10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2005

OR

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

Commission file number 1-9340

REEBOK INTERNATIONAL LTD.

Incorporated pursuant to the Laws of The Commonwealth of Massachusetts

Internal Revenue Service-Employer Identification No. 04-2678061

1895 J.W. Foster Boulevard, Canton, Massachusetts, 02021

(781) 401-5000

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 (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ýNo o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 under the Securities Exchange Act of 1934).  Yes ý No o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 under the Securities Exchange Act of 1934).  Yes o No ý

The total number of shares of the Registrant’s Common Stock, par value $.01 per share, outstanding on October 28, 2005 was 59,837,496.

REEBOK INTERNATIONAL LTD.

INDEX

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PART I  - - FINANCIAL INFORMATION

Item 1.  Financial Statements.

Reebok International Ltd.

Condensed Consolidated Balance Sheets

Amounts in thousands, except per share data

	September 30,									December 31,
	2005					2004				2004
	(Unaudited)									(See Note 1)
Assets
Current Assets:
Cash and cash equivalents	$		481,545			$		269,563		$	565,233
Accounts receivable, net of allowance for doubtful accounts (September 2005, $77,401 September 2004, $77,570, December 2004, $81,280)	739,880					814,140				660,599
Inventory	506,627					505,009				458,435
Deferred income taxes	125,528					117,047				111,516
Prepaid expenses and other current assets	102,184					73,289				61,730
Total current assets	1,955,764					1,779,048				1,857,513
Property and equipment, net	189,675					166,919				183,799
Other non-current assets:
Goodwill, net	125,908					88,156				124,125
Intangibles, net of amortization	197,033					198,629				196,138
Deferred income taxes	44,033					23,632				44,892
Other	30,439					29,554				34,161
Total Assets	$		2,542,852			$	2,285,938			$		2,440,628
Liabilities and Stockholders’ Equity
Current liabilities:
Notes payable to banks	$			59,044		$	39,560			$		63,179
Current portion of long-term debt						100,170				100,627
Accounts payable	174,704					173,563				183,853
Accrued expenses and other current liabilities	329,475					369,110				386,725
Income taxes payable	114,111					63,261				71,930
Total current liabilities	677,334					745,664				806,314
Long-term debt, net of current portion	359,619					359,271				360,126
Minority interest	7,695					7,748				8,514
Other long-term liabilities	39,184					27,436				45,718
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $.01; authorized 250,000 shares; issued shares: September 2005, 102,493; September 2004, 100,886; December 2004, 101,827	1,025					1,020				1,018
Retained earnings	2,187,837					1,912,089				1,985,324
Less shares in treasury at cost: September 2005, 42,619; September 2004, 42,619; December 2004, 42,619	(780,510				)	(780,510			)	(780,510				)
Unearned compensation	(5,904				)	(2,049			)	(5,804				)
Accumulated other comprehensive gain (loss)	56,572					15,269				19,928
Total Stockholders’ Equity	1,459,020					1,145,819				1,219,956
Total Liabilities and Stockholders’ Equity	$	2,542,852				$		2,285,938		$			2,440,628

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

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Reebok International Ltd.

Condensed Consolidated Statements of Income (Unaudited)

Amounts in thousands, except per share data

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
	2005					2004				2005				2004
Net sales	$	1,041,209				$	1,164,733			$		2,842,479		$	2,810,158
Costs and expenses:
Cost of sales	590,280					694,110				1,663,012				1,687,639
Selling, general and administrative expenses	347,085					346,109				950,065				883,350
Loss on early extinguishment of debt														10,228
Interest expense, net	1,353					4,266				6,664				9,453
Other (income) expense, net	(76,447				)	(489			)	(73,765			)	4,237
	862,271					1,043,996				2,545,976				2,594,907
Income before income taxes and minority interest	178,938					120,737				296,503				215,251
Income taxes	58,646					36,824				93,236				65,651
Income before minority interest	120,292					83,913				203,267				149,600
Minority interest	2,636					2,087				5,295				4,917
Net income	$		117,656			$	81,826			$		197,972		$		144,683
Basic earnings per share:	$			1.97		$		1.40		$		3.33		$		2.50
Diluted earnings per share:	$			1.87		$		1.34		$	3.17			$		2.32
Dividends per common share:	$			.15		$		.15		$	.30			$		.30

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

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-Reebok International Ltd.

Condensed Consolidated Statements of Cash Flows (Unaudited)

Amounts in thousands, except per share data

	Nine Months Ended September 30,
	2005				2004
Cash flows from operating activities:
Net income	$	197,972			$	144,683
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation and amortization	33,935				28,085
Gain on sale of Ralph Lauren Footwear	(80,307			)
Minority interest	5,295				4,917
Loss on early extinguishment of debt					10,228
Dividends to minority shareholders	(4,832			)	(4,852		)
Deferred income taxes	(13,025			)	(10,417		)
Changes in operating assets and liabilities, excluding the effect of acquisitions:
Accounts receivable	(101,524			)	(204,345		)
Inventory	(78,305			)	(82,411		)
Prepaid expenses and other	(13,100			)	(19,262		)
Accounts payable and accrued expenses	(25,146			)	(579		)
Income taxes payable	51,721				42,793
Total adjustments	(225,288			)	(235,843		)
Net cash used for operating activities:	(27,316			)	(91,160		)
Cash flows provided by (used for) investing activities:
Payments to acquire property and equipment	(37,526			)	(30,346		)
Proceeds from Sale of Ralph Lauren Footwear	108,072
Acquisition of The Hockey Company (net of cash received)					(347,066		)
Net cash provided by (used for) investing activities	70,546				(377,412		)
Cash flows (used for) provided by financing activities:
Net borrowings of notes payable to banks	(5,669			)	31,080
Re-payments of long-term debt	(100,322			)	(256,037		)
Net proceeds from issuance of convertible debentures					350,000
Proceeds from issuance of common stock to employees	20,688				19,991
Dividends paid	(17,930			)	(17,781		)
Repurchase of common stock	(5,655			)	(77,338		)
Net cash (used for) provided by financing activities	(108,888			)	49,915
Effect of exchange rate changes on cash and cash equivalents	(18,030			)	(5,379		)
Net decrease in cash and cash equivalents	(83,688			)	(424,036		)
Cash and cash equivalents at beginning of period	565,233				693,599
Cash and cash equivalents at end of period	$		481,545		$	269,563
Supplemental disclosures of cash flow information:
Interest paid	$		22,870		$	20,102
Income taxes paid	$		56,769		$	33,752

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

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Reebok International Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in thousands, except per share data)

1

SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods.  The interim financial information and notes thereto should be read in conjunction with the Company’s latest annual report on Form 10-K.  The results of operations for the three and nine months ended September 30, 2005 are not necessarily indicative of results to be expected for the entire year.

The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

Reclassification

Certain amounts in prior periods have been reclassified to conform to the 2005 presentation.  These reclassifications had no impact on previously reported results of operations or stockholders’ equity.

Accounting for Stock-Based Compensation

At September 30, 2005, the Company had stock-based employee compensation plans.  The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations.  The Company’s policy is to grant stock options with an exercise price equal to the market value at the date of the grant, and accordingly no compensation expense is recognized.  The Company provides pro forma disclosures of the compensation expense determined under the fair value provisions of Financial Accounting Standards Board Statement No. 123, “Accounting for Stock-Based Compensation.”  The Company expects to adopt FASB Statement No. 123 (revised 2004) “Share-Based Payment” (“SFAS 123R”) on January 1, 2006.  The standard requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.  See Recently Issued Accounting Standards below.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period.  The Company’s pro forma information follows (in thousands, except for earnings per share information):

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2005			2004		2005			2004
Net income	$	117,656		$	81,826	$	197,972		$		144,683
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards net of related tax effect	2,137			5,673		7,505			8,813
Pro forma net income	$		115,519	$	76,153	$		190,467	$	135,870

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	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005		2004
Basic earnings per share:
As reported	$	1.97	$	1.40	$	3.33	$	2.50
Pro forma	$	1.95	$	1.32	$	3.22	$	2.37
Diluted earnings per share:
As reported	$	1.87	$	1.34	$	3.17	$	2.32
Pro forma	$	1.85	$	1.26	$	3.07	$	2.20

Pro forma information regarding net income and earnings per share is required by SFAS 123, which 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 as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September  30,
	2005	2004	2005	2004
Risk-free interest rates	4.2	3.1%	3.7%-4.2%	2.8%-3.3%
Dividend yields	N/A (1)	.9%	.66%-.74%	.8%-.9%
Volatility factors of the expected market price of the Company’s common stock	.25	.30	.2-.25	.30-.33
Weighted-average expected life of the option	3.5 years	3.5 years	3.5 years	3.5 years

(1) There were no options granted during the three months ended September 20, 2005.

Net income, as reported, included $985 and $344 of restricted stock-based compensation expense for the three months ended September 30, 2005 and 2004, respectively, and $2,417 and $835 of restricted stock-based compensation expense for the nine months ended September 30, 2005 and 2004, respectively.

Recently Issued Accounting Standards

On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 123 (revised 2004) “Share-Based Payment” (“SFAS 123R”), which is a revision of Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”).  SFAS 123R supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and amends FASB Statement No. 95, “Statement of Cash Flows”.  SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.  Pro forma disclosure is no longer an alternative.

Under SFAS 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption.  The transition alternatives include the modified retrospective and the modified prospective adoption methods.  Under the modified retrospective method, prior periods may be restated based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either for all periods presented or as of the beginning of the year of adoption.

The modified prospective method requires that compensation expense be recognized beginning with the effective date, based on the requirements of SFAS 123R, for all share-based payments granted after the effective date, and based on the requirements of SFAS 123, for all awards granted to employees prior to the effective date of SFAS 123R that remain unvested on the effective date.

The provisions of this statement are effective as of the beginning of the first fiscal year beginning after June 15, 2005.  The Company expects to adopt the standard on January 1, 2006.  The Company is evaluating the

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requirements of SFAS 123R and has not determined its method of adoption, however, the Company does not believe that SFAS 123R will have a material impact on its financial position or results of operations.

2

SPECIAL CHARGES

Details of the special charge activity during the nine months ended September 30, 2005 are as follows:

				Employee
				Severance			Marketing
	Total			And Other			Contracts
Balance, December 31, 2004	$	7,064		$	1,264		$	5,800
2005 Utilization	(2,464		)	(1,264		)	(1,200		)
Balance, September 30, 2005	$	4,600		$	0		$	4,600

The remaining accrual is comprised primarily of a contractual marketing obligation and will be utilized over the next few years as this contractual obligation comes due.  The short-term portion of the accrual, or $1,600, is included in accrued expenses with the balance of $3,000 included in other long-term liabilities.

3

EARNINGS PER SHARE

Basic earnings per share excludes dilution and is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding for the period.  Diluted earnings per share reflects the potential dilution that could occur if options to acquire common stock were exercised and assumes the conversion of the convertible debentures into common stock when dilutive.

The following table sets forth the computation of basic and diluted earnings per share (amounts in thousands, except per share data):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005				2004
Net income	$	117,656		$	81,826		$	197,972			$		144,683
Numerator for diluted earnings per share:
Net income	$	117,656		$	81,826		$	197,972			$	144,683
Interest on 4.25% convertible debentures, net of income taxes											2,805
Interest on 2.00% convertible debentures, net of income taxes	186			186			556				310
Net income	$	117,842		$	82,012		$		198,528		$	147,798
Denominator for basic earnings per share:
Weighted average shares	59,675			58,472			59,498				57,873
Denominator for diluted earnings per share:
Weighted average shares	59,675			58,472			59,498				57,873
Effect of dilutive securities:
Dilutive employee stock options and warrants	2,353			1,641			2,047				1,951
Assumed conversion of 4.25% convertible Debentures											3,277
Assumed conversion of 2.00% convertible Debentures	1,038			1,038			1,038				582
	63,066			61,151			62,583				63,683
Basic earnings per share:	$		1.97	$		1.40	$			3.33	$	2.50
Diluted earnings per share:	$		1.87	$		1.34	$			3.17	$	2.32

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4

COMPREHENSIVE INCOME

The following table sets forth the computation of comprehensive income:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2005			2004		2005				2004
Net income	$	117,656		$	81,826	$	197,972			$		144,683
Changes in foreign currency translation adjustments	2,369			10,159		(32,845			)	5,753
Net change due to hedging instruments in accordance with FAS 133	1,301			401		69,489				31,724
Comprehensive income	$		121,326	$	92,386	$		234,616		$	182,160

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COMMITMENTS AND CONTINGENCIES

On August 12, 2005, a purported class action complaint, Bryan Jennings v. Reebok International Ltd., et al. (C.A. No. 05-4355 BLS) was filed by a shareholder of the Company against the Company and its directors challenging the transactions contemplated by the Agreement and Plan of Merger, dated as of August 2, 2005 (the “Merger Agreement”), between adidas-Salomon AG (“adidas”), Ruby Merger Corporation (“Merger Sub”) and the Company.  Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving corporation.  The lawsuit is pending in Suffolk County Superior Court in The Commonwealth of Massachusetts.

The complaint alleges that the Company’s directors breached their fiduciary duties in connection with the Merger, and claims, among other things, that the Merger Consideration (as defined in the Merger Agreement) to be paid to the Company’s shareholders in the Merger is unfair and grossly inadequate and that the defendants failed to sufficiently ascertain the true value of the Company through open bidding or a market check mechanism. The complaint seeks, among other things, injunctive relief to enjoin the completion of the Merger, rescind the Merger Agreement and direct the defendants to sell or auction the Company for the highest possible price, and damages, including reasonable attorneys’ and experts’ fees.

The lawsuit is in its preliminary stages.  The Company believes that the lawsuit is without merit and intends to defend vigorously against it.

The Company is involved in various other legal proceedings generally incidental to its business.  While it is not possible to predict or determine the outcome of these proceedings, management does not believe that they should result in a materially adverse effect on the Company’s financial position, results of operations or liquidity.

The Company has entered into financing agreements, real property and equipment leases which contain tax indemnity provisions.  The maximum potential amount of future payments is not determinable since any amounts potentially owed by the Company would be due to future changes in tax rates or income tax regulations which cannot be predicted.

6

ACQUISITION OF COMMON STOCK

Under various share repurchase programs, the Board of Directors has authorized the repurchase of Reebok common stock in the open market or privately negotiated transactions.  During the nine months ended September 30, 2005, the Company acquired 130,000 shares of its common stock for approximately $5.7 million.  In May 2005 the Board approved the continuation of the Company’s repurchase program and authorized the repurchase of an additional $88.0 million of the Company’s common stock.  As of September 30, 2005, the Company had approximately $150.0 million available for future repurchases of its

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common stock under these Board authorized programs.  Under the terms of the Merger Agreement, however, the Company is prohibited from repurchasing its common stock.

7

BUSINESS DIVESTITURES

On July 15, 2005 the Company completed the sale of Ralph Lauren Footwear Co. Inc., a wholly owned subsidiary of the Company and Polo Ralph Lauren Corporation’s footwear licensee, to Polo Ralph Lauren Corporation for proceeds of $108.0 million, subject to certain closing adjustments.  The sale resulted in an pre-tax gain to the Company of approximately $80.3 million, or $48.8 million after-tax, which is included in other income in the third quarter of 2005.  Upon the closing of the transaction, the agreement under which Ralph Lauren Footwear acted as Polo’s footwear licensee was terminated.  The Company continues to provide transition services to Polo Ralph Lauren Corporation for a period of up to eighteen months after the closing date.  The fees received for such services will approximate the expenses incurred.

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AGREEMENT AND PLAN OF MERGER

The Company entered into an Agreement and Plan of Merger, dated as of August 2, 2005 (the “Merger Agreement”), with adidas-Salomon AG (“adidas”) and Ruby Merger Corporation, a Massachusetts corporation which is wholly-owned by adidas or one or more wholly-owned subsidiaries of adidas (“Merger Sub”).  Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving corporation.  Pursuant to the Merger Agreement, at the effective time of the Merger, each outstanding share of common stock, par value $.01 per share, of the Company (the “Shares”), other than any Shares owned by the Company or any direct or indirect wholly-owned subsidiary of the Company, or by any stockholders who are entitled to and who properly exercise appraisal rights under Massachusetts law, will be canceled and converted automatically into the right to receive $59.00 in cash, without interest.  All outstanding options to purchase shares of common stock, restricted shares and deferred shares of common stock of the Company will be canceled and converted into the right to receive $59.00 per restricted share, deferred share or share of common stock underlying such option less, in the case of options, the exercise price thereof, without interest.

The Merger is conditioned, among other things, on the approval of the Merger Agreement by the stockholders of the Company and the termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR”) and certain other regulatory approvals.  On October 3, 2005, the HSR waiting period expired.

The Merger Agreement contains certain termination rights and provides that, upon the termination of the Merger Agreement under specified circumstances, the Company may be required to pay adidas a termination fee equal to $100.0 million.  In the event the Merger Agreement is terminated for failure to obtain required antitrust approvals, adidas may be required to pay to the Company a termination fee equal to $75.0 million.  The Company has incurred $2.5 million of merger costs which are included in other (income) expenses, net for the three and nine months ended September 30, 2005.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

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

10

uncertainties that could cause the Company’s actual results to differ materially from the results discussed in such forward-looking statements.  Prospective information is based on management’s then current expectations or forecasts.  Such information is subject to the risk that such expectations or forecasts, or the assumptions underlying such expectations or forecasts, may change.  The Company assumes no obligation to update any such forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

Risks and uncertainties that could affect the Company’s actual results and could cause such results to differ materially from those contained in forward-looking statements made by or on behalf of the Company include, but are not limited to, the following: economic conditions in the Company’s major markets; competition; shifts in consumer preferences; the ability to maintain advantageous licenses with the Company’s licensors; risks associated with the Company’s international sales, distribution and manufacturing; increases in raw material prices; the Company’s ability to manage and forecast its growth and inventories; the loss of significant customers or suppliers; and the effect of currency fluctuations.  In addition, the European Union (EU) is conducting anti-dumping investigations regarding the importation into the EU of footwear manufactured in China, Vietnam and India.  While the outcome of these investigations is uncertain, they could result in the imposition by the EU of additional import duties on certain Reebok and Rockport branded footwear, which could increase the cost of footwear imported into the EU by the Company and other brands.  A number of companies in the footwear industry, including the Company, are aggressively defending against the imposition of such duties by the EU.  On August 2, 2005, the Company entered into the Merger Agreement with adidas.  There is no assurance that the proposed Merger will be consummated.  If the proposed Merger is not completed, the value of the Company’s common stock may decline and the Company’s business may be adversely affected.

This list of risk factors is not exhaustive.  Other risks and uncertainties are discussed elsewhere in this report and in further detail under the caption entitled “Issues and Uncertainties” included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, which has been filed with the Securities and Exchange Commission.  The Company operates in a highly competitive and rapidly changing environment.  Therefore, new risk factors can arise, and it is not possible for management to predict all such risk factors, nor to assess the impact of all such risk factors on the Company’s business or the extent to which any individual risk factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.  With respect to any statements concerning future orders, the Company’s backlog position is not necessarily indicative of future sales because a significant portion of the Company’s business, including sales by Company-owned retail stores, Rockport and The Greg Norman Collection are not included in the backlog.  In addition, many markets are not included in open orders since sales are made by independent distributors.  Finally, many orders may be cancelled, currency may fluctuate and the ratio of future orders to “at once” shipments may vary from year to year.

CRITICAL ACCOUNTING POLICIES—The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included in Item 8 in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004.  The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  On an on-going basis the Company evaluates its estimates, including those related to sales returns and allowances, the realizability of outstanding accounts receivable, the carrying value of inventories, hedging policies and the provision for income taxes.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  However, results may differ from these estimates under different assumptions or conditions.  The Company is not aware of any trends, demands, commitments, events or uncertainties that are reasonably likely to occur that would materially affect the methodology, the assumptions described, or accounting estimates used.  There have been no material changes made to these accounting estimates in the past three years.  In the past, actual results have not been materially different from the Company’s estimates.  Management has

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discussed the development and selection of its accounting estimates, and the Management’s Discussion and Analysis disclosure regarding these estimates, with the Company’s audit committee.

The Company has identified the following as critical accounting policies based on the significant judgments and estimates used in determining the amounts reported in its consolidated financial statements:

Sales Returns and Allowances

The Company records reductions to revenue for estimated customer returns and allowances.  The Company bases its estimates on historical rates of customer returns and allowances as well as the specific identification of outstanding returns and allowances that have not yet been received by the Company.  The actual amount of customer returns or allowances, which is inherently uncertain, may differ from the Company’s estimates.  If actual or expected returns and allowances were significantly greater or lower than the reserves the Company had established, the Company would record an adjustment to reduce or increase net sales and net income in the period in which it made such a determination.

Accounts Receivable

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.  The Company estimates potential losses based on the Company’s historical rate of credit losses, its knowledge of the financial condition of certain customers and an assessment of the overall conditions at retail.  If the Company determined that increases or decreases to the allowance for doubtful accounts was appropriate, the Company would record an adjustment to increase or reduce selling, general and administrative expenses and net income in the period in which the Company made such a determination.  Historically, losses have been within the Company’s expectations.  If the financial condition of the Company’s customers was to change, adjustments may be required to these estimates.  Furthermore, the Company provides for estimated losses resulting from differences between the gross carrying value of its receivables and the amounts that customers estimate are owed to the Company.  The settlement or resolution of these differences could result in future changes to these estimates.

Inventory Valuation

The Company values its inventory at the lower of cost (first-in, first-out method) or market.  Market value is estimated based upon assumptions made about future demand and retail market conditions.  If the Company determines that the estimated market value of its inventory is less than the carrying value of such inventory, the Company provides a reserve for such difference as a charge to cost of sales.  If actual market conditions are more or less favorable than those projected by the Company, further adjustments may be required that would decrease or increase the Company’s cost of sales which would increase or decrease net income in the period in which they were recorded.

Hedging Policies

The Company uses foreign currency forward contracts, options contracts and interest rate swap agreements to hedge its exposure to: (1) merchandise purchased in U.S. Dollars that is forecasted to be sold to customers in other currencies; (2) significant assets and liabilities that are denominated in other currencies; and (3) interest rate movement.  If actual fluctuations in foreign exchange rates or interest rates are more or less favorable than those projected by management, or if the actual amount of merchandise purchased in U.S. Dollars to be sold to customers in other currencies differs from the amounts projected, an adjustment may be required to reduce or increase cost of goods sold or other income and net income.

Endorsement Contracts

In general, endorsement payments are expensed on a straight-line basis over the term of the contract. However, certain contract elements may be accounted for differently based upon the facts and circumstances of each individual contract. Certain contracts provide for contingent payments for meeting specific performance achievements. The Company records these contingent payments in selling, general and administrative expenses when the specific performance achievement has been met.

Some of the contracts provide for payments based upon endorsers maintaining a level of performance in their sport over an extended period of time (e.g., maintaining a top ranking in a sport for a year). These amounts are reported in selling, general and administrative expenses when the Company determines that it is probable that the specified level of performance will be maintained throughout the period. In these

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instances, to the extent that actual payments to the endorser differ from the Company’s estimate due to changes in the endorser’s athletic performance, increased or decreased selling, general and administrative expenses may be reported in a future period.

Some of the contracts provide for royalty payments to endorsers based upon a predetermined percentage of sales of particular products.  The Company expenses these payments in cost of sales as the related sales are made.  In certain contracts, the Company offers minimum guaranteed royalty payments. For contractual obligations for which the Company estimates that it will not meet the minimum guaranteed amount of royalty fees through sales of product, the Company records a portion of the amount in selling, general and administrative expenses and a portion in cost of sales on a straight line basis over the guarantee period.

Income Taxes

The carrying value of the Company’s net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions to realize the value of these assets.  If the Company is unable to generate sufficient future taxable income in these jurisdictions, an adjustment may be required to the net carrying value of the deferred tax assets resulting in additional income tax expense in the Company’s consolidated statement of income thereby reducing net income.  Management evaluates the realizability of the deferred tax assets and assesses the need for any valuation adjustment quarterly.

RECENTLY ISSUED ACCOUNTING STANDARDS—The Company has described the impact anticipated from the adoption of certain new accounting pronouncements effective in 2004 in Note 1 to the Condensed Consolidated Financial Statements for the quarter ended September 30, 2005.

NON-GAAP MEASURES—The Company provides certain constant dollar comparisons, which eliminate the effect of foreign currency fluctuations on such comparisons, in this Quarterly Report on Form 10-Q.  Constant dollars are calculated by translating the prior period financial information at the current period foreign exchange rates, thereby eliminating the effect of foreign currency fluctuations.  Because of the significance of the Company’s international operations, the Company believes that disclosing constant dollar comparisons in certain instances assists in the readers’ understanding of the Company’s consolidated financial statements.  However, such comparisons may not reflect future changes in currency.

In this Quarterly Report on Form 10-Q the Company provides certain net sales comparisons that exclude the results of its Ralph Lauren Footwear (“RLF”) business because the Company sold RLF on July 15, 2005.  The Company believes that disclosing comparisons excluding the results of RLF in certain instances assists in the readers’ understanding of the Company’s consolidated financial statements and of comparisons between comparable periods.

OPERATING RESULTS

Third Quarter 2005 Compared to Third Quarter 2004

Net income for the third quarter ended September 30, 2005 was $117.7 million, or $1.87 per diluted share, an earnings per share increase of 39.6% when compared to net income of $81.8 million, or $1.34 per diluted share, for the third quarter of 2004.  The third quarter 2005 results were favorably impacted by an after-tax gain of $48.8 million from the sale of RLF and negatively impacted by $2.5 million for costs pertaining to certain legal and other expenses associated with the proposed merger with adidas.  In addition, the Company’s operating results were negatively affected by the integration of The Hockey Company into the Reebok Brand and from the Company’s plans to reposition its business with Footlocker, Inc., as well as Footlocker’s efforts to reduce its inventory levels over the balance of 2005.  Additional information with regard to The Hockey Company integration and the Company’s business with Footlocker is contained later herein.

Net sales for the quarter ended September 30, 2005, were $1.041 billion, a decrease of $123.5 million, or 10.6%, from the quarter ended September 30, 2004 net sales of $1.165 billion.  The 2004 third quarter includes sales of RLF, which the Company sold on July 15, 2005.  Excluding the sales of RLF, sales declined 8.1% in the quarter.  Currency fluctuations did not have a material impact on sales comparisons in

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the quarter.  Worldwide sales of the Reebok Brand were $912.1 million in the third quarter of 2005, a decrease of $91.2 million, or 9%, from $1,003.3 million in the third quarter of 2004.

The following table provides a reconciliation of net sales for the three months ended September 30, 2005 and 2004, excluding the sales of RLF (in millions):

Net Sales	2005		2004
Total Company	$	1,041.2	$		1,164.7
Sales of RLF	6.5		38.7
Total Company without RLF	$	1,034.7	$	1,126.0

U.S. footwear sales of the Reebok Brand decreased 20.3% to $241.0 million in the third quarter of 2005 from $302.4 million in the third quarter of 2004.  The Company believes that the announcement on August 3, 2005 of its proposed merger with adidas has created in the short term some retailer uncertainty with respect to the Company and that this impacted its sales and order intake in the quarter, particularly with certain mall based retailers in the U.S.  In addition, as it noted last quarter, the Company is in the process of repositioning its business with one of its major customers, Footlocker, Inc.  The Company believes that by shifting some of its Classic business at Footlocker into new Performance categories that it will stimulate consumer demand.  While in the short term the Company’s Footlocker business is negatively impacting its operating results, the Company believes that its strategy to reposition its business with Footlocker will help to improve its operating margins in the future.  Footlocker has also announced plans to reduce its inventory levels over the balance of 2005 and the Company has been working with Footlocker to help them achieve this.  The Company’s sales to Footlocker declined approximately $46.0 million on a global basis in the 2005 third quarter as compared with the comparable quarter last year.  Most of the sales decline occurred in the U.S.  The Company also believes that the U.S. market has become promotional in response to economic factors such as rising energy costs and Hurricanes Katrina and Rita.  The Company expects this trend to continue for the balance of the year.

During the back-to-school period in the U.S., sales of Classic product derivatives slowed down at retail as the Company continued to see a shift in the U.S. market towards Performance products.  The Company’s new The Pump technology product introduction is still in its early stages.  For the remainder of this year and for 2006 and beyond the Company plans to introduce several new evolutions of its self-inflating, self-regulating The Pump technology.  The Answer IX, which is the tenth shoe in the Iverson collection and was introduced at retail in early November, is the first Iverson shoe to feature The Pump customization technology.  The Company believes it’s The Pump products will become sales and earnings contributors as the Company evolves The Pump technology and markets its benefits to sports performance enthusiasts.

During the third quarter of 2005, the Company decided to consolidate its Reebok Brand product and marketing groups under one leader.  The Company believes that the new organizational structure will give it greater focus on product and marketing concepts for its targeted consumer groups.  The new product teams are fully integrated from design and development through to marketing and they support the Company’s product initiatives under the Rbk, Performance, Lifestyle and Kid’s platforms.

With respect to the Company’s Classic products, while sales of Classic derivative products did slow down in the U.S. during the quarter, this was not the case in Europe where sales of Classic Fusion and Classic Original products continued to be strong.  The Company believes that its Classic products have been a strength of the Reebok Brand for many years and that this will continue into the future.  The Company plans to launch a new line of Rbk Classic products later in 2006 and will be accelerating the rollout of its Classic Fusion products into several key markets, including the U.S.

U.S. apparel sales of the Reebok Brand were $204.8 million in the third quarter of 2005, as compared to $204.1 million in the third quarter of 2004.  Sales of Reebok sports licensed apparel, which includes apparel sold under the Company’s license agreements with the NFL, NBA and NHL, increased in the third quarter of 2005 compared to the third quarter of 2004.  The Company’s fan-based licensed apparel continues to perform well in team shops where sales of NFL and NBA products increased by approximately 30.0% in the quarter. The increase in sales of the Company’s licensed apparel business was offset by a decline in sales of U.S. branded apparel.

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During the first quarter of 2005, the Company began the integration of The Hockey Company business into the Reebok Brand on both a product and geographic basis.  As part of this integration, the Company is consolidating multiple warehouses in Canada into its new distribution facility in Quebec.  The startup problems the Company encountered at this new facility during the first quarter of 2005 have not been fully resolved and this has caused some difficulty in shipping the demand for The Hockey Company’s products.  At the end of the third quarter of 2005, there were approximately $15.0 million of open orders that the Company was unable to fulfill until October 2005 or beyond due to capacity constraints during the start-up period.  The Company is incurring duplicate costs related to redundant facilities and excess payroll costs in connection with the start-up and wind down of the facilities.  The Company expects to have these issues resolved during 2006.

International sales of the Reebok Brand (including footwear and apparel) were $466.3 million in the third quarter of 2005, a decrease of 6.1% from sales of $496.8 million in the third quarter of 2004.  International footwear sales decreased 8.9% and international apparel sales decreased by 3.1%.

Sales in Europe declined 7.2% as compared to the third quarter of 2004.  The sales decline was primarily in the U.K., France and Italy.  While the French and Italian markets have been particularly difficult for the Company recently, the Company believes the benefit of recent management changes will begin to positively impact future performance.  The retail environment in Europe has been challenging and promotional.  Average selling prices continue to decline across Europe, and very few retailers are reporting positive trading results.  The emerging markets of Eastern Europe continue to show sales growth, reporting double-digit sales increases this quarter.  The Company believes this growth is closely related to its retail presence through its own and third party operated retail stores.  Although sales declined during the quarter in Asia Pacific, the Company believes it is starting to see results of the last eighteen months of its investment in this region.  The Company plans to open its first 10,000 square foot Reebok store in the region in November 2005 and plans to open its Tokyo flagship store in February 2006.  In Latin America, sales by the Company’s Mexican subsidiary increased by 33% during the third quarter of 2005 as compared to the third quarter of 2004 and sales by the Company’s independent distributors in this region increased 27%.

Rockport’s sales for the third quarter of 2005 were $102.6 million, a decrease of 3.2% from sales of $106.0 million in the third quarter of 2004.  While sales of the Rockport brand declined in the quarter, the Company believes that the quality of Rockport’s sales has improved as closeout sales declined in the quarter.  Sales to better department stores increased 11% in the quarter and overall operating performance improved in the quarter.  Domestic sales for the Rockport Brand decreased 5.7% while international sales for the Rockport brand were comparable to the third quarter of 2004.  International revenues accounted for approximately 44% of Rockport’s sales in the third quarter of 2005 as compared to 42% in the third quarter of 2004.

Sales of the Company’s other brands, Ralph Lauren Footwear and The Greg Norman Collection, were $26.5 million in the third quarter of 2005, a decrease of 52.2% from sales of $55.4 million in the third quarter of 2004.  The Company sold RLF on July 15, 2005.

The Company’s overall gross margin was 43.3% of sales during the third quarter of 2005, which is an increase of 290 basis points when compared with the Company’s gross margin of 40.4% in the third quarter of 2004.  During the quarter, most of the improvement came from the Company’s international markets.

Selling, general and administrative expenses for the third quarter of 2005 were $347.1 million, or 33.3% of sales, an increase of $1.0 million when compared to $346.1 million, or 29.7% of sales, for the third quarter of 2004.  As a result of lower sales in the quarter, the Company’s SG&A percentage was higher than anticipated.  Most of the sales shortfall occurred in September and the Company was not able to adjust its spending plans in time to offset the shortfall.  The Company plans to bring its operating expenses down as a percentage of sales in order to achieve improved operating margins in the future.

For the quarter ended September 30, 2005, other (income) expenses, net was net income of $76.4 million.  Other income includes the gain on the sale of RLF of $80.8 million ($48.8 million after-tax), as well as $2.5 million of legal expenses and other costs related to the proposed merger with adidas.  Also included in other

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expenses, net, is the amortization of finite-lived intangibles, certain currency gains and losses and other non-operating expenses.

Net interest expense was $1.4 million for the quarter ended September 30, 2005, a decrease of $2.9 million as compared to the third quarter of 2004.  Interest expense increased $2.1 million during the third quarter of 2005 and interest income increased $5.0 million for the third quarter of 2005 as compared to the third quarter of 2004.

The Company’s effective income tax rate was 32.8% for the third quarter of 2005.  The tax rate for the third quarter of 2005 reflects a tax on the gain on sale of RLF of approximately 39.2%.  Excluding the effect of this gain, the Company’s tax rate for the quarter was 27.5% as compared to 30.5% for the third quarter of 2004.  Under current accounting rules, the tax rate could, and likely will, continue to fluctuate on a quarterly basis depending on the jurisdictions in which profits are considered to be earned, changes in estimates of credits and deductions, the resolution of issues arising from tax audits with various taxing authorities and the ability to realize deferred tax assets.

First Nine Months of 2005 Compared to First Nine Months of  2004

Net income for the nine months ended September 30, 2005 was $198.0 million, or $3.17 per diluted share, an earnings per share increase of 36.6% when compared to net income of $144.7 million, or $2.32 per diluted share, for the first nine months of 2004.  The results for the first nine months of 2005 were favorably impacted by an after-tax gain of $48.8 million from the sale of RLF and negatively impacted by $2.5 million for costs pertaining to certain legal and other expenses associated with the proposed merger with adidas.  In addition, the Company’s operating results were negatively affected by the integration of The Hockey Company into the Reebok Brand and from the Company’s plans to reposition its business with Footlocker, Inc., as well as Footlocker’s efforts to reduce its inventory levels over the balance of 2005.  Additional information with regard to The Hockey Company integration and the Company’s business with Footlocker is contained later herein.

Net sales for the nine months ended September 30, 2005 were $2.843 billion, an increase of $32.3 million, or 1%, from net sales for the nine months ended September 30, 2004 of $2.810 billion.  The first nine months of 2005 includes sales of RLF, which the Company sold on July 15, 2005.  Excluding the sales of RLF, sales increased 2.2% during the nine month period.  On a constant dollar basis, which eliminates the effect of currency exchange fluctuations, net sales for the nine months ended September 30, 2005 decreased $12.2 million, or 0.4%.  Worldwide sales of the Reebok Brand were $2.435 billion for the first nine months of 2005, an increase of $54.3 million, or 2.2%, from $2.381 billion in the first nine months of 2004.

The following table provides a reconciliation of net sales for the three months ended September 30, 2005 and 2004, excluding the sales of RLF (in millions):

Net Sales	2005		2004
Total Company	$	2,842.5	$	2,810.2
Sales of RLF	65.0		93.7
Total Company without RLF	$	2,777.5	$	2,716.5

U.S. footwear sales of the Reebok Brand decreased 5.6% to $794.9 million in the first nine months of 2005 from $842.3 million in the first nine months of 2004.  The Company believes that the announcement of its proposed merger with adidas on August 3, 2005 has created in the short term some retailer uncertainty with respect to the Company and that this impacted its sales and order intake in the third quarter, particularly with certain mall based retailers in the U.S.  In addition, the Company is in the process of repositioning its business with one of its major customers, Footlocker, Inc.  The Company believes that by shifting some of its Classic business at Footlocker into new Performance categories that it will stimulate consumer demand.  While in the short term the Company’s Footlocker business is negatively impacting its operating results, the Company believes that its strategy to reposition its business with Footlocker will help to improve its operating margins in the future.  For the nine month period, sales of Classic footwear product in the U.S., including Footlocker, was down 15% with the decline being partially offset by an 8% increase in sales of Performance footwear products.

U.S. apparel sales of the Reebok Brand increased 9.2% to $427.6 million in the first nine months of 2005 from $391.6 million in the first nine months of 2004.  The Company generated double-digit sales increases in its sports licensed apparel business, which were partially offset by a decline in sales of U.S. branded apparel.

During the first quarter of 2005, the Company began the integration of The Hockey Company business into the Reebok Brand on both a product and geographic basis.  As part of this integration, the Company is consolidating multiple warehouses in Canada into its new distribution facility in Quebec.  The startup problems the Company encountered at this new facility during the first quarter of 2005 have not been fully resolved and this has caused some difficulty in shipping the demand for The Hockey Company’s products.  At the end of the third quarter of 2005, there were approximately $15.0 million of open orders that the Company was unable to fulfill until October 2005 or beyond due to capacity constraints during the start-up period.  The Company is incurring duplicate costs related to redundant facilities and excess payroll costs in connection with the start-up and wind down of the facilities.  The Company expects to have these issues resolved during 2006.

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International sales of the Reebok Brand (including footwear and apparel) were $1.213 billion in the first nine months of 2005, an increase of 5.7% from sales of $1.147 million in the first nine months of 2004. International footwear sales increased 8.9% and international apparel sales increased by 1.9%.  Changes in foreign currency exchange rates have favorably impacted these comparisons.  On a constant dollar basis, international sales of the Reebok Brand increased $25.9 million, or 2.2%.  International footwear sales increased 5.5% and international apparel sales decreased by 1.7%.

Sales in Europe decreased about 1.0% as compared to the first nine months of 2004.  Sales declined in the U.K., France and Italy.  Partially offsetting the sales decline in these countries were sales increases in Germany, Poland and Russia.  The emerging markets of Eastern Europe continue to show sales growth, reporting double-digit sales increases during the first nine months of 2005.  The Company believes this growth is closely related to its retail presence through its own and third party operated retail stores.  While the French and Italian markets have been particularly difficult for the Company recently, the Company believes the benefit of recent management changes will begin to positively impact future performance.  The retail environment in Europe has been challenging and promotional.  Average selling prices continue to decline across Europe, and very few retailers are reporting positive trading results. Despite the difficult market conditions in the U.K., the Company’s U.K. footwear business has experienced an 8.0% increase in sales for the nine-month period.

In Asia Pacific, the Company is starting to see the results of the last eighteen months of its investment in this region, with double-digit sales increases in the growing markets of China and India.  In Latin America, sales by the Company’s Mexican subsidiary increased by 40% during the first nine months of 2005 and sales by the Company’s independent distributors increased by 36%, with all of the Company’s distributors in the region reporting double-digit sales increases for the nine month period ended September 30, 2005.

Rockport’s sales for the first nine months of 2005 were $278.3 million, a decrease of 1% from sales of $280.9 million in the first nine months of 2004.  Domestic sales for the Rockport Brand decreased 4.0%, whereas international sales increased 4.0% as compared to the first nine months of 2004.  Currency has positively impacted these comparisons.  On a constant dollar basis, international sales of the Rockport Brand decreased 2.2%.  International revenues accounted for approximately 40% of Rockport’s sales in the first nine months of 2005 as compared to 38% in the first nine months of 2004.

Sales of the Company’s other brands, RLF and The Greg Norman Collection, were $128.8 million in the first nine months of 2005, a decrease of 13.1% from sales of  $148.2 million in the first nine months of 2004.  The Company sold RLF on July 15, 2005.

The Company’s overall gross margin was 41.5% of sales during the first nine months of 2005, which is an increase of 160 basis points when compared with the Company’s gross margin of 39.9% in the first nine months of 2004. During the nine month period, most of the improvement came from the Company’s international markets.

Selling, general and administrative expenses for the first nine months of 2005 were $950.1 million, or 33.4% of sales, an increase of $66.7 million when compared to $883.4 million, or 31.4% of sales for the first nine months of 2004.  Approximately half of the increase in SG&A was due to the inclusion of The Hockey Company, which was acquired effective July 1, 2004, for the entire 2005 nine month period.  During the first nine months of 2005, the Company launched its largest global integrated marketing and advertising campaign in nearly a decade and significantly increased its overall advertising spend for the Reebok Brand.  The  “I Am What I Am” marketing campaign celebrates authenticity and individuality and the Company believes that it is both relevant and inspiring for young consumers.  As a result of these investments in the first nine months of 2005, the Company’s total Reebok brand advertising expense increased by approximately 20% as compared with the first nine months of 2004.  Also, as a result of lower sales in the third quarter of 2005, the Company’s SG&A percentage was higher than anticipated in that quarter.  Most of the sales shortfall occurred in September 2005 and the Company was not able to adjust its spending plans in time to offset the shortfall.  The Company plans to bring its operating expenses down as a percentage of sales in order to achieve improved operating margins in the future.

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For the nine months ended September 30, 2005, other (income) expenses, net, was income of $73.8 million.  Other (income) expense, net includes the gain on the sale of RLF of $80.8 million ($48.8 million after-tax), as well as $2.5 million of legal expenses and other costs related to the proposed merger with adidas.  Also included in other (income) expenses, net, is the amortization of finite-lived intangibles, certain currency gains and losses and other non-operating expenses.

Net interest expense was $6.7 million for the nine month period ended September 30, 2005, a decrease of $2.8 million as compared to the first nine months of 2004.  Interest expense increased $4.2 during the first nine months of 2005 and interest income increased $7.0 million for the first nine months of 2005 as compared to the first nine months of 2004.

The Company’s effective income tax rate was 31.4% for the first nine months of 2005.  The tax rate for the first nine months of 2005 reflects a tax on the gain on sale of RLF of approximately 39.2%.  Excluding the effect of this gain, the Company’s tax rate for the nine-month period was 28.5% as compared to 30.5% for the first nine months of 2004.  Under current accounting rules, the tax rate could, and likely will, continue to fluctuate on a quarterly basis depending on the jurisdictions in which profits are considered to be earned, changes in estimates of credits and deductions, the resolution of issues arising from tax audits with various taxing authorities and the ability to realize deferred tax assets.

Reebok Brand Backlog of Open Orders

Worldwide backlog of open customer orders scheduled for delivery during the period October 1, 2005 through March 31, 2006 for the Reebok Brand decreased 8.3% as compared to the same period last year.  Backlog in constant dollars is calculated by translating the 2004 backlog at the 2005 foreign exchange rates, thereby eliminating the effect of currency fluctuations on the comparisons.

Comparisons regarding orders scheduled for delivery for the period October 1, 2005 through March 31, 2006 versus the comparable period in 2004-2005 for the Reebok Brand are as follows:

	As Reported
	Percentage Change
	2005/2004
	Reported		Constant
	Dollars		Dollars
USA:
Footwear	-18.4	%	-18.4	%
Apparel	-11.4	%	-11.4	%
Total Domestic	-16.7	%	-16.7	%
International:
Footwear	+1.1	%	+2.2	%
Apparel	+7.3	%	+8.4	%
Total International	+3.9	%	+5.0	%
Total Reebok Brand:
Footwear	-11.8	%	-11.5	%
Apparel	-1.0	%	-.5	%
Total Reebok Brand	-8.2	%	-7.8	%

The Company’s backlog position is not necessarily indicative of future sales because a significant portion of the Company’s business, including sales by Company-owned retail stores, Rockport and The Greg Norman Collection, are not included in the backlog.  In addition, many markets are not included in open orders since sales are made by independent distributors.  Finally, many orders may be cancelled, currency may fluctuate and the ratio of future orders to “at once” shipments may vary from year to year.

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Liquidity and Sources of Capital

At September 30, 2005, the Company’s working capital was $1.283 billion compared to $1.051 billion at December 31, 2004 and $1.033 billion at September 30, 2004.  The current ratio, a comparison of current assets to current liabilities, at September 30, 2005 was 2.9 to 1 compared to 2.3 to 1 at December 31, 2004 and 2.4 to 1 at September 30, 2004.

Worldwide inventories were $506.6 million at September 30, 2005 compared to $505.0 million at September 30, 2004.  Accounts receivable at September 30, 2005 were $739.9 million compared to $814.1 million at September 30, 2004.  During the quarter, the Company repaid from available cash its $100.0 million principal amount of 6.75% debentures which became due on September 15, 2005.  At September 30, 2005 the Company had $481.5 million of cash as compared with $269.6 million of cash at September 30, 2004.

Prepaid expenses and other current assets were $102.2 million at September 30, 2005, as compared to $73.3 million at September 30, 2004.  The increase is primarily due to the increase in the value of the Company’s foreign exchange contracts of $28.7 million.

Cash used for operations during the first nine months of 2005 was $225.3 million, as compared to cash used for operations of $235.8 million during the first nine months of 2004.  Capital expenditures for the nine months ended September 30, 2005 were $37.5 million compared to $30.3 million for the first nine months of 2004.  The capital expenditures are primarily related to the integration of The Hockey Company and Reebok Canada operations, European regionalization, and retail and other facility requirements internationally.

On July 1, 2005, the Company entered into a new five-year revolving credit agreement in the amount of $300.0 million (“the Credit Agreement”) with its bank group.  The Credit Agreement includes a letter of credit sub-facility in the amount of $200.0 million as well as a revolving credit facility, which is available to finance the short-term working capital needs of the Company, if required.  As part of the Credit Agreement, the Company is required to pay certain commitment fees on the unused portion of the revolving credit facility.  The Credit Agreement contains various covenants including the requirement to maintain a minimum interest coverage ratio and debt to adjusted earnings ratio. Under the terms of the Credit Agreement there are various options under which interest is calculated.

The Company believes that cash generated from operations, together with the Company’s existing credit lines and other financial resources, will adequately finance the Company’s planned 2005 cash requirements.  However, the Company’s actual experience may differ from the expectations set forth in the preceding sentence.  Factors that might lead to a difference include, but are not limited to, the matters discussed in the Company’s Annual Report on Form 10-K under the heading “Issues and Uncertainties,” as well as future events that might have the effect of reducing the Company’s available cash balances (such as unexpected operating losses or increased capital or other expenditures, as well as increases in the Company’s inventory or accounts receivable), or future events that might reduce or eliminate the availability of external financial resources.

During the nine months ended September 30, 2005 the Company acquired 130,000 shares of its common stock for $5.7 million.  At September 30, 2005 the Company had approximately $150.0 million available for future share purchases under the Company’s current Board authorization.  Under the terms of the Merger Agreement, however, the Company is prohibited from repurchasing its common stock.

On July 26, 2005 the Company’s Board of Directors declared a semi-annual cash dividend in the amount of $0.15 per share, or an aggregate of $9.0 million, which was paid on September 2, 2005 to shareholders of record as of August 19, 2005.  In February 2005 the Company’s Board of Directors declared a semi-annual cash dividend in the amount of $0.15 per share, or an aggregate of $8.9 million, which was paid on March 18, 2005 to shareholders of record as of March 5, 2005.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

Our market risks, and the ways we manage them, are summarized in management’s discussion and analysis of financial condition and results of operations as of December 31, 2004, included in the Company’s Form 10-K

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for the year ended December 31, 2004.  There have been no material changes in the first nine months of 2005 to such risks or our management of such risks.

Item 4.  Controls and Procedures.

a)The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this report.  Based upon that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

b)There has been no change in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II  -  OTHER INFORMATION

Item 1:  Legal Proceedings.

On August 12, 2005, a purported class action complaint, Bryan Jennings v. Reebok International Ltd., et al. (C.A. No. 05-4355 BLS) was filed by a shareholder of the Company against the Company and its directors challenging the transactions contemplated by the Agreement and Plan of Merger, dated as of August 2, 2005 (the “Merger Agreement”), between adidas-Salomon AG (“adidas”), Ruby Merger Corporation (“Merger Sub”) and the Company.  Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving corporation.  The lawsuit is pending in Suffolk County Superior Court in The Commonwealth of Massachusetts.

The complaint alleges that the Company’s directors breached their fiduciary duties in connection with the Merger, and claims, among other things, that the Merger Consideration (as defined in the Merger Agreement) to be paid to the Company’s shareholders in the Merger is unfair and grossly inadequate and that the defendants failed to sufficiently ascertain the true value of the Company through open bidding or a market check mechanism. The complaint seeks, among other things, injunctive relief to enjoin the completion of the Merger, rescind the Merger Agreement and direct the defendants to sell or auction the Company for the highest possible price, and damages, including reasonable attorneys’ and experts’ fees.

The lawsuit is in its preliminary stages.  The Company believes that the lawsuit is without merit and intends to defend vigorously against it.

The Company is involved in various other legal proceedings generally incidental to its business.  While it is not possible to predict or determine the outcome of these proceedings, management does not believe that they should result in a materially adverse effect on the Company’s financial position, results of operations or liquidity.

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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

(e)Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value that May Yet Be Purchased Under the Plans or Programs
July 1, 2005 through July 31, 2005				$	149,861,319
August 1, 2005 through August 31, 2005				$	149,861,319
September 1, 2005 through September 30 2005				$	149,861,319
TOTALS	0	N/A	0	$	149,861,319

Under various share repurchase programs, the Board of Directors has authorized the repurchase of Reebok common stock in the open market or privately negotiated transactions.  During the nine months ended September 30, 2005, the Company acquired 130,000 shares of its common stock for approximately $5.7 million.  In May 2005, the Board approved the continuation of the Company’s repurchase program and authorized the repurchase of an additional $88.0 million of the Company’s common stock.  As of September 30, 2005, the Company had approximately $150.0 million available for future repurchases of its common stock under these Board authorized programs.  Under the terms of the Merger Agreement, however, the Company is prohibited from repurchasing its common stock.

Item 3:  Defaults upon Senior Securities.

None.

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

None.

Item 5:  Other Information.

None.

Item 6:  Exhibits.

31.1Certification of Paul Fireman, Chairman and Chief Executive Officer, dated November 9, 2005, and made pursuant to Rule 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2Certification of Kenneth Watchmaker, Executive Vice President and Chief Financial Officer, dated November 9, 2005, and made pursuant to Rule 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Paul Fireman, Chairman and Chief Executive Officer, dated as of November 9, 2005, and made pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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32.2 Certification of Kenneth Watchmaker, Executive Vice President and Chief Financial Officer, dated as of November 9, 2005, and made pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURE

Pursuant to the requirements 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.

Date:  November 9, 2005

	REEBOK INTERNATIONAL LTD.
BY:	/s/ KENNETH WATCHMAKER
	Kenneth Watchmaker
	Executive Vice President and
	Chief Financial Officer

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Paul Fireman, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Reebok International Ltd.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent

fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 9, 2005

/s/ Paul Fireman

Paul Fireman

Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Kenneth Watchmaker, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Reebok International Ltd.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent

fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 9, 2005

/s/ Kenneth Watchmaker

Kenneth Watchmaker

Executive Vice President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chief Executive Officer of Reebok International Ltd. (the “Company”), does hereby certify that to the undersigned’s knowledge:

1)the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005  (“10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2)the information contained in the Company’s 10-Q being filed fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Paul Fireman

Paul Fireman

Chairman and Chief Executive Officer

Dated: November 9, 2005

A signed original of this written statement required by Section 906 has been provided to Reebok International Ltd. and will be retained by Reebok International Ltd. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Executive Vice President and Chief Financial Officer of Reebok International Ltd. (the “Company”), does hereby certify that to the undersigned’s knowledge:

1)the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005  (“10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2)the information contained in the Company’s 10-Q being filed fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Kenneth Watchmaker

Kenneth Watchmaker

Executive Vice President and

Chief Financial Officer

Dated: November 9, 2005

A signed original of this written statement required by Section 906 has been provided to Reebok International Ltd. and will be retained by Reebok International Ltd. and furnished to the Securities and Exchange Commission or its staff upon request.