-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S+p8XmRlX6gRgdzsY9HUCPykhf7q7vZ/9zzbrA10cb0MGy+fbcryJzIe0raVF3/2 Of3g/nQfts/uS5WMEfjwLA== 0000950135-97-001441.txt : 19970329 0000950135-97-001441.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950135-97-001441 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REEBOK INTERNATIONAL LTD CENTRAL INDEX KEY: 0000770949 STANDARD INDUSTRIAL CLASSIFICATION: RUBBER & PLASTICS FOOTWEAR [3021] IRS NUMBER: 042678061 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-09340 FILM NUMBER: 97567775 BUSINESS ADDRESS: STREET 1: 100 TECHNOLOGY CTR DR CITY: STOUGHTON STATE: MA ZIP: 02072 BUSINESS PHONE: 6173415000 10-K405 1 REEBOK INTERNATIONAL, INC. 1 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, 1996 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: (617) 341-5000 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 21, 1997, the aggregate market value of the registrant's voting stock held by non-affiliates of the registrant was approximately $2,189,943,409. As of March 21, 1997, 56,095,692 shares of the registrant's Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Shareholders for the fiscal year ended December 31, 1996 (certain parts as indicated herein in Parts I and II). Definitive Proxy Statement dated March 26, 1997 for the Annual Meeting of Shareholders to be held on May 1, 1997 (certain parts as indicated herein in Part III). 2 PART I ------ Item 1. Business. - ------ -------- Reebok International Ltd., a Massachusetts corporation organized on July 26, 1979, is a global company engaged primarily in the design and marketing of sports and fitness products, including footwear and apparel, as well as the design and marketing of footwear and apparel for non-athletic "casual" use. The Company has three major business groups: the Reebok Division, which is primarily responsible for the Company's REEBOK (R) brand, the Greg Norman Division, which is responsible for the GREG NORMAN (R) brand, and the Company's major subsidiary, The Rockport Company, Inc. ("Rockport") which is responsible for the ROCKPORT (R) brand, as well as footwear sold under the RALPH LAUREN (R) brand. (Reebok International Ltd. is referred to herein, together with its subsidiaries, as "Reebok" or the "Company" unless the context requires otherwise.) During calendar year 1996, net income for the Company decreased by 15.7% to $139.0 million, or $2.00 per share, from $164.8 million, or $2.07 per share, for the year ended December 31, 1995 (inclusive of a special charge related to facilities consolidation, severance and other costs associated with streamlining certain operations and the writedown of the carrying value of the Company's Avia subsidiary), while net sales decreased by 0.1%, from $3.482 billion in 1995 to $3.479 billion in 1996. In June 1996, the Company sold its subsidiary Avia Group International, Inc. in order to focus on its core brands. In addition, in November 1996, the Company discontinued the operation of its Boks Division. On July 28, 1996, the Company's Board of Directors authorized the purchase by the Company of up to 24 million shares of its common stock at a price ranging from $30.00 to $36.00 net per share in cash pursuant to a "Dutch Auction" self-tender offer. The 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 million shares of its common stock at a price of $36.00 per share. In conjunction with the repurchase, the Company entered into a new credit agreement underwritten by Credit Suisse and a syndicate of major banks. See discussion under "Working Capital Arrangements" below. The following is a discussion of the business of each of the Company's operating units. REEBOK DIVISION - --------------- The Reebok Division designs, produces and markets sports and fitness footwear, apparel and accessories, as well as related sports and fitness products, that combine the attributes of athletic performance and style. The Division's products include footwear for basketball, running, soccer, tennis, golf, track and field, volleyball, football, baseball, aerobics, cross training, outdoor performance and walking activities, as well as athletic apparel and accessories. The Division has expanded its product scope through the development and marketing of related sports and fitness products and services, such as sports and fitness videos, programming and equipment, and through its strategic licensing program, pursuant to which the Company's technologies and/or trademarks are licensed to third parties for sporting goods and related products. 1 3 The Reebok Division has targeted as its primary customer base athletes and others who believe that technical and other performance features are the critical attributes of athletic footwear and apparel. Although much of the Company's historical growth has been due to its strength in footwear and other products for the fitness market, beginning in 1994 the Company launched a major strategic effort towards increasing Reebok's on-field presence and establishing itself as an authentic sports brand. Through such effort, Reebok has gained increased visibility on playing fields worldwide through endorsement arrangements with such prominent athletes as Shaquille O'Neal of the Los Angeles Lakers, Allen Iverson of the Philadelphia 76ers, Emmitt Smith of the Dallas Cowboys and Frank Thomas of the Chicago White Sox, and with various sports and event sponsorships. As part of its commitment to offer leading athletic footwear technologies, the Division engages in product research, development and design activities in the Company's Stoughton, Massachusetts headquarters, where it has a state-of-the-art 50,000 square foot product development facility which is dedicated to the design and development of technologically-advanced athletic and fitness footwear, and in its various Far East offices. TECHNOLOGY - ---------- Reebok places a strong emphasis on technology and has continued to incorporate various proprietary performance technologies in its products. Reebok has developed HEXALITE (R), its honeycomb-shaped cushioning material, for various applications in its footwear products. As an example, VIZ-HEX, a design element, communicates to the consumer the cushioning effectiveness of the HEXALITE (R) technology, and was introduced at retail in July 1996. Other HEXALITE (R) applications include Radial HEXALITE (R), which combines under-the-foot cushioning and lateral stabilization and is expected to be available at retail in April 1997; Suspended HEXALITE (R), which incorporates Radial HEXALITE but removes midsole material, providing improved lightweight cushioning and stabilization, and is expected to be available at retail in July 1997; and HEXLINER (TM), a PU foam sockliner, which includes HEXALITE (R) material in the heel for a softer feel close to the foot and is expected to be available at retail in June 1997. In 1995 Reebok introduced a new evolution of its DYNAMIC CUSHIONING (R) technology called DMX (TM), which utilizes a dynamic air transfer system in the midsole to provide heel and forefoot cushioning and comfort. Walking shoes incorporating this technology were introduced at retail in April 1995. In August 1996, the Company debuted its DMX (TM) Series 2000 technology, which is an advanced version of DMX (TM), that incorporates a multiple channel, active air flow system delivering cushioning precisely when and where it is needed. This technology is expected to first be introduced at retail in running shoes in April 1997. The Company is incorporating the DMX (TM) Series 2000 technology into other footwear categories and plans to introduce such footwear at retail later in 1997. In January 1997, Reebok introduced at retail 3D ULTRALITE (TM) in a women's fitness shoe. 3D ULTRALITE uses material that allows the midsole and outsole to be combined in one injection molded unit, but still permits the shoe to be lightweight, flexible and durable. The Company plans to incorporate this technology into additional footwear categories and expects to introduce such footwear at retail later in 1997. Finally, Reebok has incorporated advanced technology into its apparel products with the introduction of HYDROMOVE (TM) technology in certain performance apparel. This moisture management system helps keep athletes warm in cold weather and dry and cool in hot weather. Performance apparel incorporating the HYDROMOVE (TM) technology first became available at retail at the end of 1996. 2 4 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. A substantial advertising program was pursued in 1996 with advertisements directed toward both the trade and the ultimate consumers of REEBOK (R) products. The major advertising campaigns in 1996 included a campaign which debuted during the 1996 Summer Olympic Games featuring Emmitt Smith in his "light-hearted" quest to have football accepted as an Olympic sport; an ad campaign starring Don Cornelius and featuring various Reebok basketball and football endorsers; and a Planet Reebok print campaign featuring various Reebok endorsers. As part of its marketing efforts in 1996, Reebok also signed a five year exclusive world-wide agreement with America Online to develop and display an interactive sports and fitness site on America Online. Substantial resources were devoted to promotional activities in 1996, including endorsement agreements with athletes, teams, leagues and sports federations; event sponsorships; in-store promotions and point-of-sale materials. The Reebok Division continued its strategic push into the sports market, gaining increased visibility on playing fields and in sports arenas worldwide through endorsement arrangements with such athletes as Shaquille O'Neal, with whom Reebok markets a signature line of footwear, apparel and accessories featuring his distinctive logo. In addition, in 1996 Reebok signed a major endorsement agreement with Allen Iverson of the Philadelphia 76ers, who was the number one selection in the 1996 NBA draft, and has begun marketing an Allen Iverson signature line of footwear and apparel products. Other endorsements in basketball come from professional players such as Shawn Kemp, Clyde Drexler, Nick Van Exel and Steve Smith. Reebok also sponsors a number of college basketball programs and in 1996 Reebok entered into a sponsorship agreement with the Harlem Globetrotters. In addition, in 1996, Reebok was named a founding sponsor of the women's American Basketball League ("ABL"); Reebok is the exclusive supplier of uniforms and practice gear to four of the league's eight teams and an official ABL licensee and has entered into endorsement agreements with a number of ABL players including Saudia Roundtree and Jennifer Azzi. To promote the sale of its cross training footwear, Reebok used endorsements by prominent athletes such as National Football League ("NFL") players Emmitt Smith, Derrick Thomas, John Elway, Ken Norton, Thurman Thomas, Herman Moore, Ben Coates and Greg Lloyd, as well as Major League Baseball ("MLB") players Frank Thomas, Mark McGwire, John Smoltz, Juan Gonzalez and Roger Clemens. To promote its cleated football and baseball shoes, the Company also has endorsement contracts with several hundred MLB and NFL players, including numerous all-stars, and sponsors a number of college football programs. The Company has a multi-year agreement with NFL Properties under which Reebok has been designated a "Pro Line" licensee for the U.S. and international markets with the right to produce and market sideline apparel bearing NFL team logos. Pursuant to this agreement, in 1996, the coaching staff and players of the San Francisco 49ers, Detroit Lions, New York Giants and Carolina Panthers wore REEBOK (R) uniforms and sideline apparel and Reebok supplied sideline apparel to the New Orleans Saints and Seattle Seahawks. In 1997, Reebok will supply uniforms and sideline apparel to the San Francisco 49ers, Detroit Lions, New York Giants, New Orleans Saints, Kansas City Chiefs and Atlanta Falcons. In addition to the Pro Line license, Reebok has an agreement with the NFL under which Reebok is one of only two brands authorized to provide NFL players 3 5 with footwear that has visible logos and all NFL on-field game officials wear REEBOK (R) footwear exclusively. In soccer, Reebok has a number of endorsement arrangements including key contracts with Gabriel Batistuta of Fiorentina and the Argentinean national team, Ryan Giggs of Manchester United and Wales, Dennis Bergkamp of Arsenal and the Netherlands, Jurgen Klinsmann of Bayern Munich and Germany, and Guiseppe Signori of Lazio and Italy, as well as U.S. national team members Eric Wynalda, Michelle Akers and Julie Foudy. In 1996 the Company signed major sponsorship agreements with the Liverpool Football Club, one of the world's best known club soccer teams, and with the Argentina National Football Association, which will take effect in 1999. Reebok has also entered into sponsorship agreements with such soccer teams as Fiorentina of Italy, Aston Villa and Bolton Wanderers of England, Borussia Moenchengladbach of Germany, Bastia of France, Palmeiras of Brazil, Brondby of Denmark and Gothenburg of Sweden. In addition, Reebok is the official uniform supplier of U.S. major league soccer teams the New England Revolution and, beginning with the 1997 season, the Colorado Rapids. In rugby, the Company sponsors the national rugby teams of Australia, Wales and Italy. Tennis promotions included endorsement contracts with well-known professionals including Michael Chang, Venus Williams, Todd Martin, Patrick Rafter, Arantxa Sanchez-Vicario, Chanda Rubin and Malivai Washington. Promotional efforts in running included endorsement contracts with such well-known runners as Moses Kiptanui, Ato Boldon, Elana Meyer, Derrick Adkins, Sonia O'Sullivan, Kim Batten and Marie Jose Perec. To promote its women's sports and fitness products, Reebok sponsored athletes such as Rebecca Lobo, U.S. women's national basketball team member, as well as Michelle Akers and Julie Foudy of the U.S. national soccer team, Dot Richardson and Lisa Fernandez of the U.S. national softball team, Liz Masakayan, pro beach volleyball player, and Nancy Feagin, world-class rock climber. In addition, Reebok sponsors a variety of college basketball and volleyball teams and such organizations as the American Basketball League and the Women's Sports Foundation, a non-profit educational organization that promotes sports for women and girls. The Reebok Division also continued its promotional efforts in the fitness area. Reebok fitness products and programming are featured on Fit TV, a 24-hour cable network, pursuant to a programming agreement. Through an agreement with Channel One Communications, Reebok provides the programming for P.E.TV, an award-winning program designed to educate kids about physical fitness. Reebok has developed numerous fitness programs such as its Versa Training program, designed to help consumers meet their varied fitness goals with aerobic, strength and flexibility workouts, the WALK REEBOK program which promotes walking, its CYCLE REEBOK program that features the CYCLE REEBOK studio cycle, and the Reebok Flexible Strength program that develops strength and flexibility simultaneously. These programs were complemented by the marketing and sale of a line of REEBOK (R) fitness videos, as well as the marketing and sale of REEBOK fitness equipment products such as the STEP REEBOK exercise platform, the SLIDE REEBOK lateral motion training device, the CYCLE REEBOK studio cycle and the REEBOK Sky Walker exercise machine. To gain further visibility for the REEBOK brand, Reebok has also entered into several key sport sponsorships, such as an arrangement under which Reebok was designated the official footwear and apparel sponsor of the Russian Olympic Committee and the approximately 25 individual associated Russian sports federations through the 1996 Atlanta Summer Olympic Games, and an agreement with the U.S. Gymnastics Federation. Reebok is also the official apparel and 4 6 footwear sponsor of the IRONMAN Triathlon World Championship, will become the official footwear of the USA Triathlon in 1997, and will introduce in 1997 official REEBOK IRONMAN footwear. In addition, Reebok has school-wide sponsorship arrangements with colleges such as U.C.L.A., University of Texas, University of Virginia and University of Wisconsin. Reebok had a major presence at the 1996 Atlanta Summer Olympic Games. Approximately 3000 athletes (about one-third of all competitors) competed in REEBOK (R) products at the 1996 Summer Olympic Games. Reebok also sponsored the National Olympic Committees of Russia, Poland, Ireland, Brazil, Jamaica, New Zealand and South Africa, and the track and field federations of China, Belgium, The Netherlands, Portugal, Spain and Sweden. In addition, Reebok outfitted the Olympic delegations of a number of smaller countries through its emerging nations program and supplied footwear to U.S. Olympic Team coaches and delegation officials. Reebok was a supplier to the 1996 Centennial Olympic Games supplying footwear to employees and volunteers of the Atlanta Committee for the Olympic Games, an official licensee for footwear and videos, and an official sponsor of NBC's broadcast of the 1996 Summer Olympic Games. U.S. OPERATIONS - --------------- The Reebok Division's U.S. operations unit is responsible for all footwear and apparel products sold in the United States by the Division. Sales of footwear in the United States totalled approximately $1.1928 billion in 1996 compared to $1.367 billion in 1995. REEBOK (R) brand apparel sales (including GREG NORMAN (R) apparel) in the U.S. in 1996 totalled approximately $314.9 million, compared to approximately $221.7 million(1) in 1995. In the U.S., the Reebok Division generally uses an employee sales force for its principal product lines, although it utilizes independent sales representatives for some of its specialty products, such as its REEBOK golf and tennis products and its equipment and other sports and fitness products. Reebok's U.S. national sales staff and locally based sales employees are supported by field service representatives employed by Reebok who travel to assist in retail merchandising efforts and provide information to consumers and retailers regarding the features of the Company's products. There are also a number of promotional personnel who coordinate events and promotions at a "grass roots" level to help enhance the image of the REEBOK brand. The Division's U.S. distribution strategy emphasizes high-quality retailers and seeks to avoid lower-margin mass merchandisers and discount outlets. REEBOK (R) footwear is distributed primarily through specialty athletic retailers, sporting goods stores and department stores, with specialty products, such as golf products and equipment, also being distributed in certain specialty channels. Distribution of the Company's apparel line is predominantly through pro shops, health clubs and department, sporting goods and specialty stores. The Reebok Division also sells its products through REEBOK (R) concept or company stores. See discussion under "Retail Stores" below. - ------------ (1) 1995 sales are adjusted to include apparel sales of the retail division in U.S. apparel, consistent with the 1996 presentation. Previously, all retail sales (including footwear and apparel) had been included in U.S. footwear sales. 5 7 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 Lancaster, England which is responsible for Northern Europe; in Munich, Germany which is responsible for Central Europe; in Paris, France which is responsible for Southern Europe; in Denham Lock, England which is responsible for the Middle East and Africa; and in Tokyo, Japan which is responsible for Far East operations and India and is also supported by a marketing team located in Hong Kong. The Canadian operations of the Division are managed through a wholly owned subsidiary headquartered outside of Toronto, Canada. The Division markets REEBOK (R) products internationally through wholly owned subsidiaries in Austria, Belgium, Canada, France, Germany, Ireland, The Netherlands, Italy, Poland, Portugal, Russia, Switzerland and the United Kingdom and majority owned subsidiaries in Japan, India, South Korea, Spain and South Africa. REEBOK products are also marketed internationally through 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 internationally in approximately 170 countries and territories. The Division's International operations unit also has small design staffs which assist in the design of REEBOK (R) footwear and apparel. During 1996 the contribution of the Division's International operations unit to overall sales of REEBOK (R) products (including GREG NORMAN (R) apparel) increased to $1.474 billion from $1.395 billion in 1995. These sales figures do not, however, reflect the full wholesale value of all REEBOK products sold outside the United States in 1996 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 $1.803 billion in wholesale value, consisting of approximately 35.7 million pairs of shoes totalling approximately $1.189 billion in wholesale value of footwear sold outside the United States in 1996 (compared with approximately 36 million pairs totalling approximately $1.227 billion in 1995) and approximately $613.8 million in wholesale value of REEBOK apparel (including GREG NORMAN apparel) sold outside the United States in 1996 (compared with approximately $438 million in 1995). SPORTS AND FITNESS EQUIPMENT AND LICENSING - ------------------------------------------ The Company has continued to expand 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. The licensing program is focused on expanding the REEBOK brand into new sports and fitness markets and enhancing the reputation of the Company's brands and technologies. The Company has pursued strategic alliances with licensees who Reebok believes are leaders and innovators in their product categories and who share Reebok's commitment to offering superior, innovative products. The Company believes that its licensing program reinforces Reebok's reputation as a market leader. 6 8 The Company's licensing program includes such products as a full line of athletic gloves, including baseball batting gloves, football gloves, running gloves, court/racquetball gloves, fitness/weightlifting gloves, and cycling gloves, all featuring the REEBOK trademark and Reebok's Vector Logo; a collection of REEBOK (R) performance sports sunglasses; the WATCH REEBOK collection of sport watches and a new line of heart rate monitors; REEBOK basketballs, volleyballs and footballs; REEBOK weight belts, both with and without Reebok's INSTAPUMP (TM) technology; and a line of gymnastic apparel including replicas of the U.S. gymnastics team uniforms. In 1996, Reebok also entered into license agreements with Mead for a line of REEBOK school supplies and with Haddad Apparel for a line of REEBOK infant and toddler apparel. During 1996, Reebok and its video partner and licensee, Polygram International, continued to produce, market and sell a line of REEBOK (R) fitness videos. Through a licensee, Reebok also sells REEBOK (R) fitness audio tapes. In the equipment area, the Company continued sales of its STEP REEBOK (R) exercise platform and SLIDE REEBOK (TM) lateral motion training device, and through licensees, sold the REEBOK (R) Sky Walker (TM) exercise product and the CYCLE REEBOK studio cycle to health clubs and fitness facilities. In 1996, Reebok also signed a license agreement with Cross Conditioning Systems to act as its licensee to develop a line of REEBOK fitness equipment products designed for use in health clubs and other institutional markets. The first two products commercialized under this relationship, the REEBOK Body Mill and REEBOK Body Trek, were sold to health clubs in 1996. In addition, as part of the Company's licensing program, WEEBOK (R) infant and toddler apparel and accessories are sold by a licensee and, beginning in 1997, a line of WEEBOK (R) footwear will be sold by a licensee. THE ROCKPORT COMPANY - -------------------- The Company's Rockport subsidiary, headquartered in Marlboro, Massachusetts, designs, manufactures and distributes specially engineered comfort footwear for men and women worldwide under the ROCKPORT (R) brand, as well as apparel through a licensee. Rockport also develops, markets and sells footwear under the RALPH LAUREN (R) brand pursuant to a license agreement entered into in May 1996. Rockport's net sales increased by approximately $79.5 million in 1996, to $447.6 million from $368.1 million in 1995. Rockport's 1996 sales include sales of the RALPH LAUREN footwear business which was acquired in May 1996. ROCKPORT BRAND - -------------- Designed to fully address the different aspects of customers' lives, the ROCKPORT product line includes casual, dress, outdoor performance, golf and fitness walking shoes. In 1996, Rockport built upon its walking heritage with the introduction of its World Tour walking shoe and relaunched its apparel, which will be developed, marketed and sold through a licensee. In women's products, Rockport continued to focus on combining comfort with style. In 1996, Rockport's Mirabel shoe earned the Seal of Approval from the American Orthopedic Foot and Ankle Society, becoming the first women's heel to receive this seal. Rockport continued its focus on brand-building activities with The Rockport {PROOF} campaign, an integrated marketing campaign that featured real consumer experiences, ranging from 7 9 the ordinary to the extraordinary, wearing ROCKPORT (R) shoes. The Rockport {PROOF} campaign was used as the major marketing platform for the entire brand in 1996, encompassing television advertising in certain markets, print advertising, public relations and retail promotions. In March 1996, Rockport took the Rockport {PROOF} campaign on-line with the establishment of a Rockport website on the Internet. 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 48 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 selected higher-quality national and local shoe store chains, department stores, independent shoe stores, specialty clothing stores and outdoor outfitters, emphasizing retailers that provide substantial point-of-sale assistance and carry a full product line. Rockport also sells its products through independently owned ROCKPORT dedicated retail shops, as well as ROCKPORT (SM) concept or company stores. See discussion under "Retail Stores" below. Rockport has not pursued mass merchandisers or discount outlets for the distribution of its products. RALPH LAUREN (R) BRAND - ---------------------- In May 1996, Rockport entered into an exclusive license agreement to design, develop, manufacture, market and sell footwear under the RALPH LAUREN brand. The territory covered by the license agreement currently includes the U.S. and Canada and is expected to expand over time to cover the world as existing RALPH LAUREN licenses expire, and subject to reaching agreement with Ralph Lauren on business plans for the additional territories. As part of this arrangement, Rockport acquired Ralph Lauren's existing footwear licensee for the U.S. and Canada. Rockport, through its wholly owned subsidiary Ralph Lauren Footwear Co., Inc., is now selling the existing RALPH LAUREN footwear line and plans to build a global footwear business around the RALPH LAUREN (R) and POLO SPORT (R) lines. A new line of athletic footwear under the POLO SPORT label is expected to be launched in Spring 1998. RALPH LAUREN footwear is marketed to authorized retailers through a locally based employee staff. Products are distributed primarily through higher-quality department stores. Products are also sold through space licensing and merchandising arrangements at RALPH LAUREN/POLO retail stores. GREG NORMAN (R) BRAND - --------------------- The Company's Greg Norman Division produces a collection of apparel marketed under the GREG NORMAN (R) name and logo. The GREG NORMAN Collection has grown from a golf apparel line to a broader line of men's casual sportswear. The GREG NORMAN product line has been expanded to include a wide range of apparel products -- from leather jackets and sweaters to activewear -- at a variety of price-points. The Greg Norman Division intends to grow the GREG NORMAN brand further by offering a variety of lifestyle products and expanding into international markets. It is anticipated that the Division will accomplish such expansion through various licensing and distribution arrangements. In 1996 the Division signed licensing agreements for branded leather 8 10 products and hosiery. A number of new agreements which will broaden the scope of products offered and expand distribution internationally are expected. The GREG NORMAN brand is marketed through its endorsement by pro golfer Greg Norman, and a marketing and advertising campaign designed to emphasize his aggressive, bold, charismatic and "winning" style. The current tag line for the brand and marketing focus is the theme "Attack Life". GREG NORMAN products are distributed principally at on-course pro-shops, golf specialty stores and certain department and men's specialty stores and are sold by a combination of independent and employee sales representatives. The GREG NORMAN Collection is also sold in independently owned GREG NORMAN-dedicated retail shops, as well as GREG NORMAN (SM) concept or company stores. See discussion under "Retail Stores" below. RETAIL STORES AND OTHER PROPERTIES. - ----------------------------------- The Company operates approximately 130 factory direct stores that include REEBOK (R), ROCKPORT (SM) and GREG NORMAN (SM) stores which sell a variety of footwear, apparel and accessories marketed under the Company's various brands. The Company intends to continue to open additional factory direct stores, although its policy is to locate and operate these retail outlets in such a way as to minimize disruption to its normal channels of distribution. The Company also has REEBOK (R) "concept" or company retail stores located in New York City and King of Prussia, Pennsylvania. The Company envisions its concept stores as a model for innovative retailing of its products and as a potential proving ground for testing new products and marketing/merchandising techniques. The stores sell a wide selection of current, in-line REEBOK (R), footwear and apparel. Internationally, there are a number of REEBOK retail stores owned by the Company, its subsidiaries or its independent distributors. The Company continues to open retail stores either directly or through its distributors in numerous international markets. REEBOK retail shops are expected to be an important means of launching the brand in new markets such as China, India and Russia and in other international markets. Rockport has concept or company retail stores in Boston, Massachusetts, Newport, Rhode Island, King of Prussia, Pennsylvania and New York City. In addition, there are two GREG NORMAN concept or company retail stores in New York City. Rockport's Ralph Lauren footwear subsidiary operates "concept" footwear departments in RALPH LAUREN/POLO stores in New York City, Beverly Hills, California, Honolulu, Hawaii, and Oakbrook, Illinois. In addition, the Ralph Lauren footwear subsidiary has footwear retail operations in approximately 18 RALPH LAUREN/POLO factory direct stores. Reebok is also a partner in the REEBOK Sports Club/NY, a premier sports and fitness complex in New York City featuring a wide array of fitness equipment, facilities and services in a luxurious atmosphere. The club utilizes approximately 125,000 square feet and occupies 5 floors of the Lincoln Square project. A REEBOK concept store, as well as ROCKPORT and GREG NORMAN concept stores, is also located in the building. 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 in the United States. Each of the Company's operating units generally contracts with its manufacturers on a purchase order basis, subject in most cases to the terms of a formal manufacturing agreement between the Company and such manufacturers. All contract manufacturing is performed in accordance with detailed specifications furnished by the operating unit, subject to strict quality control standards, with a right to reject products that do not meet specifications. To date, the Company has not encountered any significant problem with product rejection or customer returns. The Company generally considers its relationships with its contract manufacturers to be good. The Company has adopted certain human rights standards which apply to manufacturers of its products and monitors compliance with such standards through its human rights program. In conjunction with this program and as part of its commitment to human rights, in November 1996 the Company announced that all of its soccer balls would be labeled with a guarantee that the balls are made without child labor. Reebok is instituting a vigorous monitoring program to ensure compliance with this guarantee. China, Indonesia, the Philippines and Thailand were the Company's primary sources for footwear, accounting for approximately 34%, 30%, 13%, and 12%, respectively, of the Company's total footwear production during 1996 (based on the number of units produced). The Company's largest manufacturer, which has several factory locations, accounted for approximately 11% of the Company's total footwear production in 1996. 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 inspect certain components and materials purchased by unrelated manufacturers for use in footwear production. The network of affiliates also facilitates the shipment of footwear from the shipping point to point of destination, as well as arranging for the issuance to the unrelated footwear manufacturers of letters of credit, which are the primary means used to pay manufacturers for finished products. The Company's apparel group utilizes the services of independent third parties, as well as the Company's Hong Kong subsidiary and its network of affiliates in the Far East, to assist in the placement, inspection and shipment of apparel and accessories orders internationally. Production of apparel in the United States is through independent contractors which are retained and managed by the Company's apparel group. ROCKPORT (R) products are produced by independent contractors which are retained and managed through country managers employed by Rockport. The remainder of the Company's order placement, quality control and inspection work abroad is handled by a combination of employees and independent contractors in the various countries in which its products are made. SOURCES OF SUPPLY - ----------------- The principal materials used in the Company's footwear products are leather, nylon, rubber, ethylvinyl acetate and polyurethane. Most of these materials can be obtained from a number of sources, although a loss of supply could temporarily disrupt production. Some of the components used in the Company's technologies are obtained from only one or two sources, and thus a loss of 10 12 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, the Philippines or Thailand, or significantly increase the cost to the Company of such products, the Company's operations could be seriously disrupted until alternative suppliers were found, with a significant negative financial impact. 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 1997. However, the Company does not currently anticipate that restrictions on imports from China will be imposed by the U.S. during 1997. If adverse action is taken with respect to imports from China, it could have an adverse effect on some or all of the Company's product lines, which could result in a negative financial impact. The Company has put in place contingency plans which should allow it to diversify some of its sourcing to countries other than China if any such adverse action occurred. In addition, the Company does not believe that it would be more adversely impacted by any such adverse action than its major competitors. The actual effect of any such action will, however, depend on a number of factors, including how reliant the Company, as compared to its competitors, is on production in China and the effectiveness of the contingency plans put in place. The European Union ("EU") imposed import quotas on certain footwear from China in 1994. The effect of such quota scheme on Reebok has not been significant because the quota scheme provides an exemption for certain higher-priced special technology athletic footwear, which exemption is available for most REEBOK products. The EU has imposed antidumping duties against textile upper footwear from China and Indonesia, and has calculated, but suspended, antidumping duties on leather upper footwear from China, Thailand and Indonesia. It is expected that the duties on leather upper footwear will remain suspended through 1997. A broad exemption has been included in both antidumping cases (textile and leather footwear) for athletic footwear covering most REEBOK models. If the athletic footwear exemption remains in its current form, few of the Company's product lines would be affected adversely, and in any case, the Company does not believe that its products will be more severely restricted than those of its major competitors. 11 13 However, recently the EU has initiated at the internal staff level an effort to significantly narrow the athletic footwear exemption which applies to both the quota scheme and antidumping duties. The Company, through relevant trade associations, is working to prevent imposition of the more limited athletic footwear criteria. Should the proposed revisions be adopted, certain of the Company product lines would be affected adversely, although the Company does not believe that its products would be more severely affected than those of its major competitors. Various other countries have taken steps to restrict footwear imports or impose additional customs duties, which actions affect the Company as well as other footwear importers. The Company, in conjunction with other footwear importers, is aggressively challenging such restrictions. Such restrictions have in some cases had a significant adverse effect on the Company's sales in some of such countries, most notably Argentina, although they have not had a material adverse effect on the Company as a whole. PRINCIPAL PRODUCTS - ------------------ Sales of the following categories of products contributed more than 10% to the Company's total consolidated revenue in the years indicated: 1996, footwear (approximately 75%) and apparel (approximately 24%); 1995, footwear (approximately 81%) and apparel (approximately 18%); 1994, footwear (approximately 88%) and apparel (approximately 12%). TRADEMARKS AND OTHER PROPRIETARY RIGHTS - --------------------------------------- The Company believes that its trademarks, especially the REEBOK and ROCKPORT trademarks, are of great value, and the Company is vigilant in protecting them from counterfeiting or infringement. Loss of the REEBOK or ROCKPORT 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, the Company entered into a new credit agreement underwritten by Credit Suisse and a syndicate of major banks. The facility includes a committed $750 million revolving credit line to replace the Company's previous $300 million revolving credit facility. The balance of the facility is a $640 million six year term loan which was used to finance the share repurchase. In February 1997, the Company prepaid $50 million of the $640 million term loan. The Company also has various arrangements with numerous banks which provide an aggregate of approximately $938.2 million of uncommitted facilities, substantially all of which are available to the Company's foreign subsidiaries. Of this amount, approximately $395 million is available for short-term borrowings and bank overdrafts, with the remainder available for letters of credit for inventory purchases. At December 31, 1996, approximately $252 million was outstanding for open letters of credit for inventory purchases, in addition to approximately $33 million in notes payable to banks. 12 14 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, 1996, the Company had no commercial paper obligations outstanding. SEASONALITY - ----------- Sales by the Company of athletic and casual footwear tend to be seasonal in nature, with the strongest sales occurring in the third quarter. Apparel sales also generally vary during the course of the year, with the greatest demand occurring during the spring and fall seasons. SINGLE CUSTOMER - --------------- There was no single customer of the Company that accounted for 10% or more of the Company's net sales in 1996. BACKLOG - ------- The Company's backlog of orders at December 31, 1996 (many of which are cancelable by the purchaser), totalled approximately $1.198 billion, compared to $1.068 billion as of December 31, 1995. The Company expects that substantially all of these orders will be shipped in 1997, although, as noted above, many of these orders are cancelable. The backlog position is not necessarily indicative of future sales because the ratio of future orders to "at once" shipments and sales by Company owned retail stores may vary from year to year. COMPETITION AND COMPETITORS - --------------------------- Competition in sports and fitness footwear and apparel sales is intense. Competitors include a number of sports and fitness footwear and apparel companies, such as Nike, Adidas, Fila and others. Competition is very strong in each of the sports and fitness footwear and apparel market segments, with new entrants and established companies providing challenges in every category. The casual footwear market into which the ROCKPORT (R) product lines fall is also highly competitive. Some competitors are highly specialized, while others have varied product lines and some maintain their own retail outlets. The Company believes that Rockport has a strong position in the walking shoe market. Competition in this area, however, has intensified as the activity of walking has grown in popularity and as athletic shoe companies have entered the market. In addition, Rockport's DRESSPORTS (R) line competes with leading makers of dress shoes. The Company's other product lines also continue to confront strong competition. The REEBOK (R) apparel line competes with well-known brands such as Nike, Fila and Adidas. The GREG NORMAN (R) line competes with Tommy Hilfiger, Ralph Lauren, Nautica and other makers of men's casual sportswear. The RALPH LAUREN footwear brand competes with such brands as Cole Haan, Ferragamo and Donna Karan. ISSUES AND UNCERTAINTIES - ------------------------ This report includes, and other documents, information or statements released or made from time to time by the Company may include, forward-looking statements. These statements involve risks and uncertainties. The Company's actual results may differ materially from those discussed in 13 15 such forward-looking statements. Prospective information is based on management's then current expectations or forecasts. Such information is subject to the risk that such expectations or forecasts, or the assumptions underlying such expectations or forecasts, become inaccurate. The following discussion identifies certain important issues and uncertainties that are among the factors that could affect the Company's actual results and could cause such results to differ materially from those contained in forward looking statements made by or on behalf of the Company. COMPETITION AND CONSUMER PREFERENCES - ------------------------------------ The footwear and apparel industry is intensely competitive and subject to rapid changes in consumer preferences, as well as technological innovations. A major technological breakthrough or marketing or promotional success by one of the Company's competitors could adversely affect the Company's competitive position. In addition, in countries where the athletic footwear market is mature (including the U.S.), sales growth may be dependent in part on the Company increasing its market share at the expense of its competitors, which may be difficult to accomplish particularly in view of the Company's recent market share decline in the U.S. footwear market. The Company also faces strong competition with respect to its other product lines, such as the ROCKPORT product line and the GREG NORMAN collection. For discussion of the Company's major competitors see "COMPETITION AND COMPETITORS" above. Competition in the markets for the Company's products occurs in a variety of ways, including price, quality, product design, brand image, marketing and promotion and ability to meet delivery commitments to retailers. The intensity of the competition faced by the various operating units of the Company and the rapid changes in the consumer preference and technology that can occur in the footwear and apparel markets constitute significant risk factors in the Company's operations. INVENTORY RISK - -------------- The footwear industry has relatively long lead times for design and production of product and thus, the Company must commit to production tooling and in some cases to production in advance of orders. If the Company fails to accurately forecast consumer demand or if there are changes in consumer preference or market demand after the Company has made such production commitments, the Company may encounter difficulty in filling customer orders or in liquidating excess inventory, which may have an adverse effect on the Company's sales margins and brand image. SALES FORECASTS - --------------- The Company's investment in advertising and marketing is based on sales forecasts and is necessarily made in advance of actual sales. The markets in which the Company does business are highly competitive, and the Company's business is affected by a variety of factors, including those described above under "Competition and Consumer Preferences", as well as brand awareness, changing consumer preferences, fashion trends, retail market conditions and economic and other factors. There can be no assurance that sales forecasts will be achieved, and to the extent sales forecasts are not achieved, these investments will represent a higher percentage of revenues, and the Company will experience higher inventory levels and associated carrying costs, all of which would adversely impact the Company's financial condition and results. 14 16 ADVERTISING AND MARKETING INVESTMENT - ------------------------------------ Because consumer demand for athletic footwear and apparel is heavily influenced by brand image, the Company's business requires substantial investments in marketing and advertising, including television and other advertising, athlete endorsements and athletic sponsorships, as well as investments in retail presence. In the event that such investments do not achieve the desired effect in terms of increased retailer acceptance and/or consumer purchase of the Company's products, there could be an adverse impact on the Company's financial results. RETAIL OPERATIONS - ----------------- At the end of 1996, the Company operated approximately 140 retail stores in the U.S. and a significant number of retail stores internationally which are operated either directly or through the Company's distributors. The Company has made a significant capital investment in opening these stores and incurs significant expenditures in operating these stores. To the extent the Company continues to expand its retail organization, the Company's performance could be adversely affected by lower than anticipated sales at its retail stores. The performance of the Company's retail organization is also subject to general retail market conditions. TIMELINESS OF PRODUCT - --------------------- Timely product deliveries are essential in the footwear and apparel business since the Company's orders are cancelable by customers if agreed delivery windows are not met. If as a result of design, production or distribution problems, the Company is late in delivering product, it could have an adverse impact on its sales and/or profitability. INTERNATIONAL SALES AND PRODUCTION - ---------------------------------- A substantial portion of the Company's products are manufactured abroad and approximately 40% of the Company's sales are made outside the U.S. The Company's footwear and apparel production and sales operations are thus subject to the usual risks of doing business abroad, such as currency fluctuations, longer payment terms, potentially adverse tax consequences, repatriation of earnings, import duties, tariffs, quotas and other threats to free trade, labor unrest, political instability and other problems linked to local production conditions and the difficulty of managing multinational operations. If such factors limited or prevented the Company from selling products in any significant international market or prevented the Company from acquiring products from its suppliers in China, Indonesia, the Philippines or Thailand, or significantly increased the cost to the Company of such products, the Company's operations could be seriously disrupted until alternative suppliers were found or alternative markets were developed, with a significant negative impact. See "TRADE POLICY" above. SOURCES OF SUPPLY - ----------------- The Company depends upon independent manufacturers to manufacture high-quality product in a timely and cost-efficient manner and relies upon the availability of sufficient production capacity at its existing manufacturers or the ability to utilize alternative sources of supply. In addition, if the Company were to experience significant shortages in raw materials or components used in its products, it could have a negative effect on the Company's business, including increased costs or 15 17 difficulty in delivering product. Some of the components used in the Company's technologies are obtained from only one or two sources and thus a loss of supply could disrupt production. RISK OF DEBT - ------------ In connection with the Company's Dutch auction share repurchase, the Company incurred $640 million in additional debt to finance the repurchase of shares (of which $50 million was prepaid in February 1997) and entered into a $750 million revolving credit line which replaced its prior $300 million revolving credit facility. As a result of these new credit arrangements, the Company currently faces significantly increased interest expense and debt amortization, as compared to the past. The credit arrangements contain certain covenants (including restrictions on asset acquisitions, capital expenditures and future indebtedness and the requirement to maintain a minimum interest coverage ratio) which are intended to limit the Company's future actions and which may also limit the Company's financial, operating and strategic flexibility. In addition, the Company's failure to make timely payments of interest and principal on its debt, or to comply with the material covenants applicable thereto, could result in significant negative consequences. The Company believes that its cash, short-term investments and access to new credit facilities, together with its anticipated cash flow from operations, are adequate for its needs in the foreseeable future. However, the Company's actual experience may differ from the expectations set forth in the preceding sentence. Factors that might lead to a difference include, but are not limited to, the matters discussed herein as well as future events that might have the effect of reducing the Company's available cash balances (such as unexpected operating losses or capital or other expenditures) or that might reduce or eliminate the availability of external financial resources. RISK OF CURRENCY FLUCTUATIONS - ----------------------------- The Company conducts operations in various international countries and a significant portion of its sales are transacted in local currencies. As a result, the Company's revenues are subject to foreign exchange rate fluctuations. The Company enters into forward currency exchange contracts 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 to hedge significant inter-company assets and liabilities denominated in other currencies. However, no assurance can be given that fluctuation in foreign currency exchange rates will not have an adverse impact on the Company's revenues, net profits or financial condition. CUSTOMERS - --------- Although the Company has no single customer that represents 10% or more of its sales, the Company has certain significant customers, the loss of which could have an adverse effect on its business. There could also be a negative effect on the Company's business if any such significant customer became insolvent or otherwise failed to pay its debts. INTELLECTUAL PROPERTY - --------------------- The Company believes that its trademarks, technologies and designs are of great value. From time to time the Company has been, and may in the future be, the subject of litigation challenging its ownership of certain intellectual property. Loss of the REEBOK or ROCKPORT trademark rights could have a serious impact on the Company's business. Because of the 16 18 importance of such intellectual property rights, the Company's business is subject to the risk of counterfeiting, parallel trade or intellectual property infringement. The Company is, however, vigilant in protecting its intellectual property rights. LITIGATION - ---------- The Company is subject to the normal risks of litigation with respect to its business operations. ECONOMIC FACTORS - ---------------- The Company's business is subject to economic conditions in the Company's major markets, including, without limitation, recession, inflation, general weakness in retail markets and changes in consumer purchasing power and preferences. Adverse changes in such economic factors could have a negative effect on the Company's business. TAX RATE CHANGES - ---------------- If the Company was to encounter significant tax rate changes in the major markets in which it operates, it could have an adverse effect on its business. ABILITY TO IMPROVE PERFORMANCE OF REEBOK FOOTWEAR BUSINESS - ---------------------------------------------------------- The Company has recently taken steps which it believes may improve the performance of its REEBOK footwear business. There are, however, many uncertainties associated with accomplishment of such an improvement. These include the decline in recent years in the Company's share of the U.S. athletic footwear market, slower overall growth in the U.S. athletic footwear market, the emergence and growth of strong competitors, the substantial and increasing investment by such competitors in marketing and advertising, and the possibility of changing consumer preferences. Moreover, while the Company has received initial positive indications from certain retailers as to its new products, there is not yet any evidence or assurance as to consumer response to many of these new products. EMPLOYEES - --------- As of December 31, 1996, the Company had approximately 6,900 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, 1996 (the "1996 Annual Report") with the Securities and Exchange Commission. Financial information pertaining to the Company's foreign and domestic operations is incorporated herein by reference from Note 15 on page 42 of the 1996 Annual Report. 17 19 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 53 President, Chief Executive Officer and Chairman of the Board of Directors Paul R. Duncan 56 Executive Vice President and Director Robert Meers 53 Executive Vice President, President and Chief Executive Officer of the Reebok Division and Director Angel R. Martinez 41 Executive Vice President, President and Chief Executive Officer of The Rockport Company Kenneth I. Watchmaker 54 Executive Vice President and Chief Financial Officer Arthur I. Carver 46 Senior Vice President, Sourcing and Logistics Reebok Division, Roger Best 44 Senior Vice President of the Reebok Division and General Manager of Reebok North America Bruce Nevins 59 Senior Vice President of the Reebok Division and Managing Director of Reebok's International Division Barry Nagler 40 General Counsel and Vice President 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. Paul R. Duncan has been an Executive Vice President of the Company since February 1990 and a Director of the Company since March 1989. In November, 1996, Mr. Duncan transitioned to a new part-time position with the Company in which he will be responsible for special projects. He was previously President of the Specialty Business Group since October 1995. From June 1995 until October 1995, Mr. Duncan was Chief Operating Officer for the Reebok Division. Prior to June 1995 Mr. Duncan was Executive Vice President and Chief Financial Officer. Mr. Duncan joined the Company in 1985 as Senior Vice President and Chief Financial Officer. 18 20 Robert Meers has been an Executive Vice President of the Company since February 1994 and a Director of the Company since 1993. He was appointed President and Chief Executive Officer of the Reebok Division in October 1995. Prior to that, he was President of the Company's Specialty Business Group from January 1994 to October 1995. Previously, Mr. Meers was President, U.S. Operations of the Reebok Division from November 1990 to January 1993 and President, U.S. and Canadian Operations of the Reebok Division from January 1993 until January 1994. Mr. Meers joined the Company in 1984. Angel R. Martinez has been President and Chief Executive Officer of The Rockport Company since August 1994. He has been an Executive Vice President of the Company since February 1994. Prior to that, Mr. Martinez was the President of the Fitness Division of the Company from September 1992 to January 1994 and Executive Vice President of Marketing Services from January 1994 to August 1994, and prior to that he was Vice President for Business Development of the Company for several years. Mr. Martinez joined the Company in 1982. Kenneth I. Watchmaker has been an Executive Vice President of the Company since February 1994. He was appointed Chief Financial Officer of the Company in June 1995. Previously, since February 1994, he was an Executive Vice President of the Company with responsibility for finance, footwear production and management information systems. He joined the Company in July 1992 as Executive Vice President, Operations and Finance, Reebok Division. Prior to joining Reebok, Mr. Watchmaker was the partner in charge of audit services in the Boston office of Ernst & Young. Arthur I. Carver has been the Senior Vice President of Sourcing and Logistics of the Reebok Division since January 1996. Prior to that, Mr. Carver was Vice President of Operations Development Worldwide for the Reebok Division since February 1994. Previously, from June 1992 through February 1994, he was Vice President of North American Operations. Prior to that, he was Director of Sales Operations. Mr. Carver joined the Company in 1990. Roger Best has been Senior Vice President of the Reebok Division and General Manager of Reebok North America since February 1996. Prior to that, he was Regional Vice President of the Reebok Division's Northern Europe Operations and Managing Director of Reebok U.K. since April 1995. Previously, from January 1992 through April 1995, he was Managing Director of Reebok U.K. Mr. Best joined the Company in 1992. Bruce Nevins has been Senior Vice President of the Reebok Division and Managing Director of Reebok's International Division since April 1995. Prior to that, Mr. Nevins was Senior Vice President of New Markets for the Reebok Division since February 1994, when he joined the Company. Prior to joining Reebok, Mr. Nevins was President of Umbro International from July 1990 through February 1994. Barry Nagler has been Vice President of the Company since May 1995 and General Counsel since September 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 19 21 facilities in Stoughton, Massachusetts. At its corporate headquarters, the Company occupies under lease approximately 200,000 square feet of space. The Company signed a six-year lease in July 1989, with two three-year renewal options, for its principal facility at its corporate headquarters. This lease was later amended to extend the term of the lease until June 30, 2000, with a three-year renewal option thereafter. This facility and three other smaller facilities, one of which is leased and the other two of which are owned by the Company, at the Company's corporate headquarters are located approximately one mile from the Reebok Division's U.S. Operations group's principal warehouse and distribution center in Stoughton, which is owned by the Company and which contains approximately 450,000 total square feet of usable space. In order to address the need for additional space at its corporate headquarters, in August 1996 the Company signed an option agreement for the potential purchase of a 42 acre site in Canton, Massachusetts, to be developed as a corporate headquarters facility. Consummation of the purchase of the site is subject to obtaining permits and other approvals and is not expected to be complete until early next year. Construction of the corporate headquarters facility is expected to take approximately two years following consummation of the purchase. In 1994, the Company purchased a building in Avon, Massachusetts containing approximately 400,000 square feet of space which it uses as an office and warehouse. The Company also leases approximately 330,000 square feet of space in Memphis, Tennessee which it uses as a warehouse and distribution center. In 1993, Rockport purchased its corporate headquarters facility in Marlboro, Massachusetts, containing approximately 80,000 square feet of floor space. In 1995, Rockport completed construction of a distribution center of approximately 285,000 usable square feet on approximately 140 acres of land in Lancaster, Massachusetts which it purchased in 1992. The Company's wholly owned U.K. subsidiary, Reebok International Limited, entered into a fifteen-year lease for the previous corporate headquarters of the Company's International operations in Stockley Park, London, (approximately 37,000 square feet) which is guaranteed by the Company. Since the Company has moved its International operations to Stoughton, Massachusetts the property has been subleased to two parties for the term of the lease. The Company's U.K. subsidiary, Reebok International Limited, moved to a new corporate headquarters building in Denham Lock, England in March 1996, for which it entered into a 7 year lease. The new 14,000 square foot corporate headquarters building, also houses a showroom for use by the Reebok sales force in Southern England. The Company's wholly owned Canadian distribution subsidiary, Reebok Canada Inc., leases an approximately 145,000 square foot office/warehouse facility in Aurora, Ontario pursuant to a lease which expires in 1998. 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. - ------ ----------------- On August 29, 1995, the Company obtained a favorable ruling on its motion for summary judgment in the lawsuit entitled Stutz Motor Car of America, Inc. v. Reebok International Ltd., (filed on July 1, 1993 in the Central District of Los Angeles County Superior Court as Case Number BC074579 and removed to the United States District Court for the Central District of 20 22 California where it was assigned Civil Action Number 93-4433LGB) and, as a result, the case was dismissed. The Plaintiff has appealed the decision. The Company believes that the Plaintiff's appeal is without merit and is confident that the District Court decision will be upheld. The Company's settlement with the National Association of Attorneys General ("NAAG") relating to the investigation by NAAG against the Company was approved by the Federal Court for the Southern District of New York on October 20, 1995. The Court's order approving the settlement was appealed to the Second Circuit Court of Appeals on January 9, 1996 by counsel purporting to represent a class of Reebok and Rockport consumers. On September 9, 1996, the Second Circuit Court upheld the decision of the District Court and approved the NAAG settlement. The Plaintiff's right to appeal the Second Circuit decision expired on January 13, 1997. Item 4. Submission of Matters to a Vote of Security Holders. - ------ --------------------------------------------------- Not applicable. PART II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. - ------ --------------------------------------------------------------------- The Company is filing herewith selected portions of its 1996 Annual Report with the Securities and Exchange Commission. The information required by this Item is incorporated herein by reference from page 46 of the 1996 Annual Report. Item 6. Selected Financial Data. - ------ ----------------------- The Company is filing herewith selected portions of its 1996 Annual Report with the Securities and Exchange Commission. The information required by this Item is incorporated herein by reference from page 25 of the 1996 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 1996 Annual Report with the Securities and Exchange Commission. The information required by this Item is incorporated herein by reference from pages 26 through 30 of the 1996 Annual Report. Item 8. Financial Statements and Supplementary Data. - ------ ------------------------------------------- The Company is filing herewith selected portions of its 1996 Annual Report with the Securities and Exchange Commission. The consolidated financial statements required by this Item, together with the report of the Company's independent auditors for 1996, are contained therein and are incorporated herein by reference from pages 31 through 43 of the 1996 Annual Report. The supplementary financial information required by this Item is contained in the 1996 Annual Report on page 44 and such information is incorporated by reference herein. The financial statements, supplementary data, and Report of Independent Auditors for 1995 and 1994 are listed under Part IV, Item 14 in this report. 21 23 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 1, 1997, which will be filed with the Securities Exchange Commission on or before March 26, 1997 (the "1997 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 1997 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 1997 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 1997 Proxy Statement under the heading "Transactions with Management and Affiliates". PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. - ------- --------------------------------------------------------------- (a)(1) and (2) List of Financial Statements and Financial Statement Schedules. 1. Financial Statements -------------------- The following consolidated financial statements appearing in the Company's 1996 Annual Report are incorporated by reference in Item 8 of this Form 10-K: 1996 ANNUAL REPORT PAGE ----------------------- Consolidated Balance Sheets at 22 24 December 31, 1996 and 1995 31 For each of the three years ended December 31, 1996, 1995 and 1994: Consolidated Statements of Income 32 Consolidated Statements of Stockholders' Equity 33 Consolidated Statements of Cash Flows 34 Notes to Consolidated Financial Statements 35-42 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) 2. Exhibits -------- Listed below are all the Exhibits filed as part of this report. Certain Exhibits are incorporated by reference from documents previously filed by the Company with the Securities and Exchange Commission pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended. Exhibit - ------- (3) Articles of incorporation and by-laws. ------------------------------------- 3.1 Restated Articles of Organization of the Company, as amended (1) 3.2 By-laws, as amended (5), (6), (8) (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) 23 25 4.2 Common Stock Rights Agreement dated as of June 14, 1990 between the Company and The First National Bank of Boston, as Rights Agent, as amended (7), (9), (10) (10) Material Contracts. ------------------ 10.1 Distributorship Agreement between Reebok International Limited and the Company (2) 10.2 Trademark License Agreement between Reebok International Limited and the Company (2) 10.3 Continuing Letter of Credit Agreement, dated August 1, 1989, between the Company and State Street Bank and Trust Company; and Letter Agreement between The Rockport Company, Inc. and Norwest Bank, Master Security Agreement for Irrevocable Documentary Letters of Credit and Guarantee of the Company, all dated August 1, 1989 (6) 10.4 Lease Agreement, dated March 1, 1988, as amended, between Reebok International Ltd. and North Stoughton Industrial Park Development Trust (5), (14) 10.5 Purchase and Sale Agreement between Reebok International Ltd. and Pentland Group plc dated March 8, 1991 (8) 10.6 Agreements with various banks in Hong Kong reflecting arrangements for letter of credit facilities (8) 10.7 Credit Agreement, dated August 23, 1996, among the Company, the Lenders and Co- Agents named therein and Credit Suisse, as Administrative Agent, as amended by the First Amendment dated as of August 23, 1996. (16) Management Contracts and Compensatory Plans. ------------------------------------------- 10.8 Reebok International Ltd. 1994 Equity Incentive Plan, as amended 10.9 Reebok International Ltd. Equity and Deferred Compensation Plan for Directors (14) 10.10 Reebok International Ltd. 1985 Stock Option Plan, as amended (11) 10.11 Reebok International Ltd. 1987 Stock Option Plan for Directors, as amended (12) 10.12 Reebok International Ltd. 1987 Stock Bonus Plan (3) 10.13 Reebok International Ltd. Excess Benefits Plan (8) 10.14 Reebok International Ltd. Supplemental Executive Retirement Plan (15) 10.15 Reebok International Ltd. Executive Performance Incentive Plan (15) 10.16 Amendment to Executive Performance Incentive Plan 24 26 10.17 Stock Option Agreement with Paul B. Fireman (8) 10.18 Split-Dollar Life Insurance Agreement with Paul B. Fireman (11) 10.19 Contingent Severance Agreement with Paul R. Duncan (6) 10.20 Employment Agreement with Kenneth Watchmaker (12) 10.21 Change of Control Agreement with Kenneth Watchmaker (12) 10.22 Supplemental Retirement Program for Kenneth Watchmaker (12) 10.23 Contingent Severance Agreement with Angel Martinez (13) 10.24 Lease with Angel Martinez (13) 10.25 Amendment dated October 30, 1995 to Lease with Angel Martinez (15) 10.26 Amendment dated January 1997 to Lease with Angel Martinez 10.27 Employment Agreement with Roger Best 10.28 Change of Control Agreement with Robert Meers (11) Statement Re Computation of Per Share Earnings. ---------------------------------------------- (12) Statement Re Computation of Ratio of Earnings to Fixed Charges. -------------------------------------------------------------- (13) Annual Report to Security Holders. --------------------------------- 13.1 Selected Portions of Registrant's 1996 Annual Report to Shareholders (21) Subsidiaries. ------------ 21.1 List of Subsidiaries of the Company (23) Consents of experts and counsel. ------------------------------- 23.1 The consent of Ernst & Young LLP (b) Reports on Form 8-K. ------------------- None. (c) Exhibits. -------- The response to this portion of Item 14 is submitted as a separate section of this report. 25 27 (d) Financial Statement Schedules. ----------------------------- The response to this portion of Item 14 is submitted as a separate section of this report. (27) Financial Data Schedule. ----------------------- - --------------- (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 February 15, 1994 and incorporated by reference herein. (14) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated March 30, 1995 and incorporated by reference herein. (15) Filed as an Exhibit to Reebok International Ltd. Form 10-K dated March 29, 1996 and incorporated by reference herein. (16) Filed as an Exhibit to Reebok International Ltd. Form 10-Q for the quarter ended September 30, 1996 and incorporated herein by reference. 26 28 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REEBOK INTERNATIONAL LTD. BY: /s/ KENNETH I. WATCHMAKER --------------------------------------- Kenneth I. Watchmaker Executive Vice President and Chief Financial Officer Dated: March 27, 1997 29 Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /s/ PAUL B. FIREMAN - ----------------------------------- Paul B. Fireman Director, Chairman of the Board and President (Chief Executive Officer) /s/ KENNETH I. WATCHMAKER - ----------------------------------- Kenneth I. Watchmaker Executive Vice President and Chief Financial Officer (Chief Financial and Accounting Officer) /s/ PAUL R. DUNCAN - ----------------------------------- Paul R. Duncan Executive Vice President Director /s/ ROBERT MEERS - ----------------------------------- Robert Meers Executive Vice President Director /s/ WILLIAM F. GLAVIN - ----------------------------------- William F. Glavin Director /s/ MANNIE L. JACKSON - ----------------------------------- Mannie L. Jackson Director /s/ BERTRAM M. LEE, SR. - ----------------------------------- Bertram M. Lee, Sr. Director /s/ RICHARD G. LESSER - ----------------------------------- Richard G. Lesser Director 28 30 /s/ WILLIAM M. MARCUS - ----------------------------------- William M. Marcus Director /s/ GEOFFREY NUNES - ----------------------------------- Geoffrey Nunes Director /s/ JOHN A. QUELCH - ----------------------------------- John A. Quelch Director Dated: March 27, 1997 29 31 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, 1996 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $46,401 $10,225 $13,099 $43,527 YEAR ENDED DECEMBER 31, 1995 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts 44,862 13,151 11,612 46,401 YEAR ENDED DECEMBER 31, 1994 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts 46,455 6,691 8,284 44,862 - ------------ (A) Uncollectible accounts written off, net of recoveries
F-1 32 EXHIBIT INDEX EXHIBIT LOCATION 3.1 Restated Articles of Organization Incorporated by of the Company, as amended reference 3.2 By-laws, as amended Incorporated by reference 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 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 Continuing Letter of Credit Agreement, Incorporated by dated August 1, 1989, between the reference Company and State Street Bank and Trust Company; and Letter Agreement between The Rockport Company, Inc. and Norwest Bank, Master Security Agreement for Irrevocable Documentary Letters of Credit and Guarantee of the Company, all dated August 1,1989 10.4 Lease Agreement, dated March 1, 1988, Incorporated by as amended, between Reebok reference International Ltd. and North Stoughton Industrial Park Development Trust 10.5 Purchase and Sale Agreement between Incorporated by Reebok International Ltd. and Pentland reference Group plc dated March 8, 1991 10.6 Agreements with various banks in Hong Incorporated by Kong reflecting arrangements for reference letter of credit facilities 10.7 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 10.8 Reebok International Ltd. 1994 Equity Filed herewith Incentive Plan, as amended 10.9 Reebok International Ltd. Equity and Incorporated by Deferred Compensation Plan for reference Directors 10.10 Reebok International Ltd. 1985 Stock Incorporated by Option Plan, as amended reference 33 10.11 Reebok International Ltd. 1987 Stock Incorporated by Option Plan for Directors, as amended reference 10.12 Reebok International Ltd. 1987 Stock Incorporated by Bonus Plan reference 10.13 Reebok International Ltd. Excess Incorporated by Benefits Plan reference 10.14 Reebok International Ltd. Supplemental Incorporated by Executive Retirement Plan reference 10.15 Reebok International Ltd. Executive Incorporated by Performance Incentive Plan reference 10.16 Amendment to Executive Performance Filed herewith Plan 10.17 Stock Option Agreement with Paul Incorporated by B. Fireman reference 10.18 Split-Dollar Life Insurance Agreement Incorporated by with Paul B. Fireman reference 10.19 Contingent Severance Agreement with Incorporated by Paul R. Duncan reference 10.20 Employment Agreement with Kenneth Incorporated by Watchmaker reference 10.21 Change of Control Agreement with Incorporated by Kenneth Watchmaker reference 10.22 Supplemental Retirement Program for Incorporated by Kenneth Watchmaker reference 10.23 Contingent Severance Agreement with Incorporated by Angel Martinez reference 10.24 Lease with Angel Martinez Incorporated by reference 10.25 Amendment dated October 30, 1995 Incorporated by to Lease with Angel Martinez reference 10.26 Amendment dated January 1996 Filed herewith to Lease with Angel Martinez 10.27 Employment Agreement with Roger Best Filed herewith 10.28 Change of Control Agreement with Robert Filed herewith Meers 11. Statement Re Computation of Per Filed herewith Share Earnings 12. Statement Re Computation of Ratio Filed herewith of Earnings to Fixed Charges 13.1 Selected Portions of Registrant's Filed herewith 1996 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-10.8 2 1994 EQUITY INCENTIVE PLAN 1 EXHIBIT 10.8 REEBOK INTERNATIONAL LTD. 1994 EQUITY INCENTIVE PLAN 1. PURPOSE The purpose of this 1994 Equity Incentive Plan (the "Plan") is to advance the interests of Reebok International Ltd. (the "Company") and its subsidiaries by enhancing the ability of the Company to (i) attract and retain employees and other persons or entities who are in a position to make significant contributions to the success of the Company and its subsidiaries; (ii) reward such persons for such contributions; and (iii) encourage such persons to take into account the long-term interest of the Company through ownership of shares ("Shares") of the Company's common stock ("Stock"). The Plan is intended to accomplish these goals by enabling the Company to grant awards ("Awards") in the form of Options, Stock Appreciation Rights, Restricted Stock or Deferred Stock, all as more fully described below. 2. ADMINISTRATION The Plan will be administered by the Compensation and Nominating Committee (the "Committee") of the Board of Directors of the Company (the "Board") which will be constituted to permit the Plan to comply with Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor rule and to comply with the requirements for a compensation committee composed of outside directors under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Committee will determine the recipients of Awards, the times at which Awards will be made and the size and type or types of Awards to be made to each recipient and will set forth in such Awards the terms, conditions and limitations applicable to it. Awards may be made singly, in combination or in tandem. The Committee will have full and exclusive power to interpret the Plan, to adopt rules, regulations and guidelines relating to the Plan, to grant waivers of Plan restrictions and to make all of the determinations necessary for its administration. Such determinations and actions of the Committee, and all other determinations and actions of the Committee made or taken under authority granted by any provision of the Plan, will be conclusive and binding on all parties. Nothing in this paragraph shall be construed as limiting the power of the Committee or the Board to make adjustments under Section 12 or to amend or terminate the Plan under Section 17. 3. EFFECTIVE DATE AND TERM OF PLAN The Plan will become effective on the date on which it is approved by the stockholders of the Company. Grants of Awards under the Plan may be made prior to that date, subject to such approval of the Plan. 2 The Plan will terminate ten years after the effective date of the Plan, subject to earlier termination of the Plan by the Board pursuant to Section 17. No Award may be granted under the Plan after the termination date of the Plan, but Awards previously granted may extend beyond that date. 4. SHARES SUBJECT TO THE PLAN Subject to adjustment as provided in Section 12 below, (i) the maximum aggregate number of Shares of Stock that may be delivered for all purposes under the Plan shall be 7,000,000 and (ii) the maximum number of Shares of Stock awarded to any Participant (as defined in Section 5 below) in any calendar year under the Plan shall be (x) 250,000 Shares of Stock in the case of all Participants other than the Chief Executive Officer and/or President of the Company and (y) 500,000 Shares of Stock in the case of the Chief Executive Officer and/or President of the Company. The maximum aggregate number of Shares of Stock which may be issued under the Plan pursuant to the exercise of ISOs (as defined in Section 7 below) shall be 1,000,000. The maximum amount of compensation (other than Stock) that may be awarded to any Participant in any calendar year under the Plan shall be $2,000,000. If any Award requiring exercise by the Participant for delivery of Stock is canceled or terminates without having been exercised in full, or if any Award payable in Stock or cash is satisfied in cash rather than Stock, the number of Shares of Stock as to which such Award was not exercised or for which cash was substituted will be available for future grants of Stock except that Stock subject to an Option canceled upon the exercise of an SAR shall not again be available for Awards under the Plan unless, and to the extent that, the SAR is settled in cash. Likewise, if any Award payable in Stock or cash is satisfied in Stock rather than cash, the amount of cash for which such Stock was substituted will be available for future Awards of cash compensation. Shares of Stock tendered by a Participant or withheld by the Company to pay the exercise price of an Option or to satisfy the tax withholding obligations of the exercise or vesting of an Award shall be available again for Awards under the Plan, but only to Participants who are not subject to Section 16 of the Exchange Act. Shares of Restricted Stock forfeited to the Company in accordance with the Plan and the terms of the particular Award shall be available again for Awards under the Plan unless the Participant has received the benefits of ownership (within the applicable interpretation under Rule 16b-3 under the Exchange Act), in which case such Shares may only be available for Awards to Participants who are not subject to Section 16 of the Exchange Act. Stock delivered under the Plan may be either authorized but unissued Stock or previously issued Stock acquired by the Company and held in treasury. No fractional Shares of Stock will be delivered under the Plan and the Committee shall determine the manner in which fractional share value will be treated. 2 3 5. ELIGIBILITY AND PARTICIPATION Those eligible to receive Awards under the Plan ("Participants") will be persons in the employ of the Company or any of its subsidiaries ("Employees") and other persons or entities who, in the opinion of the Committee, are in a position to make a significant contribution to the success of the Company or its subsidiaries, except that non-Employee directors of the Company or a subsidiary of the Company are not eligible to participate in this Plan. A "subsidiary" for purposes of the Plan will be a corporation in which the Company owns, directly or indirectly, stock possessing 50% or more of the total combined voting power of all classes of stock. 6. DELEGATION OF AUTHORITY The Committee may delegate to senior officers of the Company who are also directors of the Company (including, without limitation, the Chief Executive Officer and/or President) its duties under the Plan subject to such conditions and limitations as the Committee may prescribe, except that only the Committee may designate and make grants to Participants (i) who are subject to Section 16 of the Exchange Act or any successor statute, including, without limitation, decisions on timing, amount and pricing of Awards, or (ii) whose compensation is covered by Section 162(m) of the Code. 7. OPTIONS (a) Nature of Options. An Option is an Award entitling the Participant to purchase a specified number of Shares at a specified exercise price. Both "incentive stock options," as defined in Section 422 of the Code (referred to herein as an "ISO") and non-incentive stock options may be granted under the Plan. ISOs may be awarded only to Employees. (b) Exercise Price. The exercise price of each Option shall be determined by the Committee, but in the case of an ISO shall not be less than 100% (110% in the case of an ISO granted to a ten-percent shareholder) of the Fair Market Value of a Share at the time the ISO is granted; nor shall the exercise price of any other Option be less than 100% of the Fair Market Value of a Share at the time the Option is granted except that (i) Options may be granted to Participants who are not executive officers of the Company at less than Fair Market Value, (ii) in connection with an amendment of an Option which, in the opinion of the Committee, is or may be treated for tax or Section 16 purposes as a new grant of the Option, the exercise price of such amended Option may be equal to the exercise price of the original Option even if such exercise price is less than Fair Market Value, and (iii) in connection with an acquisition, consolidation, merger or other extraordinary transaction, Options may be granted at less than Fair Market Value in order to replace existing Options at comparable value; provided, that, in no case shall the exercise price of an Option be less, in the case of an original issue of authorized Stock, than the par value of a Share. For purposes of this Plan, "Fair Market Value" shall mean, except as provided 3 4 below, the closing price of a Share as reported on the New York Stock Exchange on the date of the grant (based on The Wall Street Journal report of composite transactions) or, if the New York Stock Exchange is closed on the date of grant, the next preceding date on which it is open or, if the Shares are no longer listed on such Exchange, such term shall have the same meaning as it does in the case of ISOs. In the case of ISOs, the term "Fair Market Value" shall have the same meaning as it does in the provisions of the Code and the regulations thereunder applicable to ISOs. For purposes of this Plan, "ten-percent shareholder" shall mean any Employee who at the time of grant owns directly, or is deemed to own by reason of the attribution rules set forth in Section 424(d) of the Code, Stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any of its subsidiaries. (c) Duration of Options. In no case shall an Option be exercisable more than ten years (five years, in the case of an ISO granted to a "ten-percent shareholder" as defined in (b) above) from the date the Option was granted. (d) Exercise of Options and Conditions. Options granted under any single Award will become exercisable at such time or times, and on and subject to such conditions, as the Committee may specify. The Committee may at any time and from time to time accelerate the time at which all or any part of the Option may be exercised. (e) Payment for and Delivery of Stock. Full payment for Shares purchased will be made at the time of the exercise of the Option, in whole or in part. Payment of the purchase price will be made in cash or in such other form as the Committee may approve, including, without limitation, delivery of Shares of Stock. 8. STOCK APPRECIATION RIGHTS (a) Nature of Stock Appreciation Rights. A Stock Appreciation Right (an "SAR") is an Award entitling the recipient to receive payment, in cash and/or Stock, determined in whole or in part by reference to appreciation in the value of a Share. In general, an SAR entitles the recipient to receive, with respect to each Share as to which the SAR is exercised, the excess of the Fair Market Value of a Share on the date of exercise over the Fair Market Value of a Share on the date the SAR was granted. However, the Committee may provide at the time of grant that the amount the recipient is entitled to receive will be adjusted upward or downward under rules established by the Committee to take into account the performance of the Shares in comparison with the performance of other stocks or an index or indices of other stocks. (b) Grant of SARs. SARs may be granted in tandem with, or independently of, Options granted under the Plan. An SAR granted in tandem with an Option which is not an ISO may be granted either at or after the time the Option is granted. An 4 5 SAR granted in tandem with an ISO may be granted only at the time the Option is granted. (c) Exercise of SARs. An SAR not granted in tandem with an Option will become exercisable at such time or times, and on such conditions, as the Committee may specify. An SAR granted in tandem with an Option will be exercisable only at such times, and to the extent, that the related Option is exercisable. An SAR granted in tandem with an ISO may be exercised only when the market price of the Shares subject to the Option exceeds the exercise price of such Option. The Committee may at any time and from time to time accelerate the time at which all or part of the SAR may be exercised. 9. RESTRICTED STOCK. A Restricted Stock Award entitles the recipient to acquire Shares, subject to certain restrictions or conditions, for no cash consideration, if permitted by applicable law, or for such other consideration as determined by the Committee. The Award may be subject to such restrictions, conditions and forfeiture provisions as the Committee may determine, including, but not limited to, restrictions on transfer; continuous service with the Company; achievement of business objectives; and individual, unit and Company performance. Subject to such restrictions, conditions and forfeiture provisions as may be established by the Committee, any Participant receiving an Award will have all the rights of a stockholder of the Company with respect to Shares of Restricted Stock, including the right to vote the Shares and the right to receive any dividends thereon. 10. DEFERRED STOCK A Deferred Stock Award entitles the recipient to receive Shares to be delivered in the future. Delivery of the Shares will take place at such time or times, and on such conditions, as the Committee may specify. The Committee may at any time accelerate the time at which delivery of all or any part of the Shares will take place. At the time any Deferred Stock Award is granted, the Committee may provide that the Participant will receive an instrument evidencing the Participant's right to future delivery of Deferred Stock. 11. TRANSFERS No Award (other than an Award in the form of an outright transfer of cash or Stock) may be assigned, pledged or transferred other than by will or by the laws of descent and distribution and during a Participant's lifetime will be exercisable only by the Participant or, in the event of a Participant's incapacity, his or her guardian or legal representative. 12. ADJUSTMENTS (a) In the event of a stock dividend, stock split or combination of Shares, recapitalization or other change in the 5 6 Company's capitalization, or other distribution to common stockholders other than normal cash dividends, after the effective date of the Plan, the Committee will make any appropriate adjustments to the maximum number of Shares that may be delivered under the Plan and to any Participant under Section 4 above. (b) In any event referred to in paragraph (a), the Committee will also make any appropriate adjustments to the number and kind of Shares of Stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provision of Awards affected by such change. The Committee may also make such adjustments to take into account material changes in law or in accounting practices or principles, mergers, consolidations, acquisitions, dispositions or similar corporate transactions, or any other event, if it is determined by the Committee that adjustments are appropriate to avoid distortion in the operation of the Plan. 13. RIGHTS AS A STOCKHOLDER Except as specifically provided by the Plan, the receipt of an Award will not give a Participant rights as a stockholder; the Participant will obtain such rights, subject to any limitations imposed by the Plan or the instrument evidencing the Award, upon actual receipt of Shares. However, the Committee may, on such conditions as it deems appropriate, provide that a Participant will receive a benefit in lieu of cash dividends that would have been payable on any or all Shares subject to the Participant's Award had such Shares been outstanding. 14. CONDITIONS ON DELIVERY OF STOCK The Company will not be obligated to deliver any Shares pursuant to the Plan or to remove any restrictions or legends from Shares previously delivered under the Plan until, (a) in the opinion of the Company's counsel, all applicable federal and state laws and regulations have been complied with, (b) if the outstanding Shares are at the time listed on any stock exchange, until the Shares to be delivered have been listed or authorized to be listed on such exchange upon official notice of notice of issuance, and (c) until all other legal matters in connection with the issuance and delivery of such Shares have been approved by the Company's counsel. If the sale of Shares has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Award, such representations and agreements as counsel for the Company may consider appropriate to avoid violation of such Act and may require that the certificates evidencing such Shares bear an appropriate legend restricting transfer. If an Award is exercised by the Participant's legal representative, the Company will be under no obligation to deliver Shares pursuant to such exercise until the Company is satisfied as to the authority of such representative. 6 7 15. TAX WITHHOLDING The Company will have the right to deduct from any cash payment under the Plan taxes that are required to be withheld and further to condition the obligation to deliver or vest Shares under this Plan upon the Participant's paying the Company such amount as it may request to satisfy any liability for applicable withholding taxes. The Committee may in its discretion permit Participants to satisfy all or part of their withholding liability by delivery of Shares with a Fair Market Value equal to such liability or by having the Company withhold from Stock delivered upon exercise of an Award, Shares whose Fair Market Value is equal to such liability. 16. MERGERS; ETC. In the event of any merger or consolidation involving the Company, any sale of substantially all of the Company's assets or any other transaction or series of related transactions as a result of which a single person or several persons acting in concert own a majority of the Company's then outstanding Stock (such merger, consolidation, sale or other transaction being hereinafter referred to as a "Transaction"), all outstanding Options and SARs shall become immediately exercisable and each outstanding share of Restricted Stock and each outstanding Deferred Stock Award shall immediately become free of all restrictions and conditions. Upon consummation of the Transaction, all outstanding Options and SARs shall terminate and cease to be exercisable. There shall be excluded from the foregoing any Transaction as a result of which (a) the holders of Stock prior to the Transaction retain or acquire securities constituting a majority of the outstanding voting common stock of the acquiring or surviving corporation or other entity and (b) no single person owns more than half of the outstanding voting common stock of the acquiring or surviving corporation or other entity. For purposes of this Section, voting common stock of the acquiring or surviving corporation or other entity that is issuable upon conversion of convertible securities or upon exercise of warrants or options shall be considered outstanding, and all securities that vote in the election of directors (other than solely as the result of a default in the making of any dividend or other payment) shall be deemed to constitute that number of shares of voting common stock which is equivalent to the number of such votes that may be cast by the holders of such securities. In lieu of the foregoing, if there is an acquiring or surviving corporation or entity, the Committee may, by vote of a majority of the members of the Committee who are Continuing Directors (as defined below), arrange to have such acquiring or surviving corporation or entity or an Affiliate (as defined below) thereof grant to Participants holding outstanding Awards replacement Awards which, in the case of ISOs, satisfy, in the determination of the Committee, the requirements of Section 425(e) of the Code. 7 8 The term "Continuing Director" shall mean any director of the Company who (i) is not an Acquiring Person or an Affiliate of an Acquiring Person and (ii) either was (A) a member of the Board of Directors of the Company on the date hereof or (B) nominated for his or her initial term of office by a majority of the Continuing Directors in office at the time of such nomination. The term "Acquiring Person" shall mean, with respect to any Transaction, each Person who is a party to or a participant in such Transaction or who, as a result of such Transaction, would (together with other Persons acting in concert) own a majority of the Company's outstanding Common Stock; provided, however, that none of the Company, any wholly-owned subsidiary of the Company, any employee benefit plan of the Company or any trustee in respect thereof acting in such capacity shall, for purposes of this Section, be deemed an "Acquiring Person". The term "Affiliate", with respect to any Person, shall mean any other Person who is, or would be deemed to be, an "affiliate" or an "associate" of such Person within the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. The term "Person" shall mean a corporation, association, partnership, joint venture, trust, organization, business, individual or government or any governmental agency or political subdivision thereof. 17. AMENDMENTS AND TERMINATION The Committee will have the authority to make such amendments to any terms and conditions applicable to outstanding Awards as are consistent with this Plan provided that, except for adjustments under Section 12 hereof, no such action will modify such Award in a manner adverse to the Participant without the Participant's consent except as such modification is provided for or contemplated in the terms of the Award. The Board may amend, suspend or terminate the Plan except that no such action may be taken, without shareholder approval, which would effectuate any change for which shareholder approval is required pursuant to Section 16 of the Exchange Act. 18. PRIOR PLANS This Plan is intended to replace the Reebok International Ltd. 1985 Stock Option Plan, the Reebok International Ltd. 1986 Stock Option Plan for Selected Individuals and the Reebok International 1987 Stock Bonus Plan (collectively the "Prior Plans"), which Prior Plans shall automatically be terminated and replaced and superseded by this Plan on the date on which this Plan becomes effective. 19. MISCELLANEOUS This Plan shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. 8 EX-10.16 3 AMENDMENT TO REEBOK EXECUTIVE PERFORMANCE 1 EXHIBIT 10.16 Amendment to Reebok Executive Performance Incentive Plan -------------------------------------------------------- Pursuant to Section 9 of the Reebok Executive Performance Incentive Plan (the "Plan"), the Compensation Committee adopts the following amendment to the Plan (capitalized terms used herein without definition shall have the respective meanings set forth in the Plan): 1. Section 4 of the Plan shall be amended by deleting paragraphs (a) and (d) of such Section in their entirety and substituting the following: (a) Within 90 days after the beginning of each fiscal year of the Company (a "year") or the beginning of such other performance period as may be determined by the Committee, the Committee will select Participants for the year or other performance period, as applicable, and establish in writing (i) objective Performance Goal or Goals for each Participant for that year or other performance period, as applicable, based on one or more of the Performance Criteria, (ii) the specific Award amounts that will be paid to each Participant if the Performance Goal or Goals are achieved (the "Target Award") and (iii) the method by which such amounts will be calculated. At the Committee's option, the Committee may determine that all or any part of any Award may be paid in shares of Common Stock of the Company having an equivalent value to the amount of the Award to be paid in stock, which shares shall be subject to such restrictions as the Committee may determine. If the Committee determines that any part of the Award shall be paid in stock, it shall also determine the basis on which the Award will be converted into stock. Notwithstanding the foregoing, in all cases the Committee shall make the determinations required by this paragraph before 25% of the applicable performance period has passed and at such time as the determination of the actual amount of the Award to be paid to any Participant is substantially uncertain. (b) As soon as practicable following each year or other performance period, as applicable, while the Plan is in effect, the Committee shall determine and certify, for each Participant, the extent to which the Performance Goal or Goals have been met and the amount of the Award, if any, to be made. Awards will be paid to the Participants in cash and/or stock, as applicable, following such certification by the Committee and no later than ninety (90) days following the close of the year or other performance period, as applicable, with respect to which the Awards are made. 2 2. Section 5 of the Plan shall be amended by deleting the first sentence thereof and substituting the following: "A Participant shall have no right to an Award under the Plan for any performance period in which the Participant is not actively employed by the Company or its Subsidiaries at the end of such performance period." 3. Except as expressly set forth herein, the terms and conditions of the Plan shall remain unchanged and continue in full force and effect. EX-10.26 4 EMPLOYMENT AGREEMENT WITH ANGEL MARTINEZ 1 EXHIBIT 10.26 January, 1997 Angel Martinez President The Rockport Company 220 Donald Lynch Boulevard Marlboro, Massachusetts 01752 RE: SECOND AMENDMENT TO LEASE Dear Angel: Reference is hereby made to the Lease dated November 1, 1993 between you and Reebok International Ltd. ("Reebok"), together with the Addendum thereto and the First Amendment thereto dated October 30, 1995 (the "Lease"). Capitalized terms used herein without definition shall have the respective meanings set forth in the Lease. We agree to amend such Lease as follows: 1. The term of the Lease has been extended for an additional period until the date of the closing of your purchase of the Leased Premises from Reebok (the "Closing Date"). 2. You will pay rent to Reebok for the period from November 1, 1995 through Closing Date at a rate of $5,000 per month, which rent shall be due and payable to Reebok in full on the date on which the Lease terminates. 3. You have agreed to purchase from Reebok, and Reebok has agreed to sell to you, the Leased Premises for a purchase price of $882,926. The closing of the sale of the Leased Premises to you by Reebok shall take place as soon as possible following the satisfaction or waiver of all conditions to closing (including the receipt of a Title 5 certificate). As set forth above, on such date you shall also pay to Reebok the rent due on the Lease. 2 If the foregoing reflects your agreement, please so indicate by signing this letter where indicated below. Very truly yours, REEBOK INTERNATIONAL LTD. By: /s/ KENNETH WATCHMAKER ------------------------------- Kenneth Watchmaker Executive Vice President AGREED TO AND ACCEPTED BY: By: /s/ ANGEL MARTINEZ ------------------------------- Angel Martinez EX-10.27 5 EMPLOYMENT AGREEMENT WITH ROGER BEST 1 EXHIBIT 10.27 April 17, 1996 Mr. Roger Best c/o Reebok International Ltd. 100 Technology Center Drive Stoughton, MA 02072 Dear Roger: This letter will evidence the agreement between you and Reebok International Ltd. ("Reebok" or the "Company") relating to your employment by Reebok. Our agreement is as follows: 1. YOUR POSITION; DUTIES AND RESPONSIBILITIES. During the term of this Agreement (as described below in paragraph 2), you will be employed as Senior Vice President and General Manager of Reebok North American Operations or, at the Company's option, (a) as the head of the Reebok Division, (b) as the head of the Reebok Division's International operations or (c) in such other position as the Company may determine and to which you reasonably agree. Your duties will be consistent with your position and as reasonably determined by Reebok. You agree to devote your full working time, attention and energies to the business of Reebok and to use your best efforts to promote the interests of Reebok. Notwithstanding the foregoing, you may be a director of up to two non-competing public companies, subject to the approval of Paul Fireman, which approval shall not be unreasonably withheld. 2. TERM OF AGREEMENT. You and Reebok agree that this Agreement will be for an initial period of three years beginning as of February 1, 1996, and shall renew automatically each day after February 1, 1998 for a new rolling one year period, unless written notice to the contrary is given by you or Reebok, as the case may be, in which case the term of this Agreement shall expire one year from the date of such notice (but not before January 31, 1999) or such other period as may be mutually agreed in writing. 3 BASE SALARY. Your initial base salary shall be at the annualized rate of $350,000, payable in accordance with Reebok's normal pay practices. 4. ANNUAL INCENTIVE COMPENSATION. You will be eligible for annual target incentive compensation of 50% of your base salary, with the actual amount of the award to be determined in accordance with the terms and conditions of the Company's Management Incentive Plan. For calendar year 1996, your target 2 incentive will be $175,000 and for such year only you will be guaranteed a minimum payment of $100,000. 5. EQUITY INCENTIVE. The Company has granted you options to purchase 75,000 shares of Reebok common stock under the Company's 1994 Equity Incentive Plan. Such options are exercisable in the following manner: 40% will vest two years after the date of grant and 20% will vest on each of the third, fourth and fifth anniversaries of the date of grant. 6. RETIREMENT CONTRIBUTION. You will be eligible to participate in Reebok's deferred contribution retirement plans generally available to other U.S.-based executives of your level. The Company will bear all contributions in respect of such participation. Reebok will not make any separate or additional contribution to any U.K. retirement program. 7. HEALTH BENEFITS AND LIFE INSURANCE. Until such time as your immediate family relocates to the U.S., but no later than December 31, 1998 (the "Relocation Period"), the Company will continue to provide to your spouse and children, at no cost to you, the medical and dental benefits they are currently receiving in the U.K. Reebok will also provide you, at no cost to you, with the same medical and dental benefits available to other U.S.-based executives of your level. During the Relocation Period, the Company will also provide you with life insurance in the amount of $500,000, or $1 million in the case of death on business travel. At the end of the Relocation Period, you and your immediate family will be entitled to the same medical and dental benefits and you will be entitled to the same life insurance available to other U.S.-based executives of your level. 8. OTHER FRINGE BENEFITS. You will be eligible to participate in all benefits that are provided generally by Reebok to other Reebok U.S.-based executives of your level, including a car allowance of $1,000 per month, except for those particular category of benefits that are expressly being provided to you hereunder. 9. VACATION. You will be entitled to four weeks of vacation each year. 10. RELOCATION EXPENSES AND TEMPORARY HOUSING. (a) The Company will reimburse you for the reasonable relocation expenses incurred by you in relocating you and your immediate family from the U.K. to the U.S. in accordance with Reebok's standard corporate relocation policy (a copy of which is attached hereto as EXHIBIT A) except that Reebok will fully reimburse you for any reasonable expenses incurred by you in connection with the sale of your residence in the U.K. and the acquisition of a new residence in the U.S. without a maximum limit and will pay for third party home sale assistance to purchase your U.K. residence. 3 (b) Reebok will also reimburse you for reasonable expenses incurred by you and your immediate family for temporary housing (including hotels and up to $150 per week for personal telephone calls) in connection with your relocation for a period of up to 6 months from the effective date of this Agreement. (c) If your employment is terminated by the Company other than for "cause" (as defined in Section 15 hereof) (including a termination by the Company of the term of this Agreement by its giving of a notice under Section 2 hereof), Reebok will pay the reasonable expenses incurred by you in relocating your principal residence back to the United Kingdom for the reasonable out-of-pocket costs incurred by you in selling any home purchased by you in the U.S., including third party home sale assistance to purchase such home, and the reasonable costs incurred by you in relocating you and your immediate family and your household goods back to the U.K. and reasonable tax assistance expenses incurred by you in connection with such relocation up to a maximum amount of $10,000. 11. TRAVEL ASSISTANCE. During the term of this Agreement, Reebok will reimburse you for the reasonable costs incurred by you, your wife and children in travelling between the U.S. and the U.K. as follows: during each of calendar years 1996 and 1997, reimbursement for up to 6 business class return tickets and up to 6 coach class return tickets; and during any year thereafter, up to two business class return tickets and two coach class return tickets. In addition to the reimbursement provided hereunder, you shall also be entitled to the travel assistance provided under Reebok's relocation policy. 12. TAX ASSISTANCE. During the term of the Agreement, the Company will reimburse you for reasonable tax assistance expenses incurred by you as follows: upon relocation to the U.S., up to $10,000; and on an annual basis for each year during the term, including 1996, up to $4,000. 13. LEGAL FEES. The Company will also reimburse you for all reasonable legal fees (U.S. and U.K.) incurred by you in connection with this Agreement and your relocation up to a maximum amount of $15,000. 14. CONFIDENTIALITY; NON-COMPETITION; NON-RECRUIT AND NON-HIRE. (a) You agree that during the term of this Agreement and thereafter your will maintain the confidentiality of all confidential information learned by you while at Reebok and that you will be bound by the terms of the Reebok Employee Agreement attached hereto as Exhibit B and incorporated herein by reference. (b) You further agree that during the period of your employment by Reebok and for a period of one year thereafter you will not (without the Company's written consent) accept any position with any organization which competes anywhere in the 4 world where Reebok products are sold, with the Reebok Brands Division or with other businesses of Reebok as it shall be constituted at the time of your termination, whether as officer, director, employee, agent, consultant, partner, shareholder or otherwise. You acknowledge and agree that, because the legal remedies of the Company would be inadequate in the event of your breach of, or other failure to perform, any of your obligations set forth in this Section, the Company may, in addition to obtaining any other remedy or relief available to it (including without limitation damages at law), enforce the provisions of this Section by injunction and other equitable remedies. You further acknowledge and agree that the options to be granted to you pursuant to Section 5 hereof are being granted in part to ensure your compliance with the non-compete restrictions provided herein, and you thus agree that if you violate the provisions of this clause (b), any such options held by you at such time shall automatically terminate and be cancelled, and to the extent that you have exercised any such options, you will transfer and deliver to the Company any Reebok common stock held by you which was obtained as a result of such exercise, or in the event you have sold such stock, you will pay the Company any profits made by you as a result of such exercise and sale. You agree that the provisions with respect to duration and geographic scope and product scope of the restrictions set forth in this Section are reasonable to protect the legitimate interests of the Company and the good will of the Company. The non-compete restriction provided herein shall be in addition to your obligations and the Company's rights under the Non-Compete Agreement dated August 1, 1995 between you and the Company. (c) The provisions of this Section 14 will continue to apply after termination of this Agreement or your employment by the Company. 15. TERMINATION OF YOUR EMPLOYMENT BY THE COMPANY OTHER THAN FOR CAUSE. If during the initial or any extended term of this Agreement, the Company should terminate your employment other than for "cause" (as hereinafter defined) and other than by giving you notice under Section 2 hereof and allowing you to work until the expiration of such notice, the Company will pay you your base salary at the times and in the amounts that would apply if you had remained in the employ of the Company for the balance of the initial or extended term, as the case may be, and an additional amount in lieu of your annual incentive compensation for such period equal to the average of the annual incentive compensation earned by you during each year of your employment by Reebok as Senior Vice President and General Manager of Reebok North American Operations, such additional amount to be payable to you no later than thirty (30) days following such termination; provided, that if any payment of such base salary or such additional amount is not paid when due and then is not paid within ten (10) business days after notice from you that such payment is overdue, the total outstanding balance of base salary 5 plus such additional amount payable under this Section 15 shall immediately become due and payable by the Company. For purposes of this Agreement, the term "cause" shall mean the following: (a) your conviction of a felony or misdemeanor involving moral turpitude; (b) your failure to comply with your material obligations under this Agreement in any material respect, (such obligations to include material performance of your duties hereunder), if such failure shall continue for 30 days after notice in writing from the Company to you specifying such failure; or (c) any conduct on your part amounting to fraud or gross misconduct. The base salary and additional amount in lieu of your annual incentive referred to in this Section 15 shall be payable irrespective of the amount of any income which you may receive after the termination of your employment with Reebok, whether from employment, business activities or otherwise. 16. VOLUNTARY TERMINATION OR TERMINATION FOR CAUSE. Except as expressly provided in Section 17 below, if you should terminate your employment voluntarily or if the Company should terminate your employment for cause or in accordance with a notice given pursuant to Section 2, you shall be entitled to your base salary only until the effective date of termination and no further compensation or other payment, other than any relocation benefits you may be entitled to under Section 10(c) hereof, and except that if during the term of this Agreement you indicate to Reebok that you would like to work for Reebok or its subsidiaries in the U.K. and Reebok does not offer you a position in the U.K. as a General Manager of a division or subsidiary or an equivalent senior staff position within a reasonable time period, and thereafter as a result, you voluntarily terminate your employment with Reebok, Reebok will reimburse you for your relocation back to the U.K., including third party buying service, in the same manner as specified in Section 10(c) hereof. If you terminate your employment with Reebok voluntarily during the initial three year term, except in the specific situation described in the preceding sentence, you shall be required to reimburse Reebok for the costs of you and your family's relocation to the U.S. in the following manner: If you resign prior to the first anniversary of the effective date of your employment hereunder, you shall reimburse the Company for all such costs; if you voluntarily terminate your employment on or after the first anniversary of the effective date, but prior to the second anniversary thereof, you shall reimburse the Company for two-thirds of such costs; and if you voluntarily terminate your employment on or after the second anniversary of the effective date, but prior to the third 6 anniversary thereof, you shall reimburse the Company for one-third of such costs. References herein to "terminate" refer to the date on which your employment ends and not to the date on which you give notice pursuant to Section 2 hereof. 17. CHANGE OF CONTROL. (a) 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) (such efforts are referred to herein as an "Initiation of a Change of Control"), you agree that you will not voluntarily leave the employ of the Company and will continue to render the employment services contemplated in this Agreement until such Person has terminated the efforts to effect a Change of Control or until a Change of Control has occurred. Notwithstanding the foregoing, if you have given notice pursuant to Section 2 to terminate the term of this Agreement prior to an Initiation of a Change of Control, you may leave on the expiration of such notice and your giving of such notice shall not affect your rights under this Section 17 as long as you continue to render employment services under this Agreement until such Person has terminated the efforts to effect a Change of Control or until a Change of Control has occurred. (b) Notwithstanding anything to the contrary herein, if, at any time within 12 months following a Change of Control, you terminate your employment with the Company voluntarily by giving the Company not less than one month's written notice during or at the end of such 12 month period, the Company will following the termination of your employment pay to you your base salary at the times and in the amounts that would apply if you had remained in the employ of the Company for the balance of the initial or extended term, as the case may be, and an additional amount in lieu of your annual incentive compensation for such period equal to the average of the annual incentive compensation earned by you during each year of your employment by Reebok as Senior Vice President and General Manager of Reebok North American Operations, such additional amount to be payable to you no later than thirty (30) days following such termination; provided, that if any payment of such base salary or such additional amount is not paid when due and then is not paid within ten (10) business days after notice from you that such payment is overdue, the total outstanding balance of base salary and such additional amount payable under this Section shall immediately become due and payable by the Company. The base salary and additional amount in lieu of annual incentive referred to in this Section 17 shall be payable irrespective of the amount of any income which you may receive after the termination of your employment with Reebok, whether from employment, business activities or otherwise. (c) A "Change of Control" will occur for purposes of this Agreement if (i) any Person (other than Paul Fireman (and his immediate family) or a group in which Paul Fireman (and his immediate family) is a participant with a direct or indirect interest of at least 10%) acquires directly or indirectly all or substantially all of the Company's then-outstanding securities, or (ii) 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, PROVIDED, HOWEVER, a "Change in Control" will not be deemed to have occurred as a result of a leveraged buy-out or recapitalization of the Company or other acquisition of the securities or assets of the Company in which you or Paul Fireman participates as an equity investor or in which three or more executive officers of the Company participate as equity investors, with an aggregate direct or indirect interest of at least 5%. 18. Miscellaneous. ------------- (a) SUCCESSORS, ASSIGNS, AMENDMENT, ETC. This Agreement shall not be assignable by Reebok other than to a successor to its business or assets. This Agreement shall be binding upon you and shall inure to the benefit of your heirs, executors, administrators and legal representatives, but shall not be assignable by you. This Agreement may be amended or altered only by the written agreement of Reebok and you. (b) NOTICE. All notices, requests, consents and other communications required or permitted hereunder shall be in writing and shall be hand delivered or mailed by certified mail, postage prepaid, or sent by overnight courier and addressed as follows: If to Reebok to it at 100 Technology Center Drive, Stoughton, MA 02072 or to such other address as may have been furnished to you in writing as herein provided; or, if to you, at the address set forth above, or to such other address as may have been furnished to Reebok by you as herein provided in writing. Any notice or other communication so addressed shall be deemed to have been given if mailed, three business days after said mailing (or six business days after said mailing if mailed internationally) and if delivered by courier, two business days after delivery to a reputable courier. (c) APPLICABLE LAW. This Agreement has been executed and delivered by both parties in The Commonwealth of Massachusetts and shall be governed by and construed in accordance with the internal laws of The Commonwealth of Massachusetts. (d) SEVERABILITY. Each provision of this Agreement, including without limitation the provisions of Section 14, is severable from the others, and if any provision hereof shall be to any extent unenforceable, it and the other provisions hereof shall continue to be enforceable to the full extent allowable by 7 any court of competent jurisdiction, as if such offending provision had not been a part of this Agreement. (e) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties concerning its subject matter, and supersedes any and all prior agreements between the parties, except for the Non-Compete Agreement dated August 1, 1995. If you accept and agree to the foregoing, please signify by signing and returning a counterpart of this letter, whereupon this letter will become a binding agreement between you and the Company as of the date first above written. Very truly yours, REEBOK INTERNATIONAL LTD. By: /s/ JOHN B. DOUGLAS III Accepted and agreed to: /s/ ROGER BEST - ------------------------------- Roger Best EX-10.28 6 CHANGE IN CONTROL AGREEMENT 1 EXHIBIT 10.28 REEBOK INTERNATIONAL LTD. CHANGE OF CONTROL AGREEMENT --------------------------- AGREEMENT, made this 1st day of January, 1997 by and between Robert Meers ("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 12 months following a Change of Control, Executive's employment with the Company terminates (i) on an involuntary basis, other than as a result of the death, total disability or retirement of the Executive at or after his normal retirement date and other than for "Cause" (as defined in para- 2 graph 4 below), or (ii) on a voluntary basis following any downgrading of Executive's responsibilities or compensation or removal of or reduction in title from that in effect immediately preceding the Change in Control, then, subject to Executive's willingness to remain in the employ of the Company or its successor for at least six months after the Change of Control to assist in the transition and further subject to Section 5 below: a. the Company will pay to Executive within 30 days of such termination of employment a lump-sum cash payment equal to 400% of the aggregate of his current annual base salary and his cash bonus for the most recent calendar year ended before the Change of Control; and 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; and c. Executive, together with his dependents, will continue following such termination of employment to participate fully, at no cost to 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 first anniversary of such termination; and d. 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 without limitation all fees and expenses incurred to enforce the provisions of this Agreement. 3. A Change of Control will occur for purposes of this Agreement if (i) any Person who does not currently own directly or indirectly 5% 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, 3 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 if the initiation of any of the events described in the preceding paragraph is by or with the concurrence of the Company (acting by its Continuing Directors), nor shall a Change of Control 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 in which Executive participates as an equity investor. 4. "Cause" means only: commission of a felony by the Executive or conviction of the Executive for a crime involving moral turpitude. 5. a. Notwithstanding any other provision of this Agreement, and except as provided in subparagraph (b) below, the payments or benefits to which Executive will be entitled under this Agreement will be reduced to the extent necessary so that Executive will not be liable for the federal excise tax levied on certain "excess parachute payments" under section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"). b. The limitation of subparagraph (a) will not apply if: i. the difference between (i) the present value of all payments to which Executive is entitled under this Agreement determined without regard to subparagraph (a) above, less (ii) the present value of all federal, state and other income and excise taxes for which Executive is liable as a result of such payments; exceeds ii. the difference between (i) the present value of all payments to which Executive is entitled under this Agreement calculated as if the limitation of subparagraph (a) above applies, less (ii) the present value of all federal, state and other income and excise taxes for which Executive is liable as a result of such reduced payments. 4 Present values will be determined using the interest rate specified in section 280G of the Code and will be the present values as of the date specified in such section 280G and the regulations thereunder. c. Whether payments to the Executive are to be reduced pursuant to subparagraph (a) above, and the extent to which they are to be so reduced, will be determined by the Executive whose determination shall be final and binding upon the Company. Executive may, at the expense of the Company, hire an accounting firm, law firm or employment consulting firm selected by Executive to assist him in such determination. d. If a reduction is made pursuant to subparagraph (a) above, Executive will have the right to determine which payments and benefits will be reduced. 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 5 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 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 severance payments, if any, which might otherwise be available to Executive. 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 6 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 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 ------------------------------------- Paul Fireman Chairman and Chief Executive Officer Agreed: /s/ ROBERT MEERS - ---------------------------- Robert Meers EX-11 7 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 REEBOK INTERNATIONAL LTD. (Amount in thousands, except per share data) Exhibit 11 - Statement Re: computation per share earnings fully diluted
1996 1995 1994 ---- ---- ---- Primary - ------- Average shares outstanding 67,370 78,317 82,228 Net effect of dilutive stock options 1,248 1,170 2,083 -------- -------- -------- TOTAL 68,618 79,487 84,311 -------- -------- -------- Net Income $138,950 $164,798 $254,478 -------- -------- -------- Per share amount $ 2.00 $ 2.07 $ 3.02 -------- -------- -------- Fully Diluted - ------------- Average shares outstanding 67,370 78,317 82,228 Net effect of dilutive stock options 2,249 1,170 2,455 -------- -------- -------- TOTAL 69,619 79,487 84,683 -------- -------- -------- Net Income $138,950 $164,798 $254,478 -------- -------- -------- Per share amount $ 2.00 $ 2.07 $ 3.01 -------- -------- --------
EX-12 8 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 Exhibit 12 REEBOK INTERNATIONAL LTD. (Amounts in Thousands) Exhibit 12 - Statement RE: Computation of Ratio of Earnings to Fixed Charges
December December 1996 1995 -------- -------- Earnings Pretax Income $223,033 $264,551 Add: Interest on indebtedness 42,246 25,725 Amortization of debt discount issuance costs 394 818 Interest on Letters of Credit included in cost of goods sold Portions of rent representative of the interest factor 15,424 13,399 -------- -------- Income as adjusted $281,097 $304,493 ======== ======== Fixed Charges Interest on indebtedness $ 42,246 $ 25,725 Amortization of debt discount and issuance costs 394 818 Interest on Letters of Credit included in cost of goods sold Portions of rent representative of the interest factor 15,424 13,399 -------- -------- Fixed charges $ 58,064 $ 39,942 ======== ======== Ratio of earnings to fixed charges 4.84 7.62
EX-13 9 FINANCIAL PORTIONS OF ANNUAL REPORT 1 EXHIBIT 13.1 SELECTED FINANCIAL DATA
Amounts in thousands, except per share data YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992 ===================================================================================================== Net sales $3,478,604 $3,481,450 $3,280,418 $2,893,900 $3,022,627 Income before income taxes and minority interest 237,668 275,974 417,368 371,508 259,751 Net income 138,950 164,798 254,478 223,415 114,818 Net income per common share 2.00 2.07 3.02 2.53 1.24 Cash dividends per common share .225 .300 .300 .300 .300 Weighted average common and common equivalent shares outstanding 69,618 79,487 84,311 88,348 92,697 ===================================================================================================== Amounts in thousands DECEMBER 31, 1996 1995 1994 1993 1992 ===================================================================================================== Working capital $ 946,127 $ 900,922 $ 831,856 $ 730,757 $ 682,342 Total assets 1,786,184 1,651,619 1,649,461 1,391,711 1,345,346 Long-term debt 854,099 254,178 131,799 134,207 116,037 Stockholders' equity 381,234 895,289 990,505 846,617 838,656 =====================================================================================================
On June 7, 1996, Reebok completed the sale of substantially all of the operating assets and business of its subsidiary, Avia Group International, Inc. ("Avia"); accordingly, subsequent to that date, the operations of Avia are no longer included in the Company's financial results. Financial data for 1995 includes total special after-tax charges of $44,934, of which $33,699 relates to the sale of Avia and $11,235 relates to facilities consolidation, severance and other related costs associated with the streamlining of certain segments of the Company's operations. Financial data for 1993 includes a special after-tax charge of $7,037 related to the sale of Ellesse U.S.A., Inc. and Boston Whaler, Inc. Financial data for 1992 includes special after-tax charges of $135,439 principally related to the write-down of the Company's subsidiary, Avia, to its estimated fair value and estimated losses from the planned sales of Ellesse U.S.A., Inc. and Boston Whaler, Inc., and after-tax gains of $17,967 from the sale of investments. 25 REEBOK INTERNATIONAL LTD. 2 M D & A Management's Discussion and Analysis of Results of Operations and Financial Condition The following discussion contains forward-looking statements which involve risks and uncertainties. All such forward-looking statements necessarily represent only current estimates or expectations as to future results, and there can be no assurance that actual results will not materially differ from current estimates or expectations. Factors that might cause such a difference include, but are not limited to, those discussed below and those described in the Company's 1996 Annual Report on Form 10-K under the heading "Issues and Uncertainties." OPERATING RESULTS 1996 Net sales for the year ended December 31, 1996 were $3.479 billion, approximately equal to the net sales for the year ended December 31, 1995 of $3.482 billion. Excluding Avia sales, net sales for the year ended December 31, 1996 were $3.429 billion, 2.3% higher than the $3.352 billion for the same period in 1995. The Reebok Division's worldwide sales were $2.982 billion in 1996 and $2.984 billion in 1995. Growth in this Division's U.S. apparel sales as well as growth in its International sales were offset by a decrease in U.S. footwear sales. U.S. footwear sales of the Reebok Division decreased 12.7% to $1.193 billion from $1.367 billion(A) in 1995. The decrease was due primarily to decreases in substantially all categories other than walking and soccer, which had increases in sales. U.S. apparel sales of the Reebok Division increased by 42.0% to $314.9 million from $221.7 million(A) in 1995. The increase resulted from increases in licensed and branded apparel, particularly in T-shirts, all purpose bottoms, warm-ups, tops and outerwear. International sales of the Reebok Division (including footwear and apparel) were $1.474 billion in 1996, an increase of 5.7% from $1.395 billion in 1995. Strong apparel sales and increases in footwear sales of basketball, walking and classic products were partially offset by decreases in the running, cross-training and outdoor footwear categories. The stronger U.S. dollar adversely impacted sales comparisons with the prior year. On a constant dollar basis for the year ended December 31, 1996, the International sales gain was 8.8%. On a local currency basis, thereby eliminating the impact of changes in foreign currency exchange rates, the United Kingdom, Japan, Korea and South Africa had increases in sales whereas there were decreases in sales in France, Canada and Belgium and in the Division's sales to certain Latin American distributors. Rockport's sales for 1996 increased by 21.6% to $447.6 million from $368.1 million in 1995. This increase reflects an emphasis on Rockport's walking technology and the successful introduction of new products in 1996. Increased sales in the men's casual dress and performance walking categories were partially offset by decreased sales in the women's lifestyle and outdoor categories. Rockport's 1996 results include the Ralph Lauren footwear business. In May 1996, Rockport entered into a licensing arrangement for the North American license for Ralph Lauren footwear and also acquired Ralph Lauren Footwear, Inc., the former North American footwear licensee for Ralph Lauren. Rockport expects to acquire the Ralph Lauren footwear licensing rights for the rest of the world over the next several years. Sales of Ralph Lauren footwear were $31.9 million in 1996 for the seven month period from May 1996 (the date of acquisition) through December 1996. Rockport's International business increased by 21.0% in 1996. Exclusive of sales of Ralph Lauren footwear, Rockport's International sales accounted for 14% of its total sales during 1996. For the year ended December 31, 1996, the Company's sales include $49.4 million of sales of Avia, a decrease of 61.9% from the $129.6 million of sales of Avia for 1995. On June 7, 1996, Reebok completed the sale of substantially all of the operating assets and business of Avia. Accordingly, subsequent to that date, the operations of Avia are no longer included in the Company's financial results. Gross margins declined from 39.3% in 1995 to 38.4% in 1996. The decline in margins reflects the effect of costs incurred with respect to new products and technologies. These costs include the impact of start-up tooling, shorter production runs and increased air freight. The margin decline also reflects a substantial shift in the overall mix of the U.S. business due to increased apparel sales and decreased footwear sales. U.S. apparel sales in 1996 accounted for 20.8% of the Reebok business in the U.S. as compared to 14.0% in 1995. Since U.S. apparel sales contribute lower gross margins than the U.S. footwear business, the shift in domestic mix negatively impacts overall gross margins. International margins were negatively impacted in 1996 as compared with the prior year due to a strong U.S. dollar as against most international currencies. Selling, general and administrative expenses increased as a percentage of sales from 28.7% in 1995 to 30.6% in 1996. Advertising and marketing expenses increased by $66.2 million during 1996 with approximately $30.0 million of that increase attributable to Reebok's Olympic participation. Continued investment in brand-building expenses, including product development, retail presence, sports marketing and on-field presence also contributed to the increase. In addition, retail operating expenses increased in support of the U.S. retail store expansion. At December 31, 1996, - -------------------------------------------------------------------------------- (A) The 1995 sales are adjusted to include the retail division's apparel sales in U.S. apparel, consistent with the 1996 presentation. Previously, all retail sales (including footwear and apparel) had been included in U.S. footwear sales. In addition, all sales of Tinley brand apparel for 1995 have been reclassified to Avia to conform with the 1996 presentation. 26 REEBOK INTERNATIONAL LTD. 3 M D & A Management's Discussion and Analysis of Results of Operations and Financial Condition the Company operated 141 U.S. Reebok, Rockport and Greg Norman retail stores as compared to 117 at the end of 1995. Primarily all of these U.S. retail stores are located in factory direct outlet malls. Amortization of intangibles decreased due to the write-down in the fourth quarter of 1995 of the carrying value of Avia to estimated fair value on sale. Minority interest represents the minority shareholders' proportionate share of the net income of certain of the Company's consolidated subsidiaries. Interest expense increased from $25.7 million in 1995 to $42.2 million in 1996 as a result of increased borrowings to fund the purchase of approximately 17.0 million shares of the Company's common stock in connection with the Company's Dutch Auction self-tender offer, which was completed in August 1996. Year-to-year earnings per share comparisons benefited from the Company's share repurchase programs and the repurchase of shares pursuant to the Dutch Auction. Weighted average common shares outstanding for the year ended December 31, 1996 declined to 69.6 million, compared to 79.5 million shares for the year ended December 31, 1995. The Company's footwear and apparel production operations are subject to the usual risks of doing business abroad, such as import duties, quotas and other threats to free trade, foreign currency fluctuations, labor unrest and political instability. The Company believes that it has the ability to develop, over time, adequate substitute sources of supply for the products obtained from present foreign suppliers. If, however, events should prevent the Company from acquiring products from its suppliers in Indonesia, China, Thailand or the Philippines, or significantly increase the cost to the Company of such products, the Company's operations could be seriously disrupted until alternative suppliers are found. For several years, imports from China to the U.S., including footwear, have been threatened with higher or prohibitive tariff rates, either through statutory action or intervention by the Executive Branch, due to concern over China's trade policies, human rights, foreign weapons sales practices and foreign policy. Further debate on these issues is expected to continue in 1997. However, the Company does not currently anticipate that restrictions on imports from China will be imposed by the U.S. during 1997. If adverse action is taken with respect to imports from China, it could have an adverse effect on some or all of the Company's product lines, which could result in a negative financial impact. The Company has put in place contingency plans which should allow it to diversify some of its sourcing to countries other than China if any such adverse action occurred. In addition, the Company does not believe that it would be more negatively impacted by any such adverse action than its major competitors. The European Union ("EU") imposed import quotas on certain footwear from China in 1994. The effect of such a quota scheme on Reebok has not been significant because the quota scheme provides an exemption for certain higher-priced special technology athletic footwear, which exemption is available for most Reebok products. The EU has imposed antidumping duties against textile upper footwear from China and Indonesia and has calculated but suspended antidumping duties on leather upper footwear from China, Thailand and Indonesia. It is expected that the duties on leather upper footwear will remain suspended through 1997. A broad exemption has been included in both antidumping cases (textile and leather footwear) for athletic footwear covering most Reebok models. If the athletic footwear exemption remains in its current form, few of the Company's product lines would be affected adversely, and in any case, the Company does not believe that its products would be more severely restricted than those of its major competitors. However, recently the EU has initiated at the internal staff level an effort to significantly narrow the athletic footwear exemption which applies to both the quota scheme and antidumping duties. The Company, through relevant trade associations, is working to prevent imposition of the more limited athletic footwear exception. Should the proposed revisions be adopted, certain of the Company's product lines would be affected adversely, although the Company does not believe that its products would be more severely affected than those of its major competitors. Various other countries have taken steps to restrict footwear imports or impose additional customs duties, which actions affect the Company as well as other footwear importers. The Company, in conjunction with other footwear importers, is aggressively challenging such restrictions. Such restrictions have in some cases had a significant adverse effect on the Company's sales in some of such countries, most notably Argentina, although they have not had a material adverse effect on the Company as a whole. OPERATING RESULTS 1995 Net sales for the year ended December 31, 1995 increased by 6.1%, or $201.0 million, to $3.482 billion from $3.280 billion in 1994. The Reebok Division's worldwide sales were $2.984 billion in 1995, an increase of 6.3% from $2.808 billion(B) in 1994. This increase was due to growth in the - -------------------------------------------------------------------------------- (B) The 1994 sales were adjusted on a proforma basis to reflect Tinley apparel sales in Avia sales. The Tinley division was transferred to the Avia group from Reebok during 1995. In order to present amounts on a comparable basis, Tinley's apparel sales for 1994 have been reclassified to Avia. 27 REEBOK INTERNATIONAL LTD. 4 M D & A Management's Discussion and Analysis of Results of Operations and Financial Condition Reebok Division's U.S. apparel sales as well as growth in International sales. The Reebok Division's U.S. footwear sales decreased 0.4% to $1.405 billion from $1.410 billion in 1994. The decrease was due primarily to decreases in sales in the running, tennis and outdoor categories, which were offset in part by sales increases in the walking, cleated and children's categories. The 1995 U.S. footwear sales comparison benefits from the fact that the Company increased the number of Reebok-owned retail stores as compared with 1994. At December 31, 1995, there were 66 stores in operation as compared with 45 at the end of 1994. Of the stores in operation, 62 are outlet stores with the balance being full scale retail stores primarily used for testing retail concepts. The Reebok outlet store business had a same store sales increase for 1995 of 7.1%. The Reebok Division's U.S. apparel sales increased by 27.1% to $183.6 million from $144.5 million(B) in 1994. The increase resulted primarily from increases in licensed apparel, T-shirts and performance running product. The Reebok Division's International sales (including both footwear and apparel) were $1.395 billion in 1995, an increase of 11.3% from $1.253 billion in 1994. For the year ended December 31, 1995, slightly less than one-half of the International sales increase can be attributed to the impact of the weaker dollar. On a local currency basis, Korea, Spain and the United Kingdom had significant percentage increases in sales whereas Japan and Mexico experienced a decline in sales. Rockport's sales for 1995 increased by 17.0% to $368.1 million from $314.5 million in 1994. All categories, except outdoor, increased in comparison with the prior year. Sales of Rockport product in Rockport retail stores also contributed to the sales growth. At December 31, 1995, there were 40 Rockport stores in operation as compared with 13 a year ago. Of the stores in operation, 36 are outlet stores with the balance being full scale retail stores primarily used for testing retail concepts. Avia's sales for 1995 decreased by 18.1% to $129.6 million from $158.2 million(B) in 1994. All categories except running had decreases from the prior year. Other income decreased in 1995 due mainly to losses on foreign exchange transactions in 1995 compared to recognized gains in 1994. A decrease in joint venture income also contributed to the decline in other income. Gross margins declined from 40.1% in 1994 to 39.3% in 1995. U.S. margins were unfavorably impacted by higher than normal markdowns taken on excess inventory, as a result of a commitment to reduce inventory levels. Margins on International sales were favorably impacted by exchange rate changes. Selling, general and administrative expenses increased as a percentage of sales from 27.1% in 1994 to 28.7% in 1995. During 1995, the Company announced its intention to reduce planned expenditures in non-essential areas, with the primary impact being realized in the second half of the year. For the full year, the increase in SG&A expenses was primarily the result of increased investments in brand building expenses, including sports marketing and on-field presence, retail presence and the growth of the Company's retail outlet stores. In addition, SG&A expenses increased by approximately $20 million due to a weaker dollar. The Company recorded special charges totaling $72.1 million in 1995. In connection with the effort to reduce SG&A spending, a special charge of $18.0 million was recorded in the second quarter, principally related to facilities consolidation and severance and other related costs associated with the streamlining of certain segments of the Company's operations. In the fourth quarter of 1995, the Company recorded a charge of $54.1 million to adjust the carrying value of its Avia subsidiary to its estimated fair value on sale. In January 1996, the Company announced its intention to sell Avia in order to focus its resources on its core brands. Minority interest represents the minority shareholders' proportionate share of the net income of certain of the Company's consolidated subsidiaries. Interest expense increased from $16.5 million in 1994 to $25.7 million in 1995 as a result of increased borrowings to finance working capital needs and the Company's share repurchase program. During 1995, $225.5 million of the Company's common stock was repurchased. On October 19, 1995, the Company's Board of Directors authorized the repurchase of up to an additional $200 million in Reebok common stock in open market or privately-negotiated transactions. This authorization was in addition to the share repurchase programs of $200 million each adopted by the Company in July 1992, July 1993 and October 1994. At December 31, 1995, the Company had approximately $198.1 million available for future repurchases of its common stock under these programs. As of December 31, 1995, the Company had repurchased 42,933,902 shares of its common stock at an average price of $23.25 per share since April 1991. Year-to-year earnings per share comparisons benefited from the share repurchase programs. Weighted average common shares outstanding for the year ended December 31, 1995 declined to 79.5 million shares, compared to 84.3 million shares for the year ended December 31, 1994. OPERATING RESULTS 1994 Net sales for the year increased by 13.4%, or $386 million, to $3.280 billion in 1994 from $2.894 billion 28 REEBOK INTERNATIONAL LTD. 5 M D & A Management's Discussion and Analysis of Results of Operations and Financial Condition in 1993. The Reebok Division's worldwide sales were $2.813 billion(C) an increase of 13.4% from $2.480 billion in 1993. This increase was due to growth in Reebok's U.S. footwear and apparel sales as well as International sales. Reebok U.S. footwear sales increased 10.9% to $1.410 billion from $1.271 billion in 1993. The increase in the Reebok Division's U.S. footwear sales was attributed to increases in the outdoor, classics, pre-season, cleated and walking categories, which were partially offset by decreases in the children's and basketball categories. The Reebok Division's U.S. apparel sales increased by 19.7% to $150.1 million(C) in 1994 from $125.4 million in 1993. The Reebok Division's International sales (including both footwear and apparel) were $1.253 billion in 1994, an increase of 15.7% from $1.083 billion in 1993, primarily due to increases in all countries except for France and the Netherlands, which experienced small decreases in sales. Changes in foreign exchange rates increased the Reebok Division's International net sales by $9.3 million, or 0.9%. Rockport sales reached $314.5 million in 1994, an 11.3% increase from $282.7 million in 1993. This increase was due to an increase in the number of pairs shipped both in the U.S. and internationally. Avia sales increased by 16.5% to $152.6 million(C) from $131.0 million in 1993. The increase in Avia's net sales was due to increases in both domestic and international net sales, primarily attributed to increases in the walking and cross-training categories. Other income increased mainly due to increased income from partially- owned distributors as well as recognized gains of $0.5 million on foreign exchange transactions in 1994 compared to recognized losses of $4.6 million in 1993. The decrease in gross margin from 40.6% in 1993 to 40.1% in 1994 was due to lower margins in the Reebok Division's International business as a result of the poor economic conditions in certain countries. The decrease was partially offset by slightly increased margins in the Reebok Division's U.S. footwear business. Selling, general and administrative expenses increased as a percentage of sales from 26.6% in 1993 to 27.1% in 1994 due in part to the continuing increased investments in information systems as well as higher distribution costs mainly associated with the opening of a new apparel distribution facility in Memphis, Tennessee. The increased investments in information systems are expected to continue over the next few years. Net income in 1994 was higher than net income in 1993 partially as a result of an additional pre-tax special charge of $8.5 million in 1993 related to the completion of the sales of Boston Whaler, Inc. ("Boston Whaler") and Ellesse U.S.A., Inc. ("Ellesse.") This special charge was in addition to losses previously recorded in December 1992, when the Company announced its intention to sell these businesses. Amortization of intangibles decreased because many of the intangible assets attributable to the acquisition of Rockport in 1986 had a useful life of seven years or less and became fully amortized in 1993. Minority interest represents the minority shareholders' proportionate share of the net income of the Company's Japanese, Spanish and South African subsidiaries. Interest expense decreased in 1994 due to interest paid in 1993 on certain prior years' state tax matters, as well as lower average interest rates. Similarly, interest income decreased in 1994 due to interest received in 1993 from the successful settlement of certain state tax matters. The effective tax rate decreased from 38.5% in 1993 to 37.7% in 1994 due primarily to a geographic change in the mix of worldwide income. Year-to-year earnings per share comparisons benefited from the share repurchase programs announced in July 1992 and July 1993. Weighted average common shares outstanding for the year ended December 31, 1994 declined to 84.3 million shares, compared to 88.3 million shares for the year ended December 31, 1993. BACKLOG The overall backlog of open customer orders to be delivered from January 1997 through June 1997 for the Reebok brand increased 11.7% from comparative levels as of December 31, 1995. The backlog position is not necessarily indicative of future sales because the ratio of future orders to "at once" shipments and sales by Company-owned retail stores may vary from year to year. In addition, many customer orders are cancelable. LIQUIDITY AND SOURCES OF CAPITAL The Company's financial position remains strong. Working capital increased by $45.2 million at December 31, 1996, or 5.0%, from the same period a year ago. The current ratio at December 31, 1996 was 2.8 to 1 compared to 3.1 to 1 at December 31, 1995. Accounts receivable increased by $83.9 million from December 31, 1995, an increase of 16.6%. This is the result of a greater percentage of sales coming from international markets, where trade terms are typically longer than in the U.S. Inventory decreased by $90.5 million, or 14.3%, from December 31, 1995. Reebok brand U.S. footwear - -------------------------------------------------------------------------------- (C) As indicated above, the 1994 sales reflected in the section entitled "Operating Results 1995" have been adjusted on a proforma basis to reflect Tinley apparel sales in Avia sales. 29 REEBOK INTERNATIONAL LTD. 6 M D & A Management's Discussion and Analysis of Results of Operations and Financial Condition inventories alone declined 42.2% from December 31, 1995, and Rockport, which had a 28.0% sales growth in the fourth quarter, reduced inventories by 8.2%, even with the inclusion of the Ralph Lauren Footwear business. Improved forecasting, production planning and logistics operations account for this significant inventory decrease. The Company borrowed $640.0 million to fund the purchase of approximately 17.0 million shares of the Company's common stock pursuant to a Dutch Auction self-tender offer, which was completed in August 1996. The debt is repayable in various installments over the next six years. The credit agreement contains various covenants including restrictions on asset acquisitions, capital expenditures and future indebtedness and the requirement to maintain a minimum interest coverage ratio. Concurrent with the Dutch Auction share repurchase, the Company suspended its quarterly cash dividends. During the year ended December 31, 1996, cash and cash equivalents increased by $152.0 million, and outstanding borrowings increased by $618.0 million while $686.3 million of the Company's common stock was repurchased. As a result of the improvement by the Company in managing its balance sheet, cash provided by operations during 1996 was $280.3 million, an improvement of $108.5 million as compared to 1995. Capital expenditures during 1996 were $30.0 million, a 52.8% reduction from capital spending in 1995. Based on the strong cash flow results, the Company made a $50.0 million pre-payment in February 1997 on its $640.0 million six-year term loan. Cash generated from operations, together with the Company's existing credit lines and other financial resources, is expected to adequately finance the Company's current and planned 1997 cash requirements. However, the Company's actual experience may differ from the expectations set forth in the preceding forward-looking statement. Factors that might lead to such a difference include, but are not limited to, the factors discussed herein, and matters discussed in the Company's 1996 Annual Report on Form 10-K under the heading "Issues and Uncertainties," as well as future events that might have the effect of reducing the Company's available cash balances (such as unexpected operating losses or capital or other expenditures) or that might eliminate the availability of external financial sources. Lawsuits arise during the normal course of business. The Company does not expect the outcome of any existing litigation to have a significant impact on its financial position or future results of operations. The Company enters into forward currency exchange contracts and options to hedge its exposure for merchandise purchased in U.S. dollars that will be sold to customers in other currencies. Realized and unrealized gains and losses on these contracts are included in net income except that gains and losses on contracts which hedge specific foreign currency commitments are deferred and accounted for as a part of the transaction. The Company also uses forward currency exchange contracts and options to hedge significant intercompany assets and liabilities denominated in other than the functional currency. Contracts used to hedge intercompany balances are marked to market, and the resulting transaction gain or loss is included in the determination of net income. Foreign currency gains or losses included in net income for the years ended December 31, 1996, 1995 and 1994 were not significant. The Company has used forward exchange contracts and options as an element of its risk management strategy for several years. At December 31, 1996, the Company had forward currency exchange contracts and options, all having maturities of less than one year, with a notional amount aggregating $368.7 million. The contracts involved twelve different foreign currencies. No single currency represented more than 24% of the aggregate notional amount. The notional amount of the contracts intended to hedge merchandise purchases was $158.3 million. Deferred gains (losses) on these contracts were not material at December 31, 1996 and 1995. The Company uses interest rate swap agreements to manage its exposure to interest rate movements by effectively converting a portion of its variable rate long-term debt from floating to fixed rates. These agreements involve the exchange of variable rate payments for fixed rate payments without the effect of leverage and without the exchange of the underlying principal amount. Interest rate differentials paid or received under these swap agreements are recognized over the life of the contracts as adjustments to interest expense. At December 31, 1996, the notional amount of interest rate swaps outstanding was $320.0 million. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and hedging instruments. The Company places cash equivalents with major financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. The Company is exposed to credit-related losses in the event of non-performance by counterparties to hedging instruments. The counterparties to these contracts are major financial institutions. The Company continually monitors its positions and the credit ratings of its counterparties and places dollar and term limits on the amount of contracts it enters into with any one party. 30 REEBOK INTERNATIONAL LTD. 7 CONSOLIDATED BALANCE SHEETS
Amounts in thousands, except share data DECEMBER 31, 1996 1995 ================================================================================================ ASSETS Current assets: Cash and cash equivalents $ 232,365 $ 80,393 Accounts receivable, net of allowance for doubtful accounts (1996, $43,527; 1995, $46,401) 590,504 506,563 Inventory 544,522 635,012 Deferred income taxes 69,422 65,484 Prepaid expenses and other current assets 26,275 45,418 -------------------------- Total current assets 1,463,088 1,332,870 -------------------------- Property and equipment, net 185,292 192,033 Non-current assets: Intangibles, net of amortization 69,700 64,436 Deferred income taxes 7,850 5,455 Other 60,254 56,825 -------------------------- 137,804 126,716 -------------------------- Total Assets $1,786,184 $1,651,619 ========================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to banks $ 32,977 $ 66,682 Current portion of long-term debt 52,684 946 Accounts payable 196,368 166,037 Accrued expenses 169,344 144,585 Income taxes payable 65,588 47,956 Dividends payable 5,742 -------------------------- Total current liabilities 516,961 431,948 -------------------------- Long-term debt, net of current portion 854,099 254,178 Minority interest 33,890 31,081 Commitments and contingencies Outstanding redemption value of equity put options 39,123 Stockholders' equity: Common stock, par value $.01; authorized 250,000,000 shares; issued 92,556,295 shares in 1996, 111,015,133 shares in 1995 926 1,096 Retained earnings 992,563 1,487,006 Less 36,716,227 shares at December 31, 1996 and 36,210,902 at December 31, 1995 in treasury at cost (617,620) (603,241) Unearned compensation (283) (1,208) Foreign currency translation adjustment 5,648 11,636 -------------------------- 381,234 895,289 -------------------------- Total Liabilities and Stockholders' Equity $1,786,184 $1,651,619 ==========================
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of the consolidated financial statements. 31 REEBOK INTERNATIONAL LTD. 8 CONSOLIDATED STATEMENTS OF INCOME
Amounts in thousands, except per share data YEAR ENDED DECEMBER 31, 1996 1995 1994 ============================================================================================== Net sales $3,478,604 $3,481,450 $3,280,418 Other income 4,325 3,126 7,165 ------------------------------------------ 3,482,929 3,484,576 3,287,583 ------------------------------------------ Costs and expenses: Cost of sales 2,144,422 2,114,084 1,966,138 Selling, general and administrative expenses 1,065,792 999,731 889,590 Special charges 72,098 Amortization of intangibles 3,410 4,067 4,345 Interest expense 42,246 25,725 16,515 Interest income (10,609) (7,103) (6,373) ------------------------------------------ 3,245,261 3,208,602 2,870,215 ------------------------------------------ Income before income taxes and minority interest 237,668 275,974 417,368 Income taxes 84,083 99,753 153,994 ------------------------------------------ Income before minority interest 153,585 176,221 263,374 Minority interest 14,635 11,423 8,896 ------------------------------------------ Net income $ 138,950 $ 164,798 $ 254,478 ========================================== Net income per common share $ 2.00 $ 2.07 $ 3.02 ========================================== Dividends per common share $ 0.225 $ 0.300 $ 0.300 Weighted average common and common equivalent shares outstanding 69,618 79,487 84,311 ------------------------------------------
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of the consolidated financial statements. 32 REEBOK INTERNATIONAL LTD. 9 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional Paid-in Retained Treasury Dollar amounts in thousands Shares Par Value Capital Earnings Stock ===================================================================================================================== - --------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1993 119,902,298 $1,199 $ 266,890 $1,198,190 $(603,241) - --------------------------------------------------------------------------------------------------------------------- Net income 254,478 Adjustment for foreign currency translation Issuance of shares to certain employees 19,293 611 Amortization of unearned compensation Shares repurchased and retired (3,261,200) (33) (112,105) Shares retired (16,000) (462) Shares issued under employee stock purchase plans 158,965 2 4,082 Shares issued upon exercise of stock options 352,255 4 6,172 Income tax reductions relating to exercise of stock options 2,765 Dividends declared (24,610) - --------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1994 117,155,611 1,172 167,953 1,428,058 (603,241) - --------------------------------------------------------------------------------------------------------------------- Net income 164,798 Adjustment for foreign currency translation Issuance of shares to certain employees 43,545 1,558 Amortization of unearned compensation Shares repurchased and retired (6,639,600) (66) (182,569) (42,835) Shares retired (67,200) (1) (1,385) (554) Shares issued under employee stock purchase plans 161,377 2 4,253 Shares issued upon exercise of stock options 361,400 4 6,004 Put option contracts outstanding (15) (39,108) Premium received from unexercised equity put options 3,233 Income tax reductions relating to exercise of stock options 953 Dividends declared (23,353) - --------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1995 111,015,133 1,096 0 1,487,006 (603,241) - --------------------------------------------------------------------------------------------------------------------- Net income 138,950 Adjustment for foreign currency translation Treasury shares repurchased (14,379) Issuance of shares to certain employees 43,278 1,505 Amortization of unearned compensation Shares repurchased and retired (18,931,403) (190) (672,900) Shares issued under employee stock purchase plans 157,134 2 4,042 Shares issued upon exercise of stock options 272,153 3 6,930 Put option contracts expired 15 39,825 Income tax reductions relating to exercise of stock options 2,385 Dividends declared (15,180) - --------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1996 92,556,295 $ 926 $ 0 $ 992,563 $(617,620) - ---------------------------------------------------------------------------------------------------------------------
Foreign Currency Unearned Translation Dollar amounts in thousands Compensation Adjustment ============================================================================ - ---------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1993 $(3,276) $(13,145) - ---------------------------------------------------------------------------- Net income Adjustment for foreign currency translation 12,306 Issuance of shares to certain employees (611) Amortization of unearned compensation 827 Shares repurchased and retired Shares retired 462 Shares issued under employee stock purchase plans Shares issued upon exercise of stock options Income tax reductions relating to exercise of stock options Dividends declared - ---------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1994 (2,598) (839) - ---------------------------------------------------------------------------- Net income Adjustment for foreign currency translation 12,475 Issuance of shares to certain employees (1,558) Amortization of unearned compensation 1,008 Shares repurchased and retired Shares retired 1,940 Shares issued under employee stock purchase plans Shares issued upon exercise of stock options Put option contracts outstanding Premium received from unexercised equity put options Income tax reductions relating to exercise of stock options Dividends declared - ---------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1995 (1,208) 11,636 - ---------------------------------------------------------------------------- Net income Adjustment for foreign currency translation (5,988) Treasury shares repurchased Issuance of shares to certain employees (55) Amortization of unearned compensation 292 Shares repurchased and retired 688 Shares issued under employee stock purchase plans Shares issued upon exercise of stock options Put option contracts expired Income tax reductions relating to exercise of stock options Dividends declared - ---------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1996 $ (283) $ 5,648 - ----------------------------------------------------------------------------
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of the consolidated financial statements. 33 REEBOK INTERNATIONAL LTD. 10 CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in thousands YEAR ENDED DECEMBER 31, 1996 1995 1994 =========================================================================================================================== Cash flows from operating activities: Net income $ 138,950 $ 164,798 $ 254,478 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 42,927 39,579 37,400 Minority interest 14,635 11,423 8,896 Deferred income taxes (6,333) (1,573) (13,332) Special charges 62,743 Changes in operating assets and liabilities, exclusive of those arising from business acquisitions: Accounts receivable (107,082) 16,157 (64,786) Inventory 77,286 (29,531) (81,948) Prepaid expenses 22,650 7,841 (7,752) Other 11,042 (18,830) (13,648) Accounts payable and accrued expenses 67,769 (25,327) 35,211 Income taxes payable 18,419 (55,553) 20,236 --------------------------------------- Total adjustments 141,313 6,929 (79,723) --------------------------------------- Net cash provided by operating activities 280,263 171,727 174,755 --------------------------------------- Cash flows from investing activities: Payments to acquire property and equipment (29,999) (63,610) (61,839) Proceeds (payments) for business acquisitions and divestitures 6,887 (4,297) --------------------------------------- Net cash used for investing activities (23,112) (63,610) (66,136) --------------------------------------- Cash flows from financing activities: Net borrowings (payments) of notes payable to banks (36,947) 2,426 37,148 Proceeds from issuance of common stock to employees 13,362 11,216 13,025 Dividends paid (20,922) (23,679) (24,827) Repayments of long-term debt (1,290) (112,445) (2,585) Net proceeds from long-term debt 632,108 230,000 Proceeds from premium on equity put options 717 3,233 Dividends to minority shareholders (7,426) (2,885) (2,141) Repurchases of common stock (686,266) (225,470) (112,138) --------------------------------------- Net cash used for financing activities (106,664) (117,604) (91,518) --------------------------------------- Effect of exchange rate changes on cash 1,485 5,944 (12,512) --------------------------------------- Net increase (decrease) in cash and cash equivalents 151,972 (3,543) 4,589 Cash and cash equivalents at beginning of year 80,393 83,936 79,347 --------------------------------------- Cash and cash equivalents at end of year $ 232,365 $ 80,393 $ 83,936 --------------------------------------- Supplemental disclosures of cash flow information: Interest paid $ 38,738 $ 23,962 $ 19,135 Income taxes paid 101,975 152,690 135,060 ---------------------------------------
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of the consolidated financial statements. 34 REEBOK INTERNATIONAL LTD. 11 NOTES Notes to Consolidated Financial Statements Dollar amounts in thousands, except per share data 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activity The Company and its subsidiaries design and market sports and fitness products, including footwear and apparel, as well as footwear and apparel for non-athletic "casual" use, under various trademarks, including REEBOK, the GREG NORMAN Logo and ROCKPORT. ================================================================================ Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts are eliminated in consolidation. ================================================================================ Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. ================================================================================ Recognition of Revenues Sales are recognized upon shipment of products. ================================================================================ Advertising Advertising production costs are expensed the first time the advertisement is run. Media (TV and print) placement costs are expensed in the month the advertising appears. Advertising expense (including cooperative advertising) amounted to $201,584, $157,573 and $163,210 for the years ended December 31, 1996, 1995 and 1994, respectively. ================================================================================ Accounting for Stock-Based Compensation The Company accounts for its stock compensation arrangements under the provisions of APB 25, "Accounting for Stock Issued to Employees." ================================================================================ Cash Equivalents Cash equivalents are defined as highly liquid investments with maturities of three months or less at date of purchase. ================================================================================ Inventory Valuation Inventory, substantially all finished goods, is recorded at the lower of cost (first-in, first-out method) or market. ================================================================================ Property and equipment and depreciation Property and equipment are stated at cost. Depreciation is computed principally on the straight line method over the assets' estimated useful lives. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. ================================================================================ Intangibles Excess purchase price over the fair value of assets acquired is amortized using the straight line method over periods ranging from 5 to 40 years. Other intangibles are amortized using the straight line method over periods ranging from 3 to 40 years. ================================================================================ Foreign Currency Translation Assets and liabilities of most of the Company's foreign subsidiaries are translated at current exchange rates. Revenues, costs and expenses are translated at the average exchange rates for the period. Translation adjustments resulting from changes in exchange rates are reported as a separate component of stockholders' equity. Foreign currency transaction gains and losses are included in the determination of net income. For those foreign subsidiaries operating in a highly inflationary economy or having the U.S. dollar as their functional currency, net nonmonetary assets are translated at historical rates and net monetary assets are translated at current rates. Translation adjustments are included in the determination of net income. ================================================================================ Income Taxes The Company accounts for income taxes in accordance with FASB Statement No. 109, "Accounting for Income Taxes." Tax provisions and credits are recorded at statutory rates for taxable items included in the consolidated statements of income regardless of the period in which such items are reported for tax purposes. Deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities for which income tax benefits will be realized in future years. ================================================================================ Net Income Per Common Share Net income per common share is computed based on the weighted average number of common and common equivalent shares outstanding and the dilutive effect of equity put options, if applicable. ================================================================================ Reclassification Certain amounts in prior years have been reclassified to conform to the 1996 presentation. ================================================================================ 35 REEBOK INTERNATIONAL LTD. 12 NOTES Notes to Consolidated Financial Statements Dollar amounts in thousands, except per share data 2 DUTCH AUCTION SELF-TENDER STOCK REPURCHASE On July 28, 1996, the Board of Directors authorized the purchase by the Company of up to 24.0 million shares of the Company's common stock pursuant to a Dutch Auction self-tender offer. The tender offer price range was from $30.00 to $36.00 net per share in cash. The self-tender offer commenced on July 30, 1996 and expired on August 27, 1996. As a result of the self-tender offer, the Company repurchased approximately 17.0 million common shares at a price of $36.00 per share. Prior to the tender offer, the Company had 72.5 million common shares outstanding. As a result of the tender offer share repurchase, the Company had 55.8 million common shares outstanding at December 31, 1996. In conjunction with this repurchase and as described in Notes 6 and 8, the Company entered into a new credit agreement underwritten by a syndicate of major banks. 3 BUSINESS ACQUISITIONS AND DIVESTITURES On May 23, 1996, the Company finalized a long-term exclusive footwear licensing arrangement with Ralph Lauren to design, develop, manufacture, market and distribute men's, women's and children's footwear under the Ralph Lauren label. The agreement requires payment of certain annual minimum amounts for royalties and other compensation. The territory for the license initially includes North America and is expected to expand worldwide as existing Ralph Lauren licenses expire, subject to reaching agreement with Ralph Lauren as to business plans for the additional territories. In conjunction with the licensing arrangement, Reebok's subsidiary, The Rockport Company, Inc., acquired Ralph Lauren's prior licensee for the U.S. and Canada, Ralph Lauren Footwear, Inc. On June 7, 1996, the Company completed the sale of substantially all of the operating assets and business of its subsidiary, Avia Group International, Inc. 4 PROPERTY AND EQUIPMENT Property and equipment consist of the following:
DECEMBER 31 , 1996 1995 ================================================================= Land $ 29,283 $ 32,226 Buildings 75,044 67,233 Machinery and equipment 204,354 189,731 Leasehold improvements 48,757 46,654 - ----------------------------------------------------------------- 357,438 335,844 Less accumulated depreciation and amortization 172,146 143,811 - ----------------------------------------------------------------- $185,292 $192,033 =================================================================
5 INTANGIBLES Intangibles consist of the following:
DECEMBER 31, 1996 1995 ================================================================= Excess of purchase price over fair value of assets acquired (net of accumulated amortization of $6,326 in 1996 and $130,925 in 1995) $ 27,696 $ 20,698 Other intangible assets: Purchased technology 52,827 52,827 Company tradename and trademarks 49,092 49,144 Other 13,693 13,693 - ----------------------------------------------------------------- 115,612 115,664 Less accumulated amortization 73,608 71,926 - ----------------------------------------------------------------- 42,004 43,738 - ----------------------------------------------------------------- $ 69,700 $ 64,436 =================================================================
6 SHORT-TERM BORROWINGS The Company has various arrangements with numerous banks which provide an aggregate of approximately $938,167 of uncommitted facilities, substantially all of which are available to the Company's foreign subsidiaries. Of this amount, $394,767 is available for short-term borrowings and bank overdrafts, with the remainder available for letters of credit for inventory purchases. In addition to amounts reported as notes payable to banks, approximately $252,315 was outstanding for open letters of credit for inventory purchases at December 31, 1996. On August 23, 1996, in conjunction with the repurchase of its shares pursuant to the Dutch Auction self-tender offer, the Company entered into a new credit agreement underwritten by a syndicate of major banks. The agreement includes a $750,000 revolving credit facility, expiring on August 31, 2002 which replaced the Company's previous $300,000 credit line. The balance of the facility is a $640,000 six-year term loan (see Note 8.) The revolving credit facility is available to finance the short-term working capital needs of the Company as well as support the issuance of letters of credit for inventory purchases, if required. At December 31, 1996, there were no borrowings outstanding under the revolving credit portion of this agreement. As part of the agreement, the Company is required to pay certain commitment fees on the unused portion of the revolving credit facility as well as comply with various financial and other covenants. 36 REEBOK INTERNATIONAL LTD. 13 NOTES Notes to Consolidated Financial Statements Dollar amounts in thousands, except per share data The Company has a commercial paper program through which it can borrow up to $200,000 for periods up to 270 days. The borrowing amount was increased from $125,000 on February 15, 1996. This program is supported, to the extent available, by the unused portion of the $750,000 revolving credit facility. At December 31, 1996, the Company had no commercial paper obligations outstanding. The weighted average interest rate on notes payable to banks was 5.5% and 5.8% at December 31, 1996 and 1995, respectively. 7 LEASING ARRANGEMENTS The Company leases various offices, warehouses, retail store facilities and certain of its data processing and warehouse equipment under lease arrangements expiring between 1997 and 2007. Minimum annual rentals for the five years subsequent to December 31, 1996 and in the aggregate are as follows: ============================================================= 1997 $ 34,087 1998 26,571 1999 21,779 2000 16,392 2001 11,376 2002 and thereafter 20,469 - ------------------------------------------------------------- Total minimum lease obligations $130,674 =============================================================
Total rent expense for all operating leases amounted to $46,751, $40,602 and $29,167 for the years ended December 31, 1996, 1995 and 1994, respectively. 8 LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, 1996 1995 ================================================================================ Variable Rate Term Loan, final payment due August 31, 2002 with interest payable quarterly $640,000 Medium-term notes, bearing interest at rates approximating 6.75%, due May 15, 2000, with interest payable semiannually on May 15 and November 15 100,000 $100,000 6.75% debentures due September 15, 2005, with interest payable semiannually on March 15 and September 15 98,803 98,729 Medium-term notes, bearing interest at rates approximating 6%, due July 15, 1998, with interest payable semiannually on February 15 and August 15 30,000 30,000 Medium-term notes, bearing interest at rates approximating 6%, due February 11, 1998, with interest payable semiannually on February 15 and August 15 20,000 20,000 Bank and other notes payable 17,980 6,395 - -------------------------------------------------------------------------------- 906,783 255,124 Less current portion 52,684 946 - -------------------------------------------------------------------------------- $854,099 $254,178 ================================================================================
37 REEBOK INTERNATIONAL LTD. 14 NOTES Notes to Consolidated Financial Statements Dollar amounts in thousands, except per share data On August 23, 1996, the Company entered into a $1,700,000 credit agreement underwritten by a syndicate of major banks of which $950,000 was available in the form of a six-year term loan facility for the purpose of financing the Company's acquisition of common stock pursuant to the Dutch Auction self-tender offer (see Note 2.) Based on the number of shares tendered, the Company borrowed $640,000 from this facility. The undrawn portion of $310,000 was immediately canceled upon funding of the share repurchase. The credit agreement includes various covenants including restrictions on asset acquisitions, capital expenditures and future indebtedness and the requirement to maintain a minimum interest coverage ratio. Under the terms of the agreement there are various options under which the interest is calculated. At December 31, 1996, the effective rate of interest on the variable term loan was approximately 6.20%. In addition, the Company is amortizing fees and expenses associated with the credit agreement over the life of the agreement. Maturities of long-term debt during the five-year period ending December 31, 2001 are $52,684 in 1997, $135,250 in 1998, $113,066 in 1999, $201,000 in 2000 and $141,500 in 2001. 9 EMPLOYEE BENEFIT PLANS The Company sponsors defined contribution retirement plans covering substantially all of its domestic employees and certain employees of its foreign subsidiaries. Contributions are determined at the discretion of the Board of Directors. Aggregate contributions made by the Company to the plans and charged to operations in 1996, 1995 and 1994 were $11,755, $11,644 and $13,660, respectively. 10 STOCK PLANS The Company has stock option plans which provide for the grant of options to purchase shares of the Company's common stock to key employees, other persons or entities who make significant contributions to the success of the Company, and eligible members of the Company's Board of Directors. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25") and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," ("Statement 123") requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, as long as the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Under the 1994 Equity Incentive Plan, options may be incentive stock options or "non-qualified options" under applicable provisions of the Internal Revenue Code. The exercise price of any stock option granted may not be less than fair market value at the date of grant except in the case of grants to participants who are not executive officers of the Company and in certain other limited circumstances. The exercise period cannot exceed ten years from the date of grant. The vesting schedule for options granted under the 1994 Equity Incentive Plan is determined by the Compensation Committee of the Board of Directors. The Company also has an option plan for its Directors. Under this plan a fixed amount of options are granted annually to all non-employee Directors. Grants of options under the Directors plan vest in equal annual installments over three years. Proforma information regarding net income and earnings per share is required by Statement 123, which also requires that the information be determined as if the Company had accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1995 and 1996, respectively: risk-free interest rates ranging from 5.19% to 7.65%; dividend yields of .89% and .68%; volatility factor of the expected market price of the Company's common stock of .27 in both years; and a weighted-average expected life of 4.2 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of proforma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. 38 REEBOK INTERNATIONAL LTD. 15 NOTES Notes to Consolidated Financial Statements Dollar amounts in thousands, except per share data The Company's proforma information is as follows:
DECEMBER 31, 1996 1995 ================================================================================ Proforma net income $134,017 $163,404 Proforma earnings per share $ 1.96 $ 2.06 Weighted average exercise price of options granted $ 31.32 $ 34.90 Weighted average fair value of options outstanding at the end of the period $ 10.76 $ 11.63 ================================================================================ Exercise prices for options outstanding ranged from $8.75 - $41.63. Within that range 2,933,609 options were outstanding between $8.75 and $20.46, and 6,982,097 options were outstanding between $20.47, and $41.63. The weighted average contractual life of the options is seven years. Because Statement 123 is applicable only to options granted subsequent to December 31, 1994, its proforma effect will not be fully reflected until 2001.
The following schedule summarizes the changes in stock options during the three years ended December 31, 1996:
Number of Shares Under Option Non-Qualified Option Stock Options Price Per Share ================================================================================ OUTSTANDING AT DECEMBER 31, 1993 6,406,968 8.75-41.74 Granted 212,797 28.88-38.88 Exercised (352,255) 8.75-33.25 Canceled (387,935) 11.38-41.74 - -------------------------------------------------------------------------------- OUTSTANDING AT DECEMBER 31, 1994 5,879,575 8.75-39.77 Granted 1,361,502 28.75-36.75 Exercised (361,400) 8.75-33.25 Canceled (722,760) 11.38-39.77 - -------------------------------------------------------------------------------- OUTSTANDING AT DECEMBER 31, 1995 6,156,917 8.75-38.88 Granted 4,436,947 26.75-41.63 Exercised (272,153) 8.75-37.02 Canceled (406,005) 11.38-37.02 - -------------------------------------------------------------------------------- OUTSTANDING AT DECEMBER 31, 1996 9,915,706 8.75-41.63 ================================================================================
Shares granted in 1996 include a July grant to certain senior executives made in conjunction with the Dutch Auction. The options do not begin to vest until the end of 1998, and vesting extends for a period of up to five years ending in December 2002. These option grants provide that if an optionee sells before the end of 1998 any shares acquired through the exercise of options which were held prior to the Dutch Auction, the optionee will forfeit an identical number of shares subject to option under the July 1996 grant. In addition, during 1996 the Company reinstituted December as the month in which it grants its annual stock options to employees. The 1995 and 1994 annual employee option grants were issued in February 1996 and March 1995, respectively. At December 31, 1996 and 1995, options to purchase 3,983,278 and 3,956,545 shares of common stock were exercisable, and 1,225,051 and 3,369,311 shares, respectively, were available for future grants under the Company's stock option plans. The Company's 1994 Equity Incentive Plan also permits the Company to grant restricted stock to key employees and other persons or entities who make significant contributions to the success of the Company. The restrictions and vesting schedule for restricted stock granted under this plan are determined by the Compensation Committee of the Board of Directors. The Company has two employee stock purchase plans. Under the 1987 Employee Stock Purchase Plan, eligible employees are granted options to purchase shares of the Company's common stock through voluntary payroll deductions during two option periods, running from January 1 to June 30 and from July 1 to December 31, at a price equal to the lower of 85% of market value at the beginning or end of each period. Under the 1992 Employee Stock Purchase Plan, for certain foreign based employees, eligible employees are granted options to purchase shares of the Company's common stock during two option periods, running from January 1 to June 30 and from July 1 to December 31, at the market price at the beginning of the period. The option becomes exercisable 90 days following the date of grant and expires on the last day of the option period. During 1996, 1995 and 1994, respectively, 157,134, 161,377 and 158,965 shares were issued pursuant to these plans. In June 1990, the Company adopted a shareholders' rights plan and declared a dividend distribution of one common stock purchase right ("Right") for each share of common stock outstanding. Each Right entitles the holder to purchase one share of the Company's common stock at a price of $60 per share, subject to adjustment. The Rights will be exercisable only if a person or group of affiliated or associated persons acquires beneficial ownership of 10% or more of the outstanding shares of the Company's common stock or commences a tender or exchange offer that would result in a person or group owning 10% or more of the outstanding common stock, or in the event that the Company is subsequently acquired in a merger or other business combination. 39 REEBOK INTERNATIONAL LTD. 16 NOTES Notes to Consolidated Financial Statements Dollar amounts in thousands, except per share data When the Rights become exercisable, each holder would have the right to purchase, at the then-current exercise price, common stock of the surviving company having a market value of two times the exercise price of the Right. The Company can redeem the Rights at $.01 per Right at any time prior to expiration on June 14, 2000. At December 31, 1996, 11,772,677 shares of common stock were reserved for issuance under the Company's various stock plans and 67,612,747 shares were reserved for issuance under the shareholders' rights plan. 11 ACQUISITION OF COMMON STOCK On October 19, 1995, the Board of Directors authorized the repurchase of up to an additional $200,000 in Reebok common stock in open market or privately- negotiated transactions. This authorization was in addition to the share repurchase programs of $200,000 each adopted by the Company in July 1992, July 1993 and October 1994. As of December 31, 1996, the Company had approximately $129,800 available for future repurchases of common stock under these programs. The Company does not expect to make open market purchases in the near term and will focus on repaying the incremental debt incurred as a result of the Dutch Auction (see Note 2.) 12 EQUITY PUT OPTIONS During 1996 and 1995, the Company issued equity put options as part of its ongoing share repurchase program. These options provided the Company with an additional source to supplement open market purchases of its common stock. The options were priced based on the market value of the Company's stock at the date of issuance. The redemption value of the options, which represents the option price times the number of shares under option, is presented in the accompanying consolidated balance sheets as "Outstanding redemption value of equity put options." At December 31, 1996, no shares of outstanding common stock are subject to repurchase under the terms and conditions of these options. 13 FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company to estimate the fair value of its financial instruments. Cash and cash equivalents and notes payable to banks: the carrying amounts reported in the balance sheet approximate fair value. Long-term debt: the fair value of the Company's medium-term notes and debentures is estimated based on quoted market prices. The fair value of other long-term debt is estimated using discounted cash flow analyses, based on the Company's incremental borrowing rates for similar types of borrowing arrangements. Unrealized gains or losses on foreign currency exchange contracts: the fair value of the Company's foreign currency exchange contracts is estimated based on current foreign exchange rates. Interest rate swaps: the fair value of the Company's interest rate swaps is estimated based on current interest rates. The carrying amounts and fair value of the Company's financial instruments are as follows:
Carrying Amount Fair Value - -------------------------------------------------------------------------------- DECEMBER 31, 1996 1995 1996 1995 ================================================================================ Long-term debt $906,783 $255,124 $881,372 $261,860 Unrealized gains (losses) on foreign currency exchange contracts and options 173 (1,108) 1,394 (1,108) Interest rate swaps 1,420 ================================================================================
Foreign Exchange Forwards and Options The Company enters into forward currency exchange contracts and options to hedge its exposure for merchandise purchased in U.S. dollars that will be sold to customers in other currencies. Realized and unrealized gains and losses on these contracts are included in net income except that gains and losses on contracts which hedge specific foreign currency commitments are deferred and accounted for as a part of the transaction. The Company also uses forward currency exchange contracts and options to hedge significant intercompany assets and liabilities denominated in other than the functional currency. Contracts used to hedge intercompany balances are marked to market, and the resulting transaction gain or loss is included in the determination of net income. Foreign currency gains or losses included in net income for the years ended December 31, 1996, 1995 and 1994 were not significant. The Company has used forward exchange contracts and options as an element of its risk management strategy for several years. At December 31, 1996, the Company had forward currency exchange contracts, all having maturities of less than one year, with a notional amount aggregating $368,666. 40 REEBOK INTERNATIONAL LTD. 17 NOTES Notes to Consolidated Financial Statements Dollar amounts in thousands, except per share data The contracts involved twelve different foreign currencies. No single currency represented more than 24% of the aggregate notional amount. The notional amount of contracts intended to hedge merchandise purchases was $158,340. Deferred gains (losses) on these contracts were not material at December 31, 1996 and 1995. Interest Rate Swaps The Company uses interest rate swap agreements to manage its exposure to interest rate movements by effectively converting a portion of its variable rate long-term debt from floating to fixed rates. These agreements involve the exchange of variable rate payments for fixed rate payments without the effect of leverage and without the exchange of the underlying principal amount. Interest rate differentials paid or received under these swap agreements are recognized over the life of the contracts as adjustments to interest expense. During the fourth quarter of 1996, the Company entered into several amortizing interest rate swaps with a group of financial institutions having an initial notional value of $320,000 and expiring on December 31, 2000. The notional amount of the swaps is reduced each year in accordance with the expected repayment schedule of the Company's Variable Rate Term Loan. The terms of the swaps require the Company to make fixed rate payments on a quarterly basis whereas the Company will receive variable rate payments based on the three-month U.S. dollar LIBOR. At December 31, 1996, the notional amount of interest rate swaps outstanding was $320,000. Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and hedging instruments. The Company places cash equivalents with major financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. The Company is exposed to credit-related losses in the event of non-performance by counterparties to hedging instruments. The counterparties to these contracts are major financial institutions. The Company continually monitors its positions and the credit ratings of its counterparties and places dollar and term limits on the amount of contracts it enters into with any one party. 14 INCOME TAXES The components of income before income taxes and minority interest are as follows: DECEMBER 31, 1996 1995 1994 ================================================================================ Domestic $(12,720) $ 14,292 $171,166 Foreign 250,388 261,682 246,202 - -------------------------------------------------------------------------------- $237,668 $275,974 $417,368 ================================================================================
The provision for income taxes consists of the following: ================================================================================ DECEMBER 31, 1996 1995 1994 ================================================================================ Current: Federal $ 1,961 $ 3,998 $ 66,879 State 4,534 13,878 16,607 Foreign 83,921 83,450 83,840 - -------------------------------------------------------------------------------- 90,416 101,326 167,326 - -------------------------------------------------------------------------------- Deferred: Federal (1,705) (1,594) (3,038) State (689) (3,112) (303) Foreign (3,939) 3,133 (9,991) - -------------------------------------------------------------------------------- (6,333) (1,573) (13,332) - -------------------------------------------------------------------------------- $ 84,083 $ 99,753 $ 153,994 ================================================================================
Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $517,309, $410,402 and $316,099 at December 31, 1996, 1995 and 1994, respectively. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and foreign withholding taxes, less an adjustment for applicable foreign tax credits. Determination of the amount of U.S. income tax liability that would be incurred is not practicable because of the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credits would be available to reduce some portion of any U.S. income tax liability. Income taxes computed at the federal statutory rate differ from amounts provided as follows:
DECEMBER 31, 1996 1995 1994 ================================================================================ Tax at statutory rate 35.0% 35.0% 35.0% State taxes, less federal tax effect 1.7 2.7 2.6 Effect of tax rates of foreign subsidiaries and joint ventures (1.6) (2.0) (1.3) Amortization of intangibles 0.4 0.4 0.5 Other, net (0.1) 0.1 0.1 - -------------------------------------------------------------------------------- Provision for income taxes 35.4% 36.2% 36.9% ================================================================================
41 REEBOK INTERNATIONAL LTD. 18 NOTES Notes to Consolidated Financial Statements Dollar amounts in thousands, except per share data Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred taxes are attributable to the following temporary differences at
DECEMBER 31, 1996 1995 ================================================================================ Inventory $35,212 $ 36,219 Accounts receivable 23,085 25,810 Liabilities 9,661 5,958 Depreciation 5,528 5,216 Other, net 3,786 (2,264) - -------------------------------------------------------------------------------- Total $ 77,272 $ 70,939 ================================================================================
15 OPERATIONS BY GEOGRAPHIC AREA Net sales to unaffiliated customers, net income and identifiable assets by geographic area are summarized below:
DECEMBER 31, 1996 1995 1994 ================================================================================ Net sales: United States $1,935,724 $2,027,080 $1,974,904 United Kingdom 566,196 492,843 506,658 Europe 623,209 642,622 536,629 Other countries 353,475 318,905 262,227 - -------------------------------------------------------------------------------- $3,478,604 $3,481,450 $3,280,418 ================================================================================ Net income: United States $ 29,155 $ 36,176 $ 126,916 United Kingdom 54,937 69,277 62,949 Europe 15,943 20,648 44,290 Other countries 38,915 38,697 20,323 - -------------------------------------------------------------------------------- $ 138,950 $ 164,798 $ 254,478 ================================================================================ Identifiable assets: United States $ 887,217 $ 813,935 $ 963,462 United Kingdom 391,865 291,825 282,795 Europe 282,057 311,903 230,912 Other countries 225,045 233,956 172,292 - -------------------------------------------------------------------------------- $1,786,184 $1,651,619 $1,649,461 ================================================================================
There are various differences between income before income taxes and minority interest for domestic and foreign operations as shown in Note 14 and net income shown above. 16 CONTINGENCIES On August 29, 1995, the Company obtained a favorable ruling on its motion for summary judgment in the lawsuit entitled Stutz Motor Car of America, Inc. v. Reebok International Ltd., (filed on July 1, 1993 in the Central District of Los Angeles County Superior Court as Case Number BC074579 and removed to the United States District Court for the Central District of California where it was assigned Civil Action Number 93-4433LGB) and, as a result, the case was dismissed. The Plaintiff has appealed the decision. The Company believes that the Plaintiff's appeal is without merit and is confident that the District Court decision will be upheld. The Company's settlement with the National Association of Attorneys General ("NAAG") relating to the investigation by NAAG against the Company was approved by the Federal Court of the Southern District of New York on October 20, 1995. The Court's order approving the settlement was appealed to the Second Circuit Court of Appeals on January 9, 1996 by counsel purporting to represent a class of Reebok and Rockport consumers. On September 9, 1996, the Second Circuit Court upheld the decision of the District Court and approved the NAAG settlement. The Plaintiff's right to appeal the Second Circuit decision expired on January 13, 1997. 17 SPECIAL CHARGES The Company recorded special charges totaling $72,098 in 1995. In the second quarter of 1995, the Company recorded a special charge of $18,034, principally related to facilities consolidation and severance and other costs associated with the streamlining of certain segments of the Company's operations. The after-tax effect of this charge was $11,235, or $0.14 per share. In connection with the sale of the Company's Avia subsidiary, the Company recorded a special charge of $54,064 in the fourth quarter of 1995 to adjust the carrying value of Avia to its estimated fair value on sale. The after-tax effect of this write-down was $33,699, or $0.44 per share. Actual amounts recorded in 1996 did not differ materially from the Company's estimates. 18 CASH DIVIDENDS Concurrent with the Dutch Auction self-tender stock repurchase described in Note 2, the Company's Board of Directors elected to suspend subsequent declarations of quarterly cash dividends on the Company's common stock. Accordingly, the last dividend declared was for shareholders of record as of September 11, 1996, who received a dividend payment of $0.075 per share on October 2, 1996. Suspension of the dividend will conserve substantial cash which the Company plans to utilize to reduce debt incurred as a result of its share repurchase. 42 REEBOK INTERNATIONAL LTD. 19 REPORTS REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors and Stockholders Reebok International Ltd. Stoughton, Massachusetts We have audited the accompanying consolidated balance sheets of Reebok International Ltd. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Reebok International Ltd. and subsidiaries at December 31, 1996 and 1995 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP - ------------------------ Boston, Massachusetts January 30, 1997 REPORT OF MANAGEMENT Financial Statements The management of Reebok International Ltd. and its subsidiaries has prepared the accompanying financial statements and is responsible for their integrity and fair presentation. The statements, which include amounts that are based on management's best estimates and judgments, have been prepared in conformity with generally accepted accounting principles and are free of material misstatement. Management has also prepared other information in the annual report and is responsible for its accuracy and consistency with the financial statements. ================================================================================ Internal Control System Reebok International Ltd. and its subsidiaries maintain a system of internal control over financial reporting, which is designed to provide reasonable assurance to the Company's management and Board of Directors as to the integrity and fair presentation of the financial statements. Management continually monitors the system of internal control for compliance, and actions are taken to correct deficiencies as they are identified. Even an effective internal control system, no matter how well designed, has inherent limitations - - including the possibility of the circumvention or overriding of controls - and therefore can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, internal control system effectiveness may vary over time. The Company maintains an internal auditing program that monitors and assesses the effectiveness of the internal control system and recommends possible improvements thereto. The Company's accompanying financial statements have been audited by Ernst & Young LLP, independent auditors, whose audit was made in accordance with generally accepted auditing standards and included a review of the system of internal accounting controls to the extent necessary to determine the audit procedures required to support their opinion on the consolidated financial statements. Management believes that, as of December 31, 1996, the Company's system of internal control is adequate to accomplish the objectives discussed herein. Reebok International Ltd., /s/ Paul Fireman /s/ Kenneth Watchmaker - ----------------------- ---------------------------- Paul Fireman Kenneth Watchmaker Chairman, President and Executive Vice President and Chief Executive Officer Chief Financial Officer 43 REEBOK INTERNATIONAL LTD. 20 QUARTERLY RESULTS OF OPERATIONS
Amounts in thousands, except per share data First Second Third Fourth YEAR ENDED DECEMBER 1996 Quarter Quarter Quarter Quarter ====================================================================================== Net sales $902,923 $817,572 $ 970,080 $788,029 Gross profit 351,132 312,268 380,530 290,252 Net income 48,415 19,813 50,612 20,110 Net income per common share .64 .27 .75 .35 Cash dividends per common share .075 .075 .075 .000 ====================================================================================== First Second Third Fourth YEAR ENDED DECEMBER 1995 Quarter Quarter Quarter Quarter ====================================================================================== Net sales $935,478 $788,692 $1,005,980 $751,300 Gross profit 378,079 316,847 391,145 281,295 Net income 65,917 21,404 76,202 1,275 Net income per common share .80 .26 .96 .02 Cash dividends per common share .075 .075 .075 .075 ======================================================================================
On June 7, 1996, Reebok completed the sale of substantially all of the operating assets of its subsidiary Avia. Accordingly, subsequent to that date, the operations of Avia are no longer included in the Company's financial results. Net income for the second quarter of 1995 includes an after-tax special charge of $11,235 ($0.14 per share.) Net income for the fourth quarter of 1995 includes an after-tax special charge of $33,699 ($0.44 per share.) 44 REEBOK INTERNATIONAL LTD. 21 DIRECTORS & OFFICERS - ------------------ BOARD OF DIRECTORS - ------------------ PAUL FIREMAN Chairman, President & Chief Executive Officer Reebok International Ltd. PAUL R. DUNCAN Executive Vice President Reebok International Ltd. WILLIAM F. GLAVIN President, Babson College MANNIE L. JACKSON Chairman & Chief Executive Officer Harlem Globetrotters International, Inc. BERTRAM M. LEE, SR. Chairman of the Board Albimar Communications, Inc. RICHARD G. LESSER Executive Vice President & Chief Operating Officer TJX Companies, Inc. WILLIAM M. MARCUS Executive Vice President & Treasurer American Biltrite, Inc. ROBERT MEERS Executive Vice President President & CEO Reebok Division GEOFFREY NUNES Senior Vice President & General Counsel Millipore Corporation JOHN A. QUELCH Sebastian S. Kresge Professor of Marketing at the Graduate School of Business Administration Harvard University - ------------------ CORPORATE OFFICERS - ------------------ PAUL FIREMAN Chairman, President & Chief Executive Officer PAUL R. DUNCAN Executive Vice President ROBERT MEERS Executive Vice President President & CEO Reebok Division KENNETH WATCHMAKER Executive Vice President & Chief Financial Officer ANGEL R. MARTINEZ Executive Vice President President & Chief Executive Officer The Rockport Company, Inc. BARRY NAGLER Vice President & General Counsel LEO S. VANNONI Treasurer 45 REEBOK INTERNATIONAL LTD. 22 CORPORATE INFORMATION AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, MA 02116 TRANSFER AGENT AND REGISTRAR The First National Bank of Boston is the Transfer Agent and Registrar for the Company's common stock and maintains the shareholder accounting records. The Transfer Agent should be contacted on questions of changes in address, name or ownership, lost certificates and consolidation of accounts. When corresponding with the Transfer Agent, shareholders should state the exact name(s) in which the stock is registered and certificate number(s), as well as old and new information about the account. The First National Bank of Boston c/o Boston EquiServe, L.P. Shareholder Correspondence Mail Stop 45-02-64 Post Office Box 644 Boston, MA 02102-0644 (617) 575-3400 FORM 10-K For a copy of the Form 10-K Annual Report filed with the Securities and Exchange Commission, write to: Office of Investor Relations Reebok International Ltd. 100 Technology Center Drive Stoughton, MA 02072 WEB SITE http://www.reebok.com CORPORATE HEADQUARTERS Reebok International Ltd. 100 Technology Center Drive Stoughton, MA 02072 ANNUAL MEETING The Annual Meeting of Stockholders will be held at 10:00 a.m., local time, on Thursday, May 1, 1997 at the First National Bank of Boston, First Floor Auditorium, 100 Federal Street, Boston, Massachusetts. Shareholders of record on March 11, 1997 are entitled to vote at the meeting. STOCK INFORMATION The Company's common stock is quoted on the New York Stock Exchange under the symbol RBK. The following table, derived from data supplied by the NYSE, sets forth the quarterly high and low stock prices during 1996 and 1995. 1996 1995 High Low High Low ------------------------------------------------------------ First 31 3/8 25 3/8 39 5/8 33 5/8 Second 33 3/4 26 37 1/2 31 1/8 Third 36 7/8 29 1/4 37 7/8 32 7/8 Fourth 45 1/4 32 1/2 36 1/4 24 1/8 The number of record holders of the Company's common stock at December 31, 1996 was 7,179. REEBOK, the Vector Logo , the Human Rights Logo and HEXALITE are registered trademarks, and DMX, HYDROMOVE and 3D ULTRALITE are trademarks of Reebok International. ROCKPORT and DRESSPORTS are registered trademarks, and XCS and The Walking Sandal are trademarks of The Rockport Company, Inc. GREG NORMAN is a registered trademark, and the Greg Norman Logo is a trademark of Great White Shark Enterprises, Inc. RALPH LAUREN and POLO SPORT are registered trademarks of Polo Ralph Lauren, L.P. Copy Right 1997 Reebok International Ltd. All rights reserved. Portions of this annual report are printed on recycled paper. 46 REEBOK INTERNATIONAL LTD. EX-21.1 10 SUBSIDIARIES 1 EXHIBIT 21.1 SUBSIDIARIES OF REEBOK INTERNATIONAL LTD. ----------------------------------------- Jurisdiction of Incorporation or Name Organization - ----- ---------------- Ralph Lauren Footwear Co., Inc. Massachusetts RBK Thailand, Inc. Massachusetts Reebok Aviation, Inc. Massachusetts Reebok CHC, Inc. Massachusetts Reebok Eastern Territories, Inc. Massachusetts Reebok Foundation, Inc. Massachusetts Reebok International Securities Corp. Massachusetts Reebok Securities Holdings Corp. Massachusetts The Reebok Worldwide Trading Company, Ltd. Massachusetts The Rockport Company, Inc. Massachusetts Avintco, Inc. Delaware RFC, Inc. Delaware The Donner Mountain Corporation Oregon 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 Reebok International Finance B.V. The Netherlands Reebok Nederland B.V. The Netherlands Rockport (Europe) B.V. The Netherlands Rockport (Nederland) B.V. The Netherlands Reebok (Philippines) Services Co., Inc. Philippines Reebok Poland SA Poland 2 3 EXHIBIT 21.1 - Page 3 SUBSIDIARIES OF REEBOK INTERNATIONAL LTD. ---------------------------------------- Jurisdiction of Incorporation or Name Organization - ---- ---------------- Reebok Portugal Artigos Desportives Lda Portugal Reebok Russia Retail, Inc. Russia Reebok Leisure SA Spain Reebok (South Africa) (Proprietary) Limited South Africa Reebok (Switzerland) Ltd. Switzerland Reebok (Taiwan) Services Company Taiwan 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 3 EX-23.1 11 CONSENT OF ERNST & YOUNG 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 January 30, 1997 included in the 1996 Annual Report to Shareholders of Reebok International Ltd. Our audits also included the financial statement schedule of Reebok International Ltd. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements on Form S-3 (File Nos. 33-24114, 33-32664, 33-62301 and 333-17955) and Form S-8 (File Nos. 33-6989, 33-15729, 33-53954, 33-14698, 33-15089, 33-32663, 33-54562, 33-53523, 33-53525 and 33-53537) and related prospectuses of our report dated January 30, 1997, 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 24, 1997 EX-27 12 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31,1996 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000770949 REEBOX INTERNATIONAL LTD. 1,000 U.S. DOLLARS 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 1 232,365 0 634,031 43,527 544,522 1,463,088 357,434 172,142 1,786,184 516,961 887,989 0 0 926 380,308 1,786,184 3,478,604 3,482,929 2,144,422 2,144,422 1,073,228 0 42,246 223,033 84,083 138,950 0 0 0 138,950 2.00 2.00
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