its Chief
Executive Officer since Reebok's founding in 1979 and its Chairman of the Board
since 1986. Mr. Fireman served as President of Reebok from 1979 to 1987 and was
appointed again to that position in 1989.

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Mr. Fireman has been a Director since 1979. Mr. Fireman also served as the
President of the Reebok Division in 2000.

Paul R. Duncan resigned as a full-time employee on January 2, 2001. In
February 2000, Mr. Duncan had rejoined Reebok as Executive Vice President and
oversaw the Rockport, Ralph Lauren and Greg Norman brands. Mr. Duncan has been a
Director of Reebok since March 1989. He had been an Executive Vice President of
Reebok from February 1990 until December 1998. From November 1996 until 1999,
Mr. Duncan had a part-time position with Reebok in which he was responsible for
special projects. He was previously President of the Specialty Business Groups
from October 1995 until November 1996. From June 1995 until October 1995, Mr.
Duncan was Chief Operating Officer for the Reebok Division. Prior to June 1995,
Mr. Duncan was Executive Vice President and Chief Financial Officer. Mr. Duncan
joined Reebok in 1985 as Senior Vice President and Chief Financial Officer.

Jay M. Margolis was hired as Executive Vice President and President of the
Specialty Business Groups in December 2000. Mr. Margolis is responsible for
overseeing the management of the following operating units: The Greg Norman
Division, Ralph Lauren Footwear Co., and The Rockport Company. Prior to joining
Reebok, he served as the Chairman and CEO of E7th.com, a business-to-business
supply solution for the footwear industry that links wholesalers with retailers.
Mr. Margolis also served as Chairman and CEO of Esprit de Corporation
(1995-1999). From 1992-1994, he was President and Vice Chairman of the Board of
Directors of Tommy Hilfiger. Mr. Margolis spent nine years at Liz Claiborne,
Inc. where he held several positions including Vice Chairman of the Board of
Directors (1989-1992), President of Liz Claiborne Sportswear (1986-1989) and
President of Liz Claiborne Menswear (1983-1986).

Angel R. Martinez was appointed Chief Marketing Officer in October 1998. He
has been an Executive Vice President of Reebok since February 1994. Previously,
he was President and Chief Executive Officer of The Rockport Company, Inc. from
August 1994 to October 1998. Prior to that, Mr. Martinez was the President of
the Fitness Division of Reebok 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 Reebok for several
years. Mr. Martinez joined Reebok in 1980.

Kenneth I. Watchmaker has been an Executive Vice President of Reebok since
February 1994. He was appointed Chief Financial Officer of Reebok in June 1995
and was elected Treasurer in September 1999. Previously, since February 1994, he
was an Executive Vice President of Reebok with responsibility for finance,
footwear production and management information systems. He joined Reebok in July
1992 as Executive Vice President, Operations and Finance, Reebok Division. Prior
to joining Reebok, Mr. Watchmaker was a Senior Partner of Ernst & Young LLP.

James R. Jones, III has been Senior Vice President and Chief Human
Resources Officer for Reebok since May 1998. Mr. Jones joined Reebok as Senior
Vice President of Human Resources for the Reebok Division in 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.

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David A. Pace became a Senior Vice President of Reebok in February 2001,
having been appointed Vice President and General Counsel, and elected Clerk, in
December 1999. From May 1999 until his promotion, Mr. Pace was Vice President,
Global Alliances and Endorsements for the Reebok Division. Prior to this
position, Mr. Pace was Assistant General Counsel from January 1997 until May
1999. In June 1995, Mr. Pace joined Reebok's legal department as
Counsel-Marketing. Prior to joining Reebok, Mr. Pace was Vice President and
General Counsel of Applied Extrusion Technologies, Inc. from June 1994 to June
1995, prior to which he was an associate at the office of the law firm of Ropes
& Gray.

David A. Perdue was appointed President and Chief Executive Officer of the
Reebok Division in January 2001. Mr. Perdue joined Reebok in September 1998 as a
Senior Vice President of Reebok and as Senior Vice President, Global Supply
Chain. He was promoted to Executive Vice President, Global Operating Units of
the Reebok Division in December 1999. From 1994 until he joined Reebok, Mr.
Perdue was Senior Vice President of Haggar, Inc., where he was responsible for
all aspects of manufacturing, from planning through distribution. From 1992
until 1994, he was based in Hong Kong as Senior Vice President of operations for
Sara Lee.

Terry R. Pillow was appointed Senior Vice President of Reebok and President
and Chief Executive Officer of Rockport in May 1999. Prior to joining Reebok,
Mr. Pillow was President of the apparel division of Coach Leatherware, a
subsidiary of Sara Lee Corporation. From 1989 to 1994, Mr. Pillow served as
President of A/X Armani Exchange, New York.

ITEM 2. PROPERTIES.

Reebok leases most of the properties that are used in its business. In
2000, Reebok moved its corporate headquarters, including the principal offices
of the Reebok Division and its U.S. Operations, to newly built facilities in
Canton, Massachusetts. The headquarters building contains approximately 522,000
square feet of space sited on a 42-acre campus incorporating several outdoor
fields, tracks, and testing areas. Construction was completed in March 2000 and
employee relocation was finished in June 2000. Reebok entered into an operating
lease agreement in 1998 for the purpose of financing construction of the new
facility. Under the agreement, the lessor purchased the property and paid for
the construction costs, and is currently leasing the facility to Reebok. The
initial lease term is six years with five two-year renewal options. The lease
provides substantial residual value guarantees by Reebok and includes a purchase
option at the original cost of the property. The mailing address of this new
facility is 1895 J.W. Foster Boulevard, Canton, Massachusetts 02021.

As a result of the move to new corporate headquarters, Reebok was able to
consolidate operations previously housed in several buildings at various
locations. In 2000, Reebok sold a building it had purchased in 1994, in Avon,
Massachusetts, containing approximately 430,000 square feet of space that was
used as an office and warehouse. Reebok maintains the Reebok Division's
principal U.S. warehouse and distribution center, which contains approximately
450,000 square feet of usable space, in Stoughton, Massachusetts, approximately
five miles from the new headquarters facility. Reebok also leases approximately
330,000 square feet of space in Memphis, Tennessee that it uses as a warehouse
and distribution center.

In 1993, Rockport purchased its corporate headquarters facility in
Marlborough, Massachusetts, containing approximately 80,000 square feet of floor
space. In 2001, Rockport intends

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to move its corporate headquarters to Reebok's new facilities in Canton,
Massachusetts. Rockport expects to sell the Marlborough building during 2001. In
1995 Rockport completed construction of a distribution center of approximately
285,000 usable square feet on approximately 140 acres of land it had purchased
in 1992 in Lancaster, Massachusetts.

Reebok's international operations were previously headquartered in Stockley
Park, London, where Reebok's U.K. subsidiary still leases approximately 37,000
square feet under a fifteen-year lease which is guaranteed by Reebok. This
property has been subleased to two parties for the term of the lease.

In June 1998, Reebok entered into an operating lease agreement for the
purpose of financing construction costs for a new distribution facility in
Rotterdam, The Netherlands. Under the agreement, the lessor leased the land
pursuant to a 99-year ground lease, paid for the construction costs and
subsequently leases the entire facility to Reebok. The initial lease term is six
years with one five-year renewal option. The lease provides for substantial
residual value guarantees by Reebok and includes a purchase option at the
original cost of the property.

Reebok'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 that expires in 2001.

Reebok 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, Reebok believes that these arrangements are satisfactory to meet its
needs.

ITEM 3. LEGAL PROCEEDINGS.

In December 1999, Reebok International Limited, a wholly-owned subsidiary
of Reebok ("Reebok Limited"), filed a lawsuit against the Sydney Organizing
Committee for the Olympic Games ("SOCOG") in the Supreme Court of New South
Wales, Australia. This lawsuit arises from a 1997 sponsorship agreement (the
"Sponsorship Agreement") between Reebok Limited and SOCOG, pursuant to which
Reebok Limited was to be the official sports brand of the Sydney 2000 Summer
Olympic Games. Among other allegations, Reebok Limited alleges that SOCOG
breached the exclusivity provisions of the Sponsorship Agreement by authorizing
certain Reebok competitors to produce branded apparel for the Sydney 2000 Summer
Olympic Games, and seeks damages for breach of contract. In February 2000, SOCOG
counterclaimed, alleging wrongful termination of the Sponsorship Agreement by
Reebok Limited. SOCOG has not specified the amount of damages it will claim;
however Reebok does not believe any adverse judgment will have a material
adverse effect on its financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matter was submitted during the fourth quarter of 2000 to a vote of
security holders, through the solicitation of proxies or otherwise.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's common stock is quoted on the New York Stock Exchange under
the symbol RBK. As of March 16, 2001 there were 6,335 record holders of The
Company's common stock.

The following table sets forth the quarterly high and low sales prices
during 2000 and 1999:

2000 1999
-------------------- -----------------
QUARTER HIGH LOW HIGH LOW
- ------- -------- -------- ------- ------

First................................................ 9 5/8 6 15/16 19 1/4 14 1/2
Second............................................... 18 3/4 9 1/4 22 3/4 15 3/4
Third................................................ 21 15/16 14 13/16 18 5/16 10 3/8
Fourth............................................... 28 1/3 15 3/4 11 1/8 7 7/8

ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data is qualified by reference to, and
should be read in conjunction with, the financial statements, including the
notes thereto, and MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS included elsewhere in this Annual Report.

Amounts in thousands, except per share data
- ---------------------------------------------------------

YEAR ENDED DECEMBER 31, 2000 1999 1998 1997 1996
----------------------- ---------- ---------- ---------- ---------- ----------

Net sales....................... $2,865,240 $2,899,872 $3,224,592 $3,643,599 $3,478,604
Income before income taxes and
minority interest............. 135,805 28,038 37,030 158,085 237,668
Net income...................... 80,878 11,045 23,927 135,119 138,950
Special charges and income tax
benefit....................... -- 39,440 23,674 (839) --
Basic earnings per share........ 1.42 .20 .42 2.41 2.06
Diluted earnings per share...... 1.40 .20 .42 2.32 2.03
Dividends per common share...... -- -- -- -- .225

DECEMBER 31, 2000 1999 1998 1997 1996
------------ ---------- ---------- ---------- ---------- ----------

Working capital................. $ 737,066 $ 626,715 $ 820,277 $ 887,367 $ 946,127
Total assets.................... 1,463,046 1,564,128 1,684,624 1,756,097 1,786,184
Long-term debt.................. 345,015 370,302 554,432 639,355 854,099
Stockholders' equity............ 607,863 528,816 524,377 507,157 381,234

Financial data for 1999 includes special charges of $39,440 after-taxes, or
$0.69 per diluted share, pertaining to restructuring activities in the Company's
global operations and for the settlement of litigation.

Financial data for 1998 includes special charges of $23,674 after-taxes, or
$0.42 per diluted share, in connection with the Company's various business
re-engineering efforts and the restructuring or adjustment of certain
underperforming marketing contracts.

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On June 7, 1996, the Company completed the sale of substantially all of the
operating assets and business of its subsidiary, Avia Group International, Inc.
("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, or $0.69 per diluted share, related to the
conclusion in 1997 of outstanding tax matters associated with the sale of Avia.
1997 also includes total special charges of $39,161 after-taxes, or $0.67 per
diluted share, relating to restructuring activities in the Company's global
operations.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This Annual Report on Form 10-K contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, including
statements with regard to the Company's revenues, earnings, spending, margins,
cash flow, orders, inventory, products, actions, plans, strategies and
objectives. Forward-looking statements include, without limitation, any
statement that may predict, forecast, indicate or imply future results,
performance or achievements, and may contain the words "believe," "anticipate,"
"expect," "estimate," "intend," "plan," "project," "will be," "will continue,"
"will result," "could," "may," "might," or any variations of such words with
similar meanings. Any such statements are subject to risks and uncertainties
that could cause the Company's actual results to 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.

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This list of risk factors is not exhaustive. Other risks and uncertainties
are discussed elsewhere in this report and in further detail in this Annual
Report under the heading ISSUES AND UNCERTAINTIES, as well as in other reports
filed by the Company with the Securities and Exchange Commission ("SEC") such as
Forms 8-K and 10-Q. In addition, the Company operates in a highly competitive
and rapidly changing environment. Therefore, new risk factors can arise, and it
is not possible for management to predict all such risk factors, nor to assess
the impact of all such risk factors on the Company's business or the extent to
which any individual risk factor, or combination of factors, may cause results
to differ materially from those contained in any forward-looking statement.
Accordingly, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.

OPERATING RESULTS 2000

Net sales for the year ended December 31, 2000 were $2.865 billion, a 1.2%
decrease from the year ended December 31, 1999 sales of $2.900 billion. Sales
comparisons were adversely affected by the weakening of various foreign
currencies, particularly the Euro and British Pound Sterling. On a constant
dollar basis, which eliminates the effect of currency fluctuations, net sales
for the year ended December 31, 2000 increased $47.8 million or 1.7%. The Reebok
Division's worldwide sales (including the sales of the GREG NORMAN Collection)
were $2.336 billion in 2000. On a constant dollar basis, the Reebok Division's
worldwide sales increased $45.2 million or 2.0%.

U.S. footwear sales of the REEBOK brand increased 1.9% to $926.4 million in
2000 from $908.8 million in 1999. Footwear sales increased in all of the
Company's key U.S. trade channels. Also for the year, full price, at once
fill-in business increased 40%, while off-price sales decreased 21% and
cancellations decreased 15%.

U.S. apparel sales of the REEBOK brand (including the sales of the GREG
NORMAN Collection) decreased by 11.3% to $233.7 million in 2000 from $263.6
million in 1999. Despite the sales decline in the year, gross margins for
branded REEBOK apparel improved 440 basis points, cancellations declined and
operating expenses were reduced by 19.5%. As a result, the operating profit on
U.S. apparel increased. The Company believes that the overall domestic apparel
market will be challenging during 2001; however, despite these conditions U.S.
apparel may be a long term profitable growth opportunity. Sales of GREG NORMAN
apparel decreased 13.6% for the year end December 31, 2000 as compared to 1999.

International sales of the Reebok Division (including footwear and apparel)
were $1.176 billion in 2000, a decrease of 1.7% from sales of $1.196 billion in
1999. On a constant dollar basis, International sales of the Reebok Division
increased $57.5 million or 5.1%. International comparisons were also adversely
impacted by the changes to the Company's international distribution network.
Effective January 1, 2000, the Company's subsidiaries in Switzerland and Russia
were sold and became independent distributors. Net sales in Europe decreased
9.2% and net sales in the Asia Pacific region increased 14.3% in the year.
Removing the impact of currency and after giving effect to the sale of the
Company's subsidiaries in Russia and Switzerland, net sales in Europe increased
$38.8 million or 4.3% as compared to 1999, and sales in the Asia Pacific region
increased 9.7% in the year. In Latin America, the Company's sales to its
independent distributors increased approximately 37.0% as these distributors
increased their

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purchases to meet local consumer demand. In constant dollars, international
footwear sales increased approximately 9.1%, and international apparel sales
increased by approximately .7%.

Rockport's sales for 2000 decreased by 1.9% to $422.4 million from sales of
$435.0 million in 1999. As many of the Division's older core products declined,
domestic sales for the Rockport brand decreased by 4.6%. International revenues,
which grew by 2.4%, accounted for approximately 25.5% of Rockport's sales in
2000 as compared to 24.2% in 1999. The Company believes that Rockport's new
product introductions for both men and women, which debuted during the second
half of 2000, have been well received by consumers and are experiencing
relatively stronger retail sell-throughs. During 2001 Rockport is planning to
introduce a continual flow of new products in an increased number of retail
doors in the department and specialty store channels of distribution. This
expansion of retail shelf space will be supported by increased media spending
for Rockport's new lifestyle advertising campaign.

Ralph Lauren Footwear had sales of $106.7 million in 2000, an increase of
11.1% from $96.0 million in 1999. The LAUREN line, which the Company launched in
1999, appears to be gaining greater consumer awareness, and the Company believes
that this has resulted in stronger product sell-throughs at retail. During 2001,
Ralph Lauren Footwear plans to continue to expand its LAUREN distribution along
with that of its most recent product line, POLO JEANS CO. footwear, which was
launched this fall in selected retail doors. Over the long term, the Company
believes that this division has opportunities for growth in both the domestic
and international markets.

The Company's overall gross margin was 37.9% of sales for 2000, as compared
to 38.5% for 1999, a decrease of 60 basis points. One of the primary reasons for
the decline was the margin erosion in Europe caused by the weakening of the Euro
and British Pound Sterling which have declined by as much as 20% against the
U.S. Dollar since December 1999. In order to mitigate the impact of currency
fluctuations on the Company's gross margin in 2001, the Company implemented
selective price increases in various countries in Europe, value engineered
certain products to provide greater efficiencies, and changed some of its
sourcing strategies in order to take advantage of the strong U.S. dollar. Based
on these actions, the current exchange rates and the Company's hedging strategy,
the Company believes that its gross margin performance during 2001 will be
slightly down from 2000.

Selling, general and administrative expenses for the year ended December
31, 2000 were $915.4 million, or 31.9% of sales, as compared to $971.9 billion,
or 33.5% of sales for 1999 a decline of $56.5 million or 160 basis points as a
percentage of sales. General and administrative expenses decreased 7.8%. The
Company's multiple brand strategy continues to enable the Company to leverage
many core competencies across all of its brands for greater business
efficiencies. The Company expects to be able to generate revenue growth during
2001 and with that growth should come some operating leverage resulting in
selling, general and administrative expenses declining as a percentage of sales.
Included in this operating leverage is Reebok's current plan to significantly
increase its worldwide spending for advertising and other working media in order
to generate greater consumer demand for its products and greater sell-throughs
for its retailers. This marketing spend will be funded primarily from
anticipated revenue increases, additional operating efficiencies, reallocating
funds from non-working to working media and from the elimination of programs
which are not critical to the Company's near-term strategic focus.

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Interest expense decreased in 2000 as compared to 1999 as a result of
strong cash flow generation and debt repayments. Other expense includes foreign
currency losses and net losses from the sale or disposal of certain assets
primarily related to facilities consolidation and the change in estimates for
special charges. Also included in other expense is amortization of intangible
assets of $5.4 million for the year ended December 31, 2000. The Company did not
record any special charges during 2000, but did change certain previously
recorded estimates.

Details of the special charge activity during 2000 are as follows:

TERMINATION
LEGAL EMPLOYEE FIXED ASSET MARKETING OF LEASES
(DOLLARS IN THOUSANDS) TOTAL SETTLEMENT SEVERANCE WRITE-DOWNS CONTRACTS AND OTHER
---------------------- -------- ---------- --------- ----------- --------- -----------

Balance, December 31, 1999...... $ 65,557 $21,424 $18,917 $ 15,534 $ 9,091 $ 591
2000 Change in Estimates........ 3,289 (3,751) 6,210 830
2000 Utilization................ (26,953) (5,615) (6,670) (11,252) (2,263) (1,153)
-------- ------- ------- -------- ------- -------
Balance, December 31, 2000...... $ 41,893 $15,809 $ 8,496 $ 10,492 $ 6,828 $ 268
======== ======= ======= ======== ======= =======

The effective income tax rate was 36.1% for 2000 as compared to 36.0% for
1999. Looking forward, dependent on the geographic mix of earnings in 2000, the
Company expects that the full year 2001 rate will be approximately 31.0% based
on current estimates. However, the rate could fluctuate from quarter to quarter
depending on where the Company earns its income geographically, and, if the
Company incurs non-benefitable losses in certain economically troubled regions,
the rate could increase.

At December 31, 2000, the Company had recorded net deferred tax assets of
$119.8 million, of which $34.8 million is attributable to the expected
utilization of tax net operating loss carryforwards. The remainder, $85.0
million, is attributable to tax credit carryforwards and the net tax effect of
temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Although realization is not assured, management believes it is more likely than
not that the net deferred tax assets will be realized. The estimate of future
taxable income relates to operations of the Company which have, in the past,
generated a level of taxable income in excess of amounts of future taxable
income necessary to realize the deferred tax assets. In addition, the Company
has tax planning strategies which can utilize a portion of the tax net operating
loss carryforwards and thereby reduce the likelihood that they will expire
unused. However, if the Company's estimates of future taxable income are not
realized in the near-term, the net carrying value of the deferred tax assets
could be reduced thereby impacting future net income.

In December, 2000 the Company announced it had entered into an agreement in
principle with the National Football League ("NFL"). Beginning in the 2002 NFL
season, the Company will have the exclusive right to supply and market on-field
uniforms and sideline apparel, practice apparel and headgear for all 32 NFL
teams. The Company will also have the exclusive right to develop a new line of
NFL fitness equipment and several new product lines including NFL Classic
apparel and NFL fitness apparel. The Company intends to create a new subsidiary
dedicated to the NFL apparel and fitness business. As part of the agreement, the
NFL will receive annual royalty guarantees and will have the option to acquire
an equity position in the new subsidiary. In addition, the Company will grant
warrants to the NFL to purchase up to 1.6 million shares of the Company's common
stock. The exercisability and exercise price of the warrants will vary depending
on the achievement of various financial

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criteria and the duration of the license. This arrangement is subject to the
negotiation and completion of definitive documentation, which as of March 16,
2001, has not yet been completed.

OPERATING RESULTS 1999

Net sales for the year ended December 31, 1999 were $2.900 billion, a 10.1%
decrease from the year ended December 31, 1998 sales of $3.225 billion. The
Reebok Division's worldwide sales (including the sales of the GREG NORMAN
Collection) were $2.369 billion in 1999, a 12.0% decrease from sales of $2.691
billion in 1998. U.S. footwear sales of the REEBOK brand decreased 13.5% to $919
million in 1999 from $1.062 billion in 1998. U.S. footwear sales in most
categories declined. The Classic category declined partially as a result of the
Company's effort to redefine its distribution strategy in anticipation of new
Classic product extensions that began in year 2000. U.S. apparel sales of the
REEBOK brand decreased by 29.9% to $253.8 million from $362.2 million in 1998.
During 1999, there was general softness in the U.S. for branded athletic
apparel. These market conditions, combined with the Company's efforts to
strategically reposition the U.S. business by limiting distribution and
eliminating many unprofitable product offerings, had an adverse impact on U.S.
apparel revenues. Sales of GREG NORMAN apparel also declined in the year. During
1999, the domestic golf and branded apparel market was promotional and
overdistributed. For 2000, in an attempt to manage the Company's apparel
operations profitably, this division reduced the number of retail doors in which
its products are carried. Also, beginning in 2000, REEBOK golf footwear was
integrated with the GREG NORMAN Collection to create a more complete golf
product line.

International sales of the Reebok Division (including footwear and apparel)
were $1.197 billion in 1999, a decrease of 5.5% from International sales of
$1.267 billion in 1998. International sales were adversely impacted by start-up
issues experienced in the Company's new Distribution and Shared Services Centers
in Rotterdam and with various new software systems. The Company estimates that
between $15-$20 million of the International sales decline can be directly
attributable to these issues. Excluding the countries affected by the new
software and distribution center, International sales increased slightly and
sales in Europe were approximately the same as in 1998. Sales in Asia Pacific
increased 10.6% when compared to 1998. Fluctuations in foreign currency exchange
rates accounted for approximately a 1% decline in sales in 1999. Most of the
REEBOK brand's International footwear categories declined during the year;
however, the men's cross-training category had a sales increase. International
apparel sales increased slightly.

Rockport's sales for 1999 decreased by 5.6% to $435.0 million from $460.7
million in 1998. International revenues, which grew by 4.7%, accounted for
approximately 24.2% of Rockport's sales in 1999 as compared to 21.8% in 1998.
Domestic sales for the Rockport brand decreased by 9.2%. Domestically, sales
decreased in most categories. Sales for many of the Rockport's core dress
products for men have declined and Rockport updated and refreshed this line in
2000. Also, in 2000, Rockport introduced a wider selection of DMX technology
into many of its new products along with a new and improved "Millennium" fit.
Most of these new products debuted at retail in the second half of 2000.

Ralph Lauren Footwear had a sales increase of 31.1% in 1999 to $96.0
million from $73.2 million in 1998. During the fall of 1999, the LAUREN line of
women's footwear debuted at

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retail and in 2000 the Company introduced footwear complementing the POLO JEANS
CO. and RALPH LAUREN children's apparel categories. During 1999, the Company
increased its advertising and marketing commitment for this brand and continued
this investment through much of 2000.

The Company's overall gross margin was 38.5% of sales for 1999, as compared
to 36.8% for 1998, an increase of 170 basis points. The increase is primarily
attributable to the strengthening of the Company's initial pricing margins due
to manufacturing and sourcing efficiencies and to lower markdowns, cancellations
and returns for the Reebok Brand.

Selling, general and administrative expenses for the year ended December
31, 1999 were $971.9 million, or 33.5% of sales, as compared to $1.043 billion,
or 32.4% of sales for 1998. While the Company's overall spending declined $71.3
million during 1999 as compared to 1998, spending as a percentage of sales
increased slightly. During 1999, the Company incurred start-up expenses for the
new Distribution and Shared Services Centers in Rotterdam as well as for its
global information systems re-engineering efforts. These start-up expenses, many
of which are redundant in nature, amounted to approximately $35.3 million for
1999. The Company benefited from the various cost reduction programs initiated
in 1998 as all other selling, general and administrative expenses declined from
1998's levels. Further, the implementation of the Company's new global software
solution and further migration to the new Distribution Center was for the most
part postponed until 2001. The Company's intention was to limit its business
risk from these initiatives during 2000 allowing the new software and
distribution center to mature. For 2000, the Company's overall spending was
planned to be at approximately the same level as 1999. Cost savings from the
Company's restructuring activities and the reduction of start-up expenses in
2000 were re-invested in marketing and other expenses to support all of the
Company's brands.

The financial results of 1999 included special charges of $61.6 million
($39.4 million after-tax or $0.69 per diluted share). $38.0 million of the
special charges relates to restructuring activities in the Company's global
operations and $23.6 million to the settlement of litigation. The portion of the
charges that is for restructuring relates primarily to personnel expenses for
headcount reductions, asset valuation reserves and accruals related to the
abandonment of certain activities. The business re-engineering will result in
the elimination of approximately 600 full-time positions. The remainder of this
portion of the charge is primarily for lease terminations and the write-down of
assets held for sale or no longer in use. During the fourth quarter of 1999,
approximately $2.0 million of the legal settlement was paid, with the balance
payable during 2001. Approximately $46.0 million of the total charge will
require cash payments.

Details of the special charge activity during 1999 are as follows:

Balance, December 31, 1998...... $ 30,298 $ 7,215 $ 5,766 $14,742 $ 2,575
1999 Charge..................... 64,125 $23,625 20,283 16,104 4,113
1999 Change in Estimates........ (2,500) (2,500)
1999 Utilization................ (26,366) (2,201) (8,581) (3,836) (5,651) (6,097)
-------- ------- ------- ------- ------- -------
Balance, December 31, 1999...... $ 65,557 $21,424 $18,917 $15,534 $ 9,091 $ 591
======== ======= ======= ======= ======= =======

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Interest expense decreased in 1999 as compared to 1998 as a result of
strong cash flow generation and debt repayments. Other expense was $8.6 million
for the twelve months, a decline of $10.5 million from last year. The 1998
amount includes the Company's write-down of its investment in its Brazilian
joint venture and losses due to currency devaluation in Russia. Also included in
other expense is amortization of intangible assets of $5.2 million for the year
ended December 31,1999.

The effective income tax rate was 36.0% for 1999 as compared to 32.2% for
1998. The increase was due to a change in the mix of earnings and the impact of
non-deductible expenses.

REEBOK BRAND BACKLOG

The REEBOK brand backlog (including GREG NORMAN Collection apparel) of open
customer orders scheduled for delivery during the period from January 1, 2001
through June 30, 2001 increased 7.8% on a local currency basis, or 4.9% in
reported dollars as compared to the same period last year. U.S. backlog for the
REEBOK brand, increased 8.1% and the international backlog, which includes
Canada, increased 7.4% in constant dollars or .9% in reported dollars. Reebok's
U.S. footwear backlog increased 8.2% and Reebok U.S. apparel backlog (including
GREG NORMAN Collection apparel) increased 7.2% as compared to the same period
last year. These open backlog comparisons are not necessarily indicative of
future sales trends. Many orders are cancelable, sales by Company-owned retail
stores can vary from year-to-year, many markets in Latin America and Asia
Pacific are not included in the open orders since sales are made by independent
distributors and the ratio of orders booked early to at-once shipments can vary
from period to period.

LIQUIDITY AND SOURCES OF CAPITAL

Working capital was $737.1 million at December 31, 2000 and $626.7 million
at December 31, 1999. The current ratio at December 31, 2000 was 2.5 to 1
compared to 2.0 to 1 at December 31, 1999. Outstanding bank indebtedness has
been reduced by $215.4 million over the last twelve months whereas the Company's
cash position as compared with a year ago has decreased only $13.1 million. On
February 28, 2001, the Company completed a $250.0 million convertible debt
offering. The Company will use the net proceeds along with cash on hand to repay
the outstanding balance on its term loan (See note 5 to the Audited Consolidated
Financial Statements).

Accounts receivable increased by $6.4 million from December 31, 1999, an
increase of 1.5%. Inventory decreased by $21.0 million, or 5.1% from December
31, 1999. U.S. footwear inventories of the Reebok Brand increased 13.4% at
year-end as compared to 1999, Reebok U.S. apparel inventories were down 8.4%,
International inventories declined 3.8% and Rockport inventories increased 5.4%.

Cash provided by operations during 2000 was $183.1 million, as compared to
cash provided by operations of $281.6 million during 1999. Cash provided by
investing activities was $10.8 million as a result of the proceeds of $42.4
million from the sale of certain assets. Capital expenditures for the year ended
December 31, 2000 were $29.1 million, a decrease from 1999 due to higher
investments in 1999 for the Company's European Logistics and Shared Service
Companies, international retail expansion and other information systems
initiatives. Capital

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expenditures for 2001 are expected to be approximately $40.0 to $45.0 million.
Cash generated from operations, together with the Company's existing credit
lines and other financial resources, is expected to adequately finance the
Company's planned 2001 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, the
matters discussed in this Annual Report on Form 10-K under the heading ISSUES
AND UNCERTAINTIES, as well as future events that might have the effect of
reducing the Company's available cash balances (such as unexpected operating
losses or 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.

CONTINGENCIES

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,
as more fully described above in the section entitled TRADE POLICY. 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, or Thailand, or significantly increase the cost
to the Company of such products, the Company's operations could be seriously
disrupted until alternative suppliers were found, with a significant negative
financial impact.

For several years, imports from China to the United States, 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
2001. If China is admitted to the World Trade Organization (the "WTO"), the
likelihood of future trade restrictions on China-sourced products by the United
States and other nations would be reduced. If China joins the WTO by the 3rd
quarter 2001, it will be granted permanent Normal Trade Relations (PNTR) status,
eliminating the annual review process regarding trade status and further reduce
the likelihood of future trade restrictions on China-sourced products by the
United States. Should China not join the WTO, Congress will again debate PNTR.
Whether or not China is admitted to the WTO and/or granted permanent Normal
Trade Relations status, the Company does not currently anticipate that
restrictions on imports from China will be imposed by the United States during
2001. 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 that should allow it to diversify some of its sourcing to
countries other than China if any such adverse action occurred. In addition, the
Company does not believe that it would be more negatively impacted by any such
adverse action than its major competitors. The 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.

39
43

The European Union (the "EU") imposed import quotas on certain footwear
from China in 1994. The effect of such quota scheme on the Company 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 and some ROCKPORT products. The EU and individual EU
member states continue to review the athletic footwear exemption which applies
to both the quota scheme and antidumping duties discussed below. The Company, on
its own as well as 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, requiring sourcing from countries other than China, or
minor design modification. Should any narrowing of the exemption be imposed, the
Company does not expect that its products would be more severely affected than
those of its major competitors.

In addition to the quotas on China-sourced footwear, 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 were 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 apply only to low-cost
footwear, below the import prices of most REEBOK and ROCKPORT products. Thus the
Company's products have not been significantly impacted by such duties.

The EU continues to expand the list of restricted substances in consumer
products. The Company has taken aggressive steps to assure that its suppliers
and factories are in full compliance with EU Directives and enforcement
initiatives of EU member states in accordance with the terms of their
agreements. Despite these efforts, from time to time the Company may have some
product already in the distribution chain that does not comply with the most
recent EU Directives. This could cause some disruption to the delivery of
product to the market. As a result, it may be necessary to substitute styles, to
delay deliveries or even to forego sales. The Company believes that its major
competitors are similarly impacted by these EU restrictions.

The Company is also aware of possible consumer rejection of products
containing substances not restricted by the EU or any Member State for
environmental, health and human rights concerns. Such consumer action, and the
response of retailers, could disrupt Company distribution and cause withdrawal
of the product from the market, which would substantially impact the Company's
sales of those specific products. To date the Company has not encountered
rejection on any of its products, but is aware of such consumer action against
certain competitors' products, which has lead to the voluntary recall of such
products. While it is impossible to predict such consumer action, the Company is
closely monitoring the demands of non-governmental organizations active in
Europe. The Company believes that it is no more exposed to such adverse action
than its major competitors.

40
44

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 and is attempting to develop new production capacity in countries
not subject to those restrictions. Nevertheless, 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.

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 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 other income (expense) for the years ended December 31, 2000, 1999 and 1998
were $7.0 million, $10.0 million and $12.0 million, respectively. The Company
has used forward exchange contracts and options as an element of its risk
management strategy for several years.

At December 31, 2000, the Company had forward currency exchange contracts
and options, all having maturities of less than one year, with a notional amount
aggregating $547.1 million. The contracts involved twelve different foreign
currencies, of which the Euro currency represented 61% of the aggregate notional
amount. The notional amount of the contracts intended to hedge merchandise
purchases was $486.1 million. Deferred gains (losses) on these contracts were
not material at December 31, 2000 or 1999.

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 are also used to
manage interest rate exposure under certain of the Company's leases. 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 or rent expense. At December 31, 2000, the
notional amount of interest rate swaps outstanding was $322.0 million. Interest
expense in 2000, 1999 and 1998 would not have been materially different if these
swap agreements had not been used.

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents, accounts
receivable and hedging instruments. The Company places cash equivalents with
high credit major financial institutions and, by policy,

41
45

limits the amount of credit exposure to any one financial institution. Credit
risk on trade receivables is somewhat minimized as a result of the Company's
worldwide customer base and the fact that no one customer represents 10% or more
of the Company's net sales.

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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is exposed to the impact of interest rate changes and foreign
currency fluctuations due to its international sales, production, and funding
requirements.

In the normal course of business, the Company employs established policies
and procedures to manage its exposure to changes in interest rates and
fluctuations in the value of foreign currencies using a variety of financial
instruments. It is the Company's policy to utilize financial instruments to
reduce risks where internal netting and other strategies cannot be effectively
employed.

The Company's objective in managing its exposure to interest rate changes
is to limit the impact of interest rate changes on earnings and cash flows and
to lower its overall borrowing costs. To achieve these objectives, the Company
primarily uses interest rate swaps to manage net exposure to interest rate
changes related to its portfolio of borrowings. The Company maintains fixed rate
debt as a percentage of its net debt between a minimum and maximum percentage,
which is set by policy, or as may be required by certain loan agreements.

The Company's objective in managing the exposure to foreign currency
fluctuations is to reduce earnings and cash flow volatility associated with
foreign exchange rate changes. The Company enters into forward 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. Accordingly,
these contracts change in value as foreign exchange rates change to protect the
value of these assets, liabilities, and merchandise purchases. The gains and
losses on these contracts offset changes in the value of the related exposures.

It is the Company's policy to enter into foreign currency and interest rate
transactions only to the extent considered necessary to meet its objectives as
stated above. The Company does not enter into foreign currency or interest rate
transactions for speculative purposes.

The Company prepared a sensitivity analysis of its financial instruments to
determine the impact of hypothetical changes in interest rates and foreign
currency exchange rates on the Company's results of operations, cash flows, and
the fair value of its financial instruments. The interest rate analysis assumed
a 100 basis point adverse change in interest rates of all financial instruments.
The foreign currency rate analysis assumed that each foreign currency rate would
change by 10% in the same direction relative to the U.S. dollar on all financial
instruments. Based on the results of these analyses of the Company's financial
instruments, a 100 basis point adverse change in interest rates from year-end
2000 levels would reduce the fair value of the

42
46

interest rate swaps by $12.6 million and a 10% adverse change in foreign
currency rates would reduce the fair value of the forward currency exchange
contracts and options by $43.7 million. In addition, a 100 basis point increase
in interest rates from year-end 2000 levels would increase interest expense on
floating rate debt (net of hedges) by $1.1 million.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO FINANCIAL STATEMENTS

Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... 44
Consolidated Statements of Income for the years ended
December 31, 2000, 1999 and 1998.......................... 45
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2000, 1999 and 1998.............. 46
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.......................... 47
Notes to Consolidated Financial Statements.................. 48
Report of Independent Auditors.............................. 65
Report of Management........................................ 66

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

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47

REEBOK INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS

Amounts in thousands, except share data
DECEMBER 31 2000 1999
- ----------- ---------- ----------

ASSETS
Current assets:
Cash and cash equivalents................................. $ 268,665 $ 281,744
Accounts receivable, net of allowance for doubtful
accounts (2000, $48,016; 1999, $46,217)................ 423,830 417,404
Inventory................................................. 393,599 414,616
Deferred income taxes..................................... 101,715 88,127
Prepaid expenses and other current assets................. 37,396 41,227
---------- ----------
Total current assets................................... 1,225,205 1,243,118
---------- ----------

Property and equipment, net................................. 141,835 178,111
Other non-current assets:
Intangibles, net of amortization.......................... 64,288 68,892
Deferred income taxes..................................... 18,110 43,868
Other..................................................... 13,608 30,139
---------- ----------
Total Assets........................................... $1,463,046 $1,564,128
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks.................................... $ 8,878 $ 27,614
Current portion of long-term debt......................... 13,813 185,167
Accounts payable.......................................... 172,035 153,998
Accrued expenses.......................................... 272,076 241,322
Income taxes payable...................................... 21,337 8,302
---------- ----------
Total current liabilities.............................. 488,139 616,403
---------- ----------

Long-term debt, net of current portion...................... 345,015 370,302
Minority interest and other long-term liabilities........... 22,029 48,607
Commitments and contingencies

Stockholders' equity:
Common stock, par value $.01; authorized 250,000,000
shares; issued shares 96,208,558 in 2000; 92,985,737 in
1999................................................... 962 930
Retained earnings......................................... 1,301,269 1,170,885
Less 38,716,227 shares in 2000 and 36,716,227 in 1999 in
treasury at cost....................................... (653,370) (617,620)
Unearned compensation..................................... (1,402)
Accumulated other comprehensive income (expense).......... (39,596) (25,379)
---------- ----------
Total Stockholders' Equity............................. 607,863 528,816
---------- ----------
Total Liabilities and Stockholders' Equity............. $1,463,046 $1,564,128
========== ==========

The accompanying notes are an integral part of the consolidated financial
statements.

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48

REEBOK INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF INCOME

Amounts in thousands, except per share data
YEAR ENDED DECEMBER 31 2000 1999 1998
---------------------- ---------- ---------- ----------

Net sales................................................. $2,865,240 $2,899,872 $3,224,592
Costs and expenses:
Cost of sales........................................... 1,779,686 1,783,914 2,037,465
Selling, general and administrative expenses............ 915,387 971,945 1,043,199
Special charges......................................... 61,625 35,000
Interest expense, net................................... 22,126 40,532 49,299
Other expenses, net..................................... 12,236 13,818 22,599
---------- ---------- ----------
2,729,435 2,871,834 3,187,562
---------- ---------- ----------

Income before income taxes and minority interest.......... 135,805 28,038 37,030
Income taxes.............................................. 49,000 10,093 11,925
---------- ---------- ----------
Income before minority interest........................... 86,805 17,945 25,105
Minority interest......................................... 5,927 6,900 1,178
---------- ---------- ----------
Net income................................................ $ 80,878 $ 11,045 $ 23,927
========== ========== ==========

Basic earnings per share.................................. $ 1.42 $ .20 $ .42
========== ========== ==========
Diluted earnings per share................................ $ 1.40 $ .20 $ .42
========== ========== ==========

The accompanying notes are an integral part of the consolidated financial
statements.

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49

REEBOK INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

ACCUMULATED
OTHER
COMMON COMPRE-
STOCK UNEARNED HENSIVE
ISSUED (PAR VALUE RETAINED TREASURY COMPEN- INCOME
DOLLAR AMOUNTS IN THOUSANDS SHARES TOTAL $.01) EARNINGS STOCK SATION (EXPENSE)
- --------------------------- ---------- -------- ---------- ---------- --------- -------- -----------

Balance, December 31, 1997......... 93,115,835 $507,157 $931 $1,145,271 $(617,620) $ (140) $(21,285)
========== ======== ==== ========== ========= ======= ========
Comprehensive income:
Net income....................... 23,927 23,927
Adjustment for foreign currency
translation.................... 5,636 5,636
--------
Comprehensive income........... 29,563
Issuance of shares to certain
employees...................... 14,704 458 (458)
Amortization of unearned
compensation................... 387 387
Shares repurchased and retired... (114,920) (3,181) (1) (3,365) 185
Shares issued under employee
stock purchase plans........... 223,583 3,821 2 3,819
Shares issued upon exercise of
stock options.................. 67,440 1,187 1 1,186
Put option contracts
outstanding.................... (16,559) (16,559)
Premium received from unexercised
equity put option.............. 2,002 2,002
---------- -------- ---- ---------- --------- ------- --------
Balance, December 31, 1998......... 93,306,642 524,377 933 1,156,739 (617,620) (26) (15,649)
---------- -------- ---- ---------- --------- ------- --------
Comprehensive income:
Net income....................... 11,045 11,045
Adjustment for foreign currency
translation.................... (9,730) (9,730)
--------
Comprehensive income........... 1,315
Issuance of shares to certain
employees...................... 4,449 116 (116)
Amortization of unearned
compensation................... 142 142
Shares repurchased pursuant to
equity put options............. (625,000) 0 (6) 6
Shares issued under employee
stock purchase plans........... 292,432 2,885 3 2,882
Shares issued upon exercise of
stock options.................. 7,214 97 97
---------- -------- ---- ---------- --------- ------- --------
Balance, December 31, 1999......... 92,985,737 528,816 930 1,170,885 (617,620) (0) (25,379)
---------- -------- ---- ---------- --------- ------- --------
Comprehensive income:
Net income....................... 80,878 80,878
Adjustment for foreign currency
translation.................... (14,217) (14,217)
--------
Comprehensive income........... 66,661
Issuance of shares to certain
employees...................... 406,370 2 4 3,158 (3,160)
Amortization of unearned
compensation................... 1,758 1,758
Shares issued under employee
stock purchase plans........... 276,427 2,537 3 2,534
Shares issued upon exercise of
stock options.................. 2,540,024 42,554 25 42,529
Acquisition of treasury shares... (35,750) (35,750)
Income tax reductions relating to
exercise of stock options...... 1,285 1,285
---------- -------- ---- ---------- --------- ------- --------
Balance, December 31, 2000......... 96,208,558 $607,863 $962 $1,301,269 $(653,370) $(1,402) $(39,596)
========== ======== ==== ========== ========= ======= ========

The accompanying notes are an integral part of the consolidated financial
statements.

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50

REEBOK INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Amounts in thousands
YEAR ENDED DECEMBER 31 2000 1999 1998
- ---------------------- --------- --------- ---------

Cash flows from operating activities:
Net income................................................ $ 80,878 $ 11,045 $ 23,927
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 46,201 48,643 48,017
Minority interest...................................... 5,927 6,900 1,178
Deferred income taxes.................................. 12,170 (9,364) (28,074)
Loss on sale of assets, net............................ 1,263
Special charges........................................ 61,625 35,000
Accounts receivable.................................. (15,853) 85,698 63,951
Inventory............................................ 1,078 109,381 39,134
Prepaid expenses and other........................... 8,116 5,986 8,626
Accounts payable and accrued expenses................ 28,142 (18,338) (65,616)
Income taxes payable................................. 15,197 (19,951) 25,634
--------- --------- ---------
Total adjustments......................................... 102,241 270,580 127,850
--------- --------- ---------
Net cash provided by operating activities................... 183,119 281,625 151,777
--------- --------- ---------
Cash flows provided by (used for) investing activities:
Payments to acquire property and equipment................ (29,158) (51,197) (53,616)
Proceeds from sale of assets.............................. 42,438
Acquisition of minority interest in certain
subsidiaries........................................... (2,476)
--------- --------- ---------
Net cash provided by (used for) investing activities........ 10,804 (51,197) (53,616)
--------- --------- ---------
Cash flows used for financing activities:
Net borrowings (repayments) of notes payable to banks..... (17,353) (22,269) 2,048
Repayments of long-term debt.............................. (196,086) (85,020) (121,016)
Proceeds from issuance of common stock to employees....... 10,683 2,982 5,008
Dividends to minority shareholders........................ (17,966) (6,649)
Repurchases of common stock............................... (16,559) (3,366)
Proceeds from premium on equity put options............... 2,002
--------- --------- ---------
Net cash used for financing activities...................... (202,756) (138,832) (121,973)
--------- --------- ---------
Effect of exchange rate changes on cash..................... (4,246) 10,078 (5,884)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ (13,079) 101,674 (29,696)
Cash and cash equivalents at beginning of year.............. 281,744 180,070 209,766
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 268,665 $ 281,744 $ 180,070
========= ========= =========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 36,162 $ 43,620 $ 58,224
Income taxes paid......................................... 22,736 35,147 26,068

The accompanying notes are an integral part of the consolidated financial
statements.

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51

REEBOK INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

1
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

BUSINESS ACTIVITY

The Company and its subsidiaries design and market sports and fitness
products, including footwear and apparel, as well as footwear and apparel for
non-athletic "casual" use, under various trademarks, including REEBOK, the GREG
NORMAN Logo, ROCKPORT and footwear under RALPH LAUREN and POLO.

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 when products are shipped and title passes.

SHIPPING AND HANDLING

Shipping and handling costs are included in Selling, general, and
administrative expenses.

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 $108,200, $106,439, and $143,471 for the years ended December 31,
2000, 1999 and 1998, respectively.

RESEARCH AND DEVELOPMENT

Product research, development and evaluation expenses amounted to
approximately $49,757, $55,404, and $65,717 for the years ended December 31,
2000, 1999 and 1998.

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52

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company accounts 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 Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation."

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 lives.
Buildings and leasehold improvements are depreciated over the shorter of the
lease term or the estimated useful lives of the assets which range from 2 to
31.5 years. Fixtures, equipment and furniture are depreciated over 2 to 10
years.

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.

Intangibles are reviewed by the Company for potential impairment
periodically to determine if the carrying value exceeds fair value. In the event
that an impairment was identified, the Company would measure such impairment
utilizing cash flows, discounted at an appropriate interest rate at such time.

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 component of
comprehensive income. 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 non-monetary assets
are translated at historical rates and

49
53

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 the liability
method. 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.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("Statement 133"). Statement 133 will require the
Company to record all derivatives on the balance sheet at fair value. For
derivatives that are hedges, changes in the fair value of derivatives will be
offset by changes in the underlying hedged item in earnings in the same period.
In June 1999, the Financial Accounting Standards Board delayed the effective
date of Statement 133 to the first quarter of fiscal years beginning after June
15, 2000. The Company adopted Statement 133 on January 1, 2001. The adoption of
this standard is not expected to have a material impact on the Company's
financial position or results from operations.

RECLASSIFICATION

Certain amounts in prior years have been reclassified to conform to the
2000 presentation.

2
SPECIAL CHARGES

The Company did not record any new charges during 2000 but did change
certain previously recorded estimates. The change in estimates has been reported
in other expense, net in the accompanying consolidated financial statements for
the year ended December 31, 2000.

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54

Details of the special charge activity during the three years ended
December 31, 2000 are as follows:

TERMINATION
LEGAL EMPLOYEE FIXED ASSET MARKETING OF LEASES
TOTAL SETTLEMENT SEVERANCE WRITE-DOWNS CONTRACTS AND OTHER
-------- ---------- --------- ----------- --------- -----------

Balance, December 31, 1997........ $ 47,061 $ 8,400 $ 6,900 $ 25,000 $ 6,761
1998 Charge....................... 35,000 14,798 18,476 1,726
1998 Utilization.................. (51,763) (15,983) (1,134) (28,734) (5,912)
-------- -------- -------- -------- -------
Balance, December 31, 1998........ 30,298 7,215 5,766 14,742 2,575
1999 Charge....................... 64,125 $23,625 20,283 16,104 4,113
1999 Change in estimates.......... (2,500) (2,500)
1999 Utilization.................. (26,366) (2,201) (8,581) (3,836) (5,651) (6,097)
-------- ------- -------- -------- -------- -------
Balance, December 31, 1999........ 65,557 21,424 18,917 15,534 9,091 591
2000 Change in estimates.......... 3,289 (3,751) 6,210 830
2000 Utilization.................. (26,953) (5,615) (6,670) (11,252) (2,263) (1,153)
-------- ------- -------- -------- -------- -------
Balance, December 31, 2000........ $ 41,893 $15,809 $ 8,496 $ 10,492 $ 6,828 $ 268
======== ======= ======== ======== ======== =======

In 1999, the Company recorded a special charge of $61,625 ($39,440
after-tax or $0.69 per diluted share); $38,000 of the special charge related to
restructuring activities in the Company's global operations and $23,625 to the
settlement of litigation. The portion of the charge for restructuring relates
primarily to personnel expenses for headcount reductions, asset valuation
reserves and accruals related to the abandonment of certain activities. The
business re-engineering resulted in the elimination of approximately 600
full-time positions. The remainder of this portion of the charge was primarily
for lease terminations and the write-down of assets held for sale or no longer
in use. As of December 31, 2000 approximately $7,800 of the legal settlement was
paid, with the balance payable during 2001. Approximately $46,000 of the charge
will require cash payments.

In 1998, the Company recorded a special charge of $35,000 ($23,674 after
tax, or $0.42 per diluted share) in connection with the Company's ongoing
business re-engineering efforts. The charge was for personnel related expenses
and certain other charges associated with the restructuring or adjustment of
underperforming marketing contracts. The business re-engineering resulted in the
termination of approximately 485 full-time positions. The underperforming
marketing contracts have been terminated or restructured to focus the Company's
spending on those key athletes and teams who are more closely aligned with its
brand positioning. The charge consists of certain one-time expenses,
substantially all of which were or will be cash payments.

The short term portion of the accrual, or $32,127 is included in accrued
expenses with the balance of $9,766 included in other long term liabilities. The
remaining accruals are expected to be utilized during fiscal 2001 through 2003,
as leases expire, consolidations occur, contractual obligations come due and
severance payments are made. The fixed asset write-downs relate to assets that
will be abandoned or sold.

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3
PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

DECEMBER 31 2000 1999
- ----------- -------- --------

Land...................................................... $ 7,508 $ 8,699
Buildings................................................. 55,184 65,863
Fixtures, equipment and machinery......................... 249,854 285,533
Leasehold improvements.................................... 43,433 61,590
-------- --------
355,979 421,685
Less accumulated depreciation and amortization............ 214,144 243,574
-------- --------
$141,835 $178,111
======== ========

4
INTANGIBLES

Intangibles consist of the following:

DECEMBER 31 2000 1999
- ----------- ------- -------

Excess of purchase price over fair value of assets
acquired.................................................. $38,080 $39,600
Other intangible assets:
Purchased technology...................................... 52,827 52,827
Company tradename and trademarks.......................... 51,927 51,384
Other..................................................... 12,969 12,969
------- -------
155,803 156,780
Less accumulated amortization............................... 91,515 87,888
------- -------
$64,288 $68,892
======= =======

5
FINANCING AGREEMENTS

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 a Dutch Auction self tender
offer. Under the Dutch Auction self-tender offer, the Company repurchased
approximately 17.0 million common shares at a price of $36.00 per share. 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 also included a $750,000 revolving credit facility,
expiring on August 31, 2002 which replaced the Company's previous $300,000
credit line. The revolving credit facility is available to finance the
short-term working capital needs of the Company, if required. As part of the
agreement, the Company is required to pay certain commitment fees on the unused
portion of the revolving credit facility. The Credit Agreement included various

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56

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
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 July 1, 1997) on substantially the same payment schedule, after adjusting
for the $100,000 in optional prepayments made in 1997. The amendment also
reduced the revolving credit portion of the facility from $750,000 to $400,000.
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 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.

On September 30, 1998 the Company further amended the Credit Agreement. The
amendment relaxed certain financial covenants through June 2000, at which time
they returned to their original levels.

On March 22, 2000, the Company amended and restated the Credit Agreement.
This amendment left the remaining portion of the six year term loan of $342,398
(as of March 22, 2000) on substantially the same payment schedule. The amendment
also reduced the revolving credit portion of the facility from $400,000 to
$300,000 and established a Letter of Credit sub-facility in the amount of $200
million. 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 increased. The amendment also relaxed covenants pertaining to
future indebtedness and increased the borrowing margins charged by the banks on
the variable-rate term loan. All other material terms and conditions of the
Credit Agreement remained unchanged. At December 31, 2000 and 1999, there were
no borrowings outstanding under the revolving credit portion of this agreement.

At December 31, 2000 and 1999, the effective rate of interest on the
variable-rate term loan was approximately 6.6% and 6.2%, 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, 2005 are $13,813 in 2001, $243,877 in 2002, $112 in 2003, $122 in 2004 and
$100,132 in 2005.

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57

LONG-TERM DEBT

Long-term debt consists of the following:

DECEMBER 31: 2000 1999
- ------------ -------- --------

Variable-rate Term Loan due August 31, 2002 with interest
payable quarterly (See note 15)......................... $257,398 $342,398
Medium-term notes, bearing interest at rates approximating
6.75%, repaid on May 15, 2000........................... 100,000
6.75% debentures due September 15, 2005, with interest
payable semiannually on March 15 and September 15....... 99,402 99,252
Bank and other notes payable.............................. 2,028 13,819
-------- --------
358,828 555,469
Less current portion...................................... 13,813 185,167
-------- --------
$345,015 $370,302
======== ========

The Company has various arrangements with numerous banks which provide an
aggregate of approximately $531,442 of uncommitted facilities, substantially all
of which are available to the Company's foreign subsidiaries. Of this amount,
$199,569 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 $160,852 was
outstanding for open letters of credit for inventory purchases at December 31,
2000 and $17,824 was outstanding for standby letters of credit at December 31,
2000. The weighted average interest rate on notes payable to banks was 8.8% and
8.3% at December 31, 2000 and 1999, respectively.

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 $300,000 revolving credit
facility. At December 31, 2000, the Company had no commercial paper obligations
outstanding.

Interest expense amounted to $38,271, $49,691, and $60,671 for the years
ended December 31, 2000, 1999, and 1998, respectively.

6
LEASING ARRANGEMENTS

The Company leases various offices, warehouses, retail store facilities and
certain of its data processing and warehouse equipment under lease arrangements
expiring between 2001 and 2006.

In March 1998, the Company entered into an operating lease agreement for
its Worldwide Headquarters and North American Operations facility which opened
in 2000. Lease payments commenced on July 1, 2000 concurrent with the occupancy
of the building. In June 1998, the Company entered into an operating lease
agreement for the purpose of financing construction costs for a new distribution
facility in the Netherlands. These leases provide for substantial residual value
guarantees by the Company and include purchase options at the original cost of
the properties. The maximum amount of the residual value guarantees relative to
the assets under these two leases is approximately $162,200. As part of these
agreements, the Company is

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required to comply with various financial and other covenants, generally similar
to those contained in its other borrowing agreements.

Minimum annual rentals under operating leases for the five years subsequent
to December 31, 2000 and in the aggregate are as follows:

LESS: AMOUNTS
TOTAL REPRESENTING NET
AMOUNT SUBLEASE INCOME AMOUNT
-------- --------------- --------

2001............................................... $ 49,270 $ 3,679 $ 45,591
2002............................................... 43,267 3,437 39,830
2003............................................... 37,013 2,354 34,659
2004............................................... 21,715 1,642 20,073
2005............................................... 12,137 1,294 10,843
2006 and thereafter................................ 18,280 833 17,447
-------- ------- --------
$181,682 $13,239 $168,443
======== ======= ========

Total rent expense for all operating leases amounted to $47,943, $46,650,
and $45,771 for the years ended December 31, 2000, 1999 and 1998, respectively.

7
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 2000, 1999, and 1998 were $14,209, $18,588 and $14,394,
respectively. In addition, certain foreign subsidiaries are required to provide
benefits pursuant to government regulations.

8
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 or exceeds 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 vesting schedule for options granted under the 1994
Equity Incentive Plan is determined by the Compensation Committee of the Board
of Directors. The

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59

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. During the year, the Company granted
406,000 shares of restricted stock to certain employees under this plan. 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 generally vest in equal annual installments
over three years. The Directors plan also permits discretionary grants of
options to non-employee directors.

The Company has two employee stock purchase plans. Under the 1987 Employee
Stock Purchase Plan, eligible employees are granted options to purchase shares
of the Company's common stock through voluntary payroll deductions during two
option periods, running from January 1 to June 30 and from July 1 to December
31, at a price equal to the lower of 85% of market value at the beginning or end
of each period. Under the 1992 Employee Stock Purchase Plan, for certain
foreign-based employees, eligible employees are granted options to purchase
shares of the Company's common stock during two option periods, running from
January 1 to June 30 and from July 1 to December 31, at the market price at the
beginning of the period. The option becomes exercisable 90 days following the
date of grant and expires on the last day of the option period. Accordingly, no
options were outstanding under these plans at December 31, 2000 and 1999. During
2000, 1999 and 1998, respectively, 276,427; 292,432 and 223,583 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 15% 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 15% or more of the
outstanding common stock, or in the event that the Company is subsequently
acquired in a merger or other business combination. During the second quarter of
2000, the Company amended its shareholders' right plan, prior to that time
beneficial ownership of 10% would result in the rights being exercised. 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,
2010. The amendment filed in 2000, also included the establishment of a
Three-Year Independent Director Evaluation (TIDE) which will review the
Agreement at least once every three years to assess whether it continues to be
in the best interest of the Company or its shareholders.

At December 31, 2000, 11,605,442 shares of common stock were reserved for
issuance under the Company's various stock plans and 69,097,775 shares were
reserved for issuance under the shareholders' rights plan.

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60

The following schedule summarizes the changes in stock options during the
three years ended December 31, 2000:

NUMBER OF SHARES UNDER OPTIONS
--------------------------------
NON-QUALIFIED OPTION PRICE WEIGHTED AVERAGE
STOCK OPTIONS PER SHARE EXERCISE PRICE
------------- --------------- ----------------

Outstanding at December 31, 1997................. 10,187,619 $10.63 - $49.25 $28.26
Granted.......................................... 4,187,889 12.63 - 31.88 13.69
Exercised........................................ (67,440) 10.63 - 28.87 17.60
Canceled......................................... (5,066,327) 12.63 - 49.25 32.21
---------- --------------- ------
Outstanding at December 31, 1998................. 9,241,741 11.37 - 48.37 19.54
---------- --------------- ------
Granted.......................................... 1,558,845 9.88 - 21.56 16.44
Exercised........................................ (7,214) 11.37 - 13.75 13.46
Canceled......................................... (2,440,813) 11.37 - 47.75 18.10
---------- --------------- ------
Outstanding at December 31, 1999................. 8,352,559 9.88 - 48.37 19.45
---------- --------------- ------
Granted.......................................... 3,871,079 7.38 - 22.89 14.16
Exercised........................................ (2,540,024) 11.38 - 18.38 16.76
Canceled......................................... (1,341,816) 8.19 - 41.63 26.25
---------- --------------- ------
Outstanding at December 31, 2000................. 8,341,798 $ 7.38 - $48.37 $16.85
---------- --------------- ------

The following information applies to options outstanding at December 31,
2000:

WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER CONTRACTUAL LIFE AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------- ----------- ---------------- -------------- ----------- --------------

$ 7.38 -- $10.56 1,534,710 9.0 $ 8.20 379,241 $ 8.20
$11.44 -- $17.00 2,589,785 7.9 $13.59 1,335,803 $13.43
$17.19 -- $25.13 2,982,597 9.0 $18.35 680,637 $18.44
$26.25 -- $37.75 1,115,906 4.3 $29.77 1,067,630 $29.74
$40.00 -- $48.37 118,800 5.3 $40.49 112,640 $40.36

On October 6, 1998, the Board of Directors approved a stock option exchange
and restructuring program pursuant to which certain current employees of the
Company that held stock options with exercise prices above market could elect to
exchange all or none of their then outstanding above market employee stock
options for a smaller number of new options, with a new four-year vesting
schedule. The number of existing outstanding option shares exchanged for the new
option shares was at a ratio of 1.25:1. The new options have an exercise price
of $12.625 per share which was the current market price as of October 6, 1998.
Executive officers of the Company who were also directors and certain other
option holders were not eligible to participate in this program. Of the
9,932,000 option shares outstanding under the Company's stock option programs as
of October 6, 1998, approximately 3,900,000 option shares (or approximately 40%)
were eligible for this exchange and restructuring program. Substantially all of
these options were exchanged by employees under the program.

At December 31, 2000, 1999 and 1998, options to purchase 3,575,951,
4,898,523, and 4,220,722 shares of common stock were exercisable, and 2,603,354,
3,586,283, and 3,648,581 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 State-

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61

ment 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 2000, 1999 and 1998:
risk-free interest rates ranging from 4.5% to 7.7%; dividend yields of .00%,
volatility factors of the expected market price of the Company's common stock of
.59 in 2000, .50 in 1999 and .52 in 1998; and a weighted-average expected life
of the option of 3.5 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):

2000 1999 1998
------- ------ -------

Pro forma net income....................................... $74,925 $5,789 $27,008
Pro forma basic earnings per share......................... $ 1.37 $0 .11 $ 0.49
Pro forma diluted earnings per share....................... $ 1.35 $0 .11 $ 0.49

The weighted average fair value of options granted in 2000, 1999 and 1998
is $6.63, $7.09, and $6.70, 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.

9
ACQUISITION OF COMMON STOCK

Under various share repurchase programs from 1992 to 1995, the Board of
Directors authorized the repurchase of up to $800,000 in the Company common
stock in the open market or privately-negotiated transactions. During the year
ended December 31, 2000, the Company acquired 2,000,000 shares of treasury stock
in a non cash exchange pursuant to a stock option exercise by a major
shareholder. As of December 31, 2000, the Company had approximately $126,600
available for future repurchases of common stock under these programs.

10
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

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62

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:

CARRYING AMOUNT FAIR VALUE
-------------------- --------------------
DECEMBER 31: 2000 1999 2000 1999
- ------------ -------- -------- -------- --------

Long-term debt..................................... $358,828 $555,469 $350,298 $538,459
Unrealized gains (losses) on foreign currency
exchange contracts and options................... (2,330) (133) (4,024) 7,270
Interest rate swaps................................ 0 0 (2,070) 4,378

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 other income (expense) for the years-ended December 31, 2000, 1999 and 1998
were approximately $7,000, $10,000 and $12,000, respectively. The Company has
used forward exchange contracts and options as an element of its risk management
strategy for several years.

At December 31, 2000, the Company had option and forward currency exchange
contracts, all having maturities of less than one year, with a notional amount
aggregating $547,083. The contracts involved twelve different foreign
currencies, of which the Euro currency represented 61% of the aggregate notional
amount. The notional amount of contracts intended to hedge merchandise purchases
was $486,131. Deferred gains (losses) on these contracts were not material at
December 31, 2000 and 1999.

Interest Rate Swaps

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 expired on December 20, 2000. The
notional amount of the swaps were reduced each year in accordance with the
expected repayment schedule of the Company's variable-rate term loan. In

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63

January 1998, the Company entered into additional interest rate swaps in the
amount of $150,000 with respect to the variable-rate term loan. In June 1999,
the Company entered into an interest rate swap in the amount of $37,327,
expiring in June 2002, in conjunction with certain of the Company's operating
leases. In April 2000, an interest rate swap in the amount of $135,000 became
effective, in conjunction with the Company's operating lease for its Canton
Headquarters Facility.

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, 2000 and 1999, the notional
amount of interest rate swaps outstanding was $322,000 and $227,000
respectively. Interest expense in 2000, 1999 and 1998 would not have been
materially different if these swap agreements had not been used.

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents, accounts
receivable 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. Credit risk on trade receivables is somewhat minimized as a result
of the Company's worldwide customer base and the fact that no one customer
represents 10% or more of the Company's net sales.

11
INCOME TAXES

The components of income before income taxes and minority interest are as
follows:

2000 1999 1998
-------- -------- --------

Domestic.................................................... $ 28,467 $(25,090) $(54,064)
Foreign..................................................... 107,338 53,128 91,094
-------- -------- --------
$135,805 $ 28,038 $ 37,030
======== ======== ========

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64

The provision for income taxes consists of the following:

2000 1999 1998
------- ------- --------

Current:
Federal................................................... $ 3,547 $ 2,088 $ 1,028
State..................................................... 668 1,080 1,978
Foreign................................................... 32,615 16,289 36,993
------- ------- --------
36,830 19,457 39,999
Deferred:
Federal................................................... 8,374 (9,637) (19,653)
State..................................................... 880 (2,846) (1,423)
Foreign................................................... 2,916 3,119 (6,998)
------- ------- --------
12,170 (9,364) (28,074)
------- ------- --------
$49,000 $10,093 $ 11,925
======= ======= ========

Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $495,688, $430,057, and $409,369 at December 31, 2000, 1999 and
1998, respectively. The Company has provided for the estimated residual U.S. tax
on a portion of these earnings which may not be indefinitely reinvested. The
remaining earnings are considered to be indefinitely reinvested. Upon
distribution of those earnings in the form of dividends or otherwise, some
portion of the distribution 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 and net
operating loss carryforwards may 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:

2000 1999 1998
---- ---- ----

Tax at statutory rate....................................... 35.0% 35.0% 35.0%
State taxes, less federal tax effect........................ 1.1 (6.3) 1.5
Effect of tax rates of foreign subsidiaries and joint
ventures.................................................. (1.5) 2.9 (5.1)
Effect of expenses with no tax benefit...................... 1.5 3.9 0.7
Other, net.................................................. 0.5 0.1
---- ---- ----
Provision for income taxes.................................. 36.1% 36.0% 32.2%
==== ==== ====

Deferred income taxes reflect the expected utilization of tax net operating
loss carryforwards, tax credit carryforwards and 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.

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65

Net deferred tax assets are attributable to the following:

DECEMBER 31: 2000 1999
- ------------ -------- --------

Inventory................................................. $ 36,679 $ 31,011
Accounts receivable....................................... 23,338 22,871
Liabilities............................................... 41,698 37,792
Depreciation.............................................. 18,630 14,327
Tax net operating loss carryforwards...................... 34,853 65,626
Tax credit carryforwards.................................. 36,036 25,305
Other, net................................................ 4,591 63
Undistributed earnings of Foreign subsidiaries............ (76,000) (65,000)
-------- --------
Total..................................................... $119,825 $131,995
======== ========

At December 31, 2000, the Company had state and local tax net operating
loss carryforwards and foreign tax net operating loss carryforwards for certain
foreign subsidiaries, the tax effect of which is approximately $34,853. These
carryforwards will expire as follows: $3,951 in 2001, $391 in 2002, $9,469 in
2003, $912 in 2004, and $20,130 thereafter. The Company also has available tax
credit carryforwards of approximately $36,036, which will expire as follows:
$2,374 in 2002, $1,605 in 2003, $7,961 in 2004, and $24,096 thereafter.

12
EARNINGS PER SHARE

Basic earnings per share excludes dilution and is computed by dividing net
earnings available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflect the
potential dilution that could occur if options to acquire common stock were
exercised. Options to purchase 4,442,830 and 5,681,475 shares of common stock
were outstanding at December 31, 2000 and December 31, 1999, respectively, but
were not included in the computation of diluted earnings per share.

The following table sets forth the computation of basic and diluted
earnings per share:

2000 1999 1998
------- ------- -------

Numerator:
Net Income.............................................. $80,878 $11,045 $23,927
------- ------- -------
Denominator:
Denominator for basic earnings per share -- weighted
average shares....................................... 56,852 56,065 56,394
Dilutive employee stock options and dilutive equity put
options in 1998...................................... 872 465 635
------- ------- -------
Denominator for diluted earnings per share -- adjusted
weighted average shares and assumed conversions......... 57,724 56,530 57,029
======= ======= =======
Basic earnings per share.................................. $ 1.42 $ .20 $ .42
======= ======= =======
Diluted earnings per share................................ $ 1.40 $ .20 $ .42
======= ======= =======

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13
SEGMENT AND RELATED INFORMATION

The Company designs and markets footwear and/or apparel products, under
various brand names. All products are generally manufactured using similar
manufacturing processes. Additionally, these products share similar distribution
methods and are marketed and sold to a similar type of customer. Operating
results are assessed on an aggregate basis to make decisions about resources to
be allocated among the brands.

Consequently, as permitted by the provisions of Statement 131, "Disclosure
About Segments of an Enterprise and Related Information," the Company has one
reportable segment for financial statement purposes.

Net sales by product type are summarized below and include all brands:

2000 1999 1998
---------- ---------- ----------

Net sales:
Footwear........................................ $2,102,433 $2,071,768 $2,306,927
Apparel......................................... 762,807 828,104 917,665
---------- ---------- ----------
$2,865,240 $2,899,872 $3,224,592
========== ========== ==========

Net sales to unaffiliated customers and long-lived assets by geographic
area are summarized below:

2000 1999 1998
---------- ---------- ----------

Net sales:
United States................................... $1,599,406 $1,609,697 $1,858,316
United Kingdom.................................. 514,722 545,562 522,393
Europe.......................................... 462,342 476,695 585,686
Other countries................................. 288,770 267,918 258,197
---------- ---------- ----------
$2,865,240 $2,899,872 $3,224,592
========== ========== ==========
Long-lived assets:
United States................................... $ 142,577 $ 167,068 $ 170,537
United Kingdom.................................. 18,269 28,149 28,697
Europe.......................................... 35,890 40,737 30,138
Other countries................................. 9,387 11,049 11,861
---------- ---------- ----------
$ 206,123 $ 247,003 $ 241,233
========== ========== ==========

14
CONTINGENCIES

The Company is involved in various legal proceedings generally incidental
to its business. 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. In April, 1999 the Company settled for $4,000 a lawsuit
filed by a former distributor in Brazil in which the plaintiff asserted a claim
for damages in excess of $50,000. The settlement was recorded in the second
quarter of 1999. The

63
67

Company recorded a special charge in the fourth quarter of 1999 for the
settlement of litigation filed against the Company by Supracor, Inc. See Note 2.

15
SUBSEQUENT EVENTS

On February 28, 2001 the Company sold $250.0 million in 20-Year Convertible
Debentures in the 144A private placement market. The sale was completed with a
coupon of 4.25 %, payable in cash semi-annually. The Debentures are convertible
into shares of the Company's common stock at a price of $38.56. The Company
intends to use the net proceeds to re-pay its existing term loan due August 31,
2002. Accordingly, a portion of the term loan, which was to be paid in 2001 has
been classified to long-term debt at December 31, 2000.

16
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

A summary of operating results and net income (loss) per share for the
quarterly periods in the two years ended December 31, 2000 is set forth below.

FIRST SECOND THIRD FOURTH
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA QUARTER QUARTER QUARTER QUARTER
------------------------------------------- -------- -------- -------- --------

Year ended December 2000
Net sales........................................ $769,829 $685,076 $787,821 $622,514
Gross profit..................................... 291,125 261,462 298,837 234,130
Net income....................................... 31,712 10,670 32,324 6,172
Basic earnings per share......................... .56 .19 .57 .11
Diluted earnings per share....................... .56 .19 .56 .11
Year ended December 1999
Net sales........................................ $785,784 $697,393 $793,937 $622,758
Gross profit..................................... 298,018 264,801 309,260 243,879
Net income (loss)................................ 17,905 4,568 3,266 (14,694)
Basic earnings (loss) per share.................. .32 .08 .06 (.26)
Diluted earnings (loss) per share................ .32 .08 .06 (.26)

Net income for the third quarter of 2000 includes a change in estimate for
restructuring activities of $2,101 after taxes, or $.04 per diluted share.

Net income for the fourth quarter of 1999 includes a special charge of
$15,120 after taxes, or $0.27 per diluted share, pertaining to the settlement of
litigation and for restructuring activities in the Company's global operations.

Net income for the third quarter of 1999 includes a special charge of
$24,320 after taxes, or $0.43 per diluted share, for restructuring activities in
the Company's global operations.

64
68

REEBOK INTERNATIONAL LTD.

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors and Stockholders
Reebok International Ltd.

We have audited the accompanying consolidated balance sheets of Reebok
International Ltd. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 2000. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of
Reebok's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 2000 and 1999, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set for the therein.

/s/ ERNST & YOUNG LLP

Boston, Massachusetts
February 1, 2001, except for Note 15, as to which
the date is February 28, 2001

65
69

REEBOK INTERNATIONAL LTD.

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 accounting principles generally accepted in the United States
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 Reebok'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.

Reebok maintains an internal auditing program that monitors and assesses
the effectiveness of the internal controls system and recommends possible
improvements thereto. Reebok's accompanying financial statements have been
audited by Ernst & Young LLP, independent auditors, whose audit was made in
accordance with auditing standards generally accepted in the United States 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, 2000, Reebok'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 Executive Officer Chief Financial Officer and Treasurer

66
70

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.

There has been no change of accountants nor any disagreements with
accountants on any matter of accounting principles or practices or financial
disclosure required to be reported under this Item.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by this Item with respect to the Registrant's
directors is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on May 1, 2001,
which will be filed with the SEC on or before March 26, 2001 (the "2001 Proxy
Statement"), under the headings "Information with Respect to Nominees",
"Transactions with Management and Affiliates" and "Compliance with Section 16(a)
of the Securities Exchange Act of 1934". Information called for by this Item
with respect to the Registrant's executive officers is set forth under
"Executive Officers of Registrant" in Item 1 of this report.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this Item is incorporated herein by reference
from the 2001 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 2001 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 2001 Proxy Statement under the heading "Transactions with Management
and Affiliates".

67
71

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) The following documents are filed as part of this report:

1. FINANCIAL STATEMENTS.

The following consolidated financial statements and financial
statement schedule of the Company are included in Item 8:

FORM 10-K
PAGE
---------------

Consolidated Balance Sheets at December 31, 2000 and 1999 44
For each of the three years ended December 31, 2000, 1999
and 1998:
Consolidated Statements of Income 45
Consolidated Statements of Stockholders' Equity 46
Consolidated Statements of Cash Flows 47
Notes to Consolidated Financial Statements 48

2. FINANCIAL STATEMENT SCHEDULES.

Schedule II -- Valuation and Qualifying Accounts............................................. S-1

All other schedules for which provision is made in the applicable
accounting regulation of the SEC are not required under the related
instructions or are inapplicable, and therefore have been omitted.

3. EXHIBITS.

Listed below are all the Exhibits filed as part of this report.
Certain Exhibits are incorporated by reference from documents previously
filed by the Company with the SEC pursuant to Rule 12b-32 under the
Securities Exchange Act of 1934, as amended.

EXHIBIT
-------

3.1 Restated Articles of Organization of the Company, as
amended(1)

3.2 By-laws, as amended(5)(6)(8)(18)

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 the Company 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)(22)(25)(29)

4.3 Amendment No. 1 dated as of March 8, 1991 to 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(9)
72
4.4 Amendment No. 2 dated as of December 6, 1991 to 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(10)

4.5 Amendment No. 3 dated as of January 1, 1999 to 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(22)

4.6 Amendment No. 4 dated as of May 26, 1999 to Common Stock
Rights Agreement dated as of June 14, 1990 between the
Company and American Stock Transfer and Trust Company, as
Rights Agent, as amended(25)

4.7 Amendment No. 5 dated as of June 5, 2000 to Common Stock
Rights Agreement dated as of June 14, 1990 between the
Company and American Stock Transfer and Trust Company as
Rights Agent(29)

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
the Company and North Stoughton Industrial Park Development
Trust(5)(13)

10.4 Purchase and Sale Agreement between the Company 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(15)

10.7 Amended and Restated Credit and Guarantee Agreement, dated
as of July 1, 1997, among the Company, Reebok International
Limited, the Lenders and Co-Agents named therein, Citibank
N.A. as Documentation Agent and Credit Suisse, as
Administrative Agent(17)

10.8 Second Amended and Restated Credit and Guarantee Agreement,
dated as of March 22, 2000, among the Company, Reebok
International Limited, the Lenders and Co-Agents named
therein, Citibank N.A. as Documentation Agent and Credit
Suisse, as Administrative Agent(28)

10.9 Participation Agreement dated as of March 27, 1998 among
the Company, as Lessee and as Guarantor, Credit Suisse
Leasing 92A, L.P., as Lessor, the Lenders named therein,
Credit Suisse First Boston, as Administrative Agent and
Wachovia Bank, N.A. as Syndication Agent(19)

10.10 First Amendment dated as of September 30, 1998 to
Participation Agreement dated as of March 27, 1998 among
the Company, as Lessee and Guarantor, Credit Suisse Leasing
92A, L.P., as Lessor, the Lenders named
73
therein, Credit Suisse First Boston, as Administrative
Agent and Wachovia Bank, N.A. as Syndication Agent(22)

10.11 Lease dated as of March 27, 1998 between Credit Suisse
Leasing 92A, L.P., as Lessor, and the Company, as
Lessee(19)

10.12 Guaranty from the Company dated as of March 27, 1998(19)

10.13 Reebok International Ltd. 1994 Equity Incentive Plan, as
amended(16)(17)*

10.14 Amendment to Reebok International Ltd. 1994 Equity
Incentive Plan dated April 19, 1999(23)*

10.15 Reebok International Ltd. Equity and Deferred Compensation
Plan for Directors, as amended(13)(18)*

10.16 Amendment to Reebok International Ltd. Equity and Deferred
Compensation Plan for Directors dated as of April 19,
1999(23)*

10.17 Reebok International Ltd. 1985 Stock Option Plan, as
amended(11)*

10.18 Reebok International Ltd. 1987 Stock Option Plan for
Directors, as amended(12)*

10.19 Reebok International Ltd. 1987 Stock Bonus Plan(3)*

10.20 Reebok International Ltd. Excess Benefits Plan(8)*

10.21 Reebok International Ltd. Supplemental Executive Retirement
Plan(14)*

10.22 Amendment to Supplemental Executive Retirement Plan dated
as of February 23, 1999(23)*

10.23 Reebok International Ltd. Executive Performance Incentive
Plan, as amended(14)(16)*

10.24 Stock Option Agreement with Paul B. Fireman(8)*

10.25 Split-Dollar Life Insurance Agreement with Paul B.
Fireman(11)*

10.26 Letter Agreement with Paul R. Duncan dated December
29, 1997(18)*

10.27 Employment Agreement with Kenneth Watchmaker(12)*

10.28 Amended and Restated Change of Control Agreement with
Kenneth Watchmaker(27)*

10.29 Supplemental Retirement Program for Kenneth Watchmaker(12)*

10.30 Change of Control Agreement with Angel Martinez(17)*

10.31 Employment Agreement dated April 17, 1996 with Roger
Best(16)*

10.32 Employment Agreement dated September 11, 1997 with Roger
Best(18)*

10.33 Amended and Restated Change of Control Agreement with James
R. Jones, III(27)*

10.34 Change of Control Agreement with Barry Nagler(17)*

10.35 Change of Control Agreement with David A. Pace(27)*
74
10.36 Form of Non-Competition Agreements signed by James R.
Jones, III, Angel Martinez, Robert Meers, Barry Nagler,
Kenneth Watchmaker, Anthony Tiberii, Terry R. Pillow, Paul
R. Duncan, David A. Perdue and David A. Pace(18)*

10.37 Employment Agreement dated September 8, 1998 between Carl
J. Yankowski and the Company(20)*

10.38 Promissory Note dated September 11, 1998 by Carl J.
Yankowski to the Company(20)*

10.39 Letter Agreement dated July 14, 1998 between Robert Meers
and the Company(20)*

10.40 Letter Agreement dated December 23, 1999 between Carl J.
Yankowski and the Company(27)*

10.41 Agreement dated as of April 19, 1999 between the Company
and Paul Fireman(26)*

10.42 Consent dated as of April 19, 1999 from Paul Fireman to the
Company(26)*

10.43 Consent dated as of April 19, 1999 from Ken Watchmaker to
the Company(26)*

10.44 Agreement dated as of May 2, 2000 between the Company and
Paul Fireman(30)*

10.45 Stock Option Agreement dated as of May 9, 2000 between the
Company and Paul Fireman(30)*

10.46 Promissory Note dated as of May 9, 2000 made in favor of
Reebok International Ltd. by Paul Fireman(30)*

10.47 Stock Option Agreement dated as of May 24, 2000 between the
Company and Paul Fireman(30)*

10.48 Promissory Note dated as of May 24, 2000 made in favor of
Reebok International Ltd. by Paul Fireman(30)*

10.49 Employment Agreement dated December 27, 2000 between Jay
Margolis and the Company (31)*

10.50 Restricted Stock Certificate granted to David Perdue as of
January 24, 2000(31)*

10.51 Promissory Note dated as of January 30, 2000 made in favor
of Reebok International Ltd. by David Perdue(31)*

10.52 Restricted Stock Certificate granted to Terry Pillow as of
January 24, 2000(31)*

10.53 Promissory Note dated as of January 24, 2000 made in favor
of Reebok International Ltd. by Terry Pillow(31)*

10.54 Restricted Stock Certificate granted to Ken Watchmaker as
of January 24, 2000(31)*
75
10.55 Promissory Note dated as of January 24, 2000 made in favor
of Reebok International Ltd. by Ken Watchmaker(31)*

10.56 Restricted Stock Certificate granted to Paul Duncan as of
February 1, 2000(31)*

10.57 Promissory Note dated as of February 2, 2000 made in favor
of Reebok International Ltd. by Paul Duncan(31)*

12.1 Statement Re Computation of Ratio of Earnings to Fixed
Charges

21.1 List of Subsidiaries of the Company

23.1 Consent of Ernst & Young LLP

---------------------------------------------------
* Management Contract or Compensatory Plan or Arrangement.

(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-A/A filed
on April 4, 1991 and incorporated by reference herein.

(10) Filed as an Exhibit to Reebok International Ltd. Form 8-A/A on
December 13, 1991 and incorporated by reference herein.

(11) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated
March 27, 1992 and incorporated by reference herein.

(12) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated
March 26, 1993 and incorporated by reference herein.

(13) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated
March 30, 1995 and incorporated by reference herein.
76
(14) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated
March 29, 1996 and incorporated by reference herein.

(15) Filed as an Exhibit to Reebok International Ltd. Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by reference.

(16) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated
March 27, 1997 and incorporated by reference herein.

(17) Filed as an Exhibit to Reebok International Ltd. Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference.

(18) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated
March 25, 1998 and incorporated by reference herein.

(19) Filed as an Exhibit to Reebok International Ltd. Form 10-Q for the
quarter ended March 31, 1998 and incorporated herein by reference.

(20) Filed as an Exhibit to Reebok International Ltd. Form 10-Q for the
quarter ended September 30, 1998 and incorporated herein by reference.

(21) Filed as an Exhibit to Reebok International Ltd. Form 8-K filed on
October 22, 1998 and incorporated by reference herein.

(22) Filed as an Exhibit to Reebok International Ltd. Form 8-A/A filed
on February 24, 1999 and incorporated by reference herein.

(23) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated
March 24, 1999 and incorporated by reference herein.

(24) Filed as an Exhibit to Reebok International Ltd. Form 10-Q for the
quarter ended March 31, 1999 and incorporated by reference herein.

(25) Filed as an Exhibit to Reebok International Ltd. Form 8-A/A filed
on June 8, 1999 and incorporated by reference herein.

(26) Filed as an Exhibit to Reebok International Ltd. Form 10-Q for the
quarter ended June 30, 1999 and incorporated by reference herein.

(27) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated
March 30, 2000 and incorporated by reference herein.

(28) Filed as an Exhibit to Reebok International Ltd. Form 10-Q for the
quarter ended March 31, 2000 and incorporated by reference herein.

(29) Filed as an Exhibit to Reebok International Ltd. Form 8-A/A filed
on June 6, 2000 and incorporated by reference herein.

(30) Filed as an Exhibit to Reebok International Ltd. Form 10-Q for the
quarter ended June 30, 2000 and incorporated by reference herein.

(31) Filed herewith.

(b) Reports on Form 8-K.

The Company did not file any reports on Form 8-K during the last
quarter of 2000.
77
(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.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
78
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 WATCHMAKER
---------------------------
Kenneth I. Watchmaker
Executive Vice President,
Chief Financial Officer
and Treasurer
Dated: March 16, 2001

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 Director, Chairman of the Board and
- ------------------- President (Chief Executive Officer)
Paul B. Fireman

/s/ KENNETH I. WATCHMAKER Executive Vice President, Chief
- ------------------------- Financial Officer (Chief Financial
Kenneth I. Watchmaker and Accounting Officer) and
Treasurer

/s/ PAUL R. DUNCAN Director
- -------------------
Paul R. Duncan

/s/ MANNIE L. JACKSON Director
- ---------------------
Mannie L. Jackson

/s/ RICHARD G. LESSER Director
- ---------------------
Richard G. Lesser

/s/ GEOFFREY NUNES Director
- ------------------
Geoffrey Nunes

/s/ DOROTHY E. PUHY Director
- -------------------
Dorothy E. Puhy

/s/ THOMAS M. RYAN Director
- ------------------
Thomas M. Ryan

Dated: March 16, 2001

79
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS.

REEBOK INTERNATIONAL LTD.

BALANCE CHARGED TO CHARGED TO DEDUCTIONS BALANCE
AT BEGINNING COSTS AND OTHER AND AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS ALLOWANCES(A) PERIOD
- ----------- --------- -------- -------- ------------- ------

(Amounts in Thousands)

YEAR ENDED
DECEMBER 31, 2000

Reserves and allowances
deducted from asset accounts:
Allowance for
doubtful accounts. $46,217 $16,060 $0 $14,261 $48,016

YEAR ENDED
DECEMBER 31, 1999

Reserves and allowances
deducted from asset accounts:
Allowance for
doubtful accounts. $47,383 $17,436 $0 $18,602 $46,217

YEAR ENDED
DECEMBER 31, 1998

Reserves and allowances
deducted from asset accounts:
Allowance for
doubtful accounts. $44,003 $ 8,228 $0 $ 4,848 $47,383

- --------------------------------------------
(A) Uncollectible accounts written off, net of recoveries.

S-1
80
EXHIBIT INDEX

EXHIBIT
-------

3.1 Restated Articles of Organization of the Company, as
amended(1)

3.2 By-laws, as amended(5)(6)(8)(18)

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 the Company 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)(22)(25)(29)

4.3 Amendment No. 1 dated as of March 8, 1991 to 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(9)
81
4.4 Amendment No. 2 dated as of December 6, 1991 to 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(10)

4.5 Amendment No. 3 dated as of January 1, 1999 to 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(22)

4.7 Amendment No. 5 dated as of June 5, 2000 to Common Stock
Rights Agreement dated as of June 14, 1990 between the
Company and American Stock Transfer and Trust Company as
Rights Agent(29)

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
the Company and North Stoughton Industrial Park Development
Trust(5)(13)

10.4 Purchase and Sale Agreement between the Company 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)

10.10 First Amendment dated as of September 30, 1998 to
Participation Agreement dated as of March 27, 1998 among
the Company, as Lessee and Guarantor, Credit Suisse Leasing
92A, L.P., as Lessor, the Lenders named
82
therein, Credit Suisse First Boston, as Administrative
Agent and Wachovia Bank, N.A. as Syndication Agent(22)