10-K405

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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

    For the fiscal year ended December 31, 1998 Commission File Number 1-9340

                            REEBOK INTERNATIONAL LTD.
             (Exact name of registrant as specified in its charter)

          MASSACHUSETTS                                   04-2678061
 (State or other jurisdiction of               (IRS Employer Identification No.)
  incorporation or organization)

100 TECHNOLOGY CENTER DRIVE, STOUGHTON, MASSACHUSETTS        02072
     (Address of principal executive offices)              (zip code)

Registrant's telephone number, including area code:  (781) 401-5000

Securities registered pursuant to Section 12(b) of the Act:

        Title of                                   Name of each exchange
        each class                                 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. [X]

As of March 11, 1999, the aggregate market value of the registrant's voting
stock held by non-affiliates of the registrant was approximately $799,931,073.

As of March 11, 1999, 55,969,886 shares of the registrant's Common Stock were
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Annual Report to Shareholders for the fiscal year ended December 31,
1998 (certain parts as indicated herein in Parts I, II and IV).

         Definitive Proxy Statement dated March 26, 1999 for the Annual Meeting
of Shareholders to be held on May 4, 1999 (certain parts as indicated herein in
Part III).
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                                     PART I

Item 1. Business.

         Reebok International Ltd., a Massachusetts corporation organized on
July 26, 1979, is a global company engaged primarily in the design and marketing
of sports and fitness products, including footwear and apparel, as well as the
design and marketing of footwear and apparel for non-athletic "casual" use. The
Company has four major brand groups: the Reebok Division, which is primarily
responsible for the Company's REEBOK(R) brand, the Greg Norman Division, which
is responsible for the GREG NORMAN(R) brand, and the Company's subsidiaries, The
Rockport Company, Inc. ("Rockport") which is responsible for the ROCKPORT(R)
brand, and Ralph Lauren Footwear Co., Inc. which is responsible for footwear
sold under the RALPH LAUREN(R) and POLO SPORT(R) brands. (Reebok International
Ltd. is referred to herein, together with its subsidiaries, as "Reebok" or the
"Company" unless the context requires otherwise.)

         During calendar year 1998, net income for the Company decreased to
$23.9 million, or $.42 per diluted share (inclusive of a $35 million (pre-tax)
special charge in the first quarter for personnel-related expenses in connection
with ongoing business re-engineering efforts and the restructuring of certain
underperforming marketing contracts) from $135.1 million, or $2.32 per diluted
share (inclusive of special charges related to the Company's global
restructuring activities and the restructuring of a number of marketing
contracts, as well as a special tax benefit related to a favorable ruling
concerning outstanding tax matters associated with the June 1996 sale of the
Company's Avia subsidiary), for the year ended December 31, 1997. Net sales for
the Company decreased by 11.5%, from $3.644 billion in 1997 to $3.225 billion in
1998.

         The following is a discussion of the business of each of the Company's
operating units.

REEBOK DIVISION

         The Reebok Division designs, produces and markets sports, 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 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 the REEBOK(R) brand, as
well as footwear and apparel sold under the WEEBOK(R) brand. The Division
continues to expand its product scope through its strategic licensing program,
pursuant to which the Company's technologies and/or trademarks are licensed to
third parties for fitness equipment, sporting goods, sports and fitness videos
and related products and services.

         The Reebok Division has recently been reorganized into six strategic
business units (SBU's), each of which will have responsibility for product and
marketing for the unit's business, as well as certain responsibility for
profitability and cash flow for the unit. The SBU's are:

         The Classic Footwear SBU, which will focus on lifestyle footwear;

         The Performance Footwear SBU, which will be responsible for Baseball,
         Basketball, Cross-Training, Football, Golf, Running, Soccer, Tennis and
         Adventure/Outdoor footwear categories;

         The Fitness SBU, which will be responsible for men's and women's
         Fitness and Walking footwear categories, the Division's existing
         exercise equipment business and other related sports and fitness
         products (under the Division's licensing program) and Reebok
         University;


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         The Global Apparel SBU, which is responsible for sports and fitness
         apparel worldwide;

         The Kids' Products SBU, which will focus on children's products sold
         under the REEBOK and WEEBOK brands; and

         The Retail Operations SBU, which will be responsible for Reebok retail
         stores, as well as developing retail merchandising and promotional
         concept.

         During the past few years, the Reebok Division has focused its efforts
on enhancing the performance of its products and developing proprietary
technologies which can help consumers reach their own personal level of
achievement. The Reebok Division seeks to broaden its targeted customer base
beyond athletes, to include consumers of all ages who seek sports and fitness
products that will help them lead healthier and happier lives. By building upon
its heritage and strengths in the fitness and lifestyle categories, the
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
Division engages in product research, development and design activities in the
Company's Stoughton, Massachusetts headquarters, where it has a state-of-the-art
50,000 square foot product development facility which is dedicated to the design
and development of technologically-advanced athletic and fitness footwear, and
in its various Far East offices. Reebok also has product development centers in
the Far East to enable its development activities to be more closely integrated
with production. There are development centers in Korea and in China and a new
development center was opened in Taiwan in 1998.

         Reebok's most significant proprietary technology is its DMX(R)
technology which provides superb cushioning utilizing an active air flow system.
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. This structure is set up to take into account performance
attributes, aesthetics and price among the various versions. Reebok currently
offers a broad array of products which incorporate the different versions of DMX
at various price-points, and in numerous footwear categories. For example, the
Company's DMX 10 technology incorporates a ten-pod, heel to forefoot, active air
transfer system delivering cushioning when and where it is needed. The DMX(R) 10
technology was first introduced at retail in April 1997 in the Run DMX. In
February 1998, Reebok debuted at retail DMX 6, a six-pod, heel to forefoot,
active air transfer system, in a running shoe, Run DMX 6. During 1998, the
Company further expanded its offering of products featuring DMX technology, and
began offering DMX Lite products which combine the cushioning benefits of the
DMX technology with the lightweight advantages of the 3D ULTRALITE technology
(discussed below). In November 1998, Reebok introduced The Answer II, an Allen
Iverson signature basketball shoe which combines DMX and 3D ULTRALITE. The
Fusion shoe, which combines the DMX 10 pod system with 3D ULTRALITE was
introduced in early 1999. The Company plans to introduce other DMX Lite products
in 1999.


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         3D ULTRALITE technology is Reebok's approach to lightweight performance
footwear. 3D ULTRALITE is a proprietary material that allows the midsole and
outsole to be combined in one injection molded unit composed of foam and rubber,
thus making the shoe lightweight, flexible and durable. In 1998, the Company
expanded its introduction of 3D ULTRALITE technology at retail in a variety of
footwear categories.

         Finally, Reebok has incorporated advanced technology into its apparel
products with the introduction of HYDROMOVE(R) technology in certain performance
apparel. This moisture management system helps keep athletes warm in cold
weather and dry and cool in hot weather. Performance apparel incorporating the
HYDROMOVE technology first became available at retail at the end of 1996. During
1998 Reebok continued to offer apparel products incorporating the HYDROMOVE
technology.

MARKETING AND PROMOTIONAL ACTIVITIES

         The Reebok Division devotes significant resources to advertising its
products to a variety of audiences through television, radio and print media and
utilizes its relationships with major sports figures in a variety of sports to
maintain and enhance visibility for the REEBOK brand. The Reebok Division's
advertising program in 1998 was directed toward both the trade and the ultimate
consumers of REEBOK(R) products. The major advertising campaigns in 1998
included the "Creating Possibilities" campaign which focused on Reebok's
proprietary DMX and 3D ULTRALITE technologies and their ability to create
possibilities for athletes, one athlete at a time, and the "Clones" ad campaign
which featured Reebok breaking out from the competition with its DMX technology
and proclaimed the DMX(R) 10 running shoe as "The Best Running Shoe in the
History of the World".

         Consistent with the Division's effort to broaden its consumer appeal,
"Reebok Unlimited" has been adopted as the marketing umbrella for the brand,
representing unlimited possibilities and the "unlimited" array of products that
Reebok offers consumers for the various aspects of their life, from performance
products to lifestyle and children's products. Under this umbrella, the Division
is currently testing and developing a new brand position "The Human Movement"
reflecting increasing consumer frustration with professional sports and its
current emphasis on unhealthy economic and competitive attitudes over the love
of sport itself. This humanity positioning is the very essence of the original
values of the REEBOK brand, grounded in the Reebok Human Rights Awards, Reebok's
efforts to improve factory working conditions and Reebok's focus on comfort and
performance product benefits that consumers can feel. Consistent with this
positioning, the Division continues to be significantly involved in athletic
endorsements and sport sponsorships, but has focused on fewer key sponsorships,
achieving more of a balance in its marketing activities and promoting fitness
and other activities, as well as sports.

         Some of the key athlete endorsements in 1998 included Reebok's
endorsement arrangement with Allen Iverson of the Philadelphia 76ers, with whom
Reebok markets a signature line of footwear and apparel. Other endorsements in
basketball in 1998 came from professional players such as Shawn Kemp, Kenny
Anderson and Steve Smith. In addition, Reebok sponsors a number of college
basketball programs and has a sponsorship agreement with the Harlem
Globetrotters.

         To promote the sale of its cross training footwear in 1998, Reebok used
endorsements by prominent athletes such as National Football League ("NFL")
players Derrick Thomas, John Elway, Herman Moore and Ben Coates, as well as
Major League Baseball ("MLB") players Juan Gonzalez , Nomar Garciaparra, Mo
Vaughn and Roger Clemens. To promote its cleated football and baseball shoes,
the Company also has endorsement contracts with numerous MLB and NFL players,
and sponsors a number of college football programs.


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         The Company has an agreement with NFL Properties under which Reebok has
been designated a "Pro Line" licensee for the U.S. and international markets
with the right to produce and market uniforms and sideline apparel bearing NFL
team logos. Pursuant to this agreement, in 1998 Reebok supplied uniforms and
sideline apparel to the San Francisco 49ers, Detroit Lions, New York Giants, New
Orleans Saints, Kansas City Chiefs and Atlanta Falcons. This arrangement ended
with the 1998 season. In addition to the Pro Line license, Reebok has an
agreement with the NFL under which Reebok is one of only three brands authorized
to provide NFL players with footwear that has visible logos.

         In soccer, Reebok has a number of sponsorship agreements including
contracts with Dennis Bergkamp of Arsenal and the Netherlands, Spain's Raul who
plays for European Cup holder Real Madrid and Spain, and Argentinean Gabriel
Batistuta of Fiorentina. The Company also has major sponsorship agreements with
the Liverpool Football Club, one of the world's best known club soccer teams,
and, beginning in 1999, with the Argentina National Football Association, who
are two time World Cup winners. In addition, Reebok sponsors the national teams
of Colombia and Chile, as well as such club teams as Aston Villa (UK), Borussia
Moenchengladbach (Germany), Palmeiras (Brazil), Brondby (Denmark) and the Bolton
Wanderers of England, for which the sponsorship includes naming rights to the
team's new soccer arena, the Reebok Stadium. Reebok is also the official uniform
supplier of U.S. Major League Soccer team, the New England Revolution.

         Tennis promotions in 1998 included endorsement contracts with
well-known professionals including Venus Williams, Patrick Rafter and Michael
Chang. Promotional efforts in running included endorsement contracts with such
prominent runners as Ato Boldon, Kim Batten and Marie Jose Perec.

         To promote its women's sports and fitness products, Reebok sponsored
athletes such as Rebecca Lobo of the WNBA, as well as Michelle Akers and Julie
Foudy of the U.S. national soccer team, Lisa Fernandez of the U.S. national
softball team and Liz Masakayan, pro beach volleyball player. In addition,
Reebok sponsors a variety of college basketball and volleyball teams.

         In 1998 the Reebok Division also continued its promotional and
educational efforts in the fitness area. Through Reebok University and its
network of Master trainers and Alliance fitness instructors, the Division
develops and promotes numerous fitness programs such as its WALK REEBOK program
which promotes walking, its CYCLE REEBOK program that features the CYCLE REEBOK
studio cycle, the Reebok Flexible Strength program that develops strength and
flexibility simultaneously and the RNT and Reebok Strength programs which focus
on strength training. These programs were complemented by the marketing and sale
of a line of REEBOK(R) fitness videos, as well as the marketing and sale of
REEBOK fitness equipment products such as the STEP REEBOK exercise platform, the
CYCLE REEBOK studio cycle, the REEBOK Body Trec, the REEBOK ACD line of home
treadmills and the REEBOK home bike collection.

         To gain further visibility for the REEBOK brand, Reebok has entered
into certain key sport sponsorships, such as an arrangement under which Reebok
was designated the official footwear and apparel sponsor of the Russian Olympic
Committee and approximately 25 individual associated Russian sports federations;
this arrangement was extended through the Sydney 2000 Summer Olympic Games. In
addition, Reebok will be an official sponsor of the Sydney 2000 Olympic Games
and the official sports brand of the 1998 and 2000 Australian Olympic teams, as
well as an official sponsor and supplier of sports footwear and apparel to the
national Olympic teams from New Zealand, Poland and South Africa. Reebok also
has school-wide sponsorship arrangements with colleges such as University of
Texas, University of Virginia and University of Wisconsin. In 1998, the Reebok
Division also ran marketing promotions on its Internet website.


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         During 1998 the Reebok Division brought its message on product
performance and brand essence directly to the consumer. As part of this
strategy, the Division launched a direct-to-the-consumer campaign called "Try on
the Future" in 1998 which involved a nationwide mobile tour designed to give
consumers the opportunity to experience and "try on" Reebok's new products and
technologies. The campaign generated positive responses from consumers regarding
REEBOK products.

U.S. OPERATIONS

         The Reebok Division's U.S. operations unit is responsible for all
footwear and apparel products sold in the United States by the Division. This
unit is also responsible for operations in Canada which are managed by a
wholly-owned subsidiary. Sales of footwear in the United States totaled
approximately $1.062 billion in 1998 compared to $1.229 billion in 1997.
REEBOK(R) brand apparel sales (including GREG NORMAN(R) apparel) in the U.S. in
1998 totalled approximately $362.2 million, compared to approximately $431.9
million in 1997.

         In the U.S., 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 field service representatives employed by Reebok who travel to
assist in retail merchandising efforts and provide information to consumers and
retailers regarding the features of the Company's products.

         The Division's U.S. distribution strategy emphasizes high-quality
retailers and seeks to avoid lower-margin mass merchandisers and discount
outlets. REEBOK(R) footwear is distributed primarily through specialty athletic
retailers, sporting goods stores and department stores, with specialty products,
such as golf products and equipment, also being distributed in certain specialty
channels. Distribution of the Company's apparel line is predominantly through
department, sporting goods and specialty stores. The Reebok Division also sells
its products through REEBOK(R) concept or company stores, see discussion under
"Retail" below.

INTERNATIONAL OPERATIONS

         The Reebok Division's international sales are coordinated from the
Company's corporate headquarters in Stoughton, Massachusetts, which is also
where the Division's regional operations responsible for Latin America are
located. There are also regional offices in Leusden, Holland, which is
responsible for Europe; in Hong Kong, which is responsible for Far East
operations; and in Delhi, India, which is responsible for India, the Middle East
and Africa. The Canadian operations of the Division are managed through a
wholly-owned subsidiary headquartered outside of Toronto, Canada. The Division
markets REEBOK(R) products internationally through wholly-owned subsidiaries in
Austria, Belgium, Canada, France, Germany, Ireland, The Netherlands, Italy,
Poland, Portugal, Russia, Switzerland and the United Kingdom and majority-owned
subsidiaries in Japan, India, South Korea, Spain and South Africa. In November
1998, the Company formed a wholly-owned subsidiary to assume responsibility for
the distribution of REEBOK and ROCKPORT products in Sweden, Denmark and Norway,
following the bankruptcy of Reebok's former distributor for this territory. The
Company anticipates divesting its minority stake in its Brazilian distributor,
which will thereafter function as an independent distributor. REEBOK products
are also marketed internationally through 28 independent distributors and joint
ventures in which the Company holds a minority interest. The Company or its
wholly-owned U.K. subsidiary holds partial ownership interests in 6 of these
international distributors, with its percentage of ownership ranging from 30 to
35 percent. Through this international distribution network products bearing the
REEBOK brand are actively marketed in approximately 170 countries and
territories.


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         In 1998 Reebok continued restructuring its international logistics
operations. This global restructuring effort includes reducing the number of
European warehouses in operation, establishing a shared services company to
centralize European administrative operations, and implementing a global
management information system. The global restructuring initiative, a major
portion of which is expected to be completed in 1999, should enable the Company
to achieve operational efficiencies and to manage its business on a global basis
more cost-effectively. In November 1998 Reebok began receiving limited product
in its new 700,000 square foot distribution center in Rotterdam, which will
ultimately receive all inbound product for European distribution. The facility
began limited shipping in January 1999 for one Reebok European distributor and
other European distributors will be gradually phased in through 1999 and 2000.
Reebok's shared services company has also begun operation and provides
administrative support to a few European distributors. The shared services
company will expand its operation to additional European distributors during
1999.

         During 1998 the contribution of the Division's International operations
unit to overall sales of REEBOK(R) products (including GREG NORMAN(R) apparel)
decreased to $1.267 billion from $1.471 billion in 1997. The Division's 1998
international sales were negatively impacted by adverse financial conditions in
Latin America, the Far East and Russia, as well as foreign currency exchange
rates. These sales figures do not reflect the full wholesale value of all REEBOK
products sold outside the United States in 1998 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
$1.454 billion in wholesale value, consisting of approximately 29.6 million
pairs of shoes totalling approximately $828.8 million in wholesale value of
footwear sold outside the United States in 1998 (compared with approximately
33.2 million pairs totalling approximately $1.098 billion in 1997) and
approximately $625.1 million in wholesale value of REEBOK apparel (including
GREG NORMAN apparel) sold outside the United States in 1998 (compared with
approximately $680.5 million in 1997).

LICENSING

         The Company has continued to pursue its strategic trademark and
technology licensing program begun in 1991. This program is designed to pursue
opportunities for licensing the Company's trademarks, patents and other
intellectual property to third parties for sporting goods, apparel and related
products and services. The licensing program is focused on expanding the
REEBOK(R) brand into new sports and fitness markets and enhancing the reputation
of the Company's brands and technologies. The Company has pursued strategic
alliances with licensees who Reebok believes are leaders and innovators in their
product categories and who share Reebok's commitment to offering superior,
innovative products. The Company believes that its licensing program reinforces
Reebok's reputation as a market leader.

         The Company's licensing program includes such products as a full line
of athletic gloves, all featuring the REEBOK trademark and Reebok's Vector Logo;
a collection of REEBOK performance sports sunglasses; REEBOK weight belts, both
with and without Reebok's INSTAPUMP(TM) technology, a collection of REEBOK
infant and toddler apparel, a line of REEBOK team uniforms and jackets, and
REEBOK school supplies. Through licensees, Reebok also sells REEBOK fitness
videos and REEBOK fitness audio tapes.

         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. The
initial home fitness products debuted at the Super Show in Atlanta in February
1998. Home fitness products include the REEBOK ACD line of home treadmills,


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the REEBOK elliptical cross-trainer and the REEBOK home bike collection.
Reebok's line of club fitness products include the REEBOK Body Trec(TM), REEBOK
Body Peak, REEBOK Studio Cycle and the REEBOK Ridge Rocker. Through its
licensee, Reebok also launched a line of strength equipment products in April
1998 in Europe and introduced a line of REEBOK strength products in the U.S. at
the end of 1998. Reebok has also entered into various license agreements for the
sale of the REEBOK fitness equipment products internationally.

         As part of the Company's licensing program, WEEBOK(R) infant and
toddler apparel and accessories and a line of WEEBOK(R) footwear are sold by
licensees. WEEBOK is a fashion-oriented, kid specific brand, which offers
apparel in sizes 0-7 and footwear in sizes 0-12.

         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 5 floors of the Lincoln Square
project. A REEBOK concept store, as well as ROCKPORT and GREG NORMAN concept
stores, is located in the building. 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.

RETAIL

         The Company operates in the United States approximately 175 factory
direct stores (including REEBOK, ROCKPORT and GREG NORMAN stores and combination
stores, in which stores for all three brands are located at a single site) which
sell a variety of footwear, apparel and accessories marketed under the Company's
various brands. The Company intends to continue to open additional factory
direct stores, although its policy is to locate and operate these retail outlets
in such a way as to minimize disruption to its normal channels of distribution.

         The Company also operates a REEBOK(R) "concept" or company retail store
in New York City. The store sells a wide selection of current, in-line
REEBOK(R), footwear and apparel. Internationally, there are a number of REEBOK
retail stores owned by the Company, its subsidiaries or its independent
distributors. The Company continues to open retail stores either directly or
through its distributors in numerous international markets. REEBOK retail shops
are important means of presenting the brand in markets such as China, India,
Korea, Russia and South America, as well as in other international markets.

         The Company is currently working to develop a retail store concept to
showcase the REEBOK brand at retail and expects to incorporate this design into
independently-owned retail stores, dedicated exclusively to the sale of Reebok
products. In 1998 the Company tested one such concept in a store in the United
States and further testing will be done in 1999.

THE ROCKPORT COMPANY

         The Company's Rockport subsidiary, headquartered in Marlboro,
Massachusetts, designs, produces and distributes specially engineered comfort
footwear for men and women worldwide under the ROCKPORT(R) brand, as well as
apparel through a licensee.

         Rockport's net sales increased by approximately $21.4 million in 1998,
to $533.9 million from $512.5 million in 1997. Rockport's sales include $73.2
million of sales of the RALPH LAUREN footwear business in 1998 and $64.0 million
in 1997.


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         Designed to address the different aspects of customers' lives, the
ROCKPORT product line includes casual, dress, outdoor performance, golf and
fitness walking shoes. In 1998, Rockport continued to focus on its men's
business with extension of its World Tour product into additional patterns. In
addition, Rockport expanded its customer base by introducing new styles and
contemporary collections to attract younger consumers. Rockport also prepared
for a renewed focus on its women's business in 1999, with the introduction in
1998 of its Journey 21 collection, a casual woman's shoe collection featuring
Rockport's Soul Sensation(TM) footbed, which provides relaxation and comfort
through a system of air channels that deliver massage-like stimulation. Rockport
plans to introduce in 1999 other women's footwear products incorporating this
new footbed.

         Internationally, the ROCKPORT brand continues to grow. In 1998 the
ROCKPORT brand's international revenues grew in excess of 20% through expansion
within its existing markets and opening of new markets.

         Rockport focused in 1998 on the expansion of its retail presence
through an increase in the United States in the number of its ROCKPORT shops -
independent retail shops dedicated exclusively to the sale of ROCKPORT products
- - from 21 to 34, the opening of a number of Rockport shop-in-shops and increased
placement of Rockport fixturing with third-party retailers. In addition,
Rockport emphasized retail in its international business by opening additional
"concept" or retail shops outside of the United States, operated by Rockport
distributors or third party retailers.

         Rockport continued its "uncompromise" marketing campaign with ads
highlighting people who are comfortable with their particular individuality,
coupled with the tag line "Be comfortable. Uncompromise(TM). Start with your
feet." In 1998 this campaign featured such personalities as Tony nominee John
Leguizamo and the world's most famous drag queen, Ru Paul dressed as a man. In
addition, Rockport promoted its connection to adventure travel through
sponsorship of the Earthwatch Institute, a non-profit organization that conducts
research expeditions throughout the world. During 1998 Rockport continued
expanding its offerings on its Internet website, and grew its
business-to-business direct purchase program which enables employees at
participating companies to purchase ROCKPORT products through Rockport's
website.

         Rockport markets its products to authorized retailers throughout the
United States primarily through a locally-based employee sales staff, although
Rockport utilizes independent sales agencies for certain products.
Internationally, Rockport markets its products through approximately 30 locally
based distributors in approximately 50 foreign countries and territories. A
majority of the international distributors are either subsidiaries of the
Company or joint venture partners or independent distributors which also sell
REEBOK brand products.

         Rockport distributes its products predominantly through select
higher-quality national and local shoe store chains, department stores,
independent shoe stores, and outdoor outfitters, emphasizing retailers that
provide substantial point-of-sale assistance and carry a full product line.
Rockport also sells its products through independently-owned ROCKPORT dedicated
retail shops, as well as ROCKPORT concept or company stores. Rockport has
concept or company retail stores in San Francisco, California, Boston,
Massachusetts, Newport, Rhode Island, King of Prussia, Pennsylvania and New York
City. In addition, there are a number of ROCKPORT shops - independent stores
which sell Rockport products exclusively - in the U.S. as well as
internationally. Rockport has not pursued mass merchandisers or discount outlets
for the distribution of its products.


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RALPH LAUREN(R) BRAND

         In 1998 the RALPH LAUREN footwear business, which was acquired in May
1996, continued to grow. A broader range of products was offered in the POLO
SPORT(R) athletic footwear line. In addition, RALPH LAUREN Footwear extended its
design and development work to include the RLX(TM) collection, consisting of
high performance athletic footwear, and the Lauren(TM) collection for women; for
both categories, product will be introduced at retail in 1999.

         RALPH LAUREN footwear is marketed to authorized retailers principally
through an employee staff, although RALPH LAUREN Footwear retained independent
sales agencies in 1998 for sales of certain products to specialty distribution
points. Products are distributed primarily through higher-quality department
stores and, in the case of POLO SPORT footwear, through specialty athletic
retailers. Products are also sold through space licensing arrangements at RALPH
LAUREN/POLO retail stores. The Ralph Lauren Footwear Company operates "concept"
footwear departments in RALPH LAUREN/POLO stores in a number of locations in the
United States, including New York City, and Beverly Hills, California and new
departments in Chicago, Illinois, and Palm Beach, Florida, which opened at the
end of 1998. In addition, the Ralph Lauren footwear subsidiary has footwear
retail operations in approximately 19 RALPH LAUREN/POLO factory direct stores
and operates one factory direct store in Tannersville, Pennsylvania.

GREG NORMAN(R) BRAND

         The Company's Greg Norman Division produces a collection of apparel and
accessories marketed under the GREG NORMAN(R) name and logo. The GREG NORMAN
Collection has grown from a golf apparel line to a broader line of men's casual
sportswear. The GREG NORMAN product line has been expanded to include a wide
range of apparel products -- from leather jackets and sweaters to activewear and
swimwear -- at a variety of upper-end price-points. In the Fall of 1999, the
Greg Norman Division plans to introduce a Greg Norman Boys' Collection to
complement the men's apparel line. The Greg Norman Division intends to grow the
GREG NORMAN brand further by offering a variety of lifestyle products and
expanding into international markets. It is anticipated that the Division will
accomplish such expansion through various licensing and distribution
arrangements. In 1998 Greg Norman footwear, leather and hosiery products were
sold through licensees of the Company. The Division anticipates entering into a
number of new agreements which will broaden the scope of products offered and
expand distribution internationally.

         The GREG NORMAN brand is marketed through its endorsement by pro golfer
Greg Norman, and a marketing and advertising campaign designed to emphasize his
aggressive, bold, charismatic and "winning" style. The current tag line for the
brand and marketing focus is the theme "Attack Life(TM)".

         GREG NORMAN products are distributed principally at department and
men's specialty stores, on-course pro-shops and golf specialty stores and are
sold by a combination of independent and employee sales representatives. The
GREG NORMAN Collection is also sold in GREG NORMAN dedicated shops within
independently-owned retail stores, as well as GREG NORMAN concept or company
stores. There are two GREG NORMAN concept or company retail stores in New York
City. In 1998, the GREG NORMAN Collection significantly expanded its shelf space
at third-party retailers and a number of new GREG NORMAN dedicated shops within
third-party retailers were opened.


                                       9
   11
MANUFACTURING

         Virtually all of the Company's products are produced by independent
manufacturers, almost all of which are outside the United States, except that
some of the Company's apparel and some of the component parts used in the
Company's footwear are sourced from independent manufacturers located in the
United States. Each of the Company's operating units generally contracts with
its manufacturers on a purchase order basis, subject in most cases to the terms
of a formal manufacturing agreement between the Company and such manufacturers.
All contract manufacturing is performed in accordance with detailed
specifications furnished by the operating unit, subject to strict quality
control standards, with a right to reject products that do not meet
specifications. To date, the Company has not encountered any significant problem
with product rejection or customer returns due to quality problems. The Company
generally considers its relationships with its contract manufacturers to be
good.

         As part of its commitment to human rights, the Company has adopted
certain human rights standards and a monitoring program which applies to
manufacturers of its products. Through its human rights initiatives, Reebok has
eliminated the need for toluene from all cold cement shoe production
(representing 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 steps to increase certain
wages and to reduce overtime hours at such factories. In conjunction with its
human rights program, the Company required its supplier of soccer balls in
Pakistan to end the use of child labor by centralizing all production, including
ball stitching, so that the labor force can be adequately monitored to prevent
the use of child labor. Reebok soccer balls are sold with a guarantee that the
balls are made without child labor.

         China, Indonesia, Thailand and the Philippines were the Company's
primary sources for footwear, accounting for approximately 42%, 25%, 18%, and
6%, respectively, of the Company's total footwear production during 1998 (based
on the number of units produced). The Company's largest manufacturer, which has
several factory locations, accounted for approximately 14% of the Company's
total footwear production in 1998.

         Reebok's wholly-owned Hong Kong subsidiary, and a network of affiliates
in China, Indonesia, India, Thailand, Taiwan, South Korea and the Philippines,
provide quality assurance, quality control, and inspection services with respect
to footwear purchased by the Reebok Division's U.S. and International
operations. In addition, this network of affiliates inspects certain components
and materials purchased by unrelated manufacturers for use in footwear
production. The network of affiliates also facilitates the shipment of footwear
from the shipping point to point of destination, as well as arranging for the
issuance to the unrelated footwear manufacturers of letters of credit, which are
the primary means used to pay manufacturers for finished products. The Company's
apparel group utilizes the services of independent third parties, as well as the
Company's Hong Kong subsidiary and its network of affiliates in the Far East, to
assist in the placement, inspection and shipment of apparel and accessories
orders internationally. Production of apparel in the United States is through
independent contractors which are retained and managed by the Company's apparel
group. ROCKPORT(R) footwear products are produced by independent contractors
which are retained and managed through country managers employed by Rockport.
The remainder of the Company's order placement, quality control and inspection
work abroad is handled by a combination of employees and independent contractors
in the various countries in which its products are made.


                                       10
   12
SOURCES OF SUPPLY

         The principal materials used in the Company's footwear products are
leather, nylon, rubber, ethylvinyl acetate and polyurethane. Most of these
materials can be obtained from a number of sources, although a loss of supply
could temporarily disrupt production. Some of the components used in the
Company's technologies are obtained from only one or two sources, and thus a
loss of supply could disrupt production. The principal materials used in the
Company's apparel products are cotton, fleece, nylon and spandex. These
materials can be obtained from a number of sources.

         The footwear products of the Company that are manufactured overseas and
shipped to the United States for sale are subject to U.S. Customs duties. Duties
on the footwear products imported by the Company range from 6% to 37.5% (plus a
unit charge in some cases of 90 cents), depending on whether the principal
component is leather or some other material and on the construction.

         As with its international sales operations, the Company's footwear and
apparel production operations are subject to the usual risks of doing business
abroad, such as import duties, quotas and other threats to free trade, foreign
currency fluctuations and restrictions, labor unrest and political instability.
See "TRADE POLICY" below. The Company believes that it has the ability to
develop, over time, adequate substitute sources of supply for the products
obtained from present foreign suppliers. If, however, events should prevent the
Company from acquiring products from its suppliers in China, Indonesia, Thailand
or the Philippines, or significantly increase the cost to the Company of such
products, the Company's operations could be seriously disrupted until
alternative suppliers were found, with a significant negative financial impact.

TRADE POLICY

         For several years, imports from China to the U.S., including footwear,
have been threatened with higher or prohibitive tariff rates, either through
statutory action or intervention by the Executive Branch, due to concern over
China's trade policies, human rights, foreign weapons sales practices and its
foreign policy. Further debate on these issues is expected to continue in 1999.
However, the Company does not currently anticipate that restrictions on imports
from China will be imposed by the U.S. during 1999. 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
actual effect of any such action will, however, depend on a number of factors,
including how reliant the Company, as compared to its competitors, is on
production in China and the effectiveness of the contingency plans put in place.

         The European Union ("EU") imposed import quotas on certain footwear
from China in 1994. The effect of such quota scheme on Reebok has not been
significant because the quota scheme provides an exemption for certain
higher-priced special technology athletic footwear, which exemption is available
for most REEBOK products. This exemption does not, however, cover most of
Rockport's products and thus could result in an adverse effect on Rockport's
international sales. As a result, Rockport is pursuing alternative sources for
its products to reduce such effect. However, there can be no guarantee that
Rockport will be successful in implementing such alternative sourcing
arrangements.

         In addition, the EU has imposed antidumping duties against certain
textile upper footwear from China and Indonesia. A broad exemption from the
dumping duties is provided for athletic textile footwear which covers most
REEBOK models. If the athletic footwear exemption remains in 


                                       11
   13
its current form, few REEBOK product lines will be affected by the duties;
however, ROCKPORT products would be subject to these duties. Nevertheless, the
Company believes that those REEBOK and ROCKPORT products affected by the duties
can generally be sourced from other countries not subject to such duties. If,
however, the Company was unable to implement such alternative sourcing
arrangements, certain of its product lines could be adversely affected by these
duties.

         The EU also has imposed antidumping duties on certain leather upper
footwear from China, Thailand and Indonesia. These duties 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 review the athletic footwear exemption which
applies to both the quota scheme and antidumping duties discussed above. The
Company, through relevant trade associations, is working to prevent imposition
of a more limited athletic footwear exception. Should revisions be adopted
narrowing such exemption, certain of the Company's product lines could be
affected adversely, although the Company does not believe that its products
would be more severely affected than those of its major competitors.

         Various other countries have taken or are considering steps to restrict
footwear imports or impose additional customs duties or other impediments, which
actions affect the Company as well as other footwear importers. The Company, in
conjunction with other footwear importers, is aggressively challenging such
restrictions 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.

PRINCIPAL PRODUCTS

         Sales of the following categories of products contributed more than 10%
to the Company's total consolidated revenue in the years indicated: 1998,
footwear (approximately 72%) and apparel (approximately 28%); 1997, footwear
(approximately 72%) and apparel (approximately 27%); 1996, footwear
(approximately 75%) and apparel (approximately 24%).

TRADEMARKS AND OTHER PROPRIETARY RIGHTS

         The Company believes that its trademarks, especially the REEBOK and
ROCKPORT trademarks, and its rights to use the GREG NORMAN name and logo, are of
great value, and the Company is vigilant in protecting these marks from
counterfeiting or infringement. Loss of the REEBOK, ROCKPORT or GREG NORMAN
trademark rights could have a serious impact on the Company's business.

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

WORKING CAPITAL ARRANGEMENTS

         In conjunction with the Company's repurchase of approximately 17
million shares of its common stock pursuant to a Dutch Auction self-tender offer
in 1996, the Company entered into a credit agreement underwritten by Credit
Suisse and a syndicate of major banks. The facility included a committed $750
million revolving credit line to replace the Company's previous $300 million
revolving credit facility. The balance of the facility is a $640 million
six-year term loan which was 


                                       12
   14
used to finance the share repurchase. In July 1997, the Company amended and
restated this agreement to reduce the revolving credit portion of the facility
to $400 million. As part of this amendment, the commitment fees the Company is
required to pay on the unused portion of the revolving credit facility, as well
as the borrowing margins over the London Interbank Offer Rate paid on the term
loan and used portion of the revolving credit facility, were reduced. The
amendment further removed or relaxed various covenants including the
restrictions on asset acquisitions and sales, capital expenditures, future
indebtedness and investments. The Company subsequently amended its credit
arrangements in October 1998 to relax the debt coverage ratio covenants in such
agreements. The balance of the term loan as of December 31, 1998 was
approximately $427 million.

         The Company also has various arrangements with numerous banks which
provide an aggregate of approximately $974 million of uncommitted facilities,
substantially all of which are available to the Company's foreign subsidiaries.
Of this amount, approximately $340 million is available for short-term
borrowings and bank overdrafts, with the remainder available for letters of
credit for inventory purchases. At December 31, 1998, approximately $167 million
was outstanding for open letters of credit for inventory purchases, in addition
to approximately $48 million in notes payable to banks.

         The Company also has authority to issue up to $200 million of
commercial paper which is supported to the extent available by its revolving
credit and loan agreements, referred to above. As of December 31, 1998, the
Company had no commercial paper obligations outstanding.

         In December 1998, Moody's Investor Service, Inc. ("Moody's") lowered
the Company's credit rating and in January 1999, Standard & Poor's Rating Group
("S&P") lowered the Company's credit rating, based in each case on the negative
conditions in the athletic footwear industry and the Company's recent financial
performance. The Company's overall debt ratings remain investment grade. As a
result of the Company's lower credit rating, it may be more difficult for the
Company to borrow and the costs of borrowing will increase, including the costs
the Company incurs under some of its existing credit arrangements.

SEASONALITY

         Sales by the Company of athletic and casual footwear tend to be
seasonal in nature, with the strongest sales occurring in the first and third
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 the Company that accounted for 10% or
more of the Company's net sales in 1998.

BACKLOG

         The Company's backlog of orders at December 31, 1998 (many of which are
cancelable by the purchaser), totalled approximately $1.097 billion, compared to
$1.224 billion as of December 31, 1997. The Company expects that substantially
all of these orders will be shipped in 1999, although, as noted above, many of
these orders are cancelable. The backlog position is not necessarily indicative
of future sales because the ratio of future orders to "at once" shipments and
sales by Company owned retail stores may vary from year to year. In addition,
many markets in South America and Asia Pacific are not included in the backlog
since sales are made by independent distributors.


                                       13
   15
COMPETITION AND COMPETITORS

         Competition in sports and fitness footwear and apparel sales is
intense. Competitors include a number of sports and fitness footwear and apparel
companies, such as Nike, Adidas, Fila, New Balance and others. Competition is
very strong in each of the sports and fitness footwear and apparel market
segments, with new entrants and established companies providing challenges in
every category.

         The casual footwear market into which the ROCKPORT(R) product lines
fall is also highly competitive. Competitors include a number of companies such
as Timberland, Bass, Clark and Dexter. Some competitors are highly specialized,
while others have varied product lines and some maintain their own retail
outlets. The Company believes that Rockport has a strong position in the walking
shoe market. Competition in this area, however, has intensified as the activity
of walking has grown in popularity and as athletic shoe companies have entered
the market. In addition, certain ROCKPORT products compete with leading makers
of dress shoes.

         The Company's other product lines also continue to confront strong
competition. The REEBOK(R) apparel line competes with well-known brands such as
Nike, Adidas and Fila. The GREG NORMAN(R) line competes with Tommy Hilfiger,
Ralph Lauren, Nautica and other makers of men's casual sportswear. The RALPH
LAUREN footwear brand competes with such brands as Cole Haan, Timberland, Tommy
Hilfiger, Prada and Gucci. In addition, the new RLX/POLO SPORT line will compete
with major athletic shoe companies.

ISSUES AND UNCERTAINTIES

         This report includes, and other documents, information or statements
released or made from time to time by the Company may include, forward-looking
statements. These statements involve risks and uncertainties. The Company's
actual results may differ materially from those discussed in such
forward-looking statements. Prospective information is based on management's
then current expectations or forecasts. Such information is subject to the risk
that such expectations or forecasts, or the assumptions underlying such
expectations or forecasts, become inaccurate. The following discussion
identifies certain important issues and uncertainties that are among the factors
that could affect the Company's actual results and could cause such results to
differ materially from those contained in forward looking statements made by or
on behalf of the Company.

COMPETITION AND CONSUMER PREFERENCES

         The footwear and apparel industry is intensely competitive and subject
to rapid changes in consumer preferences, as well as technological innovations.
A major technological breakthrough or marketing or promotional success by one of
the Company's competitors could adversely affect the Company's competitive
position. A shift in consumer preferences could also negatively impact the
Company's sales and financial results.

         Currently, the athletic footwear and apparel industry has been
experiencing some shift in consumer preference away from athletic footwear to
"casual" product offerings. This change in preference has adversely affected the
Company's business, as well as that of some of its competitors. The Company is
taking steps to respond to this shift by focusing on its products and
technologies and pursuing growth opportunities with its ROCKPORT, RALPH LAUREN
Footwear and GREG NORMAN brands. There is, however, substantial uncertainty as
to whether the Company's actions will be effective and how significant the
adverse impact of the shift in consumer preference will be on the Company's
business. The outcome will be dependent on a number of factors, including the
extent of the change in consumer preference, consumer and retailer acceptance of
the Company's products, technologies and marketing, 


                                       14
   16
and the ability of the Company to effectively respond to the shift in the
marketplace, as well as the other factors described herein.

         Whether the Company's DMX(R) technology will be successful on a
long-term basis is dependent on numerous factors including consumer preference,
consumer and retailer acceptance of such technology, competitive product
offerings, the Company's ability to utilize such technology and to extend it to
other products, as well as other factors described herein.

         In addition, in countries where the athletic footwear market is mature
(including the U.S.), sales growth may be dependent in part on the Company
increasing its market share at the expense of its competitors, which may be
difficult to accomplish. The Company also faces strong competition with respect
to its other product lines, such as the ROCKPORT product line, the GREG NORMAN
Collection and the RALPH LAUREN and POLO SPORT footwear lines.

         Competition in the markets for the Company's products occurs in a
variety of ways, including price, quality, product design, brand image,
marketing and promotion and ability to meet delivery commitments to retailers.
The intensity of the competition faced by the various operating units of the
Company and the rapid changes in the consumer preference and technology that can
occur in the footwear and apparel markets constitute significant risk factors in
the Company's operations.

INVENTORY RISK

         The footwear industry has relatively long lead times for design and
production of product and thus, the Company must commit to production tooling
and in some cases to production in advance of orders. If the Company fails to
accurately forecast consumer demand or if there are changes in consumer
preference or market demand after the Company has made such production
commitments, the Company may encounter difficulty in filling customer orders or
in liquidating excess inventory, or may find that retailers are canceling orders
or returning product, all of which may have an adverse effect on the Company's
sales, its margins and brand image. In addition, the Company may be required to
pay for certain tooling if it does not satisfy minimum production quantities.

SALES FORECASTS

         The Company's investment in advertising and marketing and in certain
other expenses is based on sales forecasts and is necessarily made in advance of
actual sales. The markets in which the Company does business are highly
competitive, and the Company's business is affected by a variety of factors,
including brand awareness, changing consumer preferences, fashion trends, retail
market conditions, currency changes and economic and other factors. There can be
no assurance that sales forecasts will be achieved, and to the extent sales
forecasts are not achieved, these investments will represent a higher percentage
of revenues, and the Company will experience higher inventory levels and
associated carrying costs, all of which would adversely impact the Company's
financial condition and results. See also discussion below under "Advertising
and Marketing Investment."

PRICING AND MARGINS

         The prices that the Company is able to charge for its products are
dependent on the type of product offered and the consumer and retailer response
to such product, as well as the prices charged by the Company's competitors. If,
for example, the Company's products provide enhanced performance capabilities,
the Company should be able to achieve relatively higher prices for such
products. The gross margins which the Company earns are dependent on the prices
which the Company can charge for these goods and the costs incurred in acquiring
the products for sale. To the extent that the Company has higher costs, such as
the higher startup costs associated with technological products, its margins
will be 


                                       15
   17
lower unless it can increase its prices or reduce its costs. Recently, the
Company has experienced an improving trend in its pricing margins as a result of
manufacturing efficiencies and changes in sourcing initiated to take advantage
of currency opportunities in the Far East. There can be no assurance that this
trend will continue. In addition, because of the shift in the marketplace and
the resulting over-inventoried promotional retail environment, the Company has
encountered increased returns and cancellations from retailers, which have
adversely affected its margins. The ability of the Company to increase its full
margin business is dependent on a number of factors including the success of the
Company's products and marketing, the retail environment and general industry
conditions. In addition, because of the over-inventoried environment, retailers
have been more reluctant to place future orders for products, thus the Company
has fewer future orders and may be required to take on more inventory risk to
fulfill "at once" business.

BACKLOG

         The Company 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. The recent slowdown at retail has resulted 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.

ADVERTISING AND MARKETING INVESTMENT

         Because consumer demand for athletic footwear and apparel is heavily
influenced by brand image, the Company's business requires substantial
investments in marketing and advertising, including television and other
advertising, athlete endorsements and athletic sponsorships, as well as
investments in retail presence. In the event that such investments do not
achieve the desired effect in terms of increased retailer acceptance and/or
consumer purchase of the Company's products, there could be an adverse impact on
the Company's financial results. There has been some shift in the marketplace
away from certain "icon" athletes and the products they endorse. As a result,
the Company 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

         The Company currently operates approximately 175 retail stores in the
U.S. (including REEBOK, ROCKPORT and GREG NORMAN stores and combination stores,
in which stores for all three brands are located at a single site) and a
significant number of retail stores internationally which are operated either
directly or through the Company's distributors or other third parties. The
Company has made a significant capital investment in opening these stores and
incurs significant expenditures in operating these stores. To the extent the
Company continues to expand its retail organization, the Company's performance
could be adversely affected by lower than anticipated sales at its retail
stores. The performance of the Company's retail organization is also subject to
general retail market conditions. The recent over-inventoried promotional
environment in the U.S. has resulted in a decline in retail margins, thus
adversely affecting the Company's own retail business. In 1998 comparative store
sales declined in the Company's own retail business, following two years of
comparative store sales increases.

TIMELINESS OF PRODUCT

         Timely product deliveries are essential in the footwear and apparel
business since the Company's orders are cancelable by customers if agreed upon
delivery windows are not met. If as a result of design, production or
distribution problems, the Company is late in delivering product, it could 


                                       16
   18
have an adverse impact on its sales and/or profitability.

INTERNATIONAL SALES AND PRODUCTION

         A substantial portion of the Company's products are manufactured abroad
and approximately 40% of the Company's sales are made outside the U.S. The
Company's footwear and apparel production and sales operations are thus subject
to the usual risks of doing business abroad, such as currency fluctuations,
longer payment terms, potentially adverse tax consequences, repatriation of
earnings, import duties, tariffs, quotas and other threats to free trade, labor
unrest, political instability and other problems linked to local production
conditions and the difficulty of managing multinational operations. If such
factors limited or prevented the Company from selling products in any
significant international market or prevented the Company from acquiring
products from its suppliers in China, Indonesia, Thailand or the Philippines, or
significantly increased the cost to the Company of such products, the Company's
operations could be seriously disrupted until alternative suppliers were found
or alternative markets were developed, with a significant negative impact. See
also discussion below under "Economic Factors".

SOURCES OF SUPPLY

         The Company depends upon independent manufacturers to manufacture
high-quality product in a timely and cost-efficient manner and relies upon the
availability of sufficient production capacity at its existing manufacturers or
the ability to utilize alternative sources of supply. A failure by one or more
of the Company's significant manufacturers to meet established criteria for
pricing, product quality or timeliness could negatively impact the Company's
sales and profitability. In addition, if the Company were to experience
significant shortages in raw materials or components used in its products, it
could have a negative effect on the Company's business, including increased
costs or difficulty in delivering product. Some of the components used in the
Company's technologies are obtained from only one or two sources and thus a loss
of supply could disrupt production. See also discussion below under "Economic
Factors".

RISK ASSOCIATED WITH INDEBTEDNESS

         The Company has a substantial credit facility which consists of a $640
million term loan (as of December 31, 1998, the outstanding balance of such debt
was approximately $427 million) and has a $400 million revolving credit line (as
of December 31, 1998, there were no borrowings outstanding under the revolving
credit line). As a result of this indebtedness, the Company 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 the Company's future actions and which may
also limit the Company's financial, operating and strategic flexibility. In
addition, the Company's failure to make timely payments of interest and
principal on its debt, or to comply with the material covenants applicable
thereto, could result in significant negative consequences.

         The Company believes that its cash, short-term investments and access
to credit facilities, together with its anticipated cash flow from operations,
are adequate for the Company's current and planned needs in 1999. However, the
Company's actual experience may differ from the expectations set forth in the
preceding sentence. Factors that might lead to a difference include, but are not
limited to, the matters discussed herein, as well as future events that might
have the effect of reducing the Company's available cash balances (such as
unexpected operating losses or increased capital or other expenditures, as well
as increases in the Company's inventory or accounts receivable) or future events
that might reduce or eliminate the availability of external financial resources.


                                       17
   19
         As indicated above, in December 1998, Moody's lowered the Company's
credit rating and in January 1999, S&P lowered the Company's credit rating. As a
result of these actions, it may be more difficult for the Company to borrow and
the costs of borrowing will increase.

RISK OF CURRENCY FLUCTUATIONS

         The Company conducts operations in various international countries and
a significant portion of its sales are transacted in local currencies. As a
result, the Company's revenues are subject to foreign exchange rate
fluctuations. The Company enters into forward currency exchange contracts and
options to hedge its exposure for merchandise purchased in U.S. dollars that
will be sold to customers in other currencies. The Company also uses foreign
currency exchange contracts and options to hedge significant inter-company
assets and liabilities denominated in other currencies. However, no assurance
can be given that fluctuation in foreign currency exchange rates will not have
an adverse impact on the Company's revenues, net profits or financial condition.
In 1998, the Company'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 ("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 which 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 exposures to changes in foreign exchange rates since most of
Reebok's exposures are 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 the
Company.

         The Company has made 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,
the Company is in the process of implementing SAP software on a global basis;
the SAP system will be Euro-compatible. Other business functions will be
converted for the Euro by the end of the transition period or earlier to meet
business needs. The Company does not expect such conversion costs to be
material.

CUSTOMERS

         Although the Company has no single customer that represents 10% or more
of its sales, the Company has certain significant customers, the loss of which
could have an adverse effect on its business. There could also be a negative
effect on the Company's business if any such significant customer became
insolvent or otherwise failed to pay its debts. See also discussion below under
"Economic Factors".


                                       18
   20
INTELLECTUAL PROPERTY

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

LITIGATION

         The Company is subject to the normal risks of litigation with respect
to its business operations.

ECONOMIC FACTORS

         The Company's business is subject to economic conditions in the
Company's major markets, including, without limitation, recession, inflation,
general weakness in retail markets and changes in consumer purchasing power and
preferences. Adverse changes in such economic factors could have a negative
effect on the Company's business. For example, the recent slowdown in the
athletic footwear and branded apparel markets has had negative effects on the
Company's business. As a result of current market conditions, a number of the
Company's competitors have generated excess inventories which they are
attempting to sell off. The U.S. market has also suffered from over capacity due
to significant retail expansion during a period of softening consumer demand.
This has resulted in inventory backups and heavy promotional activity. This
over-inventoried, promotional environment has made it more difficult for the
Company to sell its products and has negatively impacted the Company's gross
margins.

         The current financial crisis in the Far East has also had a negative
impact on the Company's business. The economic problems in Asia have had an
adverse effect on the Company's sales to that region. Such financial
difficulties have also increased the risk that certain of the Company's
customers in the region will be unable to pay for product orders. In addition,
most of the Company's products are manufactured in the Far East by third party
manufacturers. The current economic conditions have made it more difficult for
such manufacturers to gain access to working capital and there is a risk that
such manufacturers could encounter financial problems which could affect their
ability to produce products for the Company. Similar problems have also resulted
from the financial difficulties in Latin America (especially Brazil) and in
Russia.

TAX RATE CHANGES AND DEFERRED TAX ASSETS

         If the Company was to encounter significant tax rate changes in the
major markets in which it operates, it could have an adverse effect on its
business or profitability. In addition, the tax rate can be affected by the
Company's geographic mix of earnings. If more revenue is earned in markets where
the tax rate is relatively higher, the Company's effective tax rate will
increase. The Company expects that the full year 1999 tax rate will be higher
than the rate for 1998.

         The Company has approximately $177 million of net deferred tax assets,
of which approximately $70 million is attributable to the expected utilization
of tax net operating loss carry- forwards. There can be no assurance that the
Company will realize the full value of such deferred tax assets, although the
Company 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. Realization of the deferred tax assets will
be dependent on a number of factors including the level of taxable income
generated by the Company, the countries in which such income is generated, as
well as 


                                       19
   21
the effectiveness of the Company's tax planning strategies. If the Company
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

         The Company is currently undertaking various global restructuring
activities designed to enable the Company to achieve operating efficiencies,
improve logistics and reduce expenses. There can be no assurance that the
Company will be able to effectively execute on its restructuring plans or that
such benefits will be achieved. Moreover, in the short-term the Company could
experience difficulties in product delivery or other logistical operations as a
result of its restructuring activities, which could have an adverse effect on
the Company's business. In the short-term, the Company could also be subject to
increased expenditures and charges because of inefficiencies resulting from such
restructuring activities. For example, the Company is currently consolidating
its warehouses in Europe. Such consolidation should enable it to achieve
efficiencies and improve logistics. However, in the short-term, such benefits
may not be achieved and if difficulties arise in effecting such consolidation,
the Company could experience operational difficulties, excess inventory or a
decline in sales. Delays in product shipment could result in additional order
cancellations, added distribution costs and increased markdowns on products.
During 1998 the Company incurred approximately $43 million in start-up costs
(consisting of increased costs of sales, as well as selling, general and
administrative expenses) as a result of its global restructuring efforts. These
incremental start-up expenses are expected to continue in 1999.

YEAR 2000 READINESS DISCLOSURE

         The Company has conducted a global review of its information technology
(IT) systems, as well as its non-IT computer systems, to identify the systems
that could be affected by the technical problems associated with the year 2000
and has developed an implementation plan to address the "year 2000" issue. The
Company made a strategic decision in 1993 to adopt a new global information
system, the SAP system, which will replace most legacy systems. The Company's
Rockport subsidiary will not be converted to the new SAP system by the end of
1999 and thus modifications to its existing software are being made to make it
year 2000 compliant. The Company presently believes that, with modifications to
existing software and converting to SAP software and other packaged software,
the year 2000 will not pose significant operational problems for the Company's
computer systems. However, if the modifications and conversions are not
implemented or completed in a timely or effective manner, the year 2000 problem
could have a material adverse impact on the operations and financial condition
of the Company. In addition, in converting to SAP software, the Company is
relying on its software partner to develop and support new software applications
and there could be problems in successfully developing and implementing such new
applications.

         The Company is the first in the apparel and footwear industry to
implement this new software application and, because of the year 2000 time
restraints, the schedule for implementation is accelerated. Thus, there are
substantial risks that problems could arise in implementation or that the system
may not be fully effective by the end of 1999. Finally, the Company is dependent
on its suppliers, joint venture partners, independent distributors and customers
to implement appropriate changes to their IT and non-IT systems to address the
"year 2000" issue. The failure of such third parties to effectively address such
issue could have a material adverse effect on the Company's business.

         Estimates of time and cost and risk assessments are based on currently
available information. Developments that could affect such estimates and
assessments include, but are not limited to, the ability to hold to the schedule
defined for SAP and other package conversion; the ability to remediate all
relevant computer code for those limited applications targeted to be remediated;
co-operation and remediation success of the Company's suppliers and customers;
and the ability to implement suitable contingency 


                                       20
   22
plans in the event of year 2000 system failures at the Company or its suppliers
or customers.

EMPLOYEES

         As of December 31, 1998, the Company had approximately 6,600 employees
in all operating units. None of these employees is represented by a labor union.
The Company has never suffered a material interruption of business caused by
labor disputes with employees. Management considers employee relations to be
good.

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS

         The Company is filing herewith selected portions of its Annual Report
to Shareholders for the year ended December 31, 1998 (the "1998 Annual Report")
filed with the Securities and Exchange Commission. Financial information
pertaining to the Company's foreign and domestic operations is incorporated
herein by reference from Note 17 on page 63 of the 1998 Annual Report.

                      EXECUTIVE OFFICERS OF THE REGISTRANT

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



NAME                   AGE  OFFICE HELD
- ----                   ---  -----------
                      
Paul B. Fireman        55   President, Chief Executive Officer and Chairman of the Board of Directors

Carl J. Yankowski      50   Executive Vice President, President and Chief Executive Officer of the Reebok Division and Director

Angel R. Martinez      43   Executive Vice President, Chief Marketing Officer of the Reebok Division

Kenneth I. Watchmaker  56   Executive Vice President and Chief Financial Officer

Anthony J. Tiberii     58   Senior Vice President, President and Chief Executive Officer of The Rockport Company

James R. Jones, III    54   Senior Vice President and Chief Human Resources Officer

Barry Nagler           42   Senior Vice President and General Counsel


         Officers hold office until the first meeting of the Board of Directors
following the annual meeting of stockholders, or special meeting in lieu
thereof, and thereafter until their respective successors are chosen and
qualified.

         Paul B. Fireman is the founder of the Company and has served as its
Chief Executive Officer since the Company's founding in 1979 and its Chairman of
the Board since 1986. Mr. Fireman served as President of the Company from 1979
to 1987 and was appointed again to that position in 1989. Mr. Fireman has been a
Director since 1979.


                                       21
   23
         Carl J. Yankowski was appointed Executive Vice President of the Company
and President and Chief Executive Officer of the Reebok Division in September
1998. Prior to that he was President and Chief Operating Officer of Sony
Electronics Inc., a subsidiary of the Sony Corporation, from November 1993 to
January 1998.

         Angel R. Martinez was appointed Chief Marketing Officer of the Reebok
Division in October 1998. He has been an Executive Vice President of the Company
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 the Company from September
1992 to January 1994 and Executive Vice President of Marketing Services from
January 1994 to August 1994, and prior to that he was Vice President for
Business Development of the Company for several years. Mr. Martinez joined the
Company in 1980.

         Kenneth I. Watchmaker has been an Executive Vice President of the
Company since February 1994. He was appointed Chief Financial Officer of the
Company in June 1995. Previously, since February 1994, he was an Executive Vice
President of the Company with responsibility for finance, footwear production
and management information systems. He joined the Company in July 1992 as
Executive Vice President, Operations and Finance, Reebok Division. Prior to
joining Reebok, Mr. Watchmaker was the partner in charge of audit services in
the Boston office of Ernst & Young.

         Anthony J. Tiberii was appointed President and Chief Executive Officer
of The Rockport Company, Inc. and a Senior Vice President of the Company in
December 1998. He was acting President and Chief Executive Officer of The
Rockport Company, Inc. from October 1998 to December 1998. Prior to that, he was
Executive Vice President of Operations and Chief Financial Officer of The
Rockport Company, Inc. since January 1995. Prior to that, since 1990 he was
Senior Vice President and Chief Financial Officer of The Rockport Company, Inc.
Mr. Tiberii joined Rockport in 1982 as Vice President of Finance.

         James R. Jones, III has been Senior Vice President and Chief Human
Resources Officer for the Company 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.

         Barry Nagler has been Senior Vice President of the Company since
February 1998 and General Counsel since September 1995. Mr. Nagler was
previously a Vice President of the Company since May 1995. Prior to that, Mr.
Nagler was divisional Vice President and Assistant General Counsel for the
Company since September 1994. He joined the Company in June 1987 as Counsel.

Item 2. Properties.

         The Company leases most of the properties that are used in its
business. Its corporate headquarters and the offices of the Reebok Division and
its U.S. Operations are located in office facilities in Stoughton,
Massachusetts. At its corporate headquarters, the Company occupies under lease
approximately 200,000 square feet of space. The Company signed a six-year lease
in July 1989, with two three-year renewal options, for its principal facility at
its corporate headquarters. This lease was later amended to extend the term of
the lease until June 30, 2000, with a three-year renewal option thereafter. This
facility and three other smaller facilities, one of which is leased and the
other two of which are owned by the Company, at the Company's corporate
headquarters are located approximately one mile from the Reebok Division's U.S.
Operations group's principal warehouse and distribution center in Stoughton,
which is owned by the Company and which contains approximately 450,000 total
square feet 


                                       22
   24
of usable space.

         In order to address the need for additional space at its corporate
headquarters, in March 1998 the Company secured, through a leasing arrangement,
a 42 acre site in Canton, Massachusetts, which is being developed as a corporate
headquarters facility. Construction of the corporate headquarters facility is
expected to take approximately two years and to be complete in 2000. The
facility is leased by the Company through an operating lease agreement entered
into for the purpose of financing construction costs for the corporate
headquarters facility. Under the agreement, the lessor purchases the property,
pays for the construction costs and subsequently leases the facility to the
Company. The initial lease term is six years with five two-year renewal options.
The lease provides substantial residual value guarantees by the Company and
includes a purchase option at original cost of the property.

         In 1994, the Company purchased a building in Avon, Massachusetts
containing approximately 400,000 square feet of space which it uses as an office
and warehouse. The Company also leases approximately 330,000 square feet of
space in Memphis, Tennessee which it uses as a warehouse and distribution
center.

         In 1993, Rockport purchased its corporate headquarters facility in
Marlboro, Massachusetts, containing approximately 80,000 square feet of floor
space. In 1995, Rockport completed construction of a distribution center of
approximately 285,000 usable square feet on approximately 140 acres of land in
Lancaster, Massachusetts which it purchased in 1992.

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

         In June 1998, the Company 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 the Company. The initial lease term
is six years with one five-year renewal option. The lease provides for
substantial residual value guarantees by the Company and includes a purchase
option at original cost of the property.

         The Company's wholly-owned Canadian distribution subsidiary, Reebok
Canada Inc., leases an approximately 145,000 square foot office/warehouse
facility in Aurora, Ontario pursuant to a lease which expires in 2001.

         The Company and its subsidiaries own and lease other warehouses,
offices, showrooms and retail and other facilities in the United States and in
various foreign countries to meet their space requirements. Except as otherwise
indicated, the Company believes that these arrangements are satisfactory to meet
its needs.

Item 3. Legal Proceedings.

        Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders.

        Not applicable.


                                       23
   25
                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

         The Company is filing herewith selected portions of its 1998 Annual
Report filed with the Securities and Exchange Commission. The information
required by this Item is incorporated herein by reference from page 68 of the
1998 Annual Report.

Item 6. Selected Financial Data.

         The Company is filing herewith selected portions of its 1998 Annual
Report filed with the Securities and Exchange Commission. The information
required by this Item is incorporated herein by reference from page 37 of the
1998 Annual Report.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations.

         The Company is filing herewith selected portions of its 1998 Annual
Report filed with the Securities and Exchange Commission. The information
required by this Item is incorporated herein by reference from pages 38 through
45 of the 1998 Annual Report.

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 its 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.


                                       24
   26
         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 1998 levels would reduce the fair value of the
interest rate swaps by $9.7 million and a 10% adverse change in foreign currency
rates would reduce the fair value of the forward currency exchange contracts and
options by $39 million. In addition, a 100 basis point increase in interest
rates from year-end 1998 levels would increase interest expense on floating rate
debt (net of hedges) by $1.3 million.

         In June 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"), which the Company is required to adopt effective
January 1, 1999. SFAS 133 will require the Company to record all derivatives on
the balance sheet at fair value. Changes in derivative fair values will either
be recognized in earnings as offsets to the changes in fair value of related
hedged assets, liabilities and firm commitments or, for forecasted transactions,
deferred and recorded as a component of other stockholders' equity until the
hedged transactions occur and are recognized in earnings. The ineffective
portion of a hedging derivative's change in fair value will be immediately
recognized in earnings. The impact of SFAS 133 on the Company's financial
statements will depend on a variety of factors, including future interpretative
guidance from the FASB, the future level of forecasted and actual foreign
currency transactions, the extent of the Company's hedging activities, the types
of hedging instruments used and the effectiveness of such instruments. However,
the Company does not believe the effect of adopting SFAS 133 will be material to
its financial position.

Item 8. Financial Statements and Supplementary Data.

         The Company is filing herewith selected portions of its 1998 Annual
Report filed with the Securities and Exchange Commission. The consolidated
financial statements required by this Item, together with the report of the
Company's independent auditors for 1998, are contained therein and are
incorporated herein by reference from pages 46 through 65 of the 1998 Annual
Report. The supplementary financial information required by this Item is
contained in the 1998 Annual Report on page 66 and such information is
incorporated by reference herein. The financial statements, supplementary data,
and Report of Independent Auditors for 1997 and 1996 are listed under Part IV,
Item 14 in this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.

        Not applicable.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

         The information required by this Item with respect to the Registrant's
directors is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on May 4, 1999,
which will be filed with the Securities Exchange Commission on or before March


                                       25
   27
26, 1999 (the "1999 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 1999 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 1999 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 1999 Proxy Statement under the heading "Transactions with
Management and Affiliates".

                                     PART IV

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

         (a)(1) and (2) List of Financial Statements and Financial Statement
         Schedules.

         a.       Financial Statements

         The following consolidated financial statements appearing in the
Company's 1998 Annual Report are incorporated by reference in Item 8 of this
Form 10-K:


                                                       1998 ANNUAL REPORT PAGE

         Consolidated Balance Sheets at
         December 31, 1998 and 1997                    46

         For each of the three years ended
         December 31, 1998, 1997 and 1996:

                  Consolidated Statements of
                  Income                               47

                  Consolidated Statements of
                  Stockholders' Equity                 48

                  Consolidated Statements of
                  Cash Flows                           49

         Notes to Consolidated Financial Statements    50-63


                                       26
   28
    2. Financial Statement Schedule

         The following consolidated financial statement schedule of Reebok
International Ltd. is included in Item 14(d) and presented as a separate section
of this report:

                                                        FORM 10-K PAGE

         Schedule II - Valuation and Qualifying
         Accounts                                             F-1

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

    (a) b. Exhibits

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

Exhibit

(3)      Articles of incorporation and by-laws.

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

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

(4)      Instruments defining the rights of security holders, including 
         indentures.

         4.1      Indenture, dated as of September 15, 1988, as amended and
                  restated by the First Supplemental Indenture, dated as of
                  January 22, 1993, between Reebok International Ltd. and
                  Citibank N.A., as Trustee (4, 12)

         4.2      Common Stock Rights Agreement dated as of June 14, 1990
                  between the Company and The First National Bank of Boston, as
                  Rights Agent, as amended (7, 9, 10)

         4.3      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 (21)

(10)     Material Contracts.

         10.1     Distributorship Agreement between Reebok International Limited
                  and the Company (2)

         10.2     Trademark License Agreement between Reebok International
                  Limited and the Company (2)

         10.3     Lease Agreement, dated March 1, 1988, as amended, between
                  Reebok International Ltd. and North Stoughton Industrial Park
                  Development Trust (5, 13)


                                       27
   29
         10.4     Purchase and Sale Agreement between Reebok International Ltd.
                  and Pentland Group plc dated March 8, 1991 (8)

         10.5     Agreements with various banks in Hong Kong reflecting
                  arrangements for letter of credit facilities (8)

         10.6     Credit Agreement, dated August 23, 1996, among the Company,
                  the Lenders and Co-Agents named therein and Credit Suisse, as
                  Administrative Agent, as amended by the First Amendment dated
                  as of August 23, 1996 (15)

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

         10.8     Amendment No. 2 dated as of September 30, 1998 to the Amended
                  and Restated Credit and Guarantee Agreement dated as of July
                  1, 1997, among Reebok International Ltd., Reebok International
                  Limited, the Lenders and Co-Agents named therein, Citibank
                  N.A. as Documentation Agent and Credit Suisse, as
                  Administrative Agent (22)

         10.9     Participation Agreement dated as of March 27, 1998 among
                  Reebok International Ltd., 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
                  Reebok International Ltd., as Lessee and 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 (22)

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

         10.12    Guaranty from Reebok International Ltd. dated as of March 27,
                  1998 (19)

     Management Contracts and Compensatory Plans.

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

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

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

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

         10.17    Reebok International Ltd. 1987 Stock Bonus Plan (3)

         10.18    Reebok International Ltd. Excess Benefits Plan (8)

         10.19    Reebok International Ltd. Supplemental Executive Retirement
                  Plan (14)


                                       28
   30
         10.20    Amendment to Supplemental Executive Retirement Plan dated as
                  of February 23, 1999

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

         10.22    Stock Option Agreement with Paul B. Fireman (8)

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

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

         10.25    Employment Agreement with Kenneth Watchmaker (12)

         10.26    Change of Control Agreement with Kenneth Watchmaker (17)

         10.27    Supplemental Retirement Program for Kenneth Watchmaker (12)

         10.28    Change of Control Agreement with Angel Martinez (17)

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

         10.30    Employment Agreements dated September 11, 1997 with Roger Best
                  (18)

         10.31    Change of Control Agreement with James R. Jones, III (17)

         10.32    Change of Control Agreement with Barry Nagler (17)

         10.33    Form of Non-Competition Agreements signed by James R. Jones,
                  III, Angel Martinez, Robert Meers, Barry Nagler, Kenneth
                  Watchmaker and Anthony Tiberii (18)

         10.34    Employment Agreement dated September 8, 1998 between Carl J.
                  Yankowski and Reebok International Ltd. (20)

         10.35    Promissory Note dated September 11, 1998 by Carl J. Yankowski
                  to Reebok International Ltd. (20)

         10.36    Change of Control Agreement with Carl J. Yankowski

         10.37    Letter Agreement dated July 14, 1998 between Robert Meers and
                  Reebok International Ltd. (20)

(12)     Statement Re Computation of Ratio of Earnings to Fixed Charges.

(13)     Annual Report to Security Holders.

         13.1     Selected Portions of Registrant's 1998 Annual Report to
                  Shareholders

(21)     Subsidiaries.

         21.1     List of Subsidiaries of the Company


                                       29
   31
(23)     Consents of experts and counsel.

         23.1     The consent of Ernst & Young LLP

(27)     Financial Data Schedule.

         (b)      Reports on Form 8-K.

                  None.

         (c)      Exhibits.

                  The response to this portion of Item 14 is submitted as a
                  separate section of this report.

         (d)      Financial Statement Schedules.

                  The response to this portion of Item 14 is submitted as a
                  separate section of this report.

(1)      Filed as an Exhibit to Reebok International Ltd. Form 10-K dated March
         30, 1987 and incorporated by reference herein and as an Exhibit to
         Registration Statement No. 11-13370 and incorporated by reference
         herein.

(2)      Filed as an Exhibit to Registration Statement No. 2-98367 and
         incorporated by reference herein.

(3)      Filed as an Exhibit to Reebok International Ltd. Form 10-K dated March
         28, 1988 and incorporated by reference herein.

(4)      Filed as an Exhibit to Reebok International Ltd. Form 8-K filed on
         September 29, 1988 and incorporated by reference herein.

(5)      Filed as an Exhibit to Reebok International Ltd. Form 10-K dated March
         30, 1989 and incorporated by reference herein.

(6)      Filed as an Exhibit to Reebok International Ltd. Form 10-K dated March
         26, 1990 and incorporated by reference herein.

(7)      Filed as an Exhibit to Reebok International Ltd. Form 8-A filed on July
         31, 1990 and incorporated by reference herein.

(8)      Filed as an Exhibit to Reebok International Ltd. Form 10-K dated March
         28, 1991 and incorporated by reference herein.

(9)      Filed as an Exhibit to Reebok International Ltd. Form 8 Amendment to
         Registration Statement on Form 8-A filed on April 4, 1991 and
         incorporated by reference herein.

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

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

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

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

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


                                       30
   32
(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-A/A filed on
         February 24, 1999 and incorporated by reference herein.

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


                                       31
   33
                                   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
                                                    and Chief Financial Officer
Dated:  March 24, 1999

     Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the date indicated.


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


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


/s/ CARL J. YANKOWSKI
- -----------------------------
Carl J. Yankowski
Executive Vice President
Director


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


/s/ M. KATHERINE DWYER
- -----------------------------
M. Katherine Dwyer
Director


/s/ WILLIAM F. GLAVIN
- -----------------------------
William F. Glavin
Director


                                       32
   34

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


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


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


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


Dated:  March 24, 1999


                                       33
   35
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS


REEBOK INTERNATIONAL LTD.
(Amounts in thousands)



Balance at
end of                                      Balance at        Charged to        Charged to       Deductions         Balance at
description                                 Beginning         Costs and         Other            From               End of
period                                      of Period         Expenses          Accounts         Allowances(A)      Period
- -----------                                 ---------         --------          --------         ------------       ------
                                                                                                     
YEAR ENDED DECEMBER 31, 1998 
Reserves and allowances deducted 
from asset accounts:
  Allowance for doubtful accounts            $44,003           $ 8,228                              $ 4,848          $47,383


YEAR ENDED DECEMBER 31, 1997 
Reserves and allowances deducted 
from asset accounts:
  Allowance for doubtful accounts            $43,527           $16,471                              $15,995          $44,003


YEAR ENDED DECEMBER 31, 1996 
Reserves and allowances deducted 
from asset accounts:
  Allowance for doubtful accounts            $46,401           $10,225                              $13,099          $43,527



(A) Uncollectible accounts written off, net of recoveries


                                       F-1
   36
EXHIBIT INDEX


EXHIBIT                                          LOCATION


3.1   Restated Articles of Organization         Incorporated by
      of the Company, as amended                reference

3.2   By-laws, as amended                       Incorporated by
                                                reference

4.1   Indenture, dated September 15, 1988,      Incorporated by
      as amended and restated by the First      reference
      Supplemental Indenture, dated as of
      January 22, 1993, between Reebok
      International Ltd. and Citibank
      N.A., as Trustee

4.2   Common Stock Rights Agreement dated       Incorporated by 
      as of June 14, 1990 between the           reference 
      Company and The First National Bank 
      of Boston, as Rights Agent, as amended

4.3   Amendment No. 3 dated as of January       Incorporated by
      1, 1999 to Common Stock Rights            reference
      Agreement dated as of June 14, 1990 
      between the Company and The First
      National Bank of Boston, as Rights 
      Agent, as amended

10.1  Distributorship Agreement between         Incorporated by
      Reebok International Limited and          reference
      the Company

10.2  Trademark License Agreement between       Incorporated by
      Reebok International Limited and the      reference
      Company

10.3  Lease Agreement, dated March 1, 1988,     Incorporated by
      as amended, between Reebok                reference
      International Ltd. and North Stoughton
      Industrial Park Development Trust

10.4  Purchase and Sale Agreement between       Incorporated by
      Reebok International Ltd. and Pentland    reference
      Group plc dated March 8, 1991

10.5  Agreements with various banks in Hong     Incorporated by 
      Kong reflecting arrangements for letter   reference 
      of credit facilities
   37
10.6  Credit Agreement, dated August 23,        Incorporated by 
      1996, among the Company, the Lenders      reference 
      and Co-Agents named therein and Credit
      Suisse, as Administrative Agent, as 
      amended by the First Amendment dated
      as of August 23, 1996

10.7  Amended and Restated Credit and           Incorporated by
      Guarantee Agreement, dated as of          reference
      July 1, 1997, among Reebok
      International Ltd., Reebok Inter-
      national Limited, the Lenders and
      Co-Agents named therein, Citibank
      N.A. as Documentation Agent and
      Credit Suisse, as Administrative
      Agent

10.8  Amendment No. 2 dated as of September     Incorporated by
      30, 1998 to the Amended and Restated      reference
      Credit and Guarantee Agreement dated
      as of July 1, 1997, among Reebok
      International Ltd., Reebok Inter-
      national Limited, the Lenders and
      Co-Agents named therein, Citibank N.A.
      as Documentation Agent and Credit
      Suisse, as Administrative Agent

10.9  Participation Agreement dated as of       Incorporated by
      March 27, 1998 among Reebok               reference
      International Ltd., 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

10.10 First Amendment dated as of September     Incorporated by 
      30, 1998 to Participation Agreement       reference 
      dated as of March 27, 1998 among 
      Reebok International Ltd., as Lessee 
      and 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

10.11 Lease dated as of March 27, 1998          Incorporated by 
      between Credit Suisse Leasing 92A,        reference 
      L.P., as Lessor, and Reebok 
      International Ltd., as Lessee

10.12 Guaranty from Reebok International        Incorporated by
      Ltd. dated as of March 27, 1998           reference
   38
10.13 Reebok International Ltd. 1994 Equity     Incorporated by
      Incentive Plan, as amended                reference

10.14 Reebok International Ltd. Equity and      Incorporated by
      Deferred Compensation Plan for            reference
      Directors, as amended

10.15 Reebok International Ltd. 1985 Stock      Incorporated by
      Option Plan, as amended                   reference

10.16 Reebok International Ltd. 1987 Stock      Incorporated by
      Option Plan for Directors, as amended     reference

10.17 Reebok International Ltd. 1987 Stock      Incorporated by
      Bonus Plan                                reference

10.18 Reebok International Ltd. Excess          Incorporated by
      Benefits Plan                             reference

10.19 Reebok International Ltd. Supplemental    Incorporated by
      Executive Retirement Plan                 reference

10.20 Amendment to Supplemental Executive       Filed herewith
      Retirement Plan dated as of
      February 23, 1999

10.21 Reebok International Ltd. Executive       Incorporated by
      Performance Incentive Plan, as amended    reference

10.22 Stock Option Agreement with Paul          Incorporated by
      B. Fireman                                reference

10.23 Split-Dollar Life Insurance Agreement     Incorporated by
      with Paul B. Fireman                      reference

10.24 Letter Agreement with Paul R.             Incorporated by
      Duncan dated December 29, 1997            reference

10.25 Employment Agreement with Kenneth         Incorporated by
      Watchmaker                                reference

10.26 Change of Control Agreement with          Incorporated by
      Kenneth Watchmaker                        reference

10.27 Supplemental Retirement Program for       Incorporated by
      Kenneth Watchmaker                        reference

10.28 Change of Control Agreement with          Incorporated by
      Angel Martinez                            reference

10.29 Employment Agreement dated April 17,      Incorporated by
      1996 with Roger Best                      reference
   39
10.30 Employment Agreements dated               Incorporated by
      September 11, 1997 with Roger Best        reference

10.31 Change of Control Agreement with          Incorporated by
      James R. Jones, III                       reference

10.32 Change of Control Agreement with          Incorporated by
      Barry Nagler                              reference

10.33 Form of Non-Competition Agreements        Incorporated by
      signed by James R. Jones, III,            reference
      Angel Martinez, Robert Meers, Barry
      Nagler, Kenneth Watchmaker and
      Anthony J. Tiberii

10.34 Employment Agreement dated September 8,   Incorporated by 
      1998 between Carl J. Yankowski and        reference 
      Reebok International Ltd.

10.35 Promissory Note dated September 11,       Incorporated by
      1998 by Carl J. Yankowski                 reference

10.36 Change of Control Agreement with          Filed herewith
      Carl J. Yankowski

10.37 Letter Agreement dated July 14,           Incorporated by
      1998 between Robert Meers and             reference
      Reebok International Ltd.

12.   Statement Re Computation of Ratio         Filed herewith
      of Earnings to Fixed Charges

13.1  Selected Portions of Registrant's         Filed herewith
      1998 Annual Report to Shareholders

21.1  List of Subsidiaries of the Company       Filed herewith

23.1  The consent of Ernst & Young LLP          Filed herewith

27.   Financial Data Schedule                   Filed herewith

EX-10.20

   1
                                                                   EXHIBIT 10.20

            AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN DATED
                                FEBRUARY 23, 1999

SECTION 4.

     (f)  FORFEITURE OF BENEFIT. Notwithstanding any other provision of this
Plan, a Participant shall cease participation in this Plan and such Participant
(and his/her spouse) shall forfeit his/her entire benefits under this Plan upon
the occurrence of any of the following events:

          (1)  The Participant voluntarily terminates his/her employment with
               Employer prior to attaining age 65 and following his/her
               termination of employment with Employer, but prior to attaining
               age 65, the Participant provides services as an employee,
               consultant, or otherwise for any person or entity other than
               Employer for renumeration ("Outside Services"). For purposes of
               this clause, the determination of what constitutes Outside
               Services shall be made by Employer, in its sole judgment and
               discretion, taking into account whatever factors Employer deems
               necessary or appropriate; PROVIDED, that Participant shall not be
               deemed to be providing Outside Services, if Participant is
               engaged in teaching, government or public service or service as a
               corporate director or if the Participant is employed for less
               than twenty-five hours per week as an employee for a non-profit
               company or as a consultant. Notwithstanding the foregoing, if all
               of the following conditions are satisfied, then this provision
               relating to the forfeiture of benefits shall not apply: (1) if a
               Participant has entered into a Change in Control Agreement with
               Employer, (2) such Participant voluntarily terminates employment
               following a Change of Control (as defined in such agreement), and
               (3) such termination results in the payment of benefits under the
               Change of Control Agreement.

          (2)  The Participant's employment with Employer is terminated by
               Employer for "cause", as determined by Employer in its reasonable
               judgment and discretion.

          (3)  At any time the Participant, directly or indirectly, owns,
               manages, operates, controls, is employed by or acts as an
               officer, director or consultant for, any footwear or apparel
               company (a "Competitive Activity") unless Employer consents in
               advance in writing to such Competitive Activity.

     In order to administer the restrictions set forth above, each Participant
who is no longer employed by Employer shall be required to certify to Employer
on an annual basis (1) if the Participant voluntarily terminated his/her
employment, that the Participant is not providing Outside Services and (2) that
the Participant is not engaged in any Competitive Activity. Participant shall
also provide Employer with such additional information regarding his/her
activities as Employer may request in order to confirm compliance with the
restrictions set forth above.

EX-10.36

   1
                                                                   EXHIBIT 10.36


                            REEBOK INTERNATIONAL LTD.

                           CHANGE OF CONTROL AGREEMENT


     AGREEMENT, made this 12th day of November, by and between Carl J. Yankowski
("Executive") and Reebok International Ltd. (the "Company"),

                                   WITNESSETH

     WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders for the
Company to agree to provide benefits under circumstances described below to
Executive; and

     WHEREAS, the Board recognizes that the possibility of a change of control
of the Company, followed by a termination of the Executive's employment or a
reduction in his responsibility or compensation, is unsettling to the Executive
and wishes to make arrangements at this time to help assure his continuing
dedication to his duties to the Company and its shareholders, notwithstanding
any attempts by outside parties to gain control of the Company; and

     WHEREAS, the Board believes it important, should the Company receive
proposals from outside parties, to enable the Executive, without being
distracted by the uncertainties of his own employment situation, to perform his
regular duties,

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:

1. In the event that any individual, corporation, partnership, company, or other
entity (a "Person"), which term shall include a "group" (within the meaning of
section 13(d) of the Securities Exchange Act of 1934 (the "Act")), begins a
tender or exchange offer, circulates a proxy to the Company's shareholders, or
takes other steps to effect a "Change of Control" (as defined in paragraph 3
below), Executive agrees that he will not voluntarily leave the employ of the
Company and will render the services contemplated in the recitals to this
Agreement until such Person has terminated the efforts to effect a Change of
Control or until a Change of Control has occurred.

 2. If, within 24 months following a Change of Control, Executive's employment
with the Company terminates other than as a result of the death, total
disability or retirement of the Executive at or after his normal retirement
date, (i) by the Company other than for "Cause" (as defined in paragraph 4
below), or (ii) by Executive for "Good Reason" (as defined in paragraph 4
   2
below), then:

     a.   The Company will pay to Executive within 30 days of such termination
          of employment a lump-sum cash payment equal to 300% of the aggregate
          of (i) his then-current annual base salary (or, if his base salary has
          been reduced at any time after the Change of Control, his base salary
          in effect prior to the reduction), (ii) his target bonus for the
          then-current year or, if higher, his bonus for the most recent
          calendar year ended before the Change of Control, (iii) the amount of
          his then-current annual automobile allowance and (iv) the annual cost
          of life insurance then furnished to him by the Company.

     b.   All of Executive's outstanding stock options, restricted shares and
          other similar incentive interests and rights will become immediately
          and fully vested and exercisable.

     c.   Executive will be treated for purposes of the Company's Supplemental
          Executive Retirement Plan (the "SERP") as having three additional
          Years of Continuous Service. The Company will, within 30 days of his
          termination, pay to him, in a single lump-sum cash payment, the
          present value of his benefit under the SERP. Present value will be
          determined by applying the "applicable mortality table" and
          "applicable interest rate" then in effect for purposes of section
          417(e)(3)(A) of the Internal Revenue Code or any successor provision.

     d.   The Company will pay to Executive, in a single lump-sum cash payment,
          an amount equal to the difference, if any, between (i) the total
          distribution that he receives following his termination under the
          Company's Profit-Sharing and Retirement Plan and its Excess Benefits
          Plan and (ii) the total distribution that he would have received under
          such plans had he accumulated three additional Years of Service for
          Vesting prior to termination. The payment will be made at the same
          time that he receives his distribution from those plans.

     e.   Executive, together with his dependents, will continue following such
          termination of employment to participate fully, with no contribution
          to the cost required of him or them, in all accident and health plans
          maintained or sponsored by the Company immediately prior to the Change
          of Control, or receive substantially the equivalent coverage (or the
          full value thereof in cash) from the Company, until the third
          anniversary of such termination.

     f.   The Company will promptly reimburse Executive for any and all legal
          fees and expenses incurred by him as a result of such termination of
          employment, including 
   3
          without limitation all fees and expenses incurred in connection with
          efforts to enforce the provisions of this Agreement (provided such
          efforts result in Executive's recovery of any sum from the Company,
          whether through court award or settlement).

3. A Change of Control will occur for purposes of this Agreement if (i) any
Person who does not currently own directly or indirectly 10% or more of the
combined voting power of the Company's outstanding securities becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act) of securities of the
Company representing more than 30% (or, if higher, the aggregate percentage of
the combined voting power of the Company's then-outstanding securities held by
or for the benefit of Paul Fireman and his family) of the combined voting power
of the company's then-outstanding securities, (ii) there is a change of control
of the Company of a kind which would be required to be reported under Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Act (or a similar item
in a similar schedule or form), whether or not the Company is then subject to
such reporting requirement, (iii) the Company is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board in office immediately prior to such
transaction or event constitute less than a majority of the Board thereafter, or
(iv) individuals who, at the date hereof, constitute the Board (the "Continuing
Directors") cease for any reason to constitute a majority thereof, PROVIDED,
HOWEVER, that any director who is not in office at the date hereof but whose
election by the Board or whose nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the date hereof or whose election
or nomination for election was previously so approved shall be deemed to be a
Continuing Director for purposes of this Agreement.

     Notwithstanding the foregoing provisions of this paragraph 3, a "Change of
Control" will not be deemed to have occurred solely because of (i) the
acquisition of securities of the Company (or any reporting requirement under the
Act relating thereto) by an employment benefit plan maintained by the Company
for its employees or (ii) the occurrence of a leveraged buy-out or
recapitalization of the Company so long as Executive retains all the benefits of
this Agreement following the leveraged buy-out or recapitalization, and
Executive's existing stock options are converted to replacement options or some
other form of equity on a basis no less favorable than that generally adopted
for other senior executives of the Company.

4.   a.   "Cause" means only: conviction of the Executive for a felony or a 
          crime involving moral turpitude.

     b.   "Good Reason" means any one or more of the following:

          (i)  Failure by the Company to maintain Executive in 
   4
               the positions, with the titles, that he held immediately prior to
               the Change of Control or downgrading of his responsibilities or
               authority.

          (ii) Reduction of Executive's base salary or failure in any year to
               pay to him a bonus at least equal to his target bonus for the
               year in which the Change of Control occurs.

          (iii) Material reduction in the health, disability or life insurance
                benefits that the Company was providing Executive immediately
                prior to the Change of Control.

          (iv) Failure by the Company to provide Executive with the opportunity
               to participate in any executive compensation or benefit plan or
               program that is then generally available to other senior
               executives of the Company.

          (v)  Relocation of Executive's principal place of business more than
               30 miles from the its location immediately prior to the Change of
               Control.

5. In the event that it is determined that any payment or benefit provided by
the Company to or for the benefit of Executive, either under this Agreement or
otherwise, will be subject to the excise tax imposed by section 4999 of the
Internal Revenue Code or any successor provision ("section 4999"), the Company
will, prior to the date on which any amount of the excise tax must be paid or
withheld, make an additional lump-sum payment (the "gross-up payment") to
Executive. The gross-up payment will be sufficient, after giving effect to all
federal, state and other taxes and charges (including interest and penalties, if
any) with respect to the gross-up payment, to make Executive whole for all taxes
(including withholding taxes) and any associated interest and penalties, imposed
under or as a result of section 4999.

     Determinations under this Section 5 will be made by Ernst & Young unless
Executive has reasonable objections to the use of that firm, in which case the
determinations will be made by a comparable firm chosen by Executive after
consultation with the Company (the firm making the determinations to be referred
to as the "Firm"). The determinations of the Firm will be binding upon the
Company and Executive except as the determinations are established in resolution
(including by settlement) of a controversy with the Internal Revenue Service to
have been incorrect. All fees and expenses of the Firm will be paid by the
Company.

     If the Internal Revenue Service asserts a claim that, if successful, would
require the Company to make a gross-up payment or an additional gross-up
payment, the Company and Executive will cooperate fully in resolving the
controversy with the Internal 
   5
Revenue Service. The Company will make or advance such gross-up payments as are
necessary to prevent Executive from having to bear the cost of payments made to
the Internal Revenue Service in the course of, or as a result of, the
controversy. The Firm will determine the amount of such gross-up payments or
advances and will determine after final resolution of the controversy whether
any advances must be returned by Executive to the Company. The Company will bear
all expenses of the controversy and will gross Executive up for any additional
taxes that may be imposed upon Executive as a result of its payment of such
expenses.

6. If the Company is at any time before or after a Change of Control merged or
consolidated into or with any other corporation or other entity (whether or not
the Company is the surviving entity), or if substantially all of the assets
thereof are transferred to another corporation or other entity, the provisions
of this Agreement will be binding upon and inure to the benefit of the
corporation or other entity resulting from such merger or consolidation or the
acquirer of such assets, and this paragraph 6 will apply in the event of any
subsequent merger or consolidation or transfer of assets.

     In the event of any merger, consolidation, or sale of assets described
above, nothing contained in this Agreement will detract from or otherwise limit
Executive's right to participate or privilege of participation in any stock
option or purchase plan or any bonus, profit sharing, pension, group insurance,
hospitalization, or other incentive or benefit plan or arrangement which may be
or become applicable to executives of the corporation resulting from such merger
or consolidation or the corporation acquiring such assets of the Company.

     In the event of any merger, consolidation or sale of assets described
above, references to the Company in this Agreement shall unless the context
suggests otherwise be deemed to include the entity resulting from such merger or
consolidation or the acquirer of such assets of the Company.

7. All payments required to be made by the Company hereunder to Executive or his
dependents, beneficiaries, or estate will be subject to the withholding of such
amounts relating to tax and/or other payroll deductions as may be required by
law.

8. There shall be no requirement on the part of the Executive to seek other
employment or otherwise mitigate damages in order to be entitled to the full
amount of any payments and benefits to which Executive is entitled under this
Agreement, and the amount of such payments and benefits shall not be reduced by
any compensation or benefits received by Executive from other employment.

9. Nothing contained in this Agreement shall be construed as a contract of
employment between the Company and the Executive, or as a right of the Executive
to continue in the employ of the Company, or as a limitation of the right of the
Company to 
   6
discharge the Executive with or without Cause; the Executive may, subject to the
terms and conditions of this Agreement, have the right to receive upon
termination of his employment the payments and benefits provided in this
Agreement and shall not be deemed to have waived any rights he may have either
at law or in equity in respect of such discharge.

10. No amendment, change, or modification of this Agreement may be made except
in writing, signed by both parties.

     Payments made by the Company pursuant to this Agreement shall be in lieu of
payments and other benefits, if any, to which Executive may be entitled under
any other severance agreement or severance plan of the Company.

     The provisions of this Agreement shall be binding upon and shall inure to
the benefit of Executive, his executors, administrators, legal representatives
and assigns, and the Company and its successors.

     The validity, interpretation, and effect of this Agreement shall be
governed by the laws of The Commonwealth of Massachusetts.

     The Company shall have no right of set-off or counterclaims, in respect of
any claim, debt, or obligation, against any payments to Executive, his
dependents, beneficiaries or estate provided for in this Agreement.

     The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.

     No right or interest to or in any payments or benefits hereunder shall be
assignable by the Executive; PROVIDED, HOWEVER, that this provision shall not
preclude him from designating one or more beneficiaries to receive any amount
that may be payable after his death and shall not preclude the legal
representative of his estate from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to his
estate. The term "beneficiaries" as used in this Agreement shall mean a
beneficiary or beneficiaries so designated to receive any such amount, or if no
beneficiary has been so designated, the legal representative of the Executive's
estate.

     No right, benefit, or interest hereunder, shall be subject to anticipation,
alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or
set-off in respect of any claim, debt, or obligation, or to execution,
attachment, levy, or similar process, or assignment by operation of law. Any
attempt, voluntary or involuntary, to effect any action specified in the
immediately preceding sentence shall, to the full extent
   7
permitted by law, be null, void, and of no effect.

     IN WITNESS WHEREOF, Reebok International Ltd. and Executive have each
caused this Agreement to be duly executed and delivered as of the date set forth
above.



                                          REEBOK INTERNATIONAL LTD.



                                          By: /s/ PAUL FIREMAN
                                              -----------------------------

Agreed:


/s/  CARL J. YANKOWSKI
- ------------------------------

EX-12

   1
                                                                      EXHIBIT 12


  REEBOK INTERNATIONAL LTD.
  (Amounts in Thousands)


  Exhibit 12 - Statement RE:  Computation of Ratio of Earnings
  to Fixed Charges



                                        December        December
                                          1998            1997
                                        --------        --------
                                                  
  Earnings
    Pretax Income                       $ 35,852        $147,609
    Add:
      Interest on indebtedness            60,671          64,365
      Amortization of debt discount
        and issuance costs                   363             399
      Interest on Letters of Credit
        included in cost of goods sold
      Portions of rent representative
        of the interest factor            15,104          15,123
                                        --------        --------
      Income as adjusted                $111,990        $227,496
                                        ========        ========

  Fixed Charges
      Interest on indebtedness          $ 60,671        $ 64,365
      Amortization of debt discount
        and issuance costs                   363             399
      Interest on Letters of Credit
        included in cost of goods sold
      Portions of rent representative
        of the interest factor            15,104          15,123
                                        --------        --------
    Fixed charges                       $ 76,138        $ 79,887
                                        ========        ========

    Ratio of earnings to fixed
      charges                               1.47            2.85

EX-13.1

   1







                           FINANCIAL DATA
                           Selected Financial Data  37
                           Quarterly Results of Operations  66

                           MD&A
                           Management's Discussion and Analysis of Results
                           of Operations and Financial Condition  38

                           FINANCIAL STATEMENTS
                           Consolidated Balance Sheets  46
                           Consolidated Statements of Income  47
                           Consolidated Statements of Stockholders' Equity  48
                           Consolidated Statements of Cash Flows  49

                           NOTES
                           Notes to Consolidated Financial Statements  50

                           REPORTS
                           Report of Independent Auditors  64
                           Report of Management  65

                           CORPORATE INFORMATION
                           Directors & Officers  67
                           Shareholder Information  68





- --------------------------------------------------------------------------------
  FINANCIAL RESULTS AND CORPORATE INFORMATION
- --------------------------------------------------------------------------------


36.      REEBOK INTERNATIONAL LTD.

   2


SELECTED FINANCIAL DATA
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA




YEAR ENDED DECEMBER 31,                             1998            1997            1996            1995            1994

                                                                                                      
Net sales                                     $3,224,592      $3,643,599      $3,478,604      $3,481,450      $3,280,418
Income before income taxes
  and minority interest                           37,030         158,085         237,668         275,974         417,368
Net income                                        23,927         135,119         138,950         164,798         254,478
Basic earnings per share                             .42            2.41            2.06            2.10            3.09
Diluted earnings per share                           .42            2.32            2.03            2.07            3.02
Dividends per common share                            --              --            .225            .300            .300
                                              ----------      ----------      ----------      ----------      ----------





DECEMBER 31,                                        1998            1997            1996            1995            1994

                                                                                                      
Working capital                               $  749,512      $  887,367      $  946,127      $  900,922      $  831,856
Total assets                                   1,739,624       1,756,097       1,786,184       1,651,619       1,649,461
Long-term debt                                   554,432         639,355         854,099         254,178         131,799
Stockholders' equity                             524,377         507,157         381,234         895,289         990,505
                                              ----------      ----------      ----------      ----------      ----------



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

The earnings per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." For further discussion regarding the calculation of earnings per share,
see Notes 1 and 16 to the Consolidated Financial Statements.

On June 7, 1996, Reebok completed the sale of substantially all of the operating
assets and business of its subsidiary, Avia Group International, Inc. ("Avia");
accordingly, subsequent to that date, the operations of Avia are no longer
included in the Company's financial results. 1997 results include an income tax
benefit of $40,000, 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 after-tax charges of $39,161, or $0.67 per diluted share,
relating to restructuring activities in the Company's global operations.

Financial data for 1995 includes total special after-tax charges of $44,934, or
$0.56 per diluted share, 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.


                                              REEBOK INTERNATIONAL LTD.      37.


   3
MD&A

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS 
AND FINANCIAL CONDITION

- --------------------------------------------------------------------------------

THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS ABOUT THE 
COMPANY'S REVENUES, EARNINGS, SPENDING, MARGINS, ORDERS, PRODUCTS, ACTIONS, 
PLANS, STRATEGIES AND OBJECTIVES. 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. FACTORS THAT COULD AFFECT THE COMPANY'S ACTUAL RESULTS AND 
COULD CAUSE SUCH RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN 
FORWARD-LOOKING STATEMENTS MADE BY OR ON BEHALF OF THE COMPANY INCLUDE, BUT 
ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AND THOSE DESCRIBED IN THE 
COMPANY'S 1998 ANNUAL REPORT ON FORM 10-K UNDER THE HEADING "ISSUES AND 
UNCERTAINTIES."

- --------------------------------------------------------------------------------



OPERATING RESULTS 1998

Net sales for the year ended December 31, 1998 were $3.225 billion, an 11.5%
decrease from the year ended December 31, 1997 sales of $3.644 billion. The
Reebok Division's worldwide sales (including the sales of the Greg Norman
Collection) were $2.691 billion in 1998, a 14.1% decrease from sales of $3.131
billion in 1997. U.S. footwear sales of the Reebok Brand decreased 13.6% to
$1.062 billion in 1998 from $1.229 billion in 1997. U.S. footwear sales of the
Reebok Brand were adversely impacted by over-capacity in the market due to
significant retail expansion during a period of softening consumer demand. This
has resulted in inventory backups and heavy promotional activity to move the
excess quantities. Despite the sales decline, U.S. footwear sales of the Reebok
Brand generated a 44% sales increase in its running category and increases in
its kids and outdoor categories as compared with 1997. U.S. footwear sales in
other categories declined in 1998. U.S. apparel sales of the Reebok Brand
decreased by 16.1% to $362.2 million from $431.9 million in 1997. Increased
sales of apparel in the Company's retail outlet stores and its Greg Norman
Collection were more than offset by declines in Reebok branded and licensed
apparel. The Company is in the process of repositioning the Reebok U.S. apparel
business by upgrading its product offerings and exiting many of its unprofitable
licensed apparel contracts. International sales of the Reebok Brand (including
footwear and apparel) were $1.267 billion in 1998, a decrease of 13.8% from
International sales of $1.471 billion in 1997. The European region reported a
sales increase during 1998, whereas all other International regions reported
sales declines. The Company's sales performance is being adversely affected by
economic conditions in Asia Pacific, Latin America and Russia. As compared to
1997,


38.      REEBOK INTERNATIONAL LTD.


   4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS 
AND FINANCIAL CONDITION


sales in Asia Pacific declined 47% or approximately $150 million for the year
and footwear sales to unconsolidated Latin American distributors declined by 50%
or approximately $60 million. During 1998, operations in Latin America, Asia
Pacific and Russia negatively impacted the Company's earnings by approximately
$50.0 million on a pre-tax basis, as compared to 1997. Another factor affecting
International sales comparisons is currency, particularly in Russia and Asia
Pacific. Fluctuations in foreign currency exchange rates accounted for
approximately a 3% decline in sales in 1998. Most of the Reebok Brand's
International footwear categories declined during the year, however, the classic
and kids categories had sales increases.

Rockport's sales for 1998 (including sales of the Ralph Lauren Footwear Brand)
increased by 4.2% to $533.9 million from $512.5 million in 1997. International
revenues, which grew by 8.2%, accounted for approximately 20.0% of Rockport's
sales (excluding sales of Ralph Lauren Footwear) in both 1998 and 1997.
Increased sales in the walking, outdoor and men's categories were partially
offset by decreased sales in the women's category. The Company has been
strategically repositioning its Rockport women's products in an effort to expand
that segment of the business. For 1998, women's products represented only 20% of
Rockport's sales. During 1998, Rockport expanded its branded retail presence by
opening a number of shop-in-shop and retail concept areas. The Ralph Lauren
Footwear Brand had a sales increase of approximately 15.0% in 1998 as compared
to 1997, with all of the increase coming from the Polo Sport segment. During
1999, the Company intends to expand the Polo Sport segment of the Ralph
Lauren/Polo Sport footwear business and to debut a separate Lauren product
segment.

The Company's overall gross margin was 36.8% of sales which is comparable to
last year's rate of 37.0%. During the second half of 1998, U.S. footwear pricing
margins for the Reebok Brand were restored to levels that the Company was
achieving prior to the introduction of its technology products, which is an
improvement over last year. This is the result of manufacturing efficiencies the
Company has achieved with technology products and from sourcing changes
initiated to take advantage of currency opportunities in the Far East. This
improvement was offset by a greater percentage of the Company's business being
off-price due to the promotional activity in the market. International margins
continue to be adversely affected by the strong U.S. dollar.

Selling, general and administrative expenses for the year ended December 31,
1998 were $1.043 billion, or 32.4% of sales, as compared to $1.069 billion, or
29.4% of sales for 1997. While overall spending declined, the increased spending
as a percentage of sales is attributable to additional expansion of retail
presence for all of the Company's brands and investments in research, design,
development and production. Also included in 1998 results were severance
expenses relating to the reorganization of certain business units and start-up
expenses for the Company's new European logistics and shared service companies
and global information system re-engineering efforts. These start-up expenses,
many of which are redundant in nature, amounted to approximately $43.5 million
for 1998. Of this amount, $34.1 million is included in selling, general and
administrative expenses and $9.4 million is included in cost of sales. The
Company expects to incur additional start-up expenses during most of 1999 or
until such time as these business re-engineering efforts are fully implemented.
The Company has benefited from the various cost reduction programs initiated
last year, as all other selling, general and administrative expenses declined
from last year's levels.

As described in Note 2 to the Consolidated Financial Statements, in the first
quarter of 1998, the Company recorded a special pre-tax charge of $35.0 million,
amounting to approximately $23.7 million after taxes or $0.42 per share,
relating to restructuring activities in the Company's global operations. The
charge included personnel related expenses and other charges associated with
certain underperforming marketing contracts. The business re-engineering should
enable the Company to achieve greater operating efficiencies. 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 core brand positioning.

Interest expense decreased in 1998 as compared to 1997 as a result of debt
repayments. Other expense was $19.2 million for the twelve months, an increase
of $13.0 million from last year. This increase is primarily due to the currency
devaluation in Russia and the Company's write-down of its investment in its
Brazilian joint venture.

The effective income tax rate was 32.2% for 1998 as compared to 33.2% for 1997
(exclusive of certain one-time tax benefits received in 1997). Looking forward,
dependent on the geographic mix of earnings in 1999, the Company expects that
the full year 1999 rate will be approximately 36.0%. However, the rate could
fluctuate from quarter to quarter depending on where the Company earns income
geographically, and, if the Company incurs non-benefitable losses in certain
economically troubled regions, the rate could increase further.


                                              REEBOK INTERNATIONAL LTD.      39.
   5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS 
AND FINANCIAL CONDITION


At December 31, 1998, the Company had recorded net deferred tax assets of $177.6
million, of which $69.7 million is attributable to the expected utilization of
tax net operating loss carryforwards. The remainder, $107.9 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 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.


OPERATING RESULTS 1997

Net sales for the year ended December 31, 1997 were $3.644 billion, a 4.7%
increase from the year ended December 31, 1996 sales of $3.479 billion, which
included $49.4 million of sales from the Company's Avia subsidiary that was sold
in June 1996. The Reebok Division's worldwide sales (including sales of the Greg
Norman Collection) were $3.131 billion in 1997, a 5.0% increase from comparable
sales of $2.982 billion in 1996. The stronger U.S. dollar has adversely impacted
Reebok Brand worldwide sales comparisons with the prior year. On a constant
dollar basis, sales for the Reebok Brand worldwide increased 8.3% in 1997 as
compared to 1996. The Reebok Division's U.S. footwear sales increased 3.0% to
$1.229 billion in 1997 from $1.193 billion in 1996. The increase in the Reebok
Division's U.S. footwear sales is attributed primarily to increases in the
running, walking, and men's cross-training categories. The increase in sales in
these categories was partially offset by decreases in Reebok's basketball,
outdoor and women's fitness categories. The underlying quality of Reebok
footwear sales in the U.S. improved from last year. Sales to athletic specialty
accounts increased approximately 31%, and the amount of off-price sales declined
from 7.6% of total Reebok footwear sales in 1996, to 3.2% of total Reebok
footwear sales in 1997. The Reebok Division's U.S. apparel sales increased by
37.2% to $431.9 million from $314.9 million in 1996. The increase resulted
primarily from increases in branded core basics, licensed and graphic
categories. The Reebok Division's International sales (including footwear and
apparel) were $1.471 billion in 1997, approximately equal to the Division's
International sales in 1996 of $1.474 billion. The International sales
comparison was negatively impacted by changes in foreign currency exchange
rates. On a constant dollar basis, for the year ended December 31, 1997, the
International sales gain was 6.4%. All International regions generated sales
increases over the prior year on a constant dollar basis. For International
sales, increases in the running, classic and walking categories were offset by
decreases in the basketball and tennis categories. Generally in the industry
there is a slowdown in branded athletic footwear and apparel at retail and there
is a significant amount of promotional product offered across all distribution
channels. As a result of this situation and the expected ongoing negative impact
from currency fluctuations, the Company expects it will be difficult to increase
sales in 1998.

Rockport's sales for 1997 increased by 14.5% to $512.5 million from $447.6
million in 1996. Exclusive of the Ralph Lauren footwear business, which was
acquired in May 1996, Rockport's sales increased 7.3% in 1997. International
revenues, which grew by 46.0%, accounted for approximately 21.0% of Rockport's
sales (excluding Ralph Lauren Footwear) in 1997, as compared to 16.0% in 1996.
Increased sales in the walking and men's categories were partially offset by
decreased sales in the women's lifestyle category. The decrease in the women's
lifestyle category was the result of a strategic initiative to re-focus the
women's business around an outdoor, adventure and travel positioning and reduce
the product offerings in the refined women's dress shoe segment. Rockport
continues to attract younger customers to the brand with the introduction of a
wider selection of dress and casual products. The Ralph Lauren footwear business
performed well in 1997 and is beginning to generate sales growth in its
traditional segments, reflecting the benefits of improved product design and
development and increased distribution. Rockport plans to expand the current
product line of Ralph Lauren/Polo Sport athletic footwear during 1998 with
additional products which will be available at retail during 1999.

The Company's gross margin declined from 38.4% in 1996 to 37.0% in 1997. Margins
are being negatively impacted by both start-up costs and initially higher
manufacturing costs on the Company's new technology products (DMX 2000 and 3D
Ultralite). In addition, the decline reflects a significant impact from currency
fluctuations as a result of the stronger U.S. dollar and a decrease in
full-margin at-once business as a result of an over-inventoried promotional
retail


40.      REEBOK INTERNATIONAL LTD.
   6

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS 
AND FINANCIAL CONDITION


environment. The Company estimates that 100 basis points of the margin decline
is due to currency. Looking forward, the Company expects margins to continue to
be under pressure through at least the first half of 1998. However, the Company
believes that if the technology product line expands and gains greater critical
mass and with improving production capabilities, the new technology products are
capable of generating margin improvement.

Selling, general and administrative expenses decreased as a percentage of sales
from 30.6% in 1996 to 29.4% in 1997. The reduction is primarily due to the
absence of certain advertising and marketing expenses associated with the 1996
Summer Olympics. In addition, non-brand building general and administrative
infrastructure expenses declined. Research, design and development expenses
increased 27.0% for the year and retail operating expenses increased in support
of new store openings. At December 31, 1997, the Company operated 157 Reebok,
Rockport and Greg Norman retail stores in the U.S. as compared to 141 at the end
of 1996.

As described in Note 2 to the Consolidated Financial Statements, the Company
recorded special pre-tax charges of $58.2 million relating to restructuring
activities in the Company's global operations. The restructuring should enable
the Company to achieve operating efficiencies, including improved inventory
management, credit management, purchasing power and customer service and should
provide the organization with access to a single global data base of company,
supplier and customer information. The restructuring initiatives should also
improve logistics, allow the Company to focus its spending on those key athletes
and teams who are more closely aligned with its brand positioning and produce
cost savings once completed during 1999.

Interest expense increased as a result of the additional debt the Company
incurred to finance the shares acquired during the 1996 Dutch Auction share
repurchase.

As described in Note 15 to the Consolidated Financial Statements, the Internal
Revenue Service notified the Company in August 1997 that it had approved the
Company's tax treatment of certain losses related to the sale of its Avia
subsidiary. Accordingly, the Company recorded a tax benefit in the quarter ended
September 30, 1997 totaling $40.0 million. Excluding the favorable impact of
this special income tax credit, the Company's effective tax rate was 33.2% in
1997, as compared with 35.4% in 1996. The decrease in the rate is attributable
to a change in the mix of the earnings between domestic and international
subsidiaries. The Company expects its effective tax rate in 1998 to be further
reduced to 31.0%-32.0% as a result of the change in geographic mix of earnings
and ongoing efforts to improve cash ow through various tax planning initiatives.

The $10.5 million increase in other expense in 1997 relates primarily to
currency losses due to the stronger U.S. dollar.

Year-to-year earnings per share comparisons benefited from the Company's share
repurchase programs including the Dutch Auction share repurchase which was
completed in August 1996. Weighted average common shares outstanding (dilutive)
for the year ended December 31, 1997 declined by 15.0% to 58.3 million shares,
as compared to 68.6 million shares for the year ended December 31, 1996.


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, 1999
through June 30, 1999 declined 10.8% as compared to the same period last year.
North American backlog for the Reebok Brand, which includes the U.S. and Canada,
decreased 19.8% and the International backlog increased 5.1%. Reebok U.S.
footwear backlog decreased 18.0% and Reebok U.S. apparel backlog (including Greg
Norman Collection apparel) decreased 24.7% as compared to the same period last
year. U.S. backlog comparisons are against a period last year that had not yet
been significantly impacted by the industry slowdown which began in late 1997.
That retail slowdown, which continued during 1998, resulted in higher retail
cancellations and returns during the year. In addition, the Company believes
retailers are leaving more open-to-buy dollars available for at-once business.
These changes in business conditions suggest that the percentage changes in open
backlog are not necessarily indicative of future sales trends. In addition, 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.


                                              REEBOK INTERNATIONAL LTD.      41.

   7

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS 
AND FINANCIAL CONDITION


LIQUIDITY AND SOURCES OF CAPITAL

The Company's financial position remains strong. Working capital was $749.5
million at December 31, 1998 and $887.4 million at December 31, 1997. The
current ratio at December 31, 1998 was 2.2 to 1 compared to 2.5 to 1 at December
31, 1997. The decline in the current ratio is primarily the result of lower
earnings and the payment of long-term debt and increased capital expenditures.

Accounts receivable decreased by $43.9 million from December 31, 1997, a
decrease of 7.8%. This is the result of the Reebok Division reducing the average
days sales outstanding in U.S. receivables by 2 days as compared to last year
end, as well as the decrease in sales. Inventory decreased by $28.5 million, or
5.1% from December 31, 1997. U.S. footwear inventories of the Reebok Brand
decreased 14.7% at year end as compared to 1997. Reebok U.S. apparel inventories
were down 34.8% and Reebok retail outlet inventories were down 8.8% despite
adding twenty-eight additional outlet stores over the course of the year and
absorbing additional excess inventories generated by the Company.

During the year ended December 31, 1998, cash and cash equivalents decreased
$29.7 million and outstanding borrowings decreased by $111.9 million. In
September 1998, in cooperation with its bank group, the Company amended certain
of its credit arrangements to relax its debt to operating cash flow ratio
covenant through June, 2000. All other material terms and conditions of the
credit arrangements remain unchanged. Cash provided by operations during 1998
was $151.8 million, as compared to cash provided by operations of $126.9 million
during 1997, a $24.9 million improvement despite lower earnings. The change in
operating cash flow year-to-year is attributable to improved inventory
management practices and improved cash collections in the U.S. 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 1999 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 the Company's 1998 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

The Company's footwear and apparel production operations are subject to the
usual risks of doing business abroad, such as import duties, quotas and other
threats to free trade, foreign currency fluctuations, labor unrest and political
instability. The Company believes that it has the ability to develop, over time,
adequate substitute sources of supply for the products obtained from present
foreign suppliers. If, however, events should prevent the Company from acquiring
products from its suppliers in Indonesia, China, Thailand or the Philippines, or
significantly increase the cost to the Company of such products, the Company's
operations could be seriously disrupted until alternative suppliers are found.

For several years, imports from China to the U.S., including footwear, have been
threatened with higher or prohibitive tariff rates, either through statutory
action or intervention by the Executive Branch, due to concern over China's
trade policies, human rights, foreign weapons sales practices and its foreign
policy. Further debate on these issues is expected to continue in 1999. However,
the Company does not currently anticipate that restrictions on imports from
China will be imposed by the U.S. during 1999. 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 occurs. 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.

The European Union ("EU") imposed import quotas on certain footwear from 
China in 1994. The effect of such quota scheme on Reebok has not been 
significant because the quota scheme provides an exemption for certain 
higher-priced special technology athletic footwear, which exemption is 
available for most REEBOK products. This exemption does not, however, cover 
most of Rockport's products and thus could result in an adverse effect on 
Rockport's international sales. 




42.      REEBOK INTERNATIONAL LTD.



   8

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS 
AND FINANCIAL CONDITION


As a result, Rockport is pursuing alternative sources for its products to reduce
such effect. However, there can be no guarantee that Rockport will be successful
in implementing such alternative sourcing arrangements.

In addition, the EU has imposed antidumping duties against certain textile upper
footwear from China and Indonesia. A broad exemption from the dumping duties is
provided for athletic textile footwear which covers most REEBOK models. If the
athletic footwear exemption remains in its current form, few REEBOK product
lines will be affected by the duties; however, ROCKPORT products would be
subject to these duties. Nevertheless, the Company believes that those REEBOK
and ROCKPORT products affected by the duties can generally be sourced from other
countries not subject to such duties. If, however, the Company was unable to
implement such alternative sourcing arrangements, certain of its product lines
could be adversely affected by these duties.

The EU also has imposed antidumping duties on certain leather upper footwear
from China, Thailand and Indonesia. These duties 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 review the athletic footwear exemption which applies to both
the quota scheme and antidumping duties discussed above. The Company, through
relevant trade associations, is working to prevent imposition of a more limited
athletic footwear exception. Should revisions be adopted narrowing such
exemption, certain of the Company's product lines could be affected adversely,
although the Company does not believe that its products would be more severely
affected than those of its major competitors.

Various other countries have taken or are considering steps to restrict footwear
imports or impose additional customs duties or other impediments, which actions
affect the Company as well as other footwear importers. The Company, in
conjunction with other footwear importers, is aggressively challenging such
restrictions 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 enters into forward currency exchange contracts and options to hedge
its exposure for merchandise purchased in U.S. dollars that will be sold to
customers in other currencies. Realized and unrealized gains and losses on these
contracts are included in net income except that gains and losses on contracts
which hedge specific foreign currency commitments are deferred and accounted for
as a part of the transaction.

The Company also uses forward currency exchange contracts and options to hedge
significant intercompany assets and liabilities denominated in other than the
functional currency. Contracts used to hedge intercompany balances are marked to
market and the resulting transaction gain or loss is included in the
determination of net income.

Foreign currency losses realized from settlements of transactions included in
net income for the years ended December 31, 1998 and 1997 were $12.0 million and
$8.1 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, 1998, the Company had forward currency exchange contracts and
options, all having maturities of less than one year, with a notional amount
aggregating $323.1 million. The contracts involved twelve different foreign
currencies. One currency represented 23% of the aggregate notional amount. The
notional amount of the contracts intended to hedge merchandise purchases was
$160.6 million. Deferred gains (losses) on these contracts were not material at
December 31, 1998 or 1997.

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, 1998, the notional amount of interest rate swaps outstanding was $295.0
million.

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 


                                              REEBOK INTERNATIONAL LTD.      43.



   9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS 
AND FINANCIAL CONDITION


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.

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.


YEAR 2000 READINESS DISCLOSURE

The year 2000 issue, which is common to most corporations, concerns the
inability of information technology (IT) systems, including computer software
programs, as well as non-IT systems, to properly recognize and process date
sensitive information related to the year 2000 and beyond. This could
potentially cause a system failure or miscalculation that could disrupt
operations.

In order to determine the Company's readiness for the year 2000, the Company has
conducted a global review of both its IT and non-IT systems to identify the
systems that could be affected by the technical problems associated with the
year 2000. As part of this review, a management team was selected to inventory
all IT (mainframe, network and desktop hardware and software), and non-IT
embedded systems (security, fire prevention, elevators, climate control systems,
etc.) to address the year 2000 issue, including an assessment of the costs
required to effect such a plan. The team is currently in the process of
evaluating these inventoried items to determine a remediation method and
implementation plan. The IT evaluation is substantially complete and the non-IT
evaluation for all major subsidiaries was substantially completed at the end of
December 1998. While the Company believes that most of its critical non-IT
systems will function without substantial year 2000 compliance problems, the
Company will continue to review, test and remediate (if necessary) such systems.

In 1993 the Company developed a strategic information systems plan which
provided for the adoption of a new global information systems infrastructure
which would substantially improve the Company's systems capability. This new
global system will replace most legacy systems with year 2000 compliant software
and will thus also address the year 2000 issue. The Company began investments in
this new global strategic system in 1994, with investments continuing each year
thereafter and expected to continue through the year 2000. The global SAP system
being adopted by the Company did not previously have an appropriate application
for the footwear and apparel industry. Thus the Company, together with its
software vendor and another company in the apparel industry, developed a new
software application for the footwear and apparel industry which is now being
implemented by the Company.

The Company believes that, with modifications to existing software and
converting to SAP software and other packaged software, the year 2000 will not
pose significant operational problems for the Company's computer systems.
However, if the modifications and conversions are not implemented or completed
in a timely or effective manner, the year 2000 problem could have a material
adverse impact on the operations and financial condition of the Company. In
addition, in converting to SAP software, the Company is relying on its software
partner to develop and support new software applications and there could be
problems in successfully developing and implementing such new applications. The
Company is the first in the apparel and footwear industry to implement this new
software application and, because of the year 2000 time restraints, the schedule
for implementation is accelerated. Thus, there are substantial risks that
problems could arise in implementation or that the system may not be fully
effective by the end of 1999. The SAP system has been installed and
implementation has been substantially completed in two of the Company's business
units, as well as, in certain other functional areas. The system is now being
configured for rollout to other operating units. The Company also plans to do
testing of its year 2000 readiness during 1999 for operations not included in
the expected SAP implementation. The Company's Rockport subsidiary will not be
converted to the new SAP system by the end of 1999. Accordingly, modifications
to its existing software are being made to make it year 2000 compliant.


44.      REEBOK INTERNATIONAL LTD.



   10

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS 
AND FINANCIAL CONDITION


Because the Company's conversion to SAP software will replace much of the
Company's software with year 2000 compliant systems, it is difficult to
segregate the incremental costs associated with the year 2000 issue. The Company
expects that the total costs of converting to the global SAP system will be
approximately $75 million, of which approximately $50 million has been spent to
date. Capitalized costs which are included in this estimate are expected to be
approximately $30 million. These costs do not include internal staffing costs.
These estimates assume that the Company will not incur significant year 2000
related costs on behalf of its suppliers, customers or other third parties.

The Company is also focusing on major suppliers and customers to assess their
compliance with the year 2000. This effort is being handled internally and is
currently in process. The Company will be assessing its largest customers and
vendors to determine that their operations are year 2000 compliant. The Company
is also developing plans to test year 2000 compliance with significant suppliers
during 1999 and will use the results of such tests to determine if contingency
plans are necessary and to prepare such plans. The Company is dependent on its
suppliers, joint venture partners, independent distributors and customers to
implement appropriate changes to their computer systems to address the year 2000
issue. The failure of such third parties to effectively address such an issue
could have a material adverse effect on the Company's business.

Contingency plans for year 2000-related interruptions are being developed and
will include, but not be limited to, the development of emergency backup and
recovery procedures, remediation of existing systems parallel with
implementation of the new systems, and replacing electronic applications with
manual processes. These contingency plans are, however, subject to variables and
uncertainties. There can be no assurance that the Company will correctly
anticipate the level, impact or duration of potential non-compliance or that its
contingency plans will be sufficient to mitigate the impact of any potential
failures.

Estimates of time and cost and risk assessments are based on currently available
information. Developments that could affect such estimates and assessments
include, but are not limited to, the ability to hold to the schedule defined for
SAP and other package conversions; the ability to remediate all relevant
computer code for those limited applications targeted to be remediated;
co-operation and remediation success of the Company's suppliers and customers;
and the ability to implement suitable contingency plans in the event of year
2000 system failures at the Company or its suppliers or customers.


                                              REEBOK INTERNATIONAL LTD.      45.


   11

CONSOLIDATED BALANCE SHEETS
AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA





DECEMBER 31                                                            1998          1997

                                                                                
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                      $  180,070    $  209,766
  Accounts receivable, net of allowance for
    doubtful accounts (1998, $47,383; 1997, $44,003)                517,830       561,729
  Inventory                                                         535,168       563,735
  Deferred income taxes                                              78,419        75,186
  Prepaid expenses and other current assets                          50,309        54,404
                                                                 ----------    ----------
    Total current assets                                          1,361,796     1,464,820
                                                                 ----------    ----------

Property and equipment, net                                         172,585       156,959
Other non-current assets:
  Intangibles, net of amortization                                   68,648        65,784
  Deferred income taxes                                              99,212        19,371
  Other                                                              37,383        49,163
                                                                 ----------    ----------
                                                                    205,243       134,318
                                                                 ----------    ----------

  Total Assets                                                   $1,739,624    $1,756,097
                                                                 ==========    ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Notes payable to banks                                         $   48,070    $   40,665
  Current portion of long-term debt                                  86,640       121,000
  Accounts payable                                                  203,144       192,142
  Accrued expenses                                                  191,833       219,386
  Income taxes payable                                               82,597         4,260
                                                                 ----------    ----------
    Total current liabilities                                       612,284       577,453
                                                                 ----------    ----------

Long-term debt, net of current portion                              554,432       639,355
Minority interest                                                    31,972        32,132
Commitments and contingencies
Outstanding redemption value of equity put options                   16,559

STOCKHOLDERS' EQUITY:
  Common stock, par value $.01; authorized 250,000,000 shares;
    issued 93,306,642 shares in 1998, 93,115,835 shares in 1997         933           931
  Retained earnings                                               1,156,739     1,145,271
  Less 36,716,227 shares in treasury at cost                       (617,620)     (617,620)
  Unearned compensation                                                 (26)         (140)
  Accumulated other comprehensive income (expense)                  (15,649)      (21,285)
                                                                 ----------    ----------
                                                                    524,377       507,157
                                                                 ----------    ----------
  Total Liabilities and Stockholders' Equity                     $1,739,624    $1,756,097
                                                                 ==========    ==========




- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


46.      REEBOK INTERNATIONAL LTD.

   12


CONSOLIDATED STATEMENTS OF INCOME
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA




YEAR ENDED DECEMBER 31                                   1998          1997          1996

                                                                             
Net sales                                          $3,224,592    $3,643,599    $3,478,604
Other income (expense)                                (19,167)       (6,158)        4,325
                                                   ----------    ----------    ----------
                                                    3,205,425     3,637,441     3,482,929
                                                   ----------    ----------    ----------

Costs and expenses:
  Cost of sales                                     2,037,465     2,294,049     2,144,422
  Selling, general and administrative expenses      1,043,199     1,069,433     1,065,792
  Special charges                                      35,000        58,161
  Amortization of intangibles                           3,432         4,157         3,410
  Interest expense                                     60,671        64,366        42,246
  Interest income                                     (11,372)      (10,810)      (10,609)
                                                   ----------    ----------    ----------
                                                    3,168,395     3,479,356     3,245,261
                                                   ----------    ----------    ----------

Income before income taxes and minority interest       37,030       158,085       237,668

Income taxes                                           11,925        12,490        84,083
                                                   ----------    ----------    ----------
Income before minority interest                        25,105       145,595       153,585

Minority interest                                       1,178        10,476        14,635
                                                   ----------    ----------    ----------
Net income                                         $   23,927    $  135,119    $  138,950
                                                   ==========    ==========    ==========


Basic earnings per share                           $      .42    $     2.41    $     2.06
                                                   ==========    ==========    ==========

Diluted earnings per share                         $      .42    $     2.32    $     2.03
                                                   ==========    ==========    ==========


Dividends per common share                         $       --    $       --    $    0.225
                                                   ==========    ==========    ==========




- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


                                              REEBOK INTERNATIONAL LTD.      47.


   13

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DOLLAR AMOUNTS IN THOUSANDS




                                                                                                                     ACCUMULATED
                                                                   COMMON                                 UNEARNED      OTHER
                                                                   STOCK        RETAINED      TREASURY    COMPEN-   COMPREHENSIVE
                                        SHARES        TOTAL   (PAR VALUE $.01)  EARNINGS       STOCK       SATION  INCOME (EXPENSE)

                                                                                                      
BALANCE, DECEMBER 31, 1995            111,015,133   $ 895,289      $1,096      $1,487,006    $(603,241)   $(1,208)    $ 11,636
                                      ===========   =========      ======      ==========    =========    =======     ========
Comprehensive income:                                                                                                
  Net income                                          138,950                     138,950                            
  Adjustment for foreign                                                                                             
      currency translation                             (5,988)                                                          (5,988)
                                                    ---------                                                        
    Comprehensive income                              132,962                                                        
  Treasury shares repurchased                         (14,379)                                 (14,379)              
  Issuance of shares to                                                                                              
    certain employees                      43,278       1,450                       1,505                     (55)   
  Amortization of unearned                                                                                           
    compensation                                          292                                                 292    
  Shares repurchased and retired      (18,931,403)   (672,402)       (190)       (672,900)                    688    
  Shares issued under employee                                                                                       
    stock purchase plans                  157,134       4,044           2           4,042                            
  Shares issued upon exercise                                                                                        
    of stock options                      272,153       6,933           3           6,930                            
  Put option contracts expired                         39,840          15          39,825                            
  Income tax reductions relating to                                                                                  
    exercise of stock options                           2,385                       2,385                            
  Dividends declared                                  (15,180)                    (15,180)                                   
                                      -----------   ---------      ------      ----------    ---------    -------     --------
BALANCE, DECEMBER 31, 1996             92,556,295     381,234         926         992,563     (617,620)      (283)       5,648
                                      ===========   =========      ======      ==========    =========    =======     ========
Comprehensive income:                                                                                                
  Net income                                          135,119                     135,119                            
  Adjustment for foreign                                                                                             
      currency translation                            (26,933)                                                         (26,933)
                                                    ---------                                                        
    Comprehensive income                              108,186                                                        
  Issuance of shares to                                                                                              
    certain employees                       9,532                                     431                    (431)   
  Amortization of unearned                                                                                           
    compensation                                          566                                                 566    
  Shares repurchased and retired             (313)          8                                                   8    
  Shares issued under employee                                                                                       
    stock purchase plans                  151,210       4,363           1           4,362                            
  Shares issued upon exercise                                                                                        
    of stock options                      399,111      10,044           4          10,040                            
  Income tax reductions relating to                                                                                  
    exercise of stock options                           2,756                       2,756                            
                                      -----------   ---------      ------      ----------    ---------    -------     --------
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 options                                  2,002                       2,002                                
                                      -----------   ---------      ------      ----------    ---------    -------     --------
BALANCE, DECEMBER 31, 1998             93,306,642   $ 524,377      $  933      $1,156,739    $(617,620)   $   (26)    $(15,649)
                                      ===========   =========      ======      ==========    =========    =======     ========




- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.



48.      REEBOK INTERNATIONAL LTD.


   14


CONSOLIDATED STATEMENTS OF CASH FLOWS
AMOUNTS IN THOUSANDS




YEAR ENDED DECEMBER 31                                              1998                1997                1996

                                                                                                    
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                   $  23,927           $ 135,119           $ 138,950
  Adjustments to reconcile net income to
      net cash provided by operating activities:
    Depreciation and amortization                                 48,017              47,423              42,927
    Minority interest                                              1,178              10,476              14,635
    Deferred income taxes                                        (83,074)            (17,285)             (6,333)
    Special charges                                               35,000              58,161
    Changes in operating assets and liabilities,
        exclusive of those arising from
        business acquisitions:
          Accounts receivable                                     63,951             (13,915)           (107,082)
          Inventory                                               39,134             (47,937)             77,286
          Prepaid expenses                                         4,734             (28,613)             22,650
          Other                                                    3,892              24,458              11,042
          Accounts payable and accrued expenses                  (65,616)             18,295              67,769
          Income taxes payable                                    80,634             (59,257)             18,419
                                                               ---------           ---------           ---------
  Total adjustments                                              127,850              (8,194)            141,313
                                                               ---------           ---------           ---------

Net Cash Provided by Operating Activities                        151,777             126,925             280,263
                                                               =========           =========           =========

CASH FLOWS FROM INVESTING ACTIVITIES:
  Payments to acquire property and equipment                     (53,616)            (23,910)            (29,999)
  Proceeds from business divestitures                                                                      6,887
                                                               ---------           ---------           ---------
Net cash used for investing activities                           (53,616)            (23,910)            (23,112)
                                                               =========           =========           =========

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowings (payments) of notes payable to banks              2,048              27,296             (36,947)
  Proceeds from issuance of common stock
    to employees                                                   5,008              17,163              13,362
  Dividends paid                                                                                         (20,922)
  Repayments of long-term debt                                  (121,016)           (156,966)             (1,290)
  Net proceeds from long-term debt                                                                       632,108
  Proceeds from premium on equity put options                      2,002                                     717
  Dividends to minority shareholders                              (6,649)             (3,900)             (7,426)
  Repurchases of common stock                                     (3,366)                               (686,266)
                                                               ---------           ---------           ---------
Net cash used for financing activities                          (121,973)           (116,407)           (106,664)
                                                               =========           =========           =========
Effect of exchange rate changes on cash                           (5,884)             (9,207)              1,485
                                                               =========           =========           =========
Net increase (decrease) in cash and cash equivalents             (29,696)            (22,599)            151,972
Cash and cash equivalents at beginning of year                   209,766             232,365              80,393
                                                               ---------           ---------           ---------
Cash and cash equivalents at end of year                       $ 180,070           $ 209,766           $ 232,365
                                                               =========           =========           =========

Supplemental disclosures of cash flow information:
  Interest paid                                                $  58,224           $  59,683           $  38,738
  Income taxes paid                                               26,068             115,985              77,213




- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.



                                              REEBOK INTERNATIONAL LTD.      49.

   15


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,
ROCKPORT and footwear under RALPH LAUREN and POLO SPORT.

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions and accounts are
eliminated in consolidation.

USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

RECOGNITION OF REVENUES
Sales are recognized upon shipment of products.




50.      REEBOK INTERNATIONAL LTD.

   16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA



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 $143,471, $164,870, and $201,584 for the years ended December 31,
1998, 1997 and 1996, respectively.

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. 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 component of
comprehensive income. The cumulative translation adjustment at December 31,
1998, 1997 and 1996 was ($15,649), ($21,285) and $5,648, respectively. Other
foreign currency transaction gains and losses are included in the determination
of net income.

For those foreign subsidiaries operating in a highly inflationary economy or
having the U.S. dollar as their functional currency, net nonmonetary assets are
translated at historical rates and net monetary assets are translated at current
rates. Translation adjustments are included in the determination of net income.

INCOME TAXES
The Company accounts for income taxes in accordance with Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes" ("Statement
109"). Tax provisions and credits are recorded at statutory rates for taxable
items included in the consolidated statements of income regardless of the period
for which such items are reported for tax purposes. Deferred income taxes are
recognized for temporary differences between financial statement and income tax
bases of assets and liabilities.

NET INCOME PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" ("Statement 128"). Statement 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and have been restated, to conform to Statement 128 requirements.




                                              REEBOK INTERNATIONAL LTD.      51.




   17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA



COMPREHENSIVE INCOME
The Company adopted Financial Accounting Standards Board Statement No. 130,
"Reporting Comprehensive Income" ("Statement 130") in 1998 which established
standards for the reporting and display of comprehensive income and its
components in a full set of comparative general-purpose financial statements.
The statement became effective for the Company as of December 31, 1998.
Statement 130 requires foreign currency translation adjustments, which prior to
adoption were reported separately in stockholders' equity, to be included in
other comprehensive income (expense). The adoption of Statement 130 resulted in
revised and additional disclosures but had no effect on the financial position,
results of operations, or liquidity of the Company. Comprehensive income is
reported by the Company in the Consolidated Statements of Stockholders' Equity.
The information for 1997 and 1996 has been restated from the prior year's
presentation to conform to Statement 130 requirements.

SEGMENT AND RELATED INFORMATION
The Company adopted Financial Accounting Standards Board Statement No. 131
"Disclosures About Segments of an Enterprise and Related Information"
("Statement 131") in 1998. Statement 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements. The information for 1997 and 1996 has been revised
from the prior year's presentation to conform to Statement 131 requirements.

RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, AcSEC issued Statement of Position 98-1 "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"), which
requires capitalization of certain costs to develop or obtain internal-use
software. SOP 98-1 is required to be adopted for years beginning after December
15, 1998.

In April 1998, the AcSEC issued Statement of Position 98-5 "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"), which requires the costs of start-up
activities to be expensed as incurred. SOP 98-5 is required to be adopted for
years beginning after December 15, 1998.

In June 1998, the Financial Accounting Standards Board issued Statement No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("Statement
133"), which is required to be adopted for years beginning after June 15, 1999.

Management of the Company does not expect the adoption of any of these standards
to have a material impact on the Company's financial position and results from
operations.

RECLASSIFICATION

Certain amounts in prior years have been reclassified to conform to the 1998
presentation.


2.    SPECIAL CHARGES

In the first quarter of 1998, the Company recorded a special charge of $35,000
($23,674 after tax, or $0.42 per 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, which will
result in the termination of approximately 485 full-time positions, should
enable the Company to achieve greater operating efficiencies. The underper-
forming 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 will affect cash.

The financial results for 1997 include special pre-tax charges of $58,161
($39,161 after tax or $0.67 per diluted share) relating to restructuring
activities in the Company's global operations. The restructuring charge relates
to facilities consolidation and elimination, asset write-downs, personnel
related expenses and the termination or restructuring of certain underperforming
marketing contracts that no longer reflect the Company's brand positioning. The
restructuring activities include reducing the number of European warehouses;
establishing a shared services company that will centralize European
administrative operations; and implementing a global management information
system. The charge will cover certain one-time costs, of which approximately 70%
will affect cash. Actual costs incurred in 1998 and 1997 did not differ
materially from the Company's estimates.



52.      REEBOK INTERNATIONAL LTD.



   18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA


Details of the special charge activity are as follows:



                                      1997         1997    BALANCE     1998         1998    BALANCE
                                   CHARGES  UTILIZATION   12/31/97  CHARGES  UTILIZATION   12/31/98
                                                                              

Marketing contracts                $25,000     $           $25,000  $18,476     $(28,734)   $14,742
Fixed asset write-downs             16,500       (9,600)     6,900                (1,134)     5,766
Employee retention and severance     9,200         (800)     8,400   14,798      (15,983)     7,215
Termination of leases and other      7,461         (700)     6,761    1,726       (5,912)     2,575
                                   -------     --------    -------  -------     --------    -------
                                   $58,161     $(11,100)   $47,061  $35,000     $(51,763)   $30,298
                                   =======     ========    =======  =======     ========    =======


The fixed asset write-downs relate to assets that will be abandoned or sold.

The restructuring should enable the Company to achieve operating efficiencies,
including improved inventory management, credit management, purchasing power and
customer service and should provide the organization with access to a single
global data base of company, supplier and customer information. The
restructuring initiatives should also improve logistics, allow the Company to
focus its spending on those key athletes and teams who are more closely aligned
with its brand positioning and produce cost savings once completed during 1999.


3.    DUTCH AUCTION SELF-TENDER STOCK REPURCHASE

On July 28, 1996, the Board of Directors authorized the purchase by the Company
of up to 24.0 million shares of the Company's common stock pursuant to a Dutch
Auction self-tender offer. The tender offer price range was from $30.00 to
$36.00 net per share in cash. The self-tender offer commenced on July 30, 1996
and expired on August 27, 1996. As a result of the self-tender offer, the
Company repurchased approximately 17.0 million common shares at a price of
$36.00 per share. Concurrent with the Dutch Auction share repurchase, the
Company's Board of Directors elected to suspend subsequent declarations of
quarterly cash dividends on the Company's stock. Accordingly, the last dividend
declared was for shareholders of record as of September 11, 1996. Suspension of
the dividend will conserve substantial cash which the Company plans to utilize
to reduce debt incurred as a result of the share repurchase.


4.    PROPERTY AND EQUIPMENT

Property and equipment consist of the following:



DECEMBER 31                                                   1998          1997
                                                                  
Land                                                      $  8,699      $  9,037
Buildings                                                   68,776        75,380
Machinery and equipment                                    264,642       221,114
Leasehold improvements                                      56,701        48,663
                                                          --------      --------
                                                           398,818       354,194
Less accumulated depreciation and amortization             226,233       197,235
                                                          --------      --------
                                                          $172,585      $156,959
                                                          ========      ========



                                              REEBOK INTERNATIONAL LTD.      53.

   19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA




5.    INTANGIBLES

Intangibles consist of the following:



DECEMBER 31                                                             1998       1997

                                                                              
Excess of purchase price over fair value of assets acquired         $ 38,900   $ 33,579
Other intangible assets:                                            
  Purchased technology                                                52,827     52,827
  Company trade name and trademarks                                   47,678     47,254
  Other                                                               12,969     13,699
                                                                    --------   --------
                                                                     152,374    147,359
Less accumulated amortization                                         83,726     81,575
                                                                    --------   --------
                                                                    $ 68,648   $ 65,784
                                                                    ========   ========


6.    SHORT-TERM BORROWINGS

The Company has various arrangements with numerous banks which provide an
aggregate of approximately $974,000 of uncommitted facilities, substantially all
of which are available to the Company's foreign subsidiaries. Of this amount,
$340,000 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 $167,000 was
outstanding for open letters of credit for inventory purchases at December 31,
1998.

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 ("Credit Agreement"). The
Credit Agreement included a $750,000 revolving credit facility, expiring on
August 31, 2002 which replaced the Company's previous $300 million credit line.
The balance of the facility was a $640,000 six-year term loan (see Note 8).

On July 1, 1997, the Company amended and restated the Credit Agreement. The
amendment reduced the revolving credit portion of the facility from $750,000 to
$400,000. The revolving credit facility is available to finance the short-term
working capital needs of the Company as well as support the issuance of letters
of credit for inventory purchases, if required. At December 31, 1998 and
December 31, 1997, there were no borrowings outstanding under the revolving
credit portion of this agreement. As part of the agreement, the Company is
required to pay certain commitment fees on the unused portion of the revolving
credit facility as well as comply with various financial and other covenants. As
part of the amendment, the commitment fees the Company is required to pay on the
unused portion of the revolving credit facility as well as the borrowing margins
over the London Interbank Offer Rate on the used portion of the revolving credit
facility were reduced. The amendment further removed or relaxed various
covenants. All other material terms and conditions of the Credit Agreement
remained unchanged.

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

The Company utilizes a commercial paper program under which it can borrow up to
$200,000 for periods not to exceed 270 days. This program is supported, to the
extent available, by the unused portion of the $400,000 revolving credit
facility. At December 31, 1998, the Company had no commercial paper obligations
outstanding.

The weighted-average interest rate on notes payable to banks was 8.5% and 7.1%
at December 31, 1998 and 1997, 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 1999 and 2006.



54.      REEBOK INTERNATIONAL LTD.



   20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA




In March 1998, the Company entered into an operating lease agreement for a
Worldwide Headquarters and North American Operations facility scheduled to open
in 2000. Under the agreement, the lessor purchases the property, pays for the
construction costs and subsequently leases the facility to the Company. The
initial lease term is six years with five two-year renewal options. Lease
payments will commence the earlier of occupancy or March 27, 2001 and the
expected annual payments are approximately $10,000. 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. Under the
agreement, the lessor leased the land pursuant to a ninety nine-year ground
lease, paid for the construction costs and subsequently leased the entire
facility to the Company. The initial lease term is six years with one five-year
renewal option. 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 projected to be $162,000. As part of these
agreements, the Company is required to comply with various financial and other
covenants.

Minimum annual rentals under operating leases (excluding the Worldwide
Headquarters and North American Operations facility lease discussed above) for
the five years subsequent to December 31, 1998 and in the aggregate are as
follows:

                1999                                           $ 41,622
                2000                                             31,711
                2001                                             23,415
                2002                                             18,943
                2003                                             14,756
                2004 and thereafter                              23,734
                                                               --------
                                                                154,181
                Less: amounts representing sublease income       18,103
                                                               --------
                                                               $136,078
                                                               ========

Total rent expense for all operating leases amounted to $45,771, $45,827, and
$46,751 for the years ended December 31, 1998, 1997 and 1996, respectively.


8.    LONG-TERM DEBT

Long-term debt consists of the following:



DECEMBER 31                                                                            1998          1997

                                                                                                
Variable Rate Term Loan due August 31, 2002 with interest payable quarterly        $427,398      $497,398
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                                          99,103        98,953
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
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
Bank and other notes payable                                                         14,571        14,004
                                                                                   --------      --------
                                                                                    641,072       760,355
Less current portion                                                                 86,640       121,000
                                                                                   --------      --------
                                                                                   $554,432      $639,355
                                                                                   ========      ========




                                              REEBOK INTERNATIONAL LTD.      55.




   21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA



On August 23, 1996, the Company entered into a $1,700,000 Credit Agreement
underwritten by a syndicate of major banks of which $950,000 was available in
the form of a six-year term loan facility for the purpose of financing the
Company's acquisition of common stock pursuant to the Dutch Auction self-tender
offer (see Note 3). Based on the number of shares tendered, the Company borrowed
$640,000 from this facility. The undrawn portion of $310,000 was immediately
canceled upon funding of the share repurchase. The Credit Agreement included
various covenants including restrictions on asset acquisitions, capital
expenditures and future indebtedness, and the requirement to maintain a minimum
interest coverage ratio. Under the terms of the agreement there are various
options under which the interest is calculated. On July 1, 1997, the Company
amended and restated the Credit Agreement. This amendment left the remaining
portion of the six-year term loan of $522,398 (as of July 1, 1997) on
substantially the same payment schedule, after adjusting for the $100,000 in
optional prepayments made in 1997. The amendment also removed or relaxed
covenants pertaining to restrictions on asset acquisitions and sales, capital
expenditures, future indebtedness and investments and reduced the borrowing
margins charged by the banks on the variable rate term loan. All other material
terms and conditions of the Credit Agreement remain unchanged.

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

At December 31, 1998 and 1997, the effective rate of interest on the variable
term loan was approximately 5.89% and 6.19%, 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,
2003 are $86,640 in 1999, $195,833 in 2000, $110,212 in 2001, $147,527 in 2002
and $140 in 2003.


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 1998, 1997, and 1996 were $14,394, $13,696 and $11,755,
respectively.


10.  STOCK PLANS

The Company has stock plans which provide for the grant of options to purchase
shares of the Company's common stock to key employees, other persons or entities
who make significant contributions to the success of the Company, and eligible
members of the Company's Board of Directors. The Company has elected to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations in accounting for its employee
stock options. Under APB 25, as long as the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

Under the 1994 Equity Incentive Plan, options may be incentive stock options or
"non-qualified options" under applicable provisions of the Internal Revenue
Code. The exercise price of any stock option granted may not be less than fair
market value at the date of grant except in the case of grants to participants
who are not executive officers of the Company and in certain other limited
circumstances. The exercise period cannot exceed ten years from the date of
grant. The vesting schedule for options granted under the 1994 Equity Incentive
Plan is determined by the Compensation Committee of the Board of Directors. The
1994 Equity Incentive Plan also permits the Company to grant restricted stock to
key employees and other persons or entities who make significant  contributions
to the success of the Company. The restrictions and vesting schedule for
restricted stock granted under this Plan are determined by the Compensation
Committee of the Board of Directors. The Company also has an option plan for its
Directors. Under this plan, a fixed amount of options are granted annually to
all non-employee Directors. Grants of options under the Directors plan vest in
equal annual installments over three years.



56.      REEBOK INTERNATIONAL LTD.



   22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA






The Company has two employee stock purchase plans. Under the 1987 Employee Stock
Purchase Plan, eligible employees are granted options to purchase shares of the
Company's common stock through voluntary payroll deductions during two option
periods, running from January 1 to June 30 and from July 1 to December 31, at a
price equal to the lower of 85% of market value at the beginning or end of each
period. Under the 1992 Employee Stock Purchase Plan, for certain foreign-based
employees, eligible employees are granted options to purchase shares of the
Company's common stock during two option periods, running from January 1 to June
30 and from July 1 to December 31, at the market price at the beginning of the
period. The option becomes exercisable 90 days following the date of grant and
expires on the last day of the option period. Accordingly, no options are
outstanding at December 31, 1998 and 1997. During 1998, 1997 and 1996,
respectively, 223,583, 151,210, and 157,134 shares were issued pursuant to these
plans.

In June 1990, the Company adopted a shareholders' rights plan and declared a
dividend distribution of one common stock purchase right ("Right") for each
share of common stock outstanding. Each Right entitles the holder to purchase
one share of the Company's common stock at a price of $60 per share, subject to
adjustment. The Rights will be exercisable only if a person or group of
affiliated or associated persons acquires beneficial ownership of 10% or more of
the outstanding shares of the Company's common stock or commences a tender or
exchange offer that would result in a person or group owning 10% or more of the
outstanding common stock, or in the event that the Company is subsequently
acquired in a merger or other business combination. When the Rights become
exercisable, each holder would have the right to purchase, at the then-current
exercise price, common stock of the surviving company having a market value of
two times the exercise price of the Right. The Company can redeem the Rights at
$.01 per Right at any time prior to expiration on June 14, 2000.

At December 31, 1998, 13,157,869 shares of common stock were reserved for
issuance under the Company's various stock plans and 69,748,284 shares were
reserved for issuance under the shareholders' rights plan.

The following schedule summarizes the changes in stock options during the three
years ended December 31, 1998:



                                                                                               WEIGHTED
                                                                                                AVERAGE
                                                NON-QUALIFIED                    OPTION        EXERCISE
                                                STOCK OPTIONS           PRICE PER SHARE           PRICE

                                                                                           
Outstanding at December 31, 1995                    6,156,917           $ 8.75 - $38.88          $24.96
Granted                                             4,436,947            26.75 -  41.63           31.32
Exercised                                            (272,153)            8.75 -  37.02           25.41
Canceled                                             (406,005)           11.38 -  37.02           31.10
                                                   ----------           ---------------          ------
Outstanding at December 31, 1996                    9,915,706             8.75 -  41.63           27.54
Granted                                             1,205,704            33.75 -  49.25           35.51
Exercised                                            (399,111)            8.75 -  36.75           25.72
Canceled                                             (534,680)           24.00 -  41.63           33.14
                                                   ----------           ---------------          ------
Outstanding at December 31, 1997                   10,187,619            10.63 -  49.25           28.26
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
                                                   ==========           ===============          ======


At December 31, 1998, the exercise prices for outstanding options ranged from
$11.37 to $48.37. Within that range, 6,709,022 options were outstanding between
$11.37 and $18.37. Included in this range are 3,069,795 options exercisable at a
weighted-average exercise price of $17.23. The weighted-average exercise price
and average remaining contractual life of these options is $15.11 and 5.26
years, respectively. Additionally, 2,532,719 options were outstanding between
$20.46 and $48.37. Included in this range are 1,150,927 options exercisable at a
weighted-average exercise price of $29.81. The weighted-average exercise price
and average remaining contractual life of these outstanding options were $31.26
and 6.44 years, respectively.

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



                                              REEBOK INTERNATIONAL LTD.      57.




   23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA



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.

Shares granted in 1996 include a July grant to certain senior executives made in
conjunction with the Dutch Auction. The options did not begin to vest until the
end of 1998, and vesting extends for a period of up to five years ending in
December 2002. Certain of these options were exchanged in 1998 pursuant to the
Company's stock option exchange and restructuring program. In addition, during
1996 the Company reinstituted December as the month in which it grants its
annual stock options to employees. The 1995 annual employee option grants were
issued in February 1996.

At December 31, 1998, 1997 and 1996, options to purchase 4,220,722, 4,324,208,
and 3,983,278 shares of common stock were exercisable, and 3,648,581, 3,032,790,
and 1,225,051 shares, respectively, were available for future grants under the
Company's stock equity plans.

Pro forma information regarding net income and earnings per share is required by
Statement 123, which requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1998,
1997 and 1996, respectively: risk-free interest rates ranging from 4.2% to 7.7%;
dividend yields of .00%, .00% and .68%; volatility factors of the expected
market price of the Company's common stock of .52 in 1998, .35 in 1997 and .27
in 1996; and a weighted-average expected life of the option of 3.5 years in 1998
and 4.2 years in 1997 and 1996.

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):



                                             1998          1997          1996

                                                                 
Pro forma net income                      $27,008      $127,506      $134,017
Pro forma basic earnings per share        $   .49      $   2.31      $   2.03
Pro forma diluted earnings per share      $   .49      $   2.23      $   2.00


The weighted-average fair value of options granted in 1998, 1997 and 1996 is
$6.70, $13.09 and $10.76, respectively.

Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 2001.


11.  ACQUISITION OF COMMON STOCK

Under various share repurchase programs from 1992 to 1995, the Board of
Directors authorized the repurchase of up to $800,000 in Reebok common stock in
the open market or privately-negotiated transactions. As of December 31, 1998,
the Company had approximately $126,600 available for future repurchases of
common stock under these programs (See note 12).


12.  EQUITY PUT OPTIONS

During 1998, the Company issued equity put options as part of its ongoing share
repurchase program. These options provide 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 common stock at the date of issuance.
The redemption value of the options, which represents the option price
multiplied by the number of shares under option, is presented in the



58.      REEBOK INTERNATIONAL LTD.



   24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA




accompanying consolidated balance sheet at December 31, 1998 as "Outstanding
redemption value of equity put options." At December 31, 1998, 625,000 shares of
outstanding common stock were subject to repurchase under the terms and
conditions of these options. In January 1999, the Company purchased the 625,000
shares under the terms of the equity put agreements for a net aggregate purchase
price of $16,559. At December 31, 1997, no shares of outstanding common stock
were subject to repurchase under the terms and conditions of equity put options.


13.  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 included North
America and is expected to expand worldwide as existing Ralph Lauren licenses
expire subject to reaching agreement with Ralph Lauren as to business plans for
the additional territories. In conjunction with the licensing arrangement,
Reebok's subsidiary, The Rockport Company, Inc. acquired Ralph Lauren's prior
licensee for the U.S. and Canada, Ralph Lauren Footwear, Inc.

On June 7, 1996, Reebok completed the sale of substantially all of the operating
assets and business of its subsidiary, Avia Group International, Inc.


14.  FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company to estimate the
fair value of its financial instruments:

Cash and cash equivalents and notes payable to banks: the carrying amounts
reported in the balance sheet approximate fair value. Long-term debt: the fair
value of the Company's medium-term notes and debentures is estimated based on
quoted market prices. The fair value of other long-term debt is estimated using
discounted cash flow analyses, based on the Company's incremental borrowing
rates for similar types of borrowing arrangements. Unrealized gains or losses on
foreign currency exchange contracts and options: the fair value of the Company's
foreign currency exchange contracts is estimated based on current foreign
exchange rates. Fair market value of interest rate swaps: the fair value of the
Company's interest rate swaps is estimated based on current interest rates.

The carrying amounts and fair value of the Company's financial instruments are
as follows:



                                             CARRYING AMOUNT         FAIR VALUE
                                           -------------------   -------------------
DECEMBER 31                                    1998       1997       1998       1997

                                                                     
Long-term debt                             $641,072   $760,355   $629,789   $759,049
Unrealized gains (losses) on foreign
  currency exchange contracts and options     2,024      4,619     (2,817)     6,256
Interest rate swaps                                                (3,622)       344
                                           ========   ========   ========   ========


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, 1998 and 1997 were
$12,000 and $8,100, respectively. The Company has used forward exchange
contracts and options as an element of its risk management strategy for several
years.




                                              REEBOK INTERNATIONAL LTD.      59.




   25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA




At December 31, 1998, the Company had option and forward currency exchange
contracts, all having maturities of less than one year, with a notional amount
aggregating $323,148. The contracts involved 12 different foreign currencies. No
single currency represented more than 23% of the aggregate notional amount. The
notional amount of contracts intended to hedge merchandise purchases was
$160,586. Deferred gains (losses) on these contracts were not material at
December 31, 1998 and 1997.

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. In January 1998,
the Company entered into additional interest rate swaps in the amount of
$150,000 with respect to the variable rate term loan. 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, 1998 and 1997, the notional amount of interest rate swaps
outstanding was $295,000 and $245,000 respectively.

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.

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.


15.  INCOME TAXES

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



                                           1998         1997          1996
                                                         
Domestic                               $(54,064)    $(32,783)     $(12,720)
Foreign                                  91,094      190,868       250,388
                                       --------     --------      --------
                                       $ 37,030     $158,085      $237,668
                                       ========     ========      ========



60.      REEBOK INTERNATIONAL LTD.



   26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA



The provision for income taxes consists of the following:



                                       1998              1997             1996
                                                              
Current:
  Federal                          $ 44,090          $(34,314)         $ 1,961
  State                               3,572              (324)           4,534
  Foreign                            47,337            64,413           83,921
                                   --------          --------          -------
                                     94,999            29,775           90,416
                                   --------          --------          -------

Deferred:
  Federal                           (37,811)           (8,940)          (1,705)
  State                             (19,880)           (1,900)            (689)
  Foreign                           (25,383)           (6,445)          (3,939)
                                   --------          --------          -------
                                    (83,074)          (17,285)          (6,333)
                                   --------          --------          -------
                                   $ 11,925          $ 12,490          $84,083
                                   ========          ========          =======


During 1992, the Company recorded a write-down in the carrying value of its Avia
subsidiary in the amount of $100,000 with no corresponding tax benefit
recognized in that year due to the uncertainty concerning the ultimate
deductibility of the charge. In June 1996, substantially all of the operating
assets and business of Avia were sold. After the sale, in December 1996, the
Company requested a pre-filing determination from the Internal Revenue Service
("IRS") regarding the deductibility of certain losses pertaining to the sale of
Avia. In August 1997, the IRS notified the Company that it had approved the
Company's tax treatment concerning the deductibility of the Avia losses and
accordingly, a corresponding reduction in income taxes totaling $40,000 was
recorded in the third quarter of that year.

Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $409,369, $405,265 and $517,309 at December 31, 1998, 1997 and
1996, respectively. Those 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 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:



                                          1998         1997        1996
                                                          
 
Tax at statutory rate                     35.0%        35.0%       35.0%
State taxes, less federal tax effect       1.5          1.5         1.7
Effect of tax rates of foreign
 subsidiaries and joint ventures          (5.1)        (4.3)       (1.6)
Tax benefit from Avia losses                          (25.3)
Amortization of intangibles                0.7          0.4         0.4
Other, net                                 0.1          0.6        (0.1)
                                          ----          ---        ---- 
Provision for income taxes                32.2%         7.9%       35.4%
                                          ====          ===        ==== 


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.




                                              REEBOK INTERNATIONAL LTD.      61.




   27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA



Net deferred tax assets are attributable to the following:



DECEMBER 31                                              1998            1997
                                                               

Inventory                                            $ 37,175        $ 30,238
Accounts receivable                                    26,641          24,973
Liabilities                                            11,849          26,714
Depreciation                                            8,436           6,117
Accrued special charges                                11,707          14,452
Tax net operating loss carryforwards                   69,707          10,424
Tax credit carryforwards                               16,710
Other, net                                             (4,594)        (18,361)
                                                     --------        --------
Total                                                $177,631        $ 94,557
                                                     ========        ========


At December 31, 1998, the Company had U.S. federal and 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 $69,707. These carryforwards will expire as follows: $7,029 in 
2002, $15,580 in 2003, and $47,098 thereafter. The Company also has available 
tax credit carryforwards of approximately $16,710, which will expire as 
follows: $3,145 in 2002, $1,509 in 2003, and $12,056 thereafter.


16.  EARNINGS PER SHARE

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



                                                                    1998       1997       1996

                                                                                  
Numerator:
  Net Income                                                     $23,927   $135,119   $138,950
                                                                 -------   --------   --------

Denominator:
  Denominator for basic earnings per share --
    weighted-average shares                                       56,394     56,162     67,370
  Dilutive employee stock options and equity put options             635      2,147      1,247
                                                                 -------   --------   --------
  Denominator for diluted earnings per share --
    adjusted weighted-average shares and assumed conversions      57,029     58,309     68,617
                                                                 =======   ========   ========

Basic earnings per share                                         $   .42   $   2.41   $   2.06
                                                                 =======   ========   ========

Diluted earnings per share                                       $   .42  $   2.32    $   2.03
                                                                 =======  ========    ========





62.      REEBOK INTERNATIONAL LTD.



   28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA




17.  SEGMENT AND RELATED INFORMATION

The Company designs and markets footwear and 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 to unaffiliated customers and long-lived assets by geographic area are
summarized below:




                                            1998            1997            1996
                                                             

NET SALES:
  United States                       $1,790,143      $2,000,883      $1,935,724
  United Kingdom                         522,393         661,358         566,196
  Europe                                 585,686         510,981         623,209
  Other countries                        326,370         470,377         353,475
                                      ----------      ----------      ----------
                                      $3,224,592      $3,643,599      $3,478,604
                                      ==========      ==========      ==========

Long-lived assets:
  United States                       $  170,537      $  175,744      $  182,380
  United Kingdom                          28,697          23,565          23,422
  Europe                                  30,138          14,388          16,950
  Other countries                         11,861           9,046          32,240
                                      ----------      ----------      ----------
                                      $  241,233      $  222,743      $  254,992
                                      ==========      ==========      ==========



18.  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. Included in these proceedings is a lawsuit filed by a former
distributor in Brazil in which the plaintiff asserted a claim for damages in
excess of $50,000. In April 1998, a court of first instance in Brazil awarded
this distributor damages of approximately $15,000, plus interest and attorneys'
fees. The Company appealed the ruling to a three-judge panel of the appellate
court which upheld the trial court's decision by a vote of two to one. Because
the appellate decision was not unanimous, the case is now being referred to a
new panel of five appellate judges from the same court, who will decide the case
on a de novo basis which means that the appellate panel will not have any
obligation to defer to the factual or legal conclusions of the trial court or
the first appellate panel, but the amount awarded must be within the parameters
established by the minority and majority decisions of the prior appellate panel
(a range from approximately $72 to approximately $15,000, plus interest and
attorneys' fees). The Company continues to believe the trial court's decision is
in error and will aggressively pursue all rights of appeal available to it. The
accompanying consolidated financial statements contain no provision for loss
with respect to this Brazilian lawsuit.




                                              REEBOK INTERNATIONAL LTD.      63.




   29



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, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Reebok
International Ltd. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.



/s/ Ernst & Young LLP


Boston, Massachusetts
February 2, 1999




64.      REEBOK INTERNATIONAL LTD.




   30
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 controls 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, 1998, 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 Chief           Executive Vice President and Chief 
 Executive Officer                         Financial Officer




                                              REEBOK INTERNATIONAL LTD.      65.




   31

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA




                                               FIRST         SECOND            THIRD          FOURTH
                                              QUARTER        QUARTER          QUARTER         QUARTER

                                                                                      
YEAR ENDED DECEMBER 1998

Net sales                                    $880,123       $760,567        $  878,335       $705,567
Gross profit                                  314,051        280,328           331,994        260,754
Net income (loss)                              (3,358)         6,146            28,229         (7,090)
Basic earnings (loss) per share                  (.06)           .11               .50           (.13)
Diluted earnings (loss) per share                (.06)           .11               .50           (.13)
                                             --------       --------        ----------       --------

YEAR ENDED DECEMBER 1997
Net sales                                    $930,041       $841,059        $1,009,053       $863,446
Gross profit                                  356,229        323,511           370,211        299,599
Net income                                     40,184         20,322            73,968            645
Basic earnings per share                          .72            .36              1.32            .01
Diluted earnings per share                        .69            .35              1.26            .01
                                             --------       --------        ----------       --------




Net income for the first quarter of 1998 includes a special charge of $23,674
after taxes, or $0.42 per share, for personnel related expenses and certain
other expenses associated with the restructuring or adjustment of
underperforming marketing contracts.

Net income for the fourth quarter of 1997 includes a special charge of $18,000
after taxes, or $0.31 per diluted share, for the restructuring of a number of
marketing contracts.

Net income for the third quarter of 1997 includes a tax credit of $40,000, or
$0.68 per diluted share, as well as a special charge of $21,161 after taxes, or
$0.36 per diluted share, for facilities consolidation and elimination, asset
adjustments, and personnel related expenses associated with global restructuring
activities.



66.      REEBOK INTERNATIONAL LTD.



   32

DIRECTORS & OFFICERS





BOARD OF DIRECTORS                                    CORPORATE OFFICERS



                                                   
PAUL FIREMAN                                          PAUL FIREMAN                                
Chairman, President & Chief Executive Officer         Chairman, President & Chief Executive Officer 
Reebok International Ltd.                                                                         
                                                      ANGEL R. MARTINEZ                           
CARL J. YANKOWSKI                                     Executive Vice President                    
Executive Vice President                              Chief Marketing Officer                       
President & Chief Executive Officer                   Reebok Division                             
Reebok Division                                                                                   
Reebok International Ltd.                             KENNETH WATCHMAKER                          
                                                      Executive Vice President                    
PAUL R. DUNCAN                                        Chief Financial Officer                       
Executive Vice President                                                                          
Reebok International Ltd.                             CARL J. YANKOWSKI                           
                                                      Executive Vice President                    
M. KATHERINE DWYER                                    President & Chief Executive Officer           
President                                             Reebok Division                             
Revlon Consumer Products, USA                                                                     
Revlon, Inc.                                          JAMES R. JONES, III                         
                                                      Senior Vice President &                     
WILLIAM F. GLAVIN                                     Chief Human Resources Officer                 
President Emeritus                                                                                
Babson College                                        BARRY NAGLER                                
                                                      Senior Vice President                       
MANNIE L. JACKSON                                     General Counsel                             
Chairman & Chief Executive Officer                                                                  
Harlem Globetrotters International, Inc.              ANTHONY J. TIBERII                          
                                                      Senior Vice President                       
RICHARD G. LESSER                                     President & Chief Executive Officer           
Executive Vice President & Chief Operating Officer    The Rockport Company, Inc.                  
TJX Companies, Inc.                                                                               
                                                      LEO S. VANNONI                              
GEOFFERY NUNES                                        Treasurer                                   
Retired Senior Vice President & General Counsel       
Millipore Corporation                                 

THOMAS M. RYAN
President & Chief Executive Officer
CVS Corporation






                                              REEBOK INTERNATIONAL LTD.      67.






   33
SHAREHOLDER INFORMATION



INDEPENDENT AUDITORS                       FORM 10-K
Ernst & Young LLP                          For a copy of the Form 10-K Annual   
200 Clarendon Street                       Report, filed with the Securities
Boston, MA 02116                           and Exchange Commission, write to:

                                           Office of Investor Relations 
                                           Reebok International Ltd.    
                                           100 Technology Center Drive  
TRANSFER AGENT AND REGISTRAR               Stoughton, MA 02072          
BankBoston, N.A. is the Transfer Agent
and Registrar for the Company's common
stock and maintains the shareholder 
accounting records. The Transfer Agent
should be contacted on questions of 
changes in address, name or ownership,     Web Site              
lost certificates and consolidation of     http://www.reebok.com 
accounts. When corresponding with the      
Transfer Agent, shareholders should
state the exact name(s) in which the
stock is registered and certificate number
as well as old and new information about
the account.                               CORPORATE HEADQUARTERS      
                                           Reebok International Ltd.   
BankBoston, N.A.                           100 Technology Center Drive 
c/o EquiServe                              Stoughton, MA 02072         
Shareholder Correspondence                 Phone: (781) 401-5000       
Post Office Box 8040                         
Boston, MA 02266-8040
Phone: (781) 575-3400
Facsimile: (781) 828-8813                  ANNUAL MEETING                      
Toll-free number outside Massachusetts                                         
(800) 733-5001                             The Annual Meeting of Shareholders  
http://www.equiserve.com                   will be held at 10:00 a.m., local   
                                           time, on Tuesday, May 4, 1999 at    
                                           BankBoston, Long Lane Conference    
                                           Room, Second Floor, 100 Federal     
                                           Street, Boston, Massachusetts.      
                                                                               
                                           Shareholders of record on March 11, 
                                           1999 are entitled to vote at the    
                                           meeting. 

STOCK INFORMATION          
The Company's common stock is quoted on the New York Stock Exchange under the
symbol RBK. The following table, derived from data supplied by the NYSE, sets
forth the quarterly high and low sales prices during 1998 and 1997.



                                              1998                  1997
                                       ------------------     -----------------
                                       High       Low         High       Low
                                                             
First                                  33 3/16    25 1/2      52 7/8     40 5/8
Second                                 32 1/2     27          49 7/8     37 1/8
Third                                  29 1/4     13 1/8      52 1/4     43 5/8
Fourth                                 18 1/2     12 9/16     49 1/2     27 5/8
                                       ==================     =================


The number of record holders of the Company's common stock at February 19, 1999
was 6,895.





68.      REEBOK INTERNATIONAL LTD.



   34


























(C) 1999 Reebok International Ltd. All Rights Reserved.

REEBOK, DMX and the Vector Logo [REEBOK the Vector Logo] are registered
trademarks and ATTACK LIFE is a trademark of Reebok.
ROCKPORT, PROWALKER, UNCOMPROMISE and the Lighthouse Logo are registered
trademarks and SOUL SENSATION and WALKING PLATFORM are trademarks of The
Rockport Company, Inc.
GREG NORMAN and the Greg Norman Logo are registered trademarks of Great White
Shark Enterprises, Inc.
RALPH LAUREN, LAUREN BY RALPH LAUREN and POLO SPORT are registered trademarks
and RLX and LAUREN are trademarks of Polo/Ralph Lauren.

Design: Belk Mignogna Associates, New York
Photography: (Cover) Graham MacIndoe; (pgs. 21, 29 and 30) Robert Fishman

EX-21.1

   1
                                                                    EXHIBIT 21.1

                 SUBSIDIARIES OF REEBOK INTERNATIONAL LTD.


                                             Jurisdiction of
                                             Incorporation or
Name                                           Organization

Ralph Lauren Footwear Co., Inc.              Massachusetts

RBK Thailand, Inc.                           Massachusetts

Reebok Aviation, Inc.                        Massachusetts

Reebok CHC, Inc.                             Massachusetts

Reebok Foundation, Inc.                      Massachusetts

Reebok International Securities Corp.        Massachusetts

Reebok Securities Holdings Corp.             Massachusetts

The Reebok Worldwide Trading Company, Ltd.   Massachusetts

The Rockport Company, Inc.                   Massachusetts

Avintco, Inc.                                Delaware

RFC, Inc.                                    Delaware

Reebok Austria GmbH                          Austria

Rockport Gmbh                                Austria

Reebok Belgium SA                            Belgium

Reebok do Brasil Servicos                    Brazil
a Participacoes Ltda

Rockport do Brasil - Comercio, Servicos      Brazil
e Participacoes Ltda.

R.C. Investments Ltd.                        Canada

Reebok Canada Inc.                           Canada

Reebok France (S.A.)                         France

Rockport France S.a.r.L.                     France
   2
                                                           EXHIBIT 21.1 - Page 2

                    SUBSIDIARIES OF REEBOK INTERNATIONAL LTD.

                                             Jurisdiction of
                                             Incorporation or
Name                                           Organization

American Sports and Leisure                  Germany
Vertriebs GMBH

Reebok Deutschland GmbH                      Germany

Reebok (China) Services Limited              Hong Kong

Reebok Far East Ltd.                         Hong Kong

Reebok Trading (FAR EAST) Limited            Hong Kong

Reebok India Company                         India

Reebok Technical Services Private Limited    India

Reebok Ireland Limited                       Ireland

Reebok Italia S.r.l.                         Italy

Rockport International Trading               Italy
Co. Italy S.r.l.

Reebok Japan Inc.                            Japan

Rockport Japan Inc.                          Japan

Reebok Korea Limited                         Korea

Reebok Korea Technical Services              Korea
Company, Ltd.

Reebok (Mauritius) Company Limited           Mauritius

Rockport Mexico S.A. DE C.V.                 Mexico

Reebok Distribution B.V.                     The Netherlands

RBK Sport Europe B.V.                           The Netherlands

Reebok International Finance B.V.            The Netherlands

Reebok Europe B.V.                           The Netherlands

Rockport (Europe) B.V.                       The Netherlands
   3
                                                           EXHIBIT 21.1 - Page 3

                    SUBSIDIARIES OF REEBOK INTERNATIONAL LTD.

                                             Jurisdiction of
                                             Incorporation or
Name                                           Organization

Reebok Nederland (Retail) B.V.               The Netherlands

Reebok (Philippines) Services Co., Inc.      Philippines

Reebok Poland SA                             Poland

Reebok Portugal Artigos Desportives Lda      Portugal

Reebok Russia (Retail) Inc.                  Russia

Reebok Leisure SA                            Spain

Reebok (South Africa) (Proprietary) Limited  South Africa

Reebok Scandinavia AB                        Sweden

Reebok (Switzerland) AG                      Switzerland

Reebok (Taiwan) Services Company             Taiwan

Reebok Ukraine Subsidiary Enterprise         Ukraine

J.W. Foster & Sons                           United Kingdom
(Athletic Shoes) Limited

RBK Holdings plc                             United Kingdom

Reebok Eastern Trading Limited               United Kingdom

Reebok International Limited                 United Kingdom

Reebok Sports Limited                        United Kingdom

Reebok UK Limited                            United Kingdom

The Rockport Company Limited                 United Kingdom

Rockport International Limited               United Kingdom

Reebok Pensions Management Limited           United Kingdom

EX-23.1

   1
                                                                    EXHIBIT 23.1


                         Consent of Independent Auditors

We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Reebok International Ltd. of our report dated February 2, 1999, included in
the 1998 Annual Report to Shareholders of Reebok International Ltd.

Our audits also included the financial statement schedule of Reebok
International Ltd. listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

We also consent to the incorporation by reference in the Registration Statements
on Form S-3 (File Nos. 33-24114, 33-32664, 33-62301 and 333-17955) and Form S-8
(File Nos. 33-6989, 33-15729, 33-53954, 33-14698, 33-15089, 33-32663, 33-54562,
33-53523, 33-53525, 33-53537 and 333-67249) and related prospectuses of our
report dated February 2, 1999, with respect to the consolidated financial
statements incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement schedule included in
this Annual Report (Form 10-K) of Reebok International Ltd.


                                        /S/ ERNST & YOUNG LLP


Boston, Massachusetts
March 19, 1999

EX-27

 

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1998 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

<CIK> 0000770949
<NAME> REEBOK INTERNATIONAL LTD.
<MULTIPLIER> 1,000
       
                             
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          DEC-31-1998
<PERIOD-START>                             JAN-01-1998
<PERIOD-END>                               DEC-31-1998
<CASH>                                         180,070
<SECURITIES>                                         0
<RECEIVABLES>                                  565,213
<ALLOWANCES>                                    47,383
<INVENTORY>                                    535,168
<CURRENT-ASSETS>                             1,361,796
<PP&E>                                         398,818
<DEPRECIATION>                                 226,233
<TOTAL-ASSETS>                               1,739,624
<CURRENT-LIABILITIES>                          612,284
<BONDS>                                        554,432
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                           933
<OTHER-SE>                                     523,444
<TOTAL-LIABILITY-AND-EQUITY>                 1,739,624
<SALES>                                      3,224,592
<TOTAL-REVENUES>                             3,205,425
<CGS>                                        2,037,465
<TOTAL-COSTS>                                2,037,465
<OTHER-EXPENSES>                             1,071,437
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              60,671
<INCOME-PRETAX>                                 35,852
<INCOME-TAX>                                    11,925
<INCOME-CONTINUING>                             23,927
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    23,927
<EPS-PRIMARY>                                      .42
<EPS-DILUTED>                                      .42