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  • REEBOK INTERNATIONAL LIMITED
  • Presented By : Eduardo Garza Lily Hsu Resa Lawrence Travis Klecker
  • Mission Statement :
    • Our purpose is to ignite a passion for winning, to do the extraordinary, and to capture the customer’s heart and mind.
    • We make a difference
    • To our Customers
    • To our employees
    • To our shareholders
    • To our athletes
    • And to the world in which we live
  • REEBOK HISTORY
    • 1890’s
    • Reebok is started by Joseph William Foster in England. The original mission of the company was to enhance performance in long-distance track events by improving equipment.
    • 1958
    • Two of the founder’s grandsons started a companion company that came to be known as Reebok, named for an African gazelle.
    • 1979
    • Reebok USA., Ltd was formed by Paul Fireman. The original marketing strategy was aimed at prestige and at high prices.
    • 2002
    • The newest line, RBK, was introduced this year which consisted of a collection of street-inspired footwear and apparel hook-ups designed for the young man and woman who demand and expect the style of their gear to reflect the attitude of their lives - cool and edgy, authentic and inspirational.
    • 2005
    • Reebok Brand introduced its comprehensive new advertising campaign, “I Am What I Am.” This campaign, which celebrates authenticity and individuality in sports and life, has been the cornerstone of Reebok’s positioning and will flow through the marketing of each segment.
    REEBOK HISTORY Cont.
  • BOARD OF DIRECTORS
    • Paul B. Fireman
    • Chairman of the Board and Chief Executive Officer
    • Norman Axelrod
    • Chairman of the Board and Chief Executive Officer Linens 'N Things, Inc.
    • Paul R. Duncan
    • Retired Executive Vice President Reebok International Ltd.
    • Richard G. Lesser
    • Senior Corporate Advisor and Director TJX Companies, Inc.
    • Geoffrey Nunes
    • Retired Senior Vice President and General Counsel Millipore Corporation
    • Dorothy Puhy
    • Executive Vice President & Chief Financial Officer Dana-Farber Cancer Institute
    • Thomas M. Ryan
    • Chairman of the Board, President, and Chief Executive Officer CVS Corporation
    • Barry Tatelman
    • Chief Executive Officer Jordan's Furniture
  • HOW THE BOARD CAN BE IMPROVED
    • According to Reebok Board Governance, the current standing committees of the Board are: Audit, Boar Affairs, Management Development and Compensation, and Executive.
    • The Board presently has 8 members, which pursuant to the current by-laws may be expanded to 12 members. After examining Reebok 8 members we came to the conclusion that there is not evidence that some of its members are related.
    • We also found that this board is widely divers in terms of there professional experience. Even though most of them have strong managerial experience in the apparel sector some of them come from other type of industries like for example Mr. Fireman who before joining Reebok directed a manufacturer of medical devices
  • OWNERSHIP INFORMATION Reebok’s 5%/Insider Ownership is 11.51%. It is slightly higher then a desirable ratio. If an inside owner were to suffer from death, bankruptcy, or unfavorable circumstances; this could adversely affect the company. 88.49 Float (%) 11.51 5%/Insider Ownership (%) 40.29 Mutual Fund Ownership (%) 40.60 Top 10 Institutions (%) 88.80 Institutional Ownership (%) 60.00 Mil Shares Outstanding Ownership Information
  • UMBRELLA OF PRODUCTS
    • The Hockey Company
    • The Hockey Company, which Reebok acquired in June 2004, is the world’s largest designer, manufacturer and marketer of hockey equipment and related apparel. The Hockey Company’s CCM, JOFA and KOHO brands are among the most widely recognized brands in hockey.
    • The Rockport Company
    • Rockport designs, develops, produces, markets and distributes worldwide specially engineered comfort footwear under the Rockport brand for men and women. Rockport’s net sales increased to $377.6 million in 2004 from approximately $372.0 million in 2003.
    • Greg Norman Collection
    • Originally a golf apparel line, the Greg Norman Collection has grown its line of sportswear to include products such as woven, Play Dry outerwear and sweaters.
    • RBK
    • Reebok’s Rbk product collection features footwear, apparel and accessories designed to appeal to young, fashion-oriented consumers.
  • UMBRELLA OF PRODUCTS
    • Reebok Performance
    • Performance line includes products designed for basketball, running, fitness, football, baseball, soccer, tennis and other sports.
    • Reebok Classic
    • Classic products feature ‘‘retro’’ styling that reflects distinctive design elements from past Reebok products. During 2004 we continued to focus on print advertising for our Classic products
    • Reebok Kids
    • Reebok Kids footwear business is important to establishing a relationship between our Brand and young consumers who we can cultivate as Reebok customers as they grow into adulthood.
    • TIMBERLAND
    • PUMA
    NIKE MARKET COMPETITORS
  • SEGMENT REVENUE $3,127,872 $3,485,316 $3,785,284 Total 1,067,147 1,258,604 1,354,973 Apparel $2,060,725 $2,226,712 $2,430,311 Footwear 2002 2003 2004 Net Sales (Thou)
  • INDUSTRY RATIOS 2473.91 Reebok 2588.132 Timberland 4096.113 Puma 22139.06 Nike Market Capitalization Company
  • TTM Sales 1973.255 Brown Shoes 3878.458 Reebok 13505.4 Nike TTM Sales Company
  • Financial Ratios: POOR GOOD ABOVE AVERAGE 3.58 -8.32   Dividends (5-Year Annual Avg.) 4.71 2.54 33.62 EPS (5-Year Annual Avg.) 4.68 2.47 6.04 Sales (5-Year Annual Avg.) 11.20 29.30 5.20 EPS (Qtr vs year ago qtr) 11.20 29.30 5.20 EPS (YTD vs YTD) 10.80 11.80 11.20 Sales (Qtr vs year ago qtr) S&P 500 Industry Company Growth Rates %
  • POOR POOR FAIR 12.70 17.60 10.60 Price/Cash Flow Ratio 2.88 4.24 1.95 Price/Book Value 1.50 1.70 0.65 Price/Sales Ratio 17.2 11.9 5.0 P/E Ratio 5-Year Low 64.8 28.4 21.5 P/E Ratio 5-Year High 20.1 23.9 13.5 Current P/E Ratio S&P 500 Industry Company Price Ratios
  • POOR FAIR FAIR 5.8 6.1 4.1 5Yr Net Profit Margin (5-Year Avg.) 9.3 9.4 6.1 5Yr PreTax Margin (5-Year Avg.) 47.4 43.5 39.2 5Yr Gross Margin (5-Year Avg.) 7.6 7.6 5.0 Net Profit Margin 11.3 11.6 6.9 Pre-Tax Margin 47.5 45.7 40.7 Gross Margin S&P 500 Industry Company Profit Margins %
  • ABOVE AVERAGE FAIR FAIR 12.66 10.04 21.52 Book Value/Share 5.8 1.6 1.9 Leverage Ratio 3.4 39.5 11.5 Interest Coverage 1.0 1.9 1.6 Quick Ratio 1.5 3.1 2.5 Current Ratio 0.11 0.14 0.28 Debt/Equity Ratio S&P 500 Industry Company Financial Condition
  • FAIR FAIR AVERAGE 5.5 13.2 10.7 Return On Capital (5-Year Avg.) 2.0 9.2 7.2 Return On Assets (5-Year Avg.) 11.9 15.4 14.9 Return On Equity (5-Year Avg.) 7.0 16.4 11.8 Return On Capital 2.5 11.7 8.0 Return On Assets 14.6 18.8 15.1 Return On Equity S&P 500 Industry Company Investment Returns %
  • POOR ABOVE AVERAGE VERY GOOD 0.4 1.7 1.7 Asset Turnover 8.2 4.0 5.2 Inventory Turnover 7.4 6.9 6.1 Receivable Turnover 334,000 361,000 426,000 Revenue/Employee 25,000 27,000 21,000 Income/Employee S&P 500 Industry Company Management Efficiency
  • Summary of Financial Ratios:
    • Growth Rates %: UNSATISFACTORY
    • Price Ratios: UNSATISFACTORY
    • Profit Margins %: UNSATISFACTORY
    • Financial Condition: SATISFACTORY
    • Investment Returns %: SATISFACTORY
    • Management Efficiency: SATISFACTORY
    • Earnings Growth Rates: UNSATISFACTORY
  • Company Share Information: 0.72 Beta 0.70 Current Div Yield 15.10 ROE 0.30 Div/Share 3.879 Bil Sales 3.12 Earnings/Share 12.20 Forward P/E 13.40 fyi   P/E NYSE Exchange 88.9% Instit.Ownership 59.67 Mil Tot. Shares o. 31.25 52 Week Low 2.485 Bil Market Cap. 46.30 52 Week High NA Ask NA Bid 41.81 Previous Close 41.64 Open 41.36 Day's Low 41.79 Day's High 653,600 Avg Daily Vol. 5d 1m 3m 1y 3y 5y 10y Data Source: CSI 06:02 PM ET Quotes delayed 20 minutes 552,200 Volume -0.17 -0.41% fyi Real-time quotes RBK quote
  • Background Analysis:     (expected)     0.3695 0.1267 0.0523 HPR   39.32 44 46.00 Price   0.3 0.3 0.30 Dividend       0.1290 Earnings growth rate estimate (2005)       Beginning Price   0.3695 0.1267 0.0523 . HPR = Ending Price – Beginning Price + Distributions         Background Analysis: 2003 2004 2005 (12/31)       RBK (REEBOK INTERNATIONAL LTD.)
  • Earnings Growth Rates: REEBOK’S FORECAST 16.60 6.00% 5.50% NA NA S&P 500 13.90 14.30% 15.30% 8.90% 14.80% Industry 12.20 13.70% 11.50% 12.90% 23.30% Company 05 P/E Next 5 Years FY 2006 FY 2005 Last 5 Years    Earnings Growth Rates
  • FCFE: (Thou) (Thou) (Thou) (Thou) -55,328 21,134 592,560 669,000 FCFE 2,147 -66 107,365   (+) ∆ in long-term debt 188,358 127,215 -109,663 (-)∆ in working capital 27,608 44,475 -144,262 (-)Capital Expenditures 32,033 35,636 38,845 (+)Depreciation 126,458 157,254 192,425 NI 2001 2002 2003 2004 2005   Free Cash Flow and Cost of Equity:
  • Discounted Cash Flows: EX: Ke 2001 =(D 2002 /P 2001 )+g 2002 ; D 2002 =D 2001 (1+g 2002 ); g 2002= (D 2002 - D 2001 )/D 2001 Po=D1/(ke-G)=>Ke=(D1/Po) +G 0.0104 0.0076 0.0068 0.0072 Ke(required return on equity) 28.93 39.32 44 41.81 P 6/3/2005 0.00 0.00 0.00 0.00 G 0 0.3 0.3 0.30 Dividend .ke(Constant dividend growth model) 1.3941 27.2911 0.3858 0.3972 Ke(required return on equity) 28.93 39.32 44.00 41.81 P 6/3/2005 1.3820 27.0382 0.1290 G 12/31/2005 G 1 =(FCFE 1 -FCFE 0 )/FCFE 0 59,039,000 60,224,000 59,608,000 59,208,000 59,670,000 shares outstanding ke 0 =[(FCFE 1 /shares 0 )/P 0 ] +G 1 -55,328,000 21,134,000 592,560,000 669,000,000 FCFE 12/31/2005 P 0 =(FCFE 1 /Shares 0 )/(Ke 0 -G 1 ) 2001 2002 2003 2004 2005 .Ke(Discounted cash flow (DCF) model)
  • Risk Analysis:   0.3100 0.3079 0.2576   Tax rate 60,600 72,100 68,500 Provision for income tax 195,500 234,200 265,900 Income from continuing operations before income taxes 976,200 956,000 1,220,600 Debt 884,600 1,033,710 1,219,956 Equity [Equity/(Equity +((1-T)Debt))]* BetaEquity=Beta_unlevered 0.9260 1.3578 0.9674 Unlevered Beta 2001 2002 2003 2004 Beta = COV(R RBK , R S&P500 ) / VAR(R S&P500 ) 1.1416 1.6312 2.2270 1.6859 1.5513 Beta RBK 2001 2002 2003 2004 2005
  • CAPM Model: The company is currently underpriced because Ke( DCF model) > Ke(CAPM); 0.3972> -0.0025 -0.1323 -0.3525 0.7242 0.2112 -0.0025 Ke(required return on equity) http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html 1.1416 1.6312 2.2270 1.6859 1.5513 Beta -0.1497 -0.2261 0.3206 0.1182 -0.0258 Rm-Rf Ke= R f + Beta(Rm-Rf) 0.0386 0.0163 0.0102 0.0119 0.0375 Rf . Ke (CAPM) 2001 2002 2003 2004 2005(3/23)
  • WACC: 0.20815 0.2087 0.20407   WACC WACC=We*Ke + Wd*kd*(1-T)+ Wp*Kp 0.31 0.308 0.298 T 0 0 0 Kp 0.04971 0.0497 0.03196 Kd 0.40 0.37 0.3858 Ke 0 0 0 Wp=Preferred stock/(Equity+Debt+Preferred Stock) 0.52462 0.4805 0.50015 Wd=Debt/(Equity+Debt+Preferred Stock) 0.47538 0.5195 0.49985 We= Equity/(Equity+Debt+Preferred Stock) 2002 2003 2004 Cost of Capital and Optimal Capital Structure:
  • Capital Structure:
  • Three years is a small time period to be able to determine what model Reebok follows. Companies are usually evaluated over a longer period time like ten years.
  • Market Efficiency: Good News- Company NO FORM 42.95 14-Jan-05 43.69 18-Jan-05 43.65 19-Jan-05 42.61 20-Jan-05 41.47 21-Jan-05 41.55 24-Jan-05 42.09 25-Jan-05 41.60 26-Jan-05 44.24 27-Jan-05 Close Date
  • Market Efficiency: Good News- Industry NO FORM 32.72 20-Jul-04 31.69 21-Jul-04 33.20 22-Jul-04 34.00 23-Jul-04 32.98 26-Jul-04 33.50 27-Jul-04 33.46 28-Jul-04 33.84 29-Jul-04 34.06 30-Jul-04 Close Date
  • Market Efficiency: Bad News- Company NO FORM 41.44 16-May-05 41.57 17-May-05 42.45 18-May-05 41.80 19-May-05 41.26 20-May-05 41.48 23-May-05 41.19 24-May-05 40.63 25-May-05 40.66 26-May-05 40.33 27-May-05 Close Date
  • Strengths
    • Earnings Growth Rates
    • FCFE
    • WACC
    • Debt/Equity Ratio
    • Financial Condition
    • Investment Returns
    • Management Efficiency
    • History
    • TTM Sales
    • Beta β- 1.5513 for 2005
  • Weaknesses:
    • Ownership
    • Growth Rates
    • Price Ratios
    • Profit Margin
    • HPR
    • Ke (cost of equity)
  • Analyst Opinion: 2.60 2.60 2.67 2.67 Mean Rec. 0 0 0 0 Strong Sell 0 0 0 0 Moderate Sell 7 7 7 7 Hold 2 2 1 1 Moderate Buy 1 1 1 1 Strong Buy 3 Months Ago 2 Months Ago 1 Month Ago Current Recommendations Analyst Ratings
  • Conclusion:
    • Underpriced
    • “ set it and forget it”- Buy and hold
    Reebok 5 year stock price forecast