1
EXHIBIT 13.1
SELECTED FINANCIAL DATA
Amounts in thousands, except per share data
YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992
=====================================================================================================
Net sales $3,478,604 $3,481,450 $3,280,418 $2,893,900 $3,022,627
Income before income taxes and
minority interest 237,668 275,974 417,368 371,508 259,751
Net income 138,950 164,798 254,478 223,415 114,818
Net income per common share 2.00 2.07 3.02 2.53 1.24
Cash dividends per common share .225 .300 .300 .300 .300
Weighted average common and
common equivalent shares outstanding 69,618 79,487 84,311 88,348 92,697
=====================================================================================================
Amounts in thousands
DECEMBER 31, 1996 1995 1994 1993 1992
=====================================================================================================
Working capital $ 946,127 $ 900,922 $ 831,856 $ 730,757 $ 682,342
Total assets 1,786,184 1,651,619 1,649,461 1,391,711 1,345,346
Long-term debt 854,099 254,178 131,799 134,207 116,037
Stockholders' equity 381,234 895,289 990,505 846,617 838,656
=====================================================================================================
On June 7, 1996, Reebok completed the sale of substantially all of the operating
assets and business of its subsidiary, Avia Group International, Inc. ("Avia");
accordingly, subsequent to that date, the operations of Avia are no longer
included in the Company's financial results.
Financial data for 1995 includes total special after-tax charges of
$44,934, of which $33,699 relates to the sale of Avia and $11,235 relates to
facilities consolidation, severance and other related costs associated with the
streamlining of certain segments of the Company's operations.
Financial data for 1993 includes a special after-tax charge of $7,037
related to the sale of Ellesse U.S.A., Inc. and Boston Whaler, Inc.
Financial data for 1992 includes special after-tax charges of $135,439
principally related to the write-down of the Company's subsidiary, Avia, to its
estimated fair value and estimated losses from the planned sales of Ellesse
U.S.A., Inc. and Boston Whaler, Inc., and after-tax gains of $17,967 from the
sale of investments.
25
REEBOK INTERNATIONAL LTD.
2
M D & A
Management's Discussion and Analysis of Results
of Operations and Financial Condition
The following discussion contains forward-looking statements which involve risks
and uncertainties. All such forward-looking statements necessarily represent
only current estimates or expectations as to future results, and there can be no
assurance that actual results will not materially differ from current estimates
or expectations. Factors that might cause such a difference include, but are not
limited to, those discussed below and those described in the Company's 1996
Annual Report on Form 10-K under the heading "Issues and Uncertainties."
OPERATING RESULTS 1996
Net sales for the year ended December 31, 1996 were $3.479 billion,
approximately equal to the net sales for the year ended December 31, 1995 of
$3.482 billion. Excluding Avia sales, net sales for the year ended December 31,
1996 were $3.429 billion, 2.3% higher than the $3.352 billion for the same
period in 1995. The Reebok Division's worldwide sales were $2.982 billion in
1996 and $2.984 billion in 1995. Growth in this Division's U.S. apparel sales as
well as growth in its International sales were offset by a decrease in U.S.
footwear sales. U.S. footwear sales of the Reebok Division decreased 12.7% to
$1.193 billion from $1.367 billion(A) in 1995. The decrease was due primarily to
decreases in substantially all categories other than walking and soccer, which
had increases in sales. U.S. apparel sales of the Reebok Division increased by
42.0% to $314.9 million from $221.7 million(A) in 1995. The increase resulted
from increases in licensed and branded apparel, particularly in T-shirts, all
purpose bottoms, warm-ups, tops and outerwear. International sales of the Reebok
Division (including footwear and apparel) were $1.474 billion in 1996, an
increase of 5.7% from $1.395 billion in 1995. Strong apparel sales and increases
in footwear sales of basketball, walking and classic products were partially
offset by decreases in the running, cross-training and outdoor footwear
categories. The stronger U.S. dollar adversely impacted sales comparisons with
the prior year. On a constant dollar basis for the year ended December 31, 1996,
the International sales gain was 8.8%. On a local currency basis, thereby
eliminating the impact of changes in foreign currency exchange rates, the United
Kingdom, Japan, Korea and South Africa had increases in sales whereas there were
decreases in sales in France, Canada and Belgium and in the Division's sales to
certain Latin American distributors.
Rockport's sales for 1996 increased by 21.6% to $447.6 million from $368.1
million in 1995. This increase reflects an emphasis on Rockport's walking
technology and the successful introduction of new products in 1996. Increased
sales in the men's casual dress and performance walking categories were
partially offset by decreased sales in the women's lifestyle and outdoor
categories. Rockport's 1996 results include the Ralph Lauren footwear business.
In May 1996, Rockport entered into a licensing arrangement for the North
American license for Ralph Lauren footwear and also acquired Ralph Lauren
Footwear, Inc., the former North American footwear licensee for Ralph Lauren.
Rockport expects to acquire the Ralph Lauren footwear licensing rights for the
rest of the world over the next several years. Sales of Ralph Lauren footwear
were $31.9 million in 1996 for the seven month period from May 1996 (the date
of acquisition) through December 1996. Rockport's International business
increased by 21.0% in 1996. Exclusive of sales of Ralph Lauren footwear,
Rockport's International sales accounted for 14% of its total sales during 1996.
For the year ended December 31, 1996, the Company's sales include $49.4
million of sales of Avia, a decrease of 61.9% from the $129.6 million of sales
of Avia for 1995. On June 7, 1996, Reebok completed the sale of substantially
all of the operating assets and business of Avia. Accordingly, subsequent to
that date, the operations of Avia are no longer included in the Company's
financial results.
Gross margins declined from 39.3% in 1995 to 38.4% in 1996. The decline in
margins reflects the effect of costs incurred with respect to new products and
technologies. These costs include the impact of start-up tooling, shorter
production runs and increased air freight. The margin decline also reflects a
substantial shift in the overall mix of the U.S. business due to increased
apparel sales and decreased footwear sales. U.S. apparel sales in 1996 accounted
for 20.8% of the Reebok business in the U.S. as compared to 14.0% in 1995. Since
U.S. apparel sales contribute lower gross margins than the U.S. footwear
business, the shift in domestic mix negatively impacts overall gross margins.
International margins were negatively impacted in 1996 as compared with the
prior year due to a strong U.S. dollar as against most international currencies.
Selling, general and administrative expenses increased as a percentage of
sales from 28.7% in 1995 to 30.6% in 1996. Advertising and marketing expenses
increased by $66.2 million during 1996 with approximately $30.0 million of that
increase attributable to Reebok's Olympic participation. Continued investment in
brand-building expenses, including product development, retail presence, sports
marketing and on-field presence also contributed to the increase. In addition,
retail operating expenses increased in support of the U.S. retail store
expansion. At December 31, 1996,
- --------------------------------------------------------------------------------
(A) The 1995 sales are adjusted to include the retail division's apparel sales
in U.S. apparel, consistent with the 1996 presentation. Previously, all
retail sales (including footwear and apparel) had been included in U.S.
footwear sales. In addition, all sales of Tinley brand apparel for 1995
have been reclassified to Avia to conform with the 1996 presentation.
26
REEBOK INTERNATIONAL LTD.
3
M D & A
Management's Discussion and Analysis of Results
of Operations and Financial Condition
the Company operated 141 U.S. Reebok, Rockport and Greg Norman retail stores as
compared to 117 at the end of 1995. Primarily all of these U.S. retail stores
are located in factory direct outlet malls.
Amortization of intangibles decreased due to the write-down in the fourth
quarter of 1995 of the carrying value of Avia to estimated fair value on sale.
Minority interest represents the minority shareholders' proportionate
share of the net income of certain of the Company's consolidated subsidiaries.
Interest expense increased from $25.7 million in 1995 to $42.2 million in
1996 as a result of increased borrowings to fund the purchase of approximately
17.0 million shares of the Company's common stock in connection with the
Company's Dutch Auction self-tender offer, which was completed in August 1996.
Year-to-year earnings per share comparisons benefited from the Company's
share repurchase programs and the repurchase of shares pursuant to the Dutch
Auction. Weighted average common shares outstanding for the year ended December
31, 1996 declined to 69.6 million, compared to 79.5 million shares for the year
ended December 31, 1995.
The Company's footwear and apparel production operations are subject to
the usual risks of doing business abroad, such as import duties, quotas and
other threats to free trade, foreign currency fluctuations, labor unrest and
political instability. The Company believes that it has the ability to develop,
over time, adequate substitute sources of supply for the products obtained from
present foreign suppliers. If, however, events should prevent the Company from
acquiring products from its suppliers in Indonesia, China, Thailand or the
Philippines, or significantly increase the cost to the Company of such products,
the Company's operations could be seriously disrupted until alternative
suppliers are found.
For several years, imports from China to the U.S., including footwear,
have been threatened with higher or prohibitive tariff rates, either through
statutory action or intervention by the Executive Branch, due to concern over
China's trade policies, human rights, foreign weapons sales practices and
foreign policy. Further debate on these issues is expected to continue in 1997.
However, the Company does not currently anticipate that restrictions on imports
from China will be imposed by the U.S. during 1997. If adverse action is taken
with respect to imports from China, it could have an adverse effect on some or
all of the Company's product lines, which could result in a negative financial
impact. The Company has put in place contingency plans which should allow it to
diversify some of its sourcing to countries other than China if any such adverse
action occurred. In addition, the Company does not believe that it would be more
negatively impacted by any such adverse action than its major competitors.
The European Union ("EU") imposed import quotas on certain footwear from
China in 1994. The effect of such a quota scheme on Reebok has not been
significant because the quota scheme provides an exemption for certain
higher-priced special technology athletic footwear, which exemption is available
for most Reebok products.
The EU has imposed antidumping duties against textile upper footwear from
China and Indonesia and has calculated but suspended antidumping duties on
leather upper footwear from China, Thailand and Indonesia. It is expected that
the duties on leather upper footwear will remain suspended through 1997. A broad
exemption has been included in both antidumping cases (textile and leather
footwear) for athletic footwear covering most Reebok models. If the athletic
footwear exemption remains in its current form, few of the Company's product
lines would be affected adversely, and in any case, the Company does not believe
that its products would be more severely restricted than those of its major
competitors.
However, recently the EU has initiated at the internal staff level an
effort to significantly narrow the athletic footwear exemption which applies to
both the quota scheme and antidumping duties. The Company, through relevant
trade associations, is working to prevent imposition of the more limited
athletic footwear exception. Should the proposed revisions be adopted, certain
of the Company's product lines would be affected adversely, although the Company
does not believe that its products would be more severely affected than those of
its major competitors.
Various other countries have taken steps to restrict footwear imports or
impose additional customs duties, which actions affect the Company as well as
other footwear importers. The Company, in conjunction with other footwear
importers, is aggressively challenging such restrictions. Such restrictions have
in some cases had a significant adverse effect on the Company's sales in some of
such countries, most notably Argentina, although they have not had a material
adverse effect on the Company as a whole.
OPERATING RESULTS 1995
Net sales for the year ended December 31, 1995 increased by 6.1%, or $201.0
million, to $3.482 billion from $3.280 billion in 1994. The Reebok Division's
worldwide sales were $2.984 billion in 1995, an increase of 6.3% from $2.808
billion(B) in 1994. This increase was due to growth in the
- --------------------------------------------------------------------------------
(B) The 1994 sales were adjusted on a proforma basis to reflect Tinley apparel
sales in Avia sales. The Tinley division was transferred to the Avia group
from Reebok during 1995. In order to present amounts on a comparable
basis, Tinley's apparel sales for 1994 have been reclassified to Avia.
27
REEBOK INTERNATIONAL LTD.
4
M D & A
Management's Discussion and Analysis of Results
of Operations and Financial Condition
Reebok Division's U.S. apparel sales as well as growth in International sales.
The Reebok Division's U.S. footwear sales decreased 0.4% to $1.405 billion from
$1.410 billion in 1994. The decrease was due primarily to decreases in sales in
the running, tennis and outdoor categories, which were offset in part by sales
increases in the walking, cleated and children's categories. The 1995 U.S.
footwear sales comparison benefits from the fact that the Company increased the
number of Reebok-owned retail stores as compared with 1994. At December 31,
1995, there were 66 stores in operation as compared with 45 at the end of 1994.
Of the stores in operation, 62 are outlet stores with the balance being full
scale retail stores primarily used for testing retail concepts. The Reebok
outlet store business had a same store sales increase for 1995 of 7.1%. The
Reebok Division's U.S. apparel sales increased by 27.1% to $183.6 million from
$144.5 million(B) in 1994. The increase resulted primarily from increases in
licensed apparel, T-shirts and performance running product. The Reebok
Division's International sales (including both footwear and apparel) were $1.395
billion in 1995, an increase of 11.3% from $1.253 billion in 1994. For the year
ended December 31, 1995, slightly less than one-half of the International sales
increase can be attributed to the impact of the weaker dollar. On a local
currency basis, Korea, Spain and the United Kingdom had significant percentage
increases in sales whereas Japan and Mexico experienced a decline in sales.
Rockport's sales for 1995 increased by 17.0% to $368.1 million from $314.5
million in 1994. All categories, except outdoor, increased in comparison with
the prior year. Sales of Rockport product in Rockport retail stores also
contributed to the sales growth. At December 31, 1995, there were 40 Rockport
stores in operation as compared with 13 a year ago. Of the stores in operation,
36 are outlet stores with the balance being full scale retail stores primarily
used for testing retail concepts.
Avia's sales for 1995 decreased by 18.1% to $129.6 million from $158.2
million(B) in 1994. All categories except running had decreases from the prior
year.
Other income decreased in 1995 due mainly to losses on foreign exchange
transactions in 1995 compared to recognized gains in 1994. A decrease in joint
venture income also contributed to the decline in other income.
Gross margins declined from 40.1% in 1994 to 39.3% in 1995. U.S. margins
were unfavorably impacted by higher than normal markdowns taken on excess
inventory, as a result of a commitment to reduce inventory levels. Margins on
International sales were favorably impacted by exchange rate changes.
Selling, general and administrative expenses increased as a percentage of
sales from 27.1% in 1994 to 28.7% in 1995. During 1995, the Company announced
its intention to reduce planned expenditures in non-essential areas, with the
primary impact being realized in the second half of the year. For the full year,
the increase in SG&A expenses was primarily the result of increased investments
in brand building expenses, including sports marketing and on-field presence,
retail presence and the growth of the Company's retail outlet stores. In
addition, SG&A expenses increased by approximately $20 million due to a weaker
dollar.
The Company recorded special charges totaling $72.1 million in 1995. In
connection with the effort to reduce SG&A spending, a special charge of $18.0
million was recorded in the second quarter, principally related to facilities
consolidation and severance and other related costs associated with the
streamlining of certain segments of the Company's operations. In the fourth
quarter of 1995, the Company recorded a charge of $54.1 million to adjust the
carrying value of its Avia subsidiary to its estimated fair value on sale. In
January 1996, the Company announced its intention to sell Avia in order to focus
its resources on its core brands.
Minority interest represents the minority shareholders' proportionate
share of the net income of certain of the Company's consolidated subsidiaries.
Interest expense increased from $16.5 million in 1994 to $25.7 million
in 1995 as a result of increased borrowings to finance working capital needs
and the Company's share repurchase program. During 1995, $225.5 million of the
Company's common stock was repurchased. On October 19, 1995, the Company's
Board of Directors authorized the repurchase of up to an additional $200
million in Reebok common stock in open market or privately-negotiated
transactions. This authorization was in addition to the share repurchase
programs of $200 million each adopted by the Company in July 1992, July 1993
and October 1994. At December 31, 1995, the Company had approximately $198.1
million available for future repurchases of its common stock under these
programs. As of December 31, 1995, the Company had repurchased 42,933,902
shares of its common stock at an average price of $23.25 per share since April
1991.
Year-to-year earnings per share comparisons benefited from the share
repurchase programs. Weighted average common shares outstanding for the year
ended December 31, 1995 declined to 79.5 million shares, compared to 84.3
million shares for the year ended December 31, 1994.
OPERATING RESULTS 1994
Net sales for the year increased by 13.4%, or $386 million, to $3.280 billion in
1994 from $2.894 billion
28
REEBOK INTERNATIONAL LTD.
5
M D & A
Management's Discussion and Analysis of Results
of Operations and Financial Condition
in 1993. The Reebok Division's worldwide sales were $2.813 billion(C) an
increase of 13.4% from $2.480 billion in 1993. This increase was due to growth
in Reebok's U.S. footwear and apparel sales as well as International sales.
Reebok U.S. footwear sales increased 10.9% to $1.410 billion from $1.271
billion in 1993. The increase in the Reebok Division's U.S. footwear sales was
attributed to increases in the outdoor, classics, pre-season, cleated and
walking categories, which were partially offset by decreases in the children's
and basketball categories. The Reebok Division's U.S. apparel sales increased
by 19.7% to $150.1 million(C) in 1994 from $125.4 million in 1993. The Reebok
Division's International sales (including both footwear and apparel) were $1.253
billion in 1994, an increase of 15.7% from $1.083 billion in 1993, primarily
due to increases in all countries except for France and the Netherlands, which
experienced small decreases in sales. Changes in foreign exchange rates
increased the Reebok Division's International net sales by $9.3 million, or
0.9%.
Rockport sales reached $314.5 million in 1994, an 11.3% increase from
$282.7 million in 1993. This increase was due to an increase in the number of
pairs shipped both in the U.S. and internationally. Avia sales increased by
16.5% to $152.6 million(C) from $131.0 million in 1993. The increase in Avia's
net sales was due to increases in both domestic and international net sales,
primarily attributed to increases in the walking and cross-training categories.
Other income increased mainly due to increased income from partially-
owned distributors as well as recognized gains of $0.5 million on foreign
exchange transactions in 1994 compared to recognized losses of $4.6 million in
1993.
The decrease in gross margin from 40.6% in 1993 to 40.1% in 1994 was due
to lower margins in the Reebok Division's International business as a result of
the poor economic conditions in certain countries. The decrease was partially
offset by slightly increased margins in the Reebok Division's U.S. footwear
business.
Selling, general and administrative expenses increased as a percentage of
sales from 26.6% in 1993 to 27.1% in 1994 due in part to the continuing
increased investments in information systems as well as higher distribution
costs mainly associated with the opening of a new apparel distribution facility
in Memphis, Tennessee. The increased investments in information systems are
expected to continue over the next few years.
Net income in 1994 was higher than net income in 1993 partially as a
result of an additional pre-tax special charge of $8.5 million in 1993 related
to the completion of the sales of Boston Whaler, Inc. ("Boston Whaler") and
Ellesse U.S.A., Inc. ("Ellesse.") This special charge was in addition to losses
previously recorded in December 1992, when the Company announced its intention
to sell these businesses.
Amortization of intangibles decreased because many of the intangible
assets attributable to the acquisition of Rockport in 1986 had a useful life of
seven years or less and became fully amortized in 1993.
Minority interest represents the minority shareholders' proportionate
share of the net income of the Company's Japanese, Spanish and South African
subsidiaries.
Interest expense decreased in 1994 due to interest paid in 1993 on certain
prior years' state tax matters, as well as lower average interest rates.
Similarly, interest income decreased in 1994 due to interest received in 1993
from the successful settlement of certain state tax matters.
The effective tax rate decreased from 38.5% in 1993 to 37.7% in 1994 due
primarily to a geographic change in the mix of worldwide income.
Year-to-year earnings per share comparisons benefited from the share
repurchase programs announced in July 1992 and July 1993. Weighted average
common shares outstanding for the year ended December 31, 1994 declined to 84.3
million shares, compared to 88.3 million shares for the year ended December 31,
1993.
BACKLOG
The overall backlog of open customer orders to be delivered from January 1997
through June 1997 for the Reebok brand increased 11.7% from comparative levels
as of December 31, 1995. The backlog position is not necessarily indicative of
future sales because the ratio of future orders to "at once" shipments and
sales by Company-owned retail stores may vary from year to year. In addition,
many customer orders are cancelable.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's financial position remains strong. Working capital increased by
$45.2 million at December 31, 1996, or 5.0%, from the same period a year ago.
The current ratio at December 31, 1996 was 2.8 to 1 compared to 3.1 to 1 at
December 31, 1995.
Accounts receivable increased by $83.9 million from December 31, 1995, an
increase of 16.6%. This is the result of a greater percentage of sales coming
from international markets, where trade terms are typically longer than in the
U.S. Inventory decreased by $90.5 million, or 14.3%, from December 31, 1995.
Reebok brand U.S. footwear
- --------------------------------------------------------------------------------
(C) As indicated above, the 1994 sales reflected in the section entitled
"Operating Results 1995" have been adjusted on a proforma basis to reflect
Tinley apparel sales in Avia sales.
29
REEBOK INTERNATIONAL LTD.
6
M D & A
Management's Discussion and Analysis of Results
of Operations and Financial Condition
inventories alone declined 42.2% from December 31, 1995, and Rockport, which had
a 28.0% sales growth in the fourth quarter, reduced inventories by 8.2%, even
with the inclusion of the Ralph Lauren Footwear business. Improved forecasting,
production planning and logistics operations account for this significant
inventory decrease.
The Company borrowed $640.0 million to fund the purchase of approximately
17.0 million shares of the Company's common stock pursuant to a Dutch Auction
self-tender offer, which was completed in August 1996. The debt is repayable in
various installments over the next six years. The credit agreement contains
various covenants including restrictions on asset acquisitions, capital
expenditures and future indebtedness and the requirement to maintain a minimum
interest coverage ratio. Concurrent with the Dutch Auction share repurchase, the
Company suspended its quarterly cash dividends.
During the year ended December 31, 1996, cash and cash equivalents
increased by $152.0 million, and outstanding borrowings increased by $618.0
million while $686.3 million of the Company's common stock was repurchased. As a
result of the improvement by the Company in managing its balance sheet, cash
provided by operations during 1996 was $280.3 million, an improvement of $108.5
million as compared to 1995. Capital expenditures during 1996 were $30.0
million, a 52.8% reduction from capital spending in 1995. Based on the strong
cash flow results, the Company made a $50.0 million pre-payment in February 1997
on its $640.0 million six-year term loan. Cash generated from operations,
together with the Company's existing credit lines and other financial resources,
is expected to adequately finance the Company's current and planned 1997 cash
requirements. However, the Company's actual experience may differ from the
expectations set forth in the preceding forward-looking statement. Factors that
might lead to such a difference include, but are not limited to, the factors
discussed herein, and matters discussed in the Company's 1996 Annual Report on
Form 10-K under the heading "Issues and Uncertainties," as well as future events
that might have the effect of reducing the Company's available cash balances
(such as unexpected operating losses or capital or other expenditures) or that
might eliminate the availability of external financial sources.
Lawsuits arise during the normal course of business. The Company does not
expect the outcome of any existing litigation to have a significant impact on
its financial position or future results of operations.
The Company enters into forward currency exchange contracts and options to
hedge its exposure for merchandise purchased in U.S. dollars that will be sold
to customers in other currencies. Realized and unrealized gains and losses on
these contracts are included in net income except that gains and losses on
contracts which hedge specific foreign currency commitments are deferred and
accounted for as a part of the transaction.
The Company also uses forward currency exchange contracts and options to
hedge significant intercompany assets and liabilities denominated in other than
the functional currency. Contracts used to hedge intercompany balances are
marked to market, and the resulting transaction gain or loss is included in the
determination of net income. Foreign currency gains or losses included in net
income for the years ended December 31, 1996, 1995 and 1994 were not
significant. The Company has used forward exchange contracts and options as an
element of its risk management strategy for several years.
At December 31, 1996, the Company had forward currency exchange contracts
and options, all having maturities of less than one year, with a notional amount
aggregating $368.7 million. The contracts involved twelve different foreign
currencies. No single currency represented more than 24% of the aggregate
notional amount. The notional amount of the contracts intended to hedge
merchandise purchases was $158.3 million. Deferred gains (losses) on these
contracts were not material at December 31, 1996 and 1995.
The Company uses interest rate swap agreements to manage its exposure to
interest rate movements by effectively converting a portion of its variable rate
long-term debt from floating to fixed rates. These agreements involve the
exchange of variable rate payments for fixed rate payments without the effect of
leverage and without the exchange of the underlying principal amount. Interest
rate differentials paid or received under these swap agreements are recognized
over the life of the contracts as adjustments to interest expense. At December
31, 1996, the notional amount of interest rate swaps outstanding was $320.0
million.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and
hedging instruments.
The Company places cash equivalents with major financial institutions and,
by policy, limits the amount of credit exposure to any one financial
institution.
The Company is exposed to credit-related losses in the event of
non-performance by counterparties to hedging instruments. The counterparties to
these contracts are major financial institutions. The Company continually
monitors its positions and the credit ratings of its counterparties and places
dollar and term limits on the amount of contracts it enters into with any one
party.
30
REEBOK INTERNATIONAL LTD.
7
CONSOLIDATED BALANCE SHEETS
Amounts in thousands, except share data
DECEMBER 31, 1996 1995
================================================================================================
ASSETS
Current assets:
Cash and cash equivalents $ 232,365 $ 80,393
Accounts receivable, net of allowance for
doubtful accounts (1996, $43,527; 1995, $46,401) 590,504 506,563
Inventory 544,522 635,012
Deferred income taxes 69,422 65,484
Prepaid expenses and other current assets 26,275 45,418
--------------------------
Total current assets 1,463,088 1,332,870
--------------------------
Property and equipment, net 185,292 192,033
Non-current assets:
Intangibles, net of amortization 69,700 64,436
Deferred income taxes 7,850 5,455
Other 60,254 56,825
--------------------------
137,804 126,716
--------------------------
Total Assets $1,786,184 $1,651,619
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 32,977 $ 66,682
Current portion of long-term debt 52,684 946
Accounts payable 196,368 166,037
Accrued expenses 169,344 144,585
Income taxes payable 65,588 47,956
Dividends payable 5,742
--------------------------
Total current liabilities 516,961 431,948
--------------------------
Long-term debt, net of current portion 854,099 254,178
Minority interest 33,890 31,081
Commitments and contingencies
Outstanding redemption value of equity put options 39,123
Stockholders' equity:
Common stock, par value $.01; authorized 250,000,000 shares;
issued 92,556,295 shares in 1996, 111,015,133 shares in 1995 926 1,096
Retained earnings 992,563 1,487,006
Less 36,716,227 shares at December 31, 1996 and 36,210,902 at
December 31, 1995 in treasury at cost (617,620) (603,241)
Unearned compensation (283) (1,208)
Foreign currency translation adjustment 5,648 11,636
--------------------------
381,234 895,289
--------------------------
Total Liabilities and Stockholders' Equity $1,786,184 $1,651,619
==========================
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
31
REEBOK INTERNATIONAL LTD.
8
CONSOLIDATED STATEMENTS OF INCOME
Amounts in thousands, except per share data
YEAR ENDED DECEMBER 31, 1996 1995 1994
==============================================================================================
Net sales $3,478,604 $3,481,450 $3,280,418
Other income 4,325 3,126 7,165
------------------------------------------
3,482,929 3,484,576 3,287,583
------------------------------------------
Costs and expenses:
Cost of sales 2,144,422 2,114,084 1,966,138
Selling, general and administrative expenses 1,065,792 999,731 889,590
Special charges 72,098
Amortization of intangibles 3,410 4,067 4,345
Interest expense 42,246 25,725 16,515
Interest income (10,609) (7,103) (6,373)
------------------------------------------
3,245,261 3,208,602 2,870,215
------------------------------------------
Income before income taxes and minority interest 237,668 275,974 417,368
Income taxes 84,083 99,753 153,994
------------------------------------------
Income before minority interest 153,585 176,221 263,374
Minority interest 14,635 11,423 8,896
------------------------------------------
Net income $ 138,950 $ 164,798 $ 254,478
==========================================
Net income per common share $ 2.00 $ 2.07 $ 3.02
==========================================
Dividends per common share $ 0.225 $ 0.300 $ 0.300
Weighted average common and common
equivalent shares outstanding 69,618 79,487 84,311
------------------------------------------
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
32
REEBOK INTERNATIONAL LTD.
9
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional
Paid-in Retained Treasury
Dollar amounts in thousands Shares Par Value Capital Earnings Stock
=====================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 119,902,298 $1,199 $ 266,890 $1,198,190 $(603,241)
- ---------------------------------------------------------------------------------------------------------------------
Net income 254,478
Adjustment for foreign currency translation
Issuance of shares to certain employees 19,293 611
Amortization of unearned compensation
Shares repurchased and retired (3,261,200) (33) (112,105)
Shares retired (16,000) (462)
Shares issued under employee
stock purchase plans 158,965 2 4,082
Shares issued upon exercise of stock options 352,255 4 6,172
Income tax reductions relating to
exercise of stock options 2,765
Dividends declared (24,610)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 117,155,611 1,172 167,953 1,428,058 (603,241)
- ---------------------------------------------------------------------------------------------------------------------
Net income 164,798
Adjustment for foreign currency translation
Issuance of shares to certain employees 43,545 1,558
Amortization of unearned compensation
Shares repurchased and retired (6,639,600) (66) (182,569) (42,835)
Shares retired (67,200) (1) (1,385) (554)
Shares issued under employee
stock purchase plans 161,377 2 4,253
Shares issued upon exercise of stock options 361,400 4 6,004
Put option contracts outstanding (15) (39,108)
Premium received from unexercised
equity put options 3,233
Income tax reductions relating to
exercise of stock options 953
Dividends declared (23,353)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 111,015,133 1,096 0 1,487,006 (603,241)
- ---------------------------------------------------------------------------------------------------------------------
Net income 138,950
Adjustment for foreign currency translation
Treasury shares repurchased (14,379)
Issuance of shares to certain employees 43,278 1,505
Amortization of unearned compensation
Shares repurchased and retired (18,931,403) (190) (672,900)
Shares issued under employee
stock purchase plans 157,134 2 4,042
Shares issued upon exercise of stock options 272,153 3 6,930
Put option contracts expired 15 39,825
Income tax reductions relating to
exercise of stock options 2,385
Dividends declared (15,180)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 92,556,295 $ 926 $ 0 $ 992,563 $(617,620)
- ---------------------------------------------------------------------------------------------------------------------
Foreign
Currency
Unearned Translation
Dollar amounts in thousands Compensation Adjustment
============================================================================
- ----------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 $(3,276) $(13,145)
- ----------------------------------------------------------------------------
Net income
Adjustment for foreign currency translation 12,306
Issuance of shares to certain employees (611)
Amortization of unearned compensation 827
Shares repurchased and retired
Shares retired 462
Shares issued under employee
stock purchase plans
Shares issued upon exercise of stock options
Income tax reductions relating to
exercise of stock options
Dividends declared
- ----------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 (2,598) (839)
- ----------------------------------------------------------------------------
Net income
Adjustment for foreign currency translation 12,475
Issuance of shares to certain employees (1,558)
Amortization of unearned compensation 1,008
Shares repurchased and retired
Shares retired 1,940
Shares issued under employee
stock purchase plans
Shares issued upon exercise of stock options
Put option contracts outstanding
Premium received from unexercised
equity put options
Income tax reductions relating to
exercise of stock options
Dividends declared
- ----------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 (1,208) 11,636
- ----------------------------------------------------------------------------
Net income
Adjustment for foreign currency translation (5,988)
Treasury shares repurchased
Issuance of shares to certain employees (55)
Amortization of unearned compensation 292
Shares repurchased and retired 688
Shares issued under employee
stock purchase plans
Shares issued upon exercise of stock options
Put option contracts expired
Income tax reductions relating to
exercise of stock options
Dividends declared
- ----------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $ (283) $ 5,648
- ----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
33
REEBOK INTERNATIONAL LTD.
10
CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in thousands
YEAR ENDED DECEMBER 31, 1996 1995 1994
===========================================================================================================================
Cash flows from operating activities:
Net income $ 138,950 $ 164,798 $ 254,478
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 42,927 39,579 37,400
Minority interest 14,635 11,423 8,896
Deferred income taxes (6,333) (1,573) (13,332)
Special charges 62,743
Changes in operating assets and liabilities, exclusive of those arising
from business acquisitions:
Accounts receivable (107,082) 16,157 (64,786)
Inventory 77,286 (29,531) (81,948)
Prepaid expenses 22,650 7,841 (7,752)
Other 11,042 (18,830) (13,648)
Accounts payable and accrued expenses 67,769 (25,327) 35,211
Income taxes payable 18,419 (55,553) 20,236
---------------------------------------
Total adjustments 141,313 6,929 (79,723)
---------------------------------------
Net cash provided by operating activities 280,263 171,727 174,755
---------------------------------------
Cash flows from investing activities:
Payments to acquire property and equipment (29,999) (63,610) (61,839)
Proceeds (payments) for business acquisitions and divestitures 6,887 (4,297)
---------------------------------------
Net cash used for investing activities (23,112) (63,610) (66,136)
---------------------------------------
Cash flows from financing activities:
Net borrowings (payments) of notes payable to banks (36,947) 2,426 37,148
Proceeds from issuance of common stock to employees 13,362 11,216 13,025
Dividends paid (20,922) (23,679) (24,827)
Repayments of long-term debt (1,290) (112,445) (2,585)
Net proceeds from long-term debt 632,108 230,000
Proceeds from premium on equity put options 717 3,233
Dividends to minority shareholders (7,426) (2,885) (2,141)
Repurchases of common stock (686,266) (225,470) (112,138)
---------------------------------------
Net cash used for financing activities (106,664) (117,604) (91,518)
---------------------------------------
Effect of exchange rate changes on cash 1,485 5,944 (12,512)
---------------------------------------
Net increase (decrease) in cash and cash equivalents 151,972 (3,543) 4,589
Cash and cash equivalents at beginning of year 80,393 83,936 79,347
---------------------------------------
Cash and cash equivalents at end of year $ 232,365 $ 80,393 $ 83,936
---------------------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 38,738 $ 23,962 $ 19,135
Income taxes paid 101,975 152,690 135,060
---------------------------------------
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
34
REEBOK INTERNATIONAL LTD.
11
NOTES
Notes to Consolidated Financial Statements
Dollar amounts in thousands, except per share data
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
The Company and its subsidiaries design and market sports and fitness products,
including footwear and apparel, as well as footwear and apparel for
non-athletic "casual" use, under various trademarks, including REEBOK, the GREG
NORMAN Logo and ROCKPORT.
================================================================================
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions and accounts
are eliminated in consolidation.
================================================================================
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
================================================================================
Recognition of Revenues
Sales are recognized upon shipment of products.
================================================================================
Advertising
Advertising production costs are expensed the first time the advertisement is
run. Media (TV and print) placement costs are expensed in the month the
advertising appears. Advertising expense (including cooperative advertising)
amounted to $201,584, $157,573 and $163,210 for the years ended
December 31, 1996, 1995 and 1994, respectively.
================================================================================
Accounting for Stock-Based Compensation
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees."
================================================================================
Cash Equivalents
Cash equivalents are defined as highly liquid investments with maturities of
three months or less at date of purchase.
================================================================================
Inventory Valuation
Inventory, substantially all finished goods, is recorded at the lower of cost
(first-in, first-out method) or market.
================================================================================
Property and equipment and depreciation
Property and equipment are stated at cost. Depreciation is computed principally
on the straight line method over the assets' estimated useful lives. Leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful lives of the assets.
================================================================================
Intangibles
Excess purchase price over the fair value of assets acquired is amortized using
the straight line method over periods ranging from 5 to 40 years. Other
intangibles are amortized using the straight line method over periods ranging
from 3 to 40 years.
================================================================================
Foreign Currency Translation
Assets and liabilities of most of the Company's foreign subsidiaries are
translated at current exchange rates. Revenues, costs and expenses are
translated at the average exchange rates for the period. Translation adjustments
resulting from changes in exchange rates are reported as a separate component of
stockholders' equity. Foreign currency transaction gains and losses are included
in the determination of net income.
For those foreign subsidiaries operating in a highly inflationary economy
or having the U.S. dollar as their functional currency, net nonmonetary assets
are translated at historical rates and net monetary assets are translated at
current rates. Translation adjustments are included in the determination of net
income.
================================================================================
Income Taxes
The Company accounts for income taxes in accordance with FASB Statement No.
109, "Accounting for Income Taxes." Tax provisions and credits are recorded at
statutory rates for taxable items included in the consolidated statements of
income regardless of the period in which such items are reported for tax
purposes. Deferred income taxes are recognized for temporary differences
between financial statement and income tax bases of assets and liabilities for
which income tax benefits will be realized in future years.
================================================================================
Net Income Per Common Share
Net income per common share is computed based on the weighted average number of
common and common equivalent shares outstanding and the dilutive effect of
equity put options, if applicable.
================================================================================
Reclassification
Certain amounts in prior years have been reclassified to conform to the 1996
presentation.
================================================================================
35
REEBOK INTERNATIONAL LTD.
12
NOTES
Notes to Consolidated Financial Statements
Dollar amounts in thousands, except per share data
2 DUTCH AUCTION SELF-TENDER STOCK REPURCHASE
On July 28, 1996, the Board of Directors authorized the purchase by the Company
of up to 24.0 million shares of the Company's common stock pursuant to a Dutch
Auction self-tender offer. The tender offer price range was from $30.00 to
$36.00 net per share in cash. The self-tender offer commenced on July 30, 1996
and expired on August 27, 1996. As a result of the self-tender offer, the
Company repurchased approximately 17.0 million common shares at a price of
$36.00 per share. Prior to the tender offer, the Company had 72.5 million
common shares outstanding. As a result of the tender offer share repurchase, the
Company had 55.8 million common shares outstanding at December 31, 1996. In
conjunction with this repurchase and as described in Notes 6 and 8, the Company
entered into a new credit agreement underwritten by a syndicate of major banks.
3 BUSINESS ACQUISITIONS AND DIVESTITURES
On May 23, 1996, the Company finalized a long-term exclusive footwear licensing
arrangement with Ralph Lauren to design, develop, manufacture, market and
distribute men's, women's and children's footwear under the Ralph Lauren label.
The agreement requires payment of certain annual minimum amounts for royalties
and other compensation. The territory for the license initially includes North
America and is expected to expand worldwide as existing Ralph Lauren licenses
expire, subject to reaching agreement with Ralph Lauren as to business plans for
the additional territories. In conjunction with the licensing arrangement,
Reebok's subsidiary, The Rockport Company, Inc., acquired Ralph Lauren's prior
licensee for the U.S. and Canada, Ralph Lauren Footwear, Inc.
On June 7, 1996, the Company completed the sale of substantially all
of the operating assets and business of its subsidiary, Avia Group
International, Inc.
4 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31 , 1996 1995
=================================================================
Land $ 29,283 $ 32,226
Buildings 75,044 67,233
Machinery and equipment 204,354 189,731
Leasehold improvements 48,757 46,654
- -----------------------------------------------------------------
357,438 335,844
Less accumulated depreciation
and amortization 172,146 143,811
- -----------------------------------------------------------------
$185,292 $192,033
=================================================================
5 INTANGIBLES
Intangibles consist of the following:
DECEMBER 31, 1996 1995
=================================================================
Excess of purchase price
over fair value of assets acquired
(net of accumulated amortization of
$6,326 in 1996 and $130,925 in 1995) $ 27,696 $ 20,698
Other intangible assets:
Purchased technology 52,827 52,827
Company tradename and trademarks 49,092 49,144
Other 13,693 13,693
- -----------------------------------------------------------------
115,612 115,664
Less accumulated amortization 73,608 71,926
- -----------------------------------------------------------------
42,004 43,738
- -----------------------------------------------------------------
$ 69,700 $ 64,436
=================================================================
6 SHORT-TERM BORROWINGS
The Company has various arrangements with numerous banks which provide an
aggregate of approximately $938,167 of uncommitted facilities, substantially all
of which are available to the Company's foreign subsidiaries. Of this amount,
$394,767 is available for short-term borrowings and bank overdrafts, with the
remainder available for letters of credit for inventory purchases. In addition
to amounts reported as notes payable to banks, approximately $252,315 was
outstanding for open letters of credit for inventory purchases at December 31,
1996.
On August 23, 1996, in conjunction with the repurchase of its shares
pursuant to the Dutch Auction self-tender offer, the Company entered into a new
credit agreement underwritten by a syndicate of major banks. The agreement
includes a $750,000 revolving credit facility, expiring on August 31, 2002 which
replaced the Company's previous $300,000 credit line. The balance of the
facility is a $640,000 six-year term loan (see Note 8.) The revolving credit
facility is available to finance the short-term working capital needs of the
Company as well as support the issuance of letters of credit for inventory
purchases, if required. At December 31, 1996, there were no borrowings
outstanding under the revolving credit portion of this agreement. As part of the
agreement, the Company is required to pay certain commitment fees on the unused
portion of the revolving credit facility as well as comply with various
financial and other covenants.
36
REEBOK INTERNATIONAL LTD.
13
NOTES
Notes to Consolidated Financial Statements
Dollar amounts in thousands, except per share data
The Company has a commercial paper program through which it can borrow up
to $200,000 for periods up to 270 days. The borrowing amount was increased from
$125,000 on February 15, 1996. This program is supported, to the extent
available, by the unused portion of the $750,000 revolving credit facility. At
December 31, 1996, the Company had no commercial paper obligations outstanding.
The weighted average interest rate on notes payable to banks was 5.5% and
5.8% at December 31, 1996 and 1995, respectively.
7 LEASING ARRANGEMENTS
The Company leases various offices, warehouses, retail store facilities and
certain of its data processing and warehouse equipment under lease arrangements
expiring between 1997 and 2007.
Minimum annual rentals for the five years subsequent to December 31, 1996 and
in the aggregate are as follows:
=============================================================
1997 $ 34,087
1998 26,571
1999 21,779
2000 16,392
2001 11,376
2002 and thereafter 20,469
- -------------------------------------------------------------
Total minimum lease obligations $130,674
=============================================================
Total rent expense for all operating leases amounted to $46,751, $40,602
and $29,167 for the years ended December 31, 1996, 1995 and 1994, respectively.
8 LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31, 1996 1995
================================================================================
Variable Rate Term Loan, final payment
due August 31, 2002 with interest
payable quarterly $640,000
Medium-term notes, bearing interest
at rates approximating 6.75%, due
May 15, 2000, with interest payable
semiannually on May 15 and
November 15 100,000 $100,000
6.75% debentures due September 15,
2005, with interest payable
semiannually on March 15 and
September 15 98,803 98,729
Medium-term notes, bearing
interest at rates approximating
6%, due July 15, 1998, with interest
payable semiannually on
February 15 and August 15 30,000 30,000
Medium-term notes, bearing
interest at rates approximating 6%,
due February 11, 1998, with interest
payable semiannually on February
15 and August 15 20,000 20,000
Bank and other notes payable 17,980 6,395
- --------------------------------------------------------------------------------
906,783 255,124
Less current portion 52,684 946
- --------------------------------------------------------------------------------
$854,099 $254,178
================================================================================
37
REEBOK INTERNATIONAL LTD.
14
NOTES
Notes to Consolidated Financial Statements
Dollar amounts in thousands, except per share data
On August 23, 1996, the Company entered into a $1,700,000 credit agreement
underwritten by a syndicate of major banks of which $950,000 was available in
the form of a six-year term loan facility for the purpose of financing the
Company's acquisition of common stock pursuant to the Dutch Auction self-tender
offer (see Note 2.) Based on the number of shares tendered, the Company borrowed
$640,000 from this facility. The undrawn portion of $310,000 was immediately
canceled upon funding of the share repurchase. The credit agreement includes
various covenants including restrictions on asset acquisitions, capital
expenditures and future indebtedness and the requirement to maintain a minimum
interest coverage ratio. Under the terms of the agreement there are various
options under which the interest is calculated. At December 31, 1996, the
effective rate of interest on the variable term loan was approximately 6.20%. In
addition, the Company is amortizing fees and expenses associated with the credit
agreement over the life of the agreement.
Maturities of long-term debt during the five-year period ending December
31, 2001 are $52,684 in 1997, $135,250 in 1998, $113,066 in 1999, $201,000 in
2000 and $141,500 in 2001.
9 EMPLOYEE BENEFIT PLANS
The Company sponsors defined contribution retirement plans covering
substantially all of its domestic employees and certain employees of its
foreign subsidiaries. Contributions are determined at the discretion of the
Board of Directors. Aggregate contributions made by the Company to the plans
and charged to operations in 1996, 1995 and 1994 were $11,755, $11,644 and
$13,660, respectively.
10 STOCK PLANS
The Company has stock option plans which provide for the grant of options to
purchase shares of the Company's common stock to key employees, other
persons or entities who make significant contributions to the success of the
Company, and eligible members of the Company's Board of Directors. The Company
has elected to follow Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," ("APB 25") and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," ("Statement 123") requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, as long as the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Under the 1994 Equity Incentive Plan, options may be incentive stock
options or "non-qualified options" under applicable provisions of the Internal
Revenue Code. The exercise price of any stock option granted may not be less
than fair market value at the date of grant except in the case of grants to
participants who are not executive officers of the Company and in certain other
limited circumstances. The exercise period cannot exceed ten years from the
date of grant. The vesting schedule for options granted under the 1994 Equity
Incentive Plan is determined by the Compensation Committee of the Board of
Directors. The Company also has an option plan for its Directors. Under this
plan a fixed amount of options are granted annually to all non-employee
Directors. Grants of options under the Directors plan vest in equal annual
installments over three years.
Proforma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996, respectively: risk-free interest rates ranging
from 5.19% to 7.65%; dividend yields of .89% and .68%; volatility factor of the
expected market price of the Company's common stock of .27 in both years; and a
weighted-average expected life of 4.2 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of proforma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.
38
REEBOK INTERNATIONAL LTD.
15
NOTES
Notes to Consolidated Financial Statements
Dollar amounts in thousands, except per share data
The Company's proforma information is as follows:
DECEMBER 31, 1996 1995
================================================================================
Proforma net income $134,017 $163,404
Proforma earnings per share $ 1.96 $ 2.06
Weighted average exercise price
of options granted $ 31.32 $ 34.90
Weighted average fair value of
options outstanding at the end
of the period $ 10.76 $ 11.63
================================================================================
Exercise prices for options outstanding ranged from $8.75 - $41.63. Within
that range 2,933,609 options were outstanding between $8.75 and $20.46, and
6,982,097 options were outstanding between $20.47, and $41.63. The weighted
average contractual life of the options is seven years.
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its proforma effect will not be fully reflected until 2001.
The following schedule summarizes the changes in stock options during the three
years ended December 31, 1996:
Number of Shares Under Option
Non-Qualified Option
Stock Options Price Per Share
================================================================================
OUTSTANDING AT
DECEMBER 31, 1993 6,406,968 8.75-41.74
Granted 212,797 28.88-38.88
Exercised (352,255) 8.75-33.25
Canceled (387,935) 11.38-41.74
- --------------------------------------------------------------------------------
OUTSTANDING AT
DECEMBER 31, 1994 5,879,575 8.75-39.77
Granted 1,361,502 28.75-36.75
Exercised (361,400) 8.75-33.25
Canceled (722,760) 11.38-39.77
- --------------------------------------------------------------------------------
OUTSTANDING AT
DECEMBER 31, 1995 6,156,917 8.75-38.88
Granted 4,436,947 26.75-41.63
Exercised (272,153) 8.75-37.02
Canceled (406,005) 11.38-37.02
- --------------------------------------------------------------------------------
OUTSTANDING AT
DECEMBER 31, 1996 9,915,706 8.75-41.63
================================================================================
Shares granted in 1996 include a July grant to certain senior executives
made in conjunction with the Dutch Auction. The options do not begin to vest
until the end of 1998, and vesting extends for a period of up to five years
ending in December 2002. These option grants provide that if an optionee
sells before the end of 1998 any shares acquired through the exercise of
options which were held prior to the Dutch Auction, the optionee will forfeit
an identical number of shares subject to option under the July 1996 grant. In
addition, during 1996 the Company reinstituted December as the month in which
it grants its annual stock options to employees. The 1995 and 1994 annual
employee option grants were issued in February 1996 and March 1995,
respectively.
At December 31, 1996 and 1995, options to purchase 3,983,278 and 3,956,545
shares of common stock were exercisable, and 1,225,051 and 3,369,311 shares,
respectively, were available for future grants under the Company's stock option
plans.
The Company's 1994 Equity Incentive Plan also permits the Company to grant
restricted stock to key employees and other persons or entities who make
significant contributions to the success of the Company. The restrictions and
vesting schedule for restricted stock granted under this plan are determined by
the Compensation Committee of the Board of Directors.
The Company has two employee stock purchase plans. Under the 1987 Employee
Stock Purchase Plan, eligible employees are granted options to purchase shares
of the Company's common stock through voluntary payroll deductions during two
option periods, running from January 1 to June 30 and from July 1 to December
31, at a price equal to the lower of 85% of market value at the beginning or end
of each period. Under the 1992 Employee Stock Purchase Plan, for certain foreign
based employees, eligible employees are granted options to purchase shares of
the Company's common stock during two option periods, running from January 1 to
June 30 and from July 1 to December 31, at the market price at the beginning of
the period. The option becomes exercisable 90 days following the date of grant
and expires on the last day of the option period. During 1996, 1995 and 1994,
respectively, 157,134, 161,377 and 158,965 shares were issued pursuant to these
plans.
In June 1990, the Company adopted a shareholders' rights plan and declared
a dividend distribution of one common stock purchase right ("Right") for each
share of common stock outstanding. Each Right entitles the holder to purchase
one share of the Company's common stock at a price of $60 per share, subject to
adjustment. The Rights will be exercisable only if a person or group of
affiliated or associated persons acquires beneficial ownership of 10% or more
of the outstanding shares of the Company's common stock or commences a tender
or exchange offer that would result in a person or group owning 10% or more of
the outstanding common stock, or in the event that the Company is subsequently
acquired in a merger or other business combination.
39
REEBOK INTERNATIONAL LTD.
16
NOTES
Notes to Consolidated Financial Statements
Dollar amounts in thousands, except per share data
When the Rights become exercisable, each holder would have the right to
purchase, at the then-current exercise price, common stock of the surviving
company having a market value of two times the exercise price of the Right. The
Company can redeem the Rights at $.01 per Right at any time prior to expiration
on June 14, 2000.
At December 31, 1996, 11,772,677 shares of common stock were reserved for
issuance under the Company's various stock plans and 67,612,747 shares were
reserved for issuance under the shareholders' rights plan.
11 ACQUISITION OF COMMON STOCK
On October 19, 1995, the Board of Directors authorized the repurchase of up to
an additional $200,000 in Reebok common stock in open market or privately-
negotiated transactions. This authorization was in addition to the
share repurchase programs of $200,000 each adopted by the Company in July 1992,
July 1993 and October 1994. As of December 31, 1996, the Company had
approximately $129,800 available for future repurchases of common stock under
these programs. The Company does not expect to make open market purchases in the
near term and will focus on repaying the incremental debt incurred as a result
of the Dutch Auction (see Note 2.)
12 EQUITY PUT OPTIONS
During 1996 and 1995, the Company issued equity put options as part of its
ongoing share repurchase program. These options provided the Company with an
additional source to supplement open market purchases of its common stock. The
options were priced based on the market value of the Company's stock at the date
of issuance. The redemption value of the options, which represents the option
price times the number of shares under option, is presented in the accompanying
consolidated balance sheets as "Outstanding redemption value of equity put
options." At December 31, 1996, no shares of outstanding common stock are
subject to repurchase under the terms and conditions of these options.
13 FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company to estimate the
fair value of its financial instruments. Cash and cash equivalents and notes
payable to banks: the carrying amounts reported in the balance sheet approximate
fair value. Long-term debt: the fair value of the Company's medium-term notes
and debentures is estimated based on quoted market prices. The fair value of
other long-term debt is estimated using discounted cash flow analyses, based on
the Company's incremental borrowing rates for similar types of borrowing
arrangements. Unrealized gains or losses on foreign currency exchange contracts:
the fair value of the Company's foreign currency exchange contracts is estimated
based on current foreign exchange rates. Interest rate swaps: the fair value of
the Company's interest rate swaps is estimated based on current interest rates.
The carrying amounts and fair value of the Company's financial instruments are
as follows:
Carrying Amount Fair Value
- --------------------------------------------------------------------------------
DECEMBER 31, 1996 1995 1996 1995
================================================================================
Long-term debt $906,783 $255,124 $881,372 $261,860
Unrealized gains
(losses) on
foreign currency
exchange contracts
and options 173 (1,108) 1,394 (1,108)
Interest rate swaps 1,420
================================================================================
Foreign Exchange Forwards and Options
The Company enters into forward currency exchange contracts and options to hedge
its exposure for merchandise purchased in U.S. dollars that will be sold to
customers in other currencies. Realized and unrealized gains and losses on these
contracts are included in net income except that gains and losses on contracts
which hedge specific foreign currency commitments are deferred and accounted for
as a part of the transaction.
The Company also uses forward currency exchange contracts and options
to hedge significant intercompany assets and liabilities denominated in other
than the functional currency. Contracts used to hedge intercompany balances are
marked to market, and the resulting transaction gain or loss is included in the
determination of net income. Foreign currency gains or losses included in net
income for the years ended December 31, 1996, 1995 and 1994 were not
significant. The Company has used forward exchange contracts and options as an
element of its risk management strategy for several years.
At December 31, 1996, the Company had forward currency exchange contracts,
all having maturities of less than one year, with a notional amount aggregating
$368,666.
40
REEBOK INTERNATIONAL LTD.
17
NOTES
Notes to Consolidated Financial Statements
Dollar amounts in thousands, except per share data
The contracts involved twelve different foreign currencies. No single currency
represented more than 24% of the aggregate notional amount. The notional amount
of contracts intended to hedge merchandise purchases was $158,340. Deferred
gains (losses) on these contracts were not material at December 31, 1996 and
1995.
Interest Rate Swaps
The Company uses interest rate swap agreements to manage its exposure
to interest rate movements by effectively converting a portion of its variable
rate long-term debt from floating to fixed rates. These agreements involve the
exchange of variable rate payments for fixed rate payments without the effect
of leverage and without the exchange of the underlying principal amount.
Interest rate differentials paid or received under these swap agreements are
recognized over the life of the contracts as adjustments to interest expense.
During the fourth quarter of 1996, the Company entered into several
amortizing interest rate swaps with a group of financial institutions having
an initial notional value of $320,000 and expiring on December 31, 2000. The
notional amount of the swaps is reduced each year in accordance with the
expected repayment schedule of the Company's Variable Rate Term Loan. The
terms of the swaps require the Company to make fixed rate payments on a
quarterly basis whereas the Company will receive variable rate payments based
on the three-month U.S. dollar LIBOR. At December 31, 1996, the notional amount
of interest rate swaps outstanding was $320,000.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash equivalents and hedging
instruments. The Company places cash equivalents with major financial
institutions and, by policy, limits the amount of credit exposure to any one
financial institution.
The Company is exposed to credit-related losses in the event of
non-performance by counterparties to hedging instruments. The counterparties to
these contracts are major financial institutions. The Company continually
monitors its positions and the credit ratings of its counterparties and places
dollar and term limits on the amount of contracts it enters into with any one
party.
14 INCOME TAXES
The components of income before income taxes and minority interest are as
follows:
DECEMBER 31, 1996 1995 1994
================================================================================
Domestic $(12,720) $ 14,292 $171,166
Foreign 250,388 261,682 246,202
- --------------------------------------------------------------------------------
$237,668 $275,974 $417,368
================================================================================
The provision for income taxes consists of the following:
================================================================================
DECEMBER 31, 1996 1995 1994
================================================================================
Current:
Federal $ 1,961 $ 3,998 $ 66,879
State 4,534 13,878 16,607
Foreign 83,921 83,450 83,840
- --------------------------------------------------------------------------------
90,416 101,326 167,326
- --------------------------------------------------------------------------------
Deferred:
Federal (1,705) (1,594) (3,038)
State (689) (3,112) (303)
Foreign (3,939) 3,133 (9,991)
- --------------------------------------------------------------------------------
(6,333) (1,573) (13,332)
- --------------------------------------------------------------------------------
$ 84,083 $ 99,753 $ 153,994
================================================================================
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $517,309, $410,402 and $316,099 at December 31, 1996, 1995 and
1994, respectively. Those earnings are considered to be indefinitely reinvested
and, accordingly, no provision for U.S. federal and state income taxes has been
provided thereon. Upon distribution of those earnings in the form of dividends
or otherwise, the Company would be subject to both U.S. income taxes and foreign
withholding taxes, less an adjustment for applicable foreign tax credits.
Determination of the amount of U.S. income tax liability that would be incurred
is not practicable because of the complexities associated with its hypothetical
calculation; however, unrecognized foreign tax credits would be available to
reduce some portion of any U.S. income tax liability.
Income taxes computed at the federal statutory rate differ from amounts
provided as follows:
DECEMBER 31, 1996 1995 1994
================================================================================
Tax at statutory rate 35.0% 35.0% 35.0%
State taxes, less federal tax effect 1.7 2.7 2.6
Effect of tax rates of foreign
subsidiaries and joint ventures (1.6) (2.0) (1.3)
Amortization of intangibles 0.4 0.4 0.5
Other, net (0.1) 0.1 0.1
- --------------------------------------------------------------------------------
Provision for income taxes 35.4% 36.2% 36.9%
================================================================================
41
REEBOK INTERNATIONAL LTD.
18
NOTES
Notes to Consolidated Financial Statements
Dollar amounts in thousands, except per share data
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Deferred taxes are attributable to the following temporary differences at
DECEMBER 31, 1996 1995
================================================================================
Inventory $35,212 $ 36,219
Accounts receivable 23,085 25,810
Liabilities 9,661 5,958
Depreciation 5,528 5,216
Other, net 3,786 (2,264)
- --------------------------------------------------------------------------------
Total $ 77,272 $ 70,939
================================================================================
15 OPERATIONS BY GEOGRAPHIC AREA
Net sales to unaffiliated customers, net income and identifiable assets by
geographic area are summarized below:
DECEMBER 31, 1996 1995 1994
================================================================================
Net sales:
United States $1,935,724 $2,027,080 $1,974,904
United Kingdom 566,196 492,843 506,658
Europe 623,209 642,622 536,629
Other countries 353,475 318,905 262,227
- --------------------------------------------------------------------------------
$3,478,604 $3,481,450 $3,280,418
================================================================================
Net income:
United States $ 29,155 $ 36,176 $ 126,916
United Kingdom 54,937 69,277 62,949
Europe 15,943 20,648 44,290
Other countries 38,915 38,697 20,323
- --------------------------------------------------------------------------------
$ 138,950 $ 164,798 $ 254,478
================================================================================
Identifiable assets:
United States $ 887,217 $ 813,935 $ 963,462
United Kingdom 391,865 291,825 282,795
Europe 282,057 311,903 230,912
Other countries 225,045 233,956 172,292
- --------------------------------------------------------------------------------
$1,786,184 $1,651,619 $1,649,461
================================================================================
There are various differences between income before income taxes and
minority interest for domestic and foreign operations as shown in Note 14 and
net income shown above.
16 CONTINGENCIES
On August 29, 1995, the Company obtained a favorable ruling on its motion for
summary judgment in the lawsuit entitled Stutz Motor Car of America, Inc. v.
Reebok International Ltd., (filed on July 1, 1993 in the Central District of Los
Angeles County Superior Court as Case Number BC074579 and removed to the United
States District Court for the Central District of California where it was
assigned Civil Action Number 93-4433LGB) and, as a result, the case was
dismissed. The Plaintiff has appealed the decision. The Company believes that
the Plaintiff's appeal is without merit and is confident that the District Court
decision will be upheld.
The Company's settlement with the National Association of Attorneys General
("NAAG") relating to the investigation by NAAG against the Company was approved
by the Federal Court of the Southern District of New York on October 20, 1995.
The Court's order approving the settlement was appealed to the Second Circuit
Court of Appeals on January 9, 1996 by counsel purporting to represent a class
of Reebok and Rockport consumers. On September 9, 1996, the Second Circuit Court
upheld the decision of the District Court and approved the NAAG settlement. The
Plaintiff's right to appeal the Second Circuit decision expired on January 13,
1997.
17 SPECIAL CHARGES
The Company recorded special charges totaling $72,098 in 1995. In the second
quarter of 1995, the Company recorded a special charge of $18,034, principally
related to facilities consolidation and severance and other costs associated
with the streamlining of certain segments of the Company's operations. The
after-tax effect of this charge was $11,235, or $0.14 per share. In connection
with the sale of the Company's Avia subsidiary, the Company recorded a special
charge of $54,064 in the fourth quarter of 1995 to adjust the carrying value of
Avia to its estimated fair value on sale. The after-tax effect of this
write-down was $33,699, or $0.44 per share. Actual amounts recorded in 1996 did
not differ materially from the Company's estimates.
18 CASH DIVIDENDS
Concurrent with the Dutch Auction self-tender stock repurchase described in Note
2, the Company's Board of Directors elected to suspend subsequent declarations
of quarterly cash dividends on the Company's common stock. Accordingly, the last
dividend declared was for shareholders of record as of September 11, 1996, who
received a dividend payment of $0.075 per share on October 2, 1996. Suspension
of the dividend will conserve substantial cash which the Company plans to
utilize to reduce debt incurred as a result of its share repurchase.
42
REEBOK INTERNATIONAL LTD.
19
REPORTS
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Reebok International Ltd.
Stoughton, Massachusetts
We have audited the accompanying consolidated balance sheets of Reebok
International Ltd. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Reebok International Ltd. and subsidiaries at December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
- ------------------------
Boston, Massachusetts
January 30, 1997
REPORT OF MANAGEMENT
Financial Statements
The management of Reebok International Ltd. and its subsidiaries has prepared
the accompanying financial statements and is responsible for their integrity and
fair presentation. The statements, which include amounts that are based on
management's best estimates and judgments, have been prepared in conformity with
generally accepted accounting principles and are free of material misstatement.
Management has also prepared other information in the annual report and is
responsible for its accuracy and consistency with the financial statements.
================================================================================
Internal Control System
Reebok International Ltd. and its subsidiaries maintain a system of internal
control over financial reporting, which is designed to provide reasonable
assurance to the Company's management and Board of Directors as to the
integrity and fair presentation of the financial statements. Management
continually monitors the system of internal control for compliance, and actions
are taken to correct deficiencies as they are identified. Even an effective
internal control system, no matter how well designed, has inherent limitations
- - including the possibility of the circumvention or overriding of controls -
and therefore can provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions, internal
control system effectiveness may vary over time.
The Company maintains an internal auditing program that monitors and
assesses the effectiveness of the internal control system and recommends
possible improvements thereto. The Company's accompanying financial statements
have been audited by Ernst & Young LLP, independent auditors, whose audit was
made in accordance with generally accepted auditing standards and included a
review of the system of internal accounting controls to the extent necessary to
determine the audit procedures required to support their opinion on the
consolidated financial statements. Management believes that, as of December 31,
1996, the Company's system of internal control is adequate to accomplish the
objectives discussed herein.
Reebok International Ltd.,
/s/ Paul Fireman /s/ Kenneth Watchmaker
- ----------------------- ----------------------------
Paul Fireman Kenneth Watchmaker
Chairman, President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
43
REEBOK INTERNATIONAL LTD.
20
QUARTERLY RESULTS OF OPERATIONS
Amounts in thousands, except per share data
First Second Third Fourth
YEAR ENDED DECEMBER 1996 Quarter Quarter Quarter Quarter
======================================================================================
Net sales $902,923 $817,572 $ 970,080 $788,029
Gross profit 351,132 312,268 380,530 290,252
Net income 48,415 19,813 50,612 20,110
Net income per common share .64 .27 .75 .35
Cash dividends per common share .075 .075 .075 .000
======================================================================================
First Second Third Fourth
YEAR ENDED DECEMBER 1995 Quarter Quarter Quarter Quarter
======================================================================================
Net sales $935,478 $788,692 $1,005,980 $751,300
Gross profit 378,079 316,847 391,145 281,295
Net income 65,917 21,404 76,202 1,275
Net income per common share .80 .26 .96 .02
Cash dividends per common share .075 .075 .075 .075
======================================================================================
On June 7, 1996, Reebok completed the sale of substantially all of the operating
assets of its subsidiary Avia. Accordingly, subsequent to that date, the
operations of Avia are no longer included in the Company's financial results.
Net income for the second quarter of 1995 includes an after-tax special
charge of $11,235 ($0.14 per share.) Net income for the fourth quarter of 1995
includes an after-tax special charge of $33,699 ($0.44 per share.)
44
REEBOK INTERNATIONAL LTD.
21
DIRECTORS & OFFICERS
- ------------------
BOARD OF DIRECTORS
- ------------------
PAUL FIREMAN
Chairman, President
& Chief Executive Officer
Reebok International Ltd.
PAUL R. DUNCAN
Executive Vice President
Reebok International Ltd.
WILLIAM F. GLAVIN
President, Babson College
MANNIE L. JACKSON
Chairman &
Chief Executive Officer
Harlem Globetrotters
International, Inc.
BERTRAM M. LEE, SR.
Chairman of the Board
Albimar Communications, Inc.
RICHARD G. LESSER
Executive Vice President
& Chief Operating Officer
TJX Companies, Inc.
WILLIAM M. MARCUS
Executive Vice President
& Treasurer
American Biltrite, Inc.
ROBERT MEERS
Executive Vice President
President & CEO
Reebok Division
GEOFFREY NUNES
Senior Vice President
& General Counsel
Millipore Corporation
JOHN A. QUELCH
Sebastian S.
Kresge Professor of
Marketing at the
Graduate School of
Business Administration
Harvard University
- ------------------
CORPORATE OFFICERS
- ------------------
PAUL FIREMAN
Chairman, President
& Chief Executive Officer
PAUL R. DUNCAN
Executive Vice President
ROBERT MEERS
Executive Vice President
President & CEO
Reebok Division
KENNETH WATCHMAKER
Executive Vice President
& Chief Financial Officer
ANGEL R. MARTINEZ
Executive Vice President
President & Chief Executive Officer
The Rockport Company, Inc.
BARRY NAGLER
Vice President
& General Counsel
LEO S. VANNONI
Treasurer
45
REEBOK INTERNATIONAL LTD.
22
CORPORATE INFORMATION
AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
TRANSFER AGENT
AND REGISTRAR
The First National Bank of Boston is the Transfer Agent and Registrar for the
Company's common stock and maintains the shareholder accounting records. The
Transfer Agent should be contacted on questions of changes in address, name or
ownership, lost certificates and consolidation of accounts. When corresponding
with the Transfer Agent, shareholders should state the exact name(s) in which
the stock is registered and certificate number(s), as well as old and new
information about the account.
The First National
Bank of Boston
c/o Boston EquiServe, L.P.
Shareholder Correspondence
Mail Stop 45-02-64
Post Office Box 644
Boston, MA 02102-0644
(617) 575-3400
FORM 10-K
For a copy of the Form
10-K Annual Report filed with the
Securities and Exchange
Commission, write to:
Office of Investor Relations
Reebok International Ltd.
100 Technology Center Drive
Stoughton, MA 02072
WEB SITE
http://www.reebok.com
CORPORATE HEADQUARTERS
Reebok International Ltd.
100 Technology Center Drive
Stoughton, MA 02072
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at 10:00 a.m., local time, on
Thursday, May 1, 1997 at the First National Bank of Boston, First Floor
Auditorium, 100 Federal Street, Boston, Massachusetts.
Shareholders of record on March 11, 1997 are entitled to vote at the meeting.
STOCK INFORMATION
The Company's common stock is quoted on the New York Stock Exchange under the
symbol RBK. The following table, derived from data supplied by the NYSE, sets
forth the quarterly high and low stock prices during 1996 and 1995.
1996 1995
High Low High Low
------------------------------------------------------------
First 31 3/8 25 3/8 39 5/8 33 5/8
Second 33 3/4 26 37 1/2 31 1/8
Third 36 7/8 29 1/4 37 7/8 32 7/8
Fourth 45 1/4 32 1/2 36 1/4 24 1/8
The number of record holders of the Company's common stock at December 31, 1996
was 7,179.
REEBOK, the Vector Logo , the Human Rights Logo and HEXALITE are registered
trademarks, and DMX, HYDROMOVE and 3D ULTRALITE are trademarks of Reebok
International.
ROCKPORT and DRESSPORTS are registered trademarks, and XCS and The Walking
Sandal are trademarks of The Rockport Company, Inc.
GREG NORMAN is a registered trademark, and the Greg Norman Logo is a trademark
of Great White Shark Enterprises, Inc.
RALPH LAUREN and POLO SPORT are registered trademarks of Polo Ralph Lauren, L.P.
Copy Right 1997 Reebok International Ltd. All rights reserved. Portions of this
annual report are printed on recycled paper.
46
REEBOK INTERNATIONAL LTD.