Item 1.   Business.

GENERAL     --     Reebok International Ltd. is a global company that designs and markets sports and fitness products, including footwear, apparel and accessories (Reebok International Ltd. is referred to herein, together with its subsidiaries, as "the Company," "we," "our" and "us" unless specified otherwise). We also design and market casual footwear, apparel and accessories for non-athletic use.

        We design, market and sell our products under our four principal brands, which include:

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The Reebok® Brand ("Reebok"), which is primarily responsible for our Reebok-branded products and our sports licensing business;

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The Rockport® brand, which is owned by our subsidiary The Rockport Company, LLC ("Rockport");

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The Ralph Lauren® and Polo® footwear brands, which are licensed by our subsidiary Ralph Lauren Footwear Co., Inc. ("Ralph Lauren Footwear"); and

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The Greg Norman® brand, which is licensed by our Greg Norman Division for use in our Greg Norman Collection ("Greg Norman Collection").

        Our revenues are derived principally from the wholesale distribution of our products to selected athletic specialty stores and other higher-end retail shops, as well as sporting goods and moderate and better department stores. In addition, to reinforce and further capitalize on the reputation of our brands, we pursue opportunities to license our trademarks and other intellectual property to third parties for use on equipment, apparel, accessories, sporting goods, health clubs and related products and services.

        As a multi-brand company, we are able to leverage our resources across our brands by integrating common operations and sharing key assets such as our strong technology platforms. Our operations are consolidated into our world headquarters in Canton, Massachusetts, which enables us to centralize administrative functions with respect to supply chain, logistics and other support services and to lower our general and administrative expenses.

        During calendar year 2002, our net income increased to $126.5 million, or $1.97 per diluted share, from $102.7 million, or $1.66 per diluted share, for calendar year 2001. Our net sales increased by 4.5% to $3.128 billion in 2002 from $2.993 billion in 2001.

        Reebok International Ltd. is a Massachusetts corporation and was organized on July 26, 1979.

        Reebok's filings with the Securities and Exchange Commission, including our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and amendments to such reports, are accessible free of charge on our website at www.reebok.com.

THE REEBOK BRAND     --     Our Reebok Brand designs and markets sports, fitness and casual footwear, apparel and accessories that combine the attributes of athletic performance and style, as

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well as related sports and fitness products. The Reebok Brand also includes our sports licensing business. Reebok's products include footwear in a wide variety of sports and fitness categories, as well as lifestyle footwear and sports and fitness apparel and accessories. Our Reebok products also include footwear and apparel for children that are sold under both our Reebok and Weebok® brands.

Product Categories

        During 2002 Reebok continued to implement our strategic plan of organizing around integrated product development and marketing teams focused on each of three main product categories: Rbk®; Performance; and Classic. Each of these product categories features product offerings for both men and women that are designed for specific consumer groups, and each category is supported by targeted marketing and advertising initiatives.

Rbk

        Reebok's Rbk product collection, which we introduced in 2002, features street-inspired footwear, apparel and accessories designed to appeal to young, fashion-oriented consumers. Our Rbk products bear a distinctive new logo and seek to incorporate cutting-edge fashion and technology into performance products that are relevant to today's youth culture.

        Our Rbk category includes products designed and marketed under our relationship with National Basketball Association (NBA) star Allen Iverson. We market a signature line of footwear and apparel bearing Iverson's endorsement, and we have the right to use his name and image throughout his playing career and beyond. Our Iverson™ products include the I3® basketball footwear collection, as well as our Off the Clock™ Signature Collection, which features footwear that reflects Iverson's off-court lifestyle. We also offer a line of Iverson apparel products. Our Rbk product category also includes our expanded Above the Rim® basketball collection of footwear, apparel and accessories, which we re-launched in 2002 supported by advertising, marketing, in-store presence and key athlete endorsements. In 2002 we used endorsement agreements with NBA stars Steve Francis of the Houston Rockets, Jason Richardson of the Golden State Warriors and Baron Davis of the New Orleans Hornets to promote our Above the Rim products. Also included in our Rbk category are our Xbeam™ basketball footwear collection and our Super V and V3 basketball shoes. In 2003 we plan to expand our Rbk collection to include women's product as well as products in additional performance categories such as running shoes.

        During 2002 our marketing strategy for Rbk products utilized "The Sounds and Rhythm of Sport," emphasizing the connection between sport and music, fashion and entertainment in youth culture. Our Rbk advertising campaign featured hip-hop performers Fabolous and Scarface, as well as Jadakiss, who appeared alongside Allen Iverson in two series of television commercials. In December 2002 we signed an endorsement agreement with rap musician Jay-Z, formally known as Shawn Carter. In 2003 we plan to introduce a Jay-Z signature footwear line to our Rbk product lineup called the "S. Carter Collection by Rbk."

        We also used grassroots marketing in 2002 to promote our products and enhance Rbk brand awareness, particularly among young, urban-oriented consumers. For example, we sponsored the

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Entertainers Basketball Classic (EBC) tournament at Rucker Park, the largest street basketball competition in the U.S. Reebok and the EBC released two DVDs featuring basketball action from the EBC tournament that were offered at a discount at Footlocker stores with the purchase of Rbk footwear. Reebok also presented the "Rbk/ The Source Unsigned Hype Freestyle" promotion together with The Source magazine and Interscope Records—a promotion in which young rap artists submitted demos to The Source that contained the words Reebok, Rbk, the name of a Reebok athlete or the name of one of the Rbk collection products. We supported this promotion through print advertising, extensive radio and on-line promotion, and in-store displays to further associate the Rbk and Reebok brands with urban hip-hop culture. In addition, as part of the "Sounds and Rhythm of Sport" marketing initiative through which we introduced the Rbk brand, we previewed upcoming Rbk footwear products in displays we placed in over 1000 music stores in a further effort to connect the Rbk brand to the youth market.

        We launched our Rbk product and related marketing primarily in connection with the 2002 "back-to-school" period in the United States. We distribute Rbk product through a limited number of authorized Rbk retailers, including athletic specialty retailers, independent retailers located primarily in urban areas, and select sporting goods retailers. Our distribution strategy is focused on those retailers at which we believe younger, urban-oriented consumers tend to shop. In addition, in November 2002 we opened our first company-owned Rbk concept store in Philadelphia, which features our Iverson products in an atmosphere that combines music, sports and entertainment with fashion.

Performance

        The products in Reebok's Performance category are designed for, and marketed to, athletic consumers who seek performance from their footwear, apparel and accessories. The Performance category includes products designed for basketball, running, walking, fitness, football, soccer, tennis and other sports. Our Performance products incorporate technological features such as our DMX® footwear cushioning technology, our 3D Ultralite footwear material and our Play Dry™ moisture management systems. Performance products are also designed to reflect a sense of fashion and style.

        Included in the Performance category are apparel and footwear products designed and marketed under the licensing agreements we entered into during 2001 with the National Football League (NFL) and the NBA. We believe the on-field exposure we receive as a result of our relationships with both the NFL and the NBA reinforces Reebok's position as an authentic performance brand. These agreements and our NFL® and NBA® products are described below under the heading "Sports Licensing."

        At the New York City Marathon in November 2002 we previewed our new Premier Series of running shoes, which features performance-oriented products designed for serious runners. The Premier Series was introduced at retail in February 2003 and is designed to re-connect Reebok with our heritage as a premier running shoe brand. Premier Series running shoes are designed for technical performance and incorporate features such as our DMX cushioning technology, which is featured in six of the eight shoe models in the Premier Series, and our Play Dry moisture management system.

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Designed to re-connect the Reebok Brand with runners, the Premier Series includes products targeted to the needs of different types of runners. For example, the Premier Road running shoe features extra cushioning and structured support for running on paved roads, while the Premier Control shoe is designed for runners with severe over-pronation. Our marketing for the Premier Series of running products focuses primarily on print advertising in running periodicals and grass roots marketing at running events. The "Spring 2003 Shoe Buyer's Guide" published in the March 2003 issue of Runner's World magazine named our new Premier Road running shoe as an "Editor's Choice," a distinction that the magazine awards to shoes that it selects as "an all-around outstanding new shoe, and one of the very best in its category."

Classic

        Reebok's Classic product category includes both long-time consumer favorite Reebok footwear and apparel products as well as Classic-inspired re-interpretations of Reebok's past footwear and apparel designs that incorporate new technologies, fabrics and materials. Many of our Classic products seek to capitalize on the "retro" look that is currently popular with consumers by reflecting distinctive design elements from past Reebok products.

        In September 2002 we signed an endorsement agreement with Grammy award-winning pop singer Shakira. During Fall of 2002 we featured Shakira promoting our Classic products. In 2003 we expect to use her endorsement to promote our Classic product collection with an integrated marketing campaign that we anticipate will include television and print advertisements, outdoor billboards, in-store displays and consumer promotions. We are also sponsoring Shakira's first worldwide tour, "The Tour of the Mongoose," which began in 2002 and will run through 2003. We believe Shakira's international popularity will enhance our marketing efforts both in the United States and internationally.

        During 2002 we ran television commercials for our Classic products featuring rap artist Fabolous as well as Shakira. This was the first time we have used television advertising in support of our Classic products, and we plan to continue television advertising of our Classic products in 2003. We also used print advertising in support of our Classic products in 2002, with advertisements designed to connect with younger consumers. We ran Classic print advertisements in 2002 depicting rap artists Ludacris and Rahkim and also featuring the hit movie Spider Man. We plan to expand our Classic print campaign in 2003. In February 2003 we introduced a Classic print advertising campaign featuring the popular cartoon character Homer Simpson. We also plan to introduce Classic print advertisements that complement our Classic television advertising, including print advertisements featuring Shakira and rappers Fabolous and Eve.

Sports Licensing

        In 2001 we entered into license agreements with the NFL and the NBA.

        Under our license agreement with the NFL, when the 2002-2003 NFL season began Reebok was the exclusive supplier of uniforms, sideline apparel and coaches' wear for all 32 NFL teams. We believe this on-field exposure reinforces Reebok's position as an authentic performance brand. In

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addition, Reebok has the right to associate Reebok-branded footwear products with the NFL trademarks that are licensed to us.

        Reebok also has the exclusive right to manufacture and distribute NFL-branded replica jerseys, headwear (other than football helmets), footwear, gloves and fitness equipment. In addition, we are the exclusive distributor of NFL-branded apparel and accessories in the athletic specialty, sporting goods and better department store distribution channels, and we are a non-exclusive distributor of NFL-branded apparel through catalogs, in retail stores that primarily carry NFL-branded products, and in other retail channels. The territory in which we are licensed by the NFL to distribute NFL-branded apparel and accessories includes the United States, Canada, Mexico, Europe, Israel, the United Kingdom, Ireland and Japan.

        In 2002 we introduced our NFL Equipment® line of apparel, which includes the same products that are worn by players and coaches during all NFL games. During 2002 we also introduced our Gridiron® Classics line of lifestyle apparel products featuring a "retro" look that evokes the history of the NFL. In addition to NFL Equipment and Gridiron Classics, in 2002 we designed, marketed and distributed NFL footwear, as well as replica jerseys and headwear. During 2002 the number of NFL players wearing our cleated football shoes onfield increased from approximately 100 to approximately 300 players. All of these football cleats bore both the Reebok Vector logo and the NFL logo. We also supplied the sideline shoes worn onfield by NFL coaches and trainers. In 2003 we plan to introduce a collection of NFL Equipment footwear designed to resemble the turf shoes worn by NFL players onfield.

        We supported the NFL Equipment line with a television and print advertising campaign featuring the tagline "Only One Brand Hangs in Every Locker." Reebok engages in an integrated marketing campaign throughout the year in order to extend the selling season for its NFL-licensed products beyond the traditional NFL season. In addition, under our agreement with the NFL we have the right to depict Reebok athletes in their NFL uniforms for advertising purposes and in point-of-purchase displays, which we believe enhances our marketing of Reebok-branded footwear and apparel.

        In 2002 we began to implement our strategy to grow the market for NFL-branded products by producing multiple tiers of product that are differentiated by their design, features and suggested retail price and are intended for sale to consumers through targeted channels of distribution. For example, we distribute our NFL Equipment product line primarily through athletic specialty and independent retailers, while our different tiers of NFL replica jerseys are distributed selectively through targeted channels of distribution, including athletic specialty and independent retailers, sporting goods retailers, mid-tier department stores and mass-market retailers.

        Under our license agreement with the NFL, the NFL receives annual royalty guarantees and has the option to acquire an equity position in Onfield Apparel Group, LLC (OAG), the subsidiary through which we conduct our NFL business. In addition, at the time we entered into the license agreement we granted warrants to the NFL to purchase up to 1.6 million shares of our common stock. The exercisability and exercise price of the warrants varies depending on the achievement of various financial criteria and the duration of the license.

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        Under our license agreement with the NBA, Reebok is the exclusive supplier of uniforms, shooting shirts, warm-ups and practice wear to 19 NBA teams for the 2002-2003 season, and will become the exclusive supplier to all 29 NBA teams beginning with the 2004-2005 season. During 2002 we leveraged our relationship with the NBA by marketing basketball footwear bearing both the Reebok Vector logo and the NBA logo. The launch of our first two NBA basketball shoes was timed to coincide with the start of the 2002-2003 NBA season, and our NBA basketball shoes were endorsed by athletes such as Jalen Rose and Gilbert Arenas. In 2003 we intend to expand our line of NBA-branded footwear internationally to include shoes that will combine innovative technical features with cutting-edge fashion.

        Since 2001, Reebok has also been the exclusive supplier of uniforms, shooting shirts, warm-ups and practice wear to all teams in the Women's National Basketball Association (WNBA) and to all National Basketball Development League (NBDL) teams. We believe our relationship with the NBA and its affiliated leagues promotes sales of both our Reebok-branded products and our NBA-branded products.

        In addition, Reebok currently has the exclusive right to manufacture and distribute all tiers of NBA, WNBA and NBDL-branded replica jerseys and shorts except for mid-tier replica, with respect to which we currently have non-exclusive rights, and we will become the exclusive manufacturer and distributor of all tiers of replica jerseys and shorts beginning with the 2004-2005 NBA season. Reebok also has the right to manufacture NBA, WNBA and NBDL-branded t-shirts, headwear, active wear, outerwear and fashion apparel, and we have the exclusive right to distribute such products in the athletic specialty, sporting goods, upper-tier department store and mid-tier department store channels of distribution. We also have the non-exclusive right to distribute such products in all other channels. Under our license agreement with the NBA we have the right to distribute NBA-branded footwear and apparel products throughout the U.S. and Canada, and we can incorporate such products in our advertising and promotional efforts throughout the world.

        We plan to engage in an integrated marketing campaign throughout the year for our NBA-branded footwear and apparel products. In the fourth quarter of 2002 we ran a television advertisement for our NBA basketball shoes featuring NBA star Jalen Rose. We also ran print advertisements for our NBA basketball shoes together with two of our customers. In addition, our NBA-branded apparel was integrated into several of our Reebok Brand advertisements in 2002. In 2003 we plan to support our NBA footwear with both print and television advertising, and we plan to continue to incorporate NBA-branded apparel into our Reebok Brand advertising.

        In January 2003 Reebok extended our agreement with Liverpool Football Club (Liverpool FC), one of the world's premier soccer teams and the figurehead of our global soccer business, for an additional twelve year term that will begin in June 2003. We have the exclusive rights to supply and market all Liverpool FC on-field apparel worldwide, including uniforms, warm-ups, authentic and replica jerseys and practice gear. We intend to develop a wide range of innovative and fashionable footwear and apparel products bearing the Liverpool FC and Reebok brands for distribution throughout the world. We plan to leverage our relationship with Liverpool FC to grow both the

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Liverpool FC brand and the Reebok Brand internationally. We also plan to work with Liverpool FC to license the club's brand for use on products in addition to apparel and footwear.

        In February 2002 Reebok entered into a sponsorship and promotional rights agreement to become the official outfitter of the Indy Racing League (IRL), the premier open-wheel, oval-track auto racing series in the United States. Under the agreement, Reebok provides custom-designed, co-branded apparel to IRL officials and selected teams. In addition, the Reebok Brand receives exposure through logos on racecars, team uniforms, transporters and other IRL promotional programs. We believe this arrangement further enhances Reebok's visibility as a performance brand.

        Because our sports licensing business relies upon license agreements with sports leagues such as the NFL and the NBA, it is subject to risks and uncertainties common to licensing arrangements that are described below under the heading "ISSUES AND UNCERTAINTIES."

Reebok Brand Licensing

        Reebok engages in a strategic trademark licensing program that pursues opportunities to license Reebok's trademarks and other intellectual property to third parties for use in equipment, apparel, accessories, sporting goods, health clubs and related products and services. This program is designed to expand the Reebok Brand into new product categories, to enhance Reebok's brand image and to build consumer brand loyalty. We believe that Reebok's licensing program reinforces our reputation as a market leader.

        Reebok has licensed both domestically and internationally a line of Reebok-branded fitness equipment products for the home market, and has licensed internationally various fitness equipment products designed for use in health clubs and other institutional markets. Reebok also has domestic and international licensees for eyewear, watches and heart rate monitors, and licensees in the United States for children's apparel, socks and maternity activewear. Reebok also licenses the Weebok brand name for children's footwear.

        Reebok is a partner in 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 135,000 square feet and occupies five floors in a building located on the upper west side of Manhattan. Reebok licensees also operate Reebok Sports Clubs in Madrid, Spain; Moscow, Russia; and Sao Paolo, Brazil. In addition, Reebok is a shareholder in the Reebok Sports Club/London at Canary Wharf, a premier sports and fitness center comprised of approximately 100,000 square feet in Canary Wharf, London, which opened in late 2002.

Fitness Programming and Education

        During 2002 we continued to seek to leverage and expand Reebok's position as a leading source of fitness programming and education through Reebok University®, our comprehensive fitness resource. Our multi-tiered fitness program encompasses strategic alliances, retail partnerships, interactive fitness programming, e-commerce, interactive marketing, consumer initiatives and product offerings. In 2002 we continued to promote our Core Training programs through the education of club

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owners, fitness instructors, personal trainers and club members on the techniques and benefits of using the Reebok Core Board. The Reebok Core Board, which was introduced in 2000, is the first exercise board that tilts, twists and recoils 360° in three dimensions in response to a user's movements. During 2002 we expanded our Core Training program to include Core Pilates, a holistic training program that uses the Reebok Core Board. We also introduced Rep Reebok, a group fitness muscle definition program designed to use barbells or free weights with a Step Reebok® exercise platform or the Reebok Core Board.

        In addition, we continue to develop and promote other fitness programs through Reebok University, our network of Master Trainers and our Alliance fitness instructors. We complement these programs with a line of Reebok fitness videos, as well as with Reebok fitness equipment products such as the Reebok Core Board, the Step Reebok exercise platform and Reebok home exercise equipment such as treadmills and exercise bikes. We use our fitness website at www.reeboku.com as a relationship building platform through the delivery of Reebok University fitness programs and information. More than 50,000 U.S.-based members of the Reebok Professional Alliance Program, an organization consisting of more than 200,000 fitness professionals worldwide, can access industry news, register for Reebok University seminars, and purchase Reebok products through the website. The unique content of this website was developed in partnership with the American College of Sports Medicine.

Athlete Endorsements

        We establish relationships with major sports figures, teams and leagues to enhance visibility for the Reebok Brand and create awareness of and demand for Reebok-branded footwear and apparel products.

        In 2002 we continued to focus our sports marketing efforts on key athlete icons who exemplify distinct lifestyles, rising young stars and athletes who are at the pinnacle of their sport. We also engage in select team and league sponsorships that we believe enhance the authenticity of Reebok as a performance brand.

        To promote the sale of Reebok's basketball products in 2002 we utilized athlete endorsements with a number of players and teams, some of which include:

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Allen Iverson, the charismatic Philadelphia 76ers point guard who led the NBA in scoring, steals and minutes during the 2001-2002 season, was named to the All-NBA second team in 2001-2002, and who was a starter on the 2002 Eastern Conference All-Star team;


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Steve Francis of the Houston Rockets, who was co-winner of the 2000 Rookie of the Year award and was voted by NBA fans to start in the 2002 NBA All-Star game;


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Jason Richardson of the Golden State Warriors, who was a member of the 2002 NBA All-Rookie first team and who won the slam dunk competition held at the 2003 NBA All-Star game;


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Baron Davis of the New Orleans Hornets, who was named to the 2002 NBA All-Star Team; and

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The college basketball programs at the University of Utah, University of Memphis and Boston College.

        To promote our tennis and running footwear and apparel, we have endorsement agreements with a number of athletes, including:

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Venus Williams, two-time winner of both Wimbledon and the U.S. Open and an Olympic gold medalist in singles and doubles;


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Professional tennis player Andy Roddick; and


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Runners Abel Anton and Christine Arron.

        To promote the sale of cross-training and cleated baseball and football shoes during 2002 our endorsement agreements included:

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More than three-hundred NFL players, including Pro Bowl players Peyton Manning of the Indianapolis Colts, Priest Holmes of the Kansas City Chiefs and Edgerrin James of the Indianapolis Colts;


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Major League Baseball stars Curt Schilling, Manny Ramirez and six-time Cy Young Award winner Roger Clemens; and


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The college football program at Boston College.

        To promote our soccer products, we have a number of sponsorship agreements with both individuals and teams, including:

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Julie Foudy, member of the U.S. national team;


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Ryan Giggs, of Manchester United;


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Iker Casillas, goalkeeper with Real Madrid and Spain;


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Liverpool FC, one of the world's best-known soccer teams;


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Bolton Wanderers of England, which includes the naming rights to "Reebok Stadium," the Wanderers' home stadium; and


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The Colombian national team.

U.S. Operations

        Reebok's U.S. operations unit is responsible for all Reebok Brand footwear and apparel products that we sell in the United States. Our sales of Reebok Brand footwear in the United States totaled approximately $931.7 million in 2002, compared to approximately $930.5 million in 2001. Reebok Brand apparel sales in the United States in 2002 totaled approximately $461.2 million, compared to approximately $334.7 million in 2001.

        In the United States Reebok sells our products through both an employee sales force and independent sales representatives. Reebok's U.S. national sales staff and locally-based sales employees and sales representatives are supported by retail marketing representatives who assist in

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retail merchandising efforts and provide information to consumers and retailers regarding the features of Reebok's products.

        Reebok's U.S. distribution strategy emphasizes high-quality retailers. Reebok footwear and apparel products are distributed primarily through athletic specialty retailers, sporting goods stores and department stores, with specialty products also distributed through certain specialty channels. We permit select Reebok retailers to sell Reebok-branded products to consumers through the Internet. We expect such e-commerce arrangements to continue in 2003. In addition, during 2002 Reebok entered into an agreement with a third party to operate Reebok's on-line store, which is linked to Reebok's website at www.reebok.com.

        We operate approximately 204 factory direct store fronts in the United States that sell a variety of our footwear, apparel and accessories. Of these, 115 factory direct store fronts sell our Reebok-branded products, 76 sell our Rockport products and 13 sell our Greg Norman Collection products. Some of our factory direct stores sell more than one of our brands and have separate store fronts in the same building for each brand. We count each of these as a separate store front. Our factory direct stores allow us to control the disposition of excess inventory without compromising our primary channels of distribution. We do not anticipate significantly expanding the number of factory direct stores in the United States.

        We also operate five company-owned retail stores, known as "concept stores." Our New York City and Santa Monica, California concept stores feature a wide selection of current, in-line Reebok footwear, apparel and accessories, while the concept store at our Canton headquarters features a wide selection of current, in-line products from each of our Reebok, Rockport, Greg Norman Collection and Ralph Lauren Footwear brands. In September 2002 Reebok opened a concept store that features Reebok's basketball product at the Naismith Memorial Basketball Hall of Fame in Springfield, Massachusetts. We also opened our first company-owned Rbk concept store, which is located in Philadelphia, Pennsylvania, in November 2002.

International Operations

        Reebok coordinates international sales, as well as Latin American regional operations, from our corporate headquarters in Canton, Massachusetts. We also have a European headquarters in The Netherlands that is responsible for our operations in Europe, the Middle East and Africa, and regional offices in Hong Kong and Tokyo that are responsible for our operations in the Far East. Reebok's Canadian operations are managed through our wholly owned subsidiary headquartered outside of Toronto. We market Reebok-branded products internationally through our wholly owned subsidiaries in Austria, Belgium, France, Germany, Ireland, The Netherlands, Italy, Poland, Portugal, Sweden (which covers Sweden, Denmark and Norway), the United Kingdom, Japan and South Korea, and through our majority owned subsidiaries in India, Mexico and Spain. We also market products internationally through 39 independent distributors and sub-distributors and 2 joint ventures in which we hold a minority equity interest. Through this international distribution network, products bearing the Reebok Brand are actively marketed in approximately 170 countries and territories.

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        There are approximately 53 Reebok factory direct stores located in Europe, Canada, Mexico and Japan. These factory direct stores are owned either by us, our subsidiaries or joint ventures in which we hold a majority interest. In 2003 we plan to open approximately seven to ten additional factory direct stores outside the United States, either directly or through our subsidiaries, because we believe such stores are an important means of presenting the Reebok Brand in our international markets.

        In December 2002 Reebok announced a revised European Strategic Plan under which we plan to implement an integrated, regionalized approach to our operations across Europe. Under the plan, Reebok's European operations will be managed from our European headquarters and a centralized European management team will take responsibility for the functional areas of product, marketing and sales with the goal of integrating Reebok's strategies throughout Europe. Our plan calls for these strategies to be executed by Reebok's country general managers in the local markets. We intend to align footwear and apparel product design and development along a single European-focused product strategy. Also under our plan, a new European marketing team will communicate a consistent image and message about the Reebok Brand to consumers and retailers across Europe, and the sales process will be regionalized. Over the next few years we plan to implement SAP information management software in all of Reebok's European operations. We believe this will improve Reebok's ability to analyze key business data and implement common business practices in all the countries in which Reebok operates in Europe. In addition, we plan to implement a single inventory management and allocation system in Europe that we believe will improve the efficiency and effectiveness of Reebok's supply chain management across Europe. We also intend to continue centralizing our European warehousing and distribution operations in our distribution facility in Rotterdam, The Netherlands.

        During 2002 the contribution of Reebok's international operations unit to overall sales of Reebok-branded products increased to approximately $1.199 billion from approximately $1.170 billion in 2001. Reebok's 2002 international sales were positively impacted by the strengthening of various foreign currencies. These sales figures do not reflect the full wholesale value of all Reebok-branded products sold outside the United States in 2002 or 2001 because some of Reebok's international distributors are not our subsidiaries and sales by such distributors to retailers are not included in the calculation of our international sales. If we included the full wholesale value of all international sales of Reebok-branded products during 2002, total sales of Reebok-branded products outside the United States would represent approximately $1.277 billion in wholesale value, consisting of approximately 29.4 million pairs of shoes totaling approximately $709.6 million in wholesale value of footwear sold outside the United States in 2002 (compared with approximately 29.9 million pairs totaling approximately $728.0 million in 2001) and approximately $567.8 million in wholesale value of apparel (including NFL and NBA licensed apparel) sold outside the United States in 2002 (compared with approximately $535.3 million in 2001).

THE ROCKPORT COMPANY     --     Rockport designs, produces, markets and distributes worldwide specially engineered comfort footwear under the Rockport brand for men and women. In addition, in Fall 2002 Rockport launched the Rockport Kids line of children's footwear, which is produced and distributed by a licensee of Rockport. Rockport licensees also produce and distribute various complementary product categories such as Rockport-branded hosiery.

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        Rockport's net sales decreased to $385.6 million in 2002 from approximately $399.6 million in 2001, a decrease of approximately 3.5%. In 2002 Rockport's international net sales increased approximately 1.7% from its international net sales in 2001.

        Designed to address the different aspects of consumers' lives, Rockport's product line includes casual, dress and performance shoes. During 2002 Rockport implemented its product segmentation strategy, which is intended to expand Rockport's consumer base and distribution channels by creating four distinctive collections of men's footwear: Rockport Reserve, which is Rockport's premier collection; Rockport, which is Rockport's core collection; Rocs by Rockport™, which is a collection designed to appeal to younger consumers; and XCS®, which is an active casual collection. These collections will be placed in distribution channels according to where Rockport believes the targeted consumer shops for his footwear.

        In 2003 Rockport plans to focus on its women's footwear collection with a renewed emphasis on the casual category. Rockport plans to introduce new women's product designs for Fall 2003 supported by a marketing campaign aimed at reinvigorating Rockport's women's business.

        Rockport markets its products to authorized retailers throughout the United States primarily through a locally-based employee sales staff. Internationally, Rockport markets its products through approximately 30 distributors in approximately 50 foreign countries and territories. Many of Rockport's international distributors are our subsidiaries, while the others are either joint venture partners or independent distributors that also sell Reebok-branded products. In 2002 Rockport entered into an agreement to operate Rockport's on-line store with the same third party that operates Reebok's on-line store. Rockport's on-line store is linked to Rockport's website at www.rockport.com. Rockport also permits select retailers to sell Rockport-branded products to consumers through the internet.

        Rockport distributes its products in the United States primarily through select higher-quality national and local shoe store chains, department stores, independent shoe stores and outdoor outfitters. Rockport emphasizes retailers that provide substantial point-of-sale assistance and carry a full product line. Rockport has not pursued mass merchandisers or discount outlets for the distribution of its products. Rockport also sells its products through eight company-owned retail stores, and Rockport has licensed a number of independently-owned Rockport shops that exclusively sell Rockport-branded products.

RALPH LAUREN FOOTWEAR     --     Ralph Lauren Footwear's product line features traditional classics in addition to Polo Sport®, the Polo Jeans Co.® line, a more fashion-forward collection targeted to males between the ages of 16 and 25, and a children's line targeted to boys and girls between the ages of 5 and 12. Ralph Lauren Footwear also features dress and casual silhouettes influenced by the Lauren® product line. Ralph Lauren Footwear sells Ralph Lauren and Polo Ralph Lauren® footwear products through top-tier retailers and through Polo-owned retail stores. The Polo Jeans Co. and Polo Sport lines are sold through major department stores as well as through Polo Jeans Co. and Polo Sport specialty stores.

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        In the United States, Ralph Lauren Footwear markets its products to authorized retailers principally through its employee sales staff. Internationally, Ralph Lauren Footwear has distributors in Japan, Canada, Spain and Portugal, as well as a distributor in Latin America that covers most of South America and Central America and a number of territories in the Carribbean. Ralph Lauren Footwear employees distribute products in Asia Pacific (other than Japan) and in the United Kingdom, Ireland, France and the Middle East, while sales in eleven other European countries are made by independent sales agents. Ralph Lauren Footwear markets its children's footwear line globally through an independent distributor. During 2002 Ralph Lauren Footwear began to discontinue its space licensing arrangements at Ralph Lauren/Polo-owned retail stores, and it is expected that all such arrangements will be terminated by the end of the first quarter of 2003. Instead, Ralph Lauren Footwear intends to sell its products to Ralph Lauren/Polo-owned retail stores on a wholesale basis. Ralph Lauren Footwear continues to operate four factory direct stores.

        Because we license the Ralph Lauren and Polo brands, our Ralph Lauren Footwear business is subject to risks and uncertainties common to licensing arrangements that are described below under the heading "ISSUES AND UNCERTAINTIES."

GREG NORMAN COLLECTION     --     Our Greg Norman Collection produces a range of men's apparel and accessories marketed under the Greg Norman name and logo. Originally a golf apparel line, the Greg Norman Collection has grown its line of men's sportswear to include products such as leather jackets and sweaters. Products are sold principally at upper-end price points in department and men's specialty stores, on-course pro shops and golf specialty stores, as well as in Greg Norman-dedicated shops. The Greg Norman Division is also responsible for golf apparel bearing the Reebok logo.

        The Greg Norman Collection engages in a licensing arrangement for corporate sales. Additionally, the Greg Norman Collection utilizes a combination of distributors and licensees to market and distribute Greg Norman-branded products internationally. The brand is currently represented in Australia, Singapore, Malaysia and Indonesia in the Far East; in several Middle East countries; in England, Ireland, Scotland, Portugal, Germany, France and the Benelux countries in Europe; in Canada; and in Mexico.

        The Greg Norman brand is marketed through its endorsement by professional golfer Greg Norman and a marketing and advertising campaign designed to reflect his multi-faceted, powerfully active and elegant lifestyle. Marketing activities include print advertising in consumer and trade periodicals, retail in-store promotions, trade shows and a worldwide merchandise fixturing program, which ensures a consistent product presentation on a global basis. Greg Norman Collection products are sold by a combination of independent sales representatives and employee account executives.

        Because we license the Greg Norman brand, our Greg Norman Collection business is subject to risks and uncertainties common to licensing arrangements that are described below under the heading "ISSUES AND UNCERTAINTIES."

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TRADEMARKS AND OTHER PROPRIETARY RIGHTS     --     We own the Reebok and Rockport trademarks and we have contractual rights that survive in perpetuity to use the Greg Norman name and logo. We also have rights to use the Ralph Lauren name under license and rights to use certain marks of the NFL and NBA pursuant to our licensing arrangements with each league. We believe that our Reebok and Rockport trademarks and our rights to use these other names and logos are of great value, and that the loss of any of these trademark rights may have an adverse impact on our business. We are vigilant in protecting our marks from counterfeiting and infringement and we cooperate with the established trademark enforcement programs of the NFL and NBA. We also believe that our technologies and designs are of great value and we are vigilant in procuring and enforcing our patents and other proprietary rights in the United States and other countries.

RESEARCH AND DEVELOPMENT     --     We are committed to bringing our consumers innovative technology in both our footwear and apparel products and to this end we engage in significant product research and development. In 2002 we spent approximately $44.8 million on product research, development and evaluation, compared to approximately $41.7 million in 2001 and approximately $49.8 million in 2000.

TECHNOLOGY     --     We place a strong emphasis on technology and we have continued to incorporate various proprietary performance technologies into our products, focusing on cushioning, stability and lightweight features in our footwear products and on comfort and moisture management in our apparel products.

        As part of our commitment to offer leading footwear technologies, we engage in product research, development and design activities in our headquarters, where employees working in our state-of-the-art product development facility design and develop technologically advanced athletic and fitness footwear. We also have product development centers in China, Taiwan and Indonesia to more closely integrate our development activities with production.

        Our most significant technologies are DMX, The Pump® and 3D Ultralite. Our DMX technology provides superb cushioning utilizing a heel-to-forefoot, active airflow system that delivers cushioning when and where it is needed. Originally introduced in 1995, we have enhanced and expanded this technology by developing multiple versions of DMX to meet the performance demands of various activities, taking into account performance attributes, aesthetics and price among the various versions. Current versions include a six-pod system (the DMX(6)), a ten-pod system (the DMX(10)), two two-pod systems (the DMX(2) and DMX(2x)), a DMX sockliner and the DMX "Stimpak."

        During 2002 we introduced our new Reebok Travel Trainer™ shoe, which features an advanced sole and upper design that allows the shoe to be collapsed for easy packing. We also continued to develop new versions of our DMX technology and to expand the range of footwear products featuring DMX. For example, in 2002 Reebok introduced new walking shoe models that incorporate our DMX Walk system. In addition, we continued to incorporate 3D Ultralite, our proprietary material allowing midsole and outsole to be combined in a single, injection molded unit, into our performance footwear. 3D Ultralite provides a unique blend of lightweight, flexible and durable properties. In 2002 we continued to redevelop our proprietary inflatable shoe technology, The Pump, exploring broader and

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more varied applications for this technology in our footwear. We plan to continue our redevelopment of The Pump in 2003. Finally, we have incorporated advanced technologies into certain of our apparel products with our Play Dry moisture-management systems. These moisture- wicking technologies help to keep the wearer dry, which facilitates regulation of his or her body temperature. We plan to expand our range of apparel products incorporating moisture-management technologies.

SEASONALITY     --     Our sales of athletic and casual footwear and apparel tend to be somewhat seasonal in nature, with the strongest sales occurring in the third quarter, which corresponds to the back-to-school period.

SINGLE CUSTOMER     --     There was no single customer that accounted for 10% or more of our overall net sales in 2002. We do have significant customers, however, the loss of any one of which could have an adverse effect on our business. There could also be a negative effect on our business if any such significant customer became insolvent or otherwise failed to pay its debts.

COMPETITION AND COMPETITORS     --     Competition in the sports and fitness footwear and apparel business is intense both in the United States and worldwide, with new entrants and established companies providing challenges in every category. Competitors of our Reebok-branded footwear include Nike, adidas, New Balance, Puma, Converse, Fila and Skechers. There are also numerous competitors of our Reebok-branded apparel including Nike, adidas, Puma, Rocawear, Ecko, Brand Jordan, FUBU, Mecca and ENYCE. We are the third largest seller of athletic footwear and apparel in the world, measured by market share. The principal methods of competition in our industry include product design, product performance, quality, price, brand image, marketing and promotion, customer support and service, and our ability to meet delivery commitments to retailers. We believe we are competitive in each of these areas.

        Our other product lines also continue to confront strong competition. The casual footwear market in which our Rockport-branded products compete is highly competitive. Due to the diversity of product designs and intended end uses, however, there are very few companies that Rockport competes with directly in every product category. Companies that could be described as competitors in specific product categories include, among others, Timberland, Clarks, Ecco, Mephisto, Bostonian, Merrell, Easy Spirit and Nine West. Rockport-branded products occupy a strong position in the comfort and walking shoe market. Competition in this area has intensified as the activity of walking has grown in popularity and as athletic shoe companies have entered the market. In addition, Rockport also produces men's and women's dress shoes and competes in this market with other leading makers of dress shoes.

        Our Greg Norman Collection competes with Ashworth, Cutter & Buck, Tommy Bahama, Izod, Ralph Lauren, Tommy Hilfiger, Nautica and other makers of men's casual sportswear and golf apparel and footwear.

        Our Ralph Lauren Footwear brand competes with such brands as Cole Haan, Timberland, Tommy Hilfiger, Prada, Gucci, Puma, adidas, Nike and Diesel.

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MANUFACTURING     --     Most of our products are produced by independent manufacturers that are principally located outside the United States. We source some of our apparel and some of the component parts used in our footwear, however, from independent manufacturers located in the United States. In addition, we operate facilities in Indianapolis, Indiana and Mattapoisett, Massachusetts that provide apparel and accessory finishing for our sports licensing business.

        Each of our operating units generally contracts with its manufacturers on a purchase order basis, subject in most cases to the terms of a formal manufacturing agreement. All contract manufacturing is performed in accordance with detailed specifications furnished by the operating unit and is subject to strict quality control standards, with a right to reject products that do not meet specifications. To date, we have not encountered any significant problems with product rejection or customer returns due to quality problems. We generally consider relationships with our contract manufacturers to be good.

        As part of our commitment to human rights, we require agents and/or manufacturers of our products to apply the Reebok Human Rights Standards, which set forth acceptable factory policies and procedures regarding workplace conditions. We use a global program to implement these standards that includes internal and independent monitoring, the provision of technical assistance to improve air quality in factories producing our footwear, a worker communication system to resolve conflicts in such factories, and other initiatives to improve workplace conditions consistent with our Human Rights Production Standards. In conjunction with our human rights program, we required our suppliers of soccer balls in Pakistan to end the use of child labor by centralizing all production, including ball stitching, so that the labor force can be adequately monitored to prevent the use of child labor. Reebok-branded soccer balls are sold with a guarantee that the balls are made without child labor.

        Similarly, we carefully monitor the substances used in the manufacture of our products to assure that the health of the consumer, as well as the environment, is protected. Accordingly, we maintain a comprehensive list of restricted substances the use of which we either limit or prohibit in any product manufactured for us. Vendors whose materials are used in the production of our products, and factories that assemble our products, are required to certify that they are in compliance with our Reebok Restricted Substances Policy. We continue to monitor governmental restrictions worldwide, which are incorporated into our Restricted Substances Policy. However, the Restricted Substances Policy exceeds the mandated governmental restrictions in many respects. We have also embarked on a voluntary initiative that has achieved the elimination of more than 96% of polyvinyl chloride (PVC) usage from the products we sell, and we anticipate further progress in this effort in 2003.

        We maintain a network of affiliates in Hong Kong, China, Indonesia, Thailand, Taiwan and South Korea to inspect certain components and materials purchased by manufacturers for use in footwear production, to facilitate the shipment of footwear from the shipping point to the point of destination and to help arrange for the issuance of letters of credit or wire transfers—the primary means used to pay the footwear manufacturers for finished products. Our apparel group utilizes the services of independent third parties as well as our Hong Kong subsidiary and its affiliates in the Far East to assist in the placement, inspection and shipment of apparel and accessories orders internationally. Our

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apparel group retains and manages those independent contractors responsible for production of apparel in the United States. The remainder of our order placement, quality assurance and inspection work is handled by a combination of employees and independent contractors for the various countries in which our products are made.

        China, Indonesia and Thailand were our primary sources for footwear manufacturing, accounting for approximately 53%, 27% and 13%, respectively, of total footwear production during 2002 (based on the number of units produced). Our largest manufacturer accounted for approximately 21% of our total footwear production in 2002. In 2002 Vietnam was the source of approximately 6% of our footwear manufacturing. We expect to increase sourcing of our footwear manufacturing from Vietnam during 2003.

        During 2002 approximately half of our manufacturing of apparel to be sold in the U.S. was sourced from the U.S. and other signatories to the NAFTA treaty, while the other half was sourced from Asia. Taiwan, Korea and Thailand were our primary sources for apparel manufacturing in Asia in 2002, accounting for approximately 50%, 30% and 20%, respectively, of our total apparel production in Asia (based on the number of units produced). Apparel produced domestically was comprised primarily of screen printing as well as cutting and sewing product from fabrics imported from our manufacturers' affiliated mills in Asia. Most of our Asian manufacturing was sourced through an agent that manages regional supply chains of manufacturers and raw materials suppliers, while the balance was sourced directly through independent manufacturers.

        Our manufacturing of apparel to be sold internationally in 2002 was sourced on a regional basis. In Europe the majority of our apparel manufacturing was sourced through an agent from manufacturers in China, Taiwan and Korea, with supplemental sourcing from manufacturers in Vietnam and Turkey. In Asia Pacific manufacturing was sourced from local Asian manufacturers. The majority of our manufacturing of apparel products to be sold in Canada and Latin America was sourced in conjunction with the manufacturing of apparel for sale in the U.S. or in Europe, with additional sourcing of products for sale in Canada from manufacturers in Mexico.

SOURCES OF SUPPLY     --     The principal materials used in our 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 our technologies are obtained from only one or two sources, and accordingly a loss of supply could disrupt production. The principal materials used in our apparel products are synthetics and cotton/synthetic blends designed specifically for end-user performance. These materials can be obtained from a number of sources.

        Footwear products that are manufactured overseas and shipped to the United States for sale are subject to U.S. Customs duties. Duties on the footwear products we import range from 4.3% to 66.0%, depending upon their construction and whether the principal component is leather or some other material.

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        As with our international sales operations, our 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. These are more fully described below in the section entitled "TRADE POLICY." We believe that we have the ability to develop, over time, adequate substitute sources of supply for the products we presently obtain from foreign suppliers. If, however, events prevented us from acquiring products from our suppliers in China, Indonesia or Thailand, or significantly increased the cost of such products, our operations could be seriously disrupted until alternative suppliers were found, and such disruption could have a significant negative financial impact on us.

TRADE POLICY     --     As a result of the admission of China into the World Trade Organization (WTO) in December 2001, the threat of the United States imposing restrictions on the import of shoes from China has reduced substantially. We do not believe that the United States will impose such import restrictions during 2003. China remains the largest source of footwear manufacturing both for us and for our major competitors. If trade between China and the U.S. was interrupted, we believe both we and our competitors would face similar challenges to locate alternative manufacturing sources for our products.

        Other countries, including Mexico, Canada, Colombia, Chile and South Africa, continue to maintain restrictions on footwear imports from China. Reebok is able to serve these markets either through exemptions covering our products or through alternative sourcing from outside China. Some smaller markets may restrict all footwear imports from time to time. Generally our sales and our competitors' sales are severely reduced in such markets during these periods of import restrictions, although in some countries such as Argentina we have been able to find unique alternative sources such as Brazil. None of our major markets has imposed or is expected to adopt such blanket restrictions.

        The United States has increased enforcement of apparel/textile import quotas, as well as surveillance of working conditions relating to the manufacture of apparel overseas. This has resulted in additional inspection and documentation requirements upon entry of the products into the United States and, in some cases, delays in delivery to customers. This is a concern of trade associations representing the entire U.S. apparel import industry. We believe that due to our diversified apparel sourcing and careful selection of vendors and factories under our Human Rights Production Standards, import enforcement will not require a change in sourcing, although delivery delays could occur while documentation is processed. We believe that such delays will not impact us to a greater extent than they impact our major competitors.

        With the initiation in November 2001 of the Doha Round of multilateral trade negotiations in the WTO, the U.S., the European Union (EU) and other countries have proposed dramatic reductions in footwear and apparel duties globally. Such proposals will be refined during several years of negotiations, but if adopted in whole or in part could significantly reduce the cost of footwear products to consumers. We believe this would benefit all distributors of footwear products, including us.

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        The EU imposed import quotas on certain footwear from China in 1994. Under an agreement between the EU and China, the EU will gradually phase out these import restrictions, with elimination scheduled for 2005. Nonetheless, in its agreement with China the EU has negotiated the right to impose import restrictions in case of a surge of imports. This leaves open the possibility of new EU restrictions on footwear from China in the future. The effect of this quota scheme on our business has not been significant because it provides an exemption for certain higher-priced special technology athletic footwear. This exemption is available for most Reebok-branded footwear products and some Rockport-branded footwear products. As the Euro has risen relative to the U.S. dollar, the exemption for higher-priced shoes has narrowed. Because of our available quota, the gradual phase-out of the quota scheme, and our sourcing options outside China, however, we do not expect disruption in our ability to satisfy orders. If the Euro continues to rise against the dollar, the exemption would be further narrowed and we would need to increase our production outside of China. In the meantime, the sale of some models may be limited by the narrowed exemption. We expect the impact on us would be the same as the impact on our competitors.

        The EU and individual EU member states continue to review the athletic footwear exemption. We, on our own as well as through relevant trade associations, are working to prevent imposition of a more limited athletic footwear exception. If revisions are adopted that narrow such exemption, certain of our product lines could be affected adversely, requiring either sourcing from countries other than China or minor design modification. Should any narrowing of the exemption be imposed, we do not believe that our products would be affected more severely than those of our major competitors. Because we continue to expand our production in Vietnam, we are becoming less subject to the various EU import restrictions on footwear produced in China.

        The EU maintains antidumping duties on certain leather-upper footwear from China, Thailand and Indonesia. Because these duties apply only to low-cost footwear below the import prices of most products sold under the Reebok and Rockport brands, our products have not been significantly impacted by such duties.

        The EU continues to expand its list of restricted substances in consumer products. In addition, we are aware of possible consumer rejection of products containing substances not restricted by the EU or any member state for environmental, health and human rights concerns. Such consumer action and the response of retailers could disrupt distribution and cause withdrawal of the product from the market, which would substantially impact our sales of those specific products. To date we have not encountered rejection of any of our products, but we are aware of such consumer action against certain competitors' products, which has led to the voluntary recall of such products. While it is impossible to predict such consumer action, we are closely monitoring the demands of non-governmental organizations active in Europe.

        To address these concerns we have engaged in an aggressive initiative to assure that our products do not contain substances restricted by governments or otherwise identified as undesirable. We have taken aggressive steps through the development and enforcement of the Reebok Restricted Substances Policy to ensure that our suppliers and factories are in full compliance with EU directives

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and the enforcement initiatives of EU member states. The Reebok Restricted Substances Policy forbids our contract manufacturers from using substances on the EU Eco-Label list and also includes other voluntary standards. Despite these efforts, from time to time we may have some product already in the distribution chain that does not comply with the most recent EU directives. This could cause some disruption to the delivery of product to the market. As a result, it may be necessary to substitute styles, to delay deliveries, or even to forego sales. We work to assure that the Reebok Restricted Substances list is comprehensive and current. We believe that our major competitors are similarly impacted by these EU restrictions.

        The European Union has also promulgated a Recycling Directive. We are in compliance with this directive for our shipping, packaging and consumer packaging through our participation in various EU approved programs. As is the case for restricted substances, we go beyond the legal requirements in the area of recycling by using 100-percent recycled material in our shoe boxes throughout the world.

PRINCIPAL PRODUCTS     --     Sales of the following categories of products contributed more than 10% of our total consolidated net sales in the years indicated: 2002, footwear (approximately 66%) and apparel (approximately 34%); 2001, footwear (approximately 70%) and apparel (approximately 30%); and 2000, footwear (approximately 73%) and apparel (approximately 27%).

BACKLOG     --     As of December 31, 2002, the backlog of orders that we believe to be firm (though cancelable by the purchaser) totaled approximately $1,089.3 million, compared to approximately $974.9 million as of December 31, 2001. This reflects our company-wide backlog, including orders for all of our brands. Our backlog position is not necessarily indicative of future sales because many customer orders are cancelable, currencies may fluctuate and the ratio of future orders to "at once" shipments can vary from period to period. Also, sales by Company-owned retail stores, which are not included in our backlog, may vary from year to year. In addition, many markets in South America and Asia Pacific are not included in our backlog, because sales are made in those regions through our independent distributors.

WORKING CAPITAL ITEMS     --     We must commit to production tooling, and in some cases to production, in advance of orders because of the relatively long lead times for design and production in the footwear industry. We must also maintain inventory to fulfill "at once" shipments. We believe our practices with respect to working capital items are consistent with practices in the footwear and apparel industry in general.

        We have a committed $300 million revolving credit facility, which includes a letter of credit subfacility of $200 million, with a syndicate of banks. This facility was entered into during the second quarter of 2002 and replaced our prior facility that was scheduled to expire on August 31, 2002. The pricing under the new facility was adjusted to reflect market conditions, otherwise the terms and conditions, including the debt covenants, of the new credit facility are similar to the facility that was replaced. Our credit agreement includes various covenants, including the requirement to maintain a minimum interest coverage ratio and a debt to adjusted earnings ratio. We also have various arrangements with numerous banks that provide an aggregate of approximately $531 million of

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uncommitted facilities, substantially all of which are available to our foreign subsidiaries. Of this amount, approximately $250 million is available for short-term borrowings and bank overdrafts, with the remainder available for letters of credit for inventory purchases. At December 31, 2002, approximately $125 million was outstanding for open letters of credit for inventory purchases, in addition to approximately $19 million in notes payable to banks and $3 million that was outstanding under standby letters of credit. In 2001 we utilized a commercial paper program from time to time under which we could borrow up to $200 million for periods not to exceed 270 days. This program was supported, to the extent available, by the unused portion of our $300 million revolving credit facility. At December 31, 2002 and 2001, we had no commercial paper obligations outstanding and we are no longer utilizing this commercial paper program.

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS     --     Financial information about geographic operations appears in Note 14 of the Consolidated Financial Statements on page 69.

EMPLOYEES     --     As of December 31, 2002, we had approximately 7,400 regular full-time and part-time employees. None of these employees is represented by a labor union, except for approximately 200 employees in France who have a workers' committee. We have never suffered a material interruption of business caused by labor disputes with employees, and we consider our employee relations to be good.

EXECUTIVE OFFICERS OF THE REGISTRANT     --     Our executive officers are:

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

        Paul 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, in which he continued to serve until the appointment of Jay Margolis in December 2001. Mr. Fireman

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has been a Director since 1979. Mr. Fireman is also a Director of Abiomed, Inc., a manufacturer of medical devices.

        Jay Margolis became President and Chief Operating Officer in December 2001. Mr. Margolis joined the Company as Executive Vice President and President of the Specialty Business Groups in December 2000. Mr. Margolis is now responsible for overseeing the management of the Reebok Brand (including its sports licensing business), the Greg Norman Collection, Ralph Lauren Footwear Co., and The Rockport Company. Prior to joining the Company, he served as the Chairman and CEO of E7th.com, a business-to-business supply solution for the footwear industry that linked wholesalers with retailers. Mr. Margolis also served as Chairman and CEO of Esprit de Corporation (1995-1999). From 1992-1994, he was President and Vice Chairman of the Board of Directors of Tommy Hilfiger. Mr. Margolis spent nine years at Liz Claiborne, Inc., where he held several positions including Vice Chairman of the Board of Directors (1989-1992), President of Liz Claiborne Sportswear (1986-1989) and President of Liz Claiborne Menswear (1983-1986).

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

        Martin Coles was appointed Executive Vice President and President and Chief Executive Officer of the Reebok Brand in June 2002. Mr. Coles joined the Company as Executive Vice President, Global Operating Units in December 2001. From February 2001 until he joined the Company, Mr. Coles was Senior Vice President for International Operations at Gateway Inc. From February 2000 until January 2001, Mr. Coles was Chief Executive Officer of LetsBuyIt.com in London, England. Prior to his role at LetsBuyIt.com, Mr. Coles spent eight years with Nike Inc., where he held several positions including Executive Vice President, Global Sales (April 1997 to February 2000), Vice President and General Manager of Nike Europe (February 1994 to April 1997), and Director of Logistics for Europe (October 1992 to February 1994).

        James R. Jones, III has been Senior Vice President and Chief Human Resources Officer for the Company since May 1998. Mr. Jones joined the Company as Senior Vice President of Human Resources for the Reebok Brand in April 1997. Prior to that, Mr. Jones was Vice President of Human Resources of Inova Health System from May 1996 through April 1997. From July 1995 through May 1996, Mr. Jones was the Senior Vice President of Human Resources of Franciscan Health System. Prior to that, since 1991, Mr. Jones was the Vice President of Human Resources of The Johns Hopkins University.

        David A. Pace became a Senior Vice President of the Company in February 2001, having been appointed Vice President and General Counsel, and elected Clerk, in December 1999. From May 1999 until his promotion, Mr. Pace was Vice President, Global Alliances and Endorsements for the Reebok Brand. Prior to this position, Mr. Pace was Assistant General Counsel from January 1997

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until May 1999. In June 1995, Mr. Pace joined the Company's legal department as Counsel-Marketing. Prior to joining the Company, Mr. Pace was Vice President and General Counsel of Applied Extrusion Technologies, Inc. from June 1994 to June 1995, prior to which he was an associate at the law firm of Ropes & Gray.

        Richard Paterno became Senior Vice President of the Company and President and Chief Executive Officer of The Rockport Company in June 2001. Mr. Paterno was initially hired as Executive Vice President for Sales and General Merchandise Manager of Women's for Rockport in May 2001. Prior to joining Rockport, Mr. Paterno worked for Easy Spirit since its inception in 1987 in various capacities. Mr. Paterno was Executive Vice President of Sales and Marketing from 1996 until October 1999 when he was promoted to President of Easy Spirit. Mr. Paterno held that position until May 2001 when he joined Rockport.

        Terry Pillow became President and Chief Executive Officer of Ralph Lauren Footwear in June 2001. Mr. Pillow joined the Company as Senior Vice President of the Company and President and Chief Executive Officer of The Rockport Company in 1999. Prior to joining the Company, Mr. Pillow was President of the apparel division of Coach Leatherware, a subsidiary of Sara Lee Corporation. From 1989 to 1994, Mr. Pillow served as President of A/X Armani Exchange, New York.