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________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
(Amendment No. 1)
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[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 5, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_____________TO_____________
</TABLE>
COMMISSION FILE NUMBER 1-11202
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AUTHENTIC FITNESS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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<S> <C>
DELAWARE 95-4268251
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
6040 BANDINI BLVD.
COMMERCE, CALIFORNIA 90040
(ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
(213) 726-1262
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
COPIES OF ALL COMMUNICATIONS TO:
AUTHENTIC FITNESS CORPORATION
90 PARK AVENUE
NEW YORK, NEW YORK 10016
ATTENTION: GENERAL COUNSEL
------------------------
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 [x] No [ ]
The number of shares of the registrant's Common Stock outstanding as of
November 14, 1996 was: 22,333,730
________________________________________________________________________________
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUTHENTIC FITNESS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 5, JULY 6,
1996 1996
----------- --------
(UNAUDITED)
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................... $ -- $ 1,499
Accounts receivable -- net......................................................... 61,454 75,274
Accounts receivable from affiliates................................................ 7,644 4,004
Inventories:
Finished goods................................................................ 52,069 45,960
Raw material and work in process.............................................. 29,299 18,817
----------- --------
Total inventories........................................................ 81,368 64,777
Prepaid expenses................................................................... 8,879 10,154
Income tax refunds receivable...................................................... 9,562 9,556
----------- --------
Total current assets..................................................... 168,907 165,264
----------- --------
Property, plant and equipment, (net of accumulated depreciation of $12,558 and $11,062,
respectively)......................................................................... 46,453 42,786
Intangibles and other assets -- net..................................................... 74,671 73,416
----------- --------
$ 290,031 $281,466
----------- --------
----------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowing under revolving credit facility.......................................... $ 84,415 $ 68,214
Current portion of long-term debt.................................................. 352 2,844
Accounts payable................................................................... 26,541 21,550
Accounts payable to affiliate...................................................... 11,824 14,132
Accrued liabilities................................................................ 8,078 8,151
Accrued income taxes............................................................... 1,921 --
----------- --------
Total current liabilities................................................ 133,131 114,891
----------- --------
Long-term debt.......................................................................... 51,765 49,432
Deferred income taxes................................................................... 425 420
Stockholders' equity:
Preferred Stock; $.01 par value.................................................... -- --
Common Stock; $.001 par value...................................................... 23 21
Capital in excess of par value..................................................... 159,239 159,239
Cumulative translation adjustment.................................................. (640) (723)
Accumulated deficit..................................................................... (53,912) (41,814)
----------- --------
Total stockholders' equity............................................... 104,710 116,723
----------- --------
$ 290,031 $281,466
----------- --------
----------- --------
</TABLE>
This Statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
1
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AUTHENTIC FITNESS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
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<CAPTION>
FIRST QUARTER ENDED
---------------------------
OCTOBER 5, SEPTEMBER 30,
1996 1995
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(UNAUDITED)
(IN THOUSANDS OF DOLLARS
EXCEPT SHARE DATA)
<S> <C> <C>
Net revenues........................................................................ $ 38,665 $ 42,908
Cost of goods sold.................................................................. 27,462 25,530
---------- -------------
Gross profit........................................................................ 11,203 17,378
Selling, general and administrative expenses........................................ 20,012 11,781
---------- -------------
Income (loss) before interest and income taxes...................................... (8,809) 5,597
Interest expense.................................................................... 2,732 2,237
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Income (loss) before provision for income taxes..................................... (11,541) 3,360
Provision for income taxes.......................................................... -- 1,185
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Net income (loss)................................................................... $ (11,541) $ 2,175
---------- -------------
---------- -------------
Net income (loss) per common share.................................................. $ (0.52) $ 0.10
---------- -------------
---------- -------------
Weighted average number of common shares outstanding................................ 22,333,730 21,884,194
---------- -------------
---------- -------------
Related party transactions included in the Consolidated Condensed Statement of
Operations:
Product sales.................................................................. $ 4,952 $ 3,163
Purchases of goods and services................................................ 1,307 1,443
Royalties paid or accrued...................................................... 848 1,015
Interest expense............................................................... 409 219
</TABLE>
This Statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
2
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AUTHENTIC FITNESS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
-------------------------------------
OCTOBER 5, SEPTEMBER 30,
1996 1995
--------------- ------------------
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................... $ (11,541) $ 2,175
Non cash items included in net income (loss):
Depreciation and amortization..................................... 2,092 1,873
Other............................................................. 593 649
Income taxes........................................................... 1,915 (6,499)
Other changes in operating accounts.................................... 2,318 (22,931)
---------- ---------
Net cash used in operating activities........................ (4,623) (24,733)
---------- ---------
Cash flows from investing activities:
Purchase of equipment and other long term assets....................... (6,279) (3,527)
Other.................................................................. (1,050) (675)
---------- ---------
Net cash used in investing activities........................ (7,329) (4,202)
---------- ---------
Cash flows from financing activities:
Borrowing (repayments) under revolving credit facility................. (33,799) 26,685
Net proceeds from the sale of common stock and exercise of stock
options.............................................................. -- 528
Repayments of debt..................................................... (158) (80)
Proceeds from issuance of long term debt............................... 50,000 37,500
Purchase of Series A Warrant........................................... -- (36,184)
Proceeds from other financing.......................................... -- 1,000
Dividends paid......................................................... (535) (222)
Increase in deferred financing costs................................... (5,055) (972)
---------- ---------
Net cash provided from financing activities.................. 10,453 28,255
---------- ---------
Increase (decrease) in cash................................................. (1,499) (680)
Cash at beginning of period................................................. 1,499 772
---------- ---------
Cash at end of period....................................................... $ -- $ 92
---------- ---------
---------- ---------
Other changes in operating accounts:
Accounts receivable.................................................... $ 16,096 $ 10,666
Inventories............................................................ (16,591) (20,531)
Other current assets................................................... 203 (6,041)
Accounts payable and accrued liabilities............................... 2,610 (7,025)
---------- ---------
$ 2,318 $(22,931)
---------- ---------
---------- ---------
</TABLE>
This Statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
3
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AUTHENTIC FITNESS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles and
Securities and Exchange Commission rules and regulations for interim financial
information. Accordingly, they do not contain all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company, the accompanying
consolidated condensed financial statements contain all of the adjustments (all
of which were of a normal recurring nature) necessary to present fairly the
financial position of the Company as of October 5, 1996 as well as its results
of operations and cash flows for the periods ended October 5, 1996 and September
30, 1995. Operating results for interim periods may not be indicative of results
for the full fiscal year. The Consolidated Condensed Balance Sheet as of July 5,
1996, is derived from the audited Consolidated Balance Sheet included in the
Company's Form 10-K for the year then ended. 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 fiscal year ended July 6, 1996.
2. Certain amounts for prior periods have been reclassified to be
comparable with the current period presentation.
3. On September 6, 1996, the Company entered into a $200 Million Credit
Agreement with GE Capital, The Bank of Nova Scotia, The Bank of California and
Societe Generale (the '$200 Million Credit Agreement'), which replaced the
Company's previous $250 Million Credit Agreement. The decrease in the total
amount of the loan commitment reflects the Company's decision not exercise its
option to purchase the remaining portion of the Series A Warrant representing
approximately 1.8 million shares at $24 per share. The $200 Million Credit
Agreement has a term of five years and provides for a term loan (the 'Term
Loan') in the amount of $50 million and a revolving loan facility (the
'Revolving Loan') in the amount of $150 million. Borrowing under the $200
Million Credit Agreement accrues interest at the lenders' base rate or at LIBOR
plus 1.5% (approximately 7.2% at October 5, 1996). The Company is also required
to pay a commitment fee on the unused portion of the revolving Loan equal to
.50% per annum on the average daily unused revolving loan commitment. In
addition, the $200 Million Credit Agreement allows the Company to repurchase up
to $10 million of its own Common Stock after March 31, 1997, under certain
conditions. The Term Loan is payable in nine semi-annual installments commencing
on June 30, 1997 and a final installment of $7,500,000 due September 1, 2001.
4. During the first quarter of fiscal 1997 GE Capital exercised the Series
A Warrant and acquired 1,809,109 shares of the Company's common stock.
4
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AUTHENTIC FITNESS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS.
STATEMENT OF OPERATIONS (SELECTED DATA)
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<CAPTION>
FIRST QUARTER ENDED
---------------------------------
OCTOBER 5, SEPTEMBER 30,
1996 1995
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(AMOUNTS IN MILLIONS OF DOLLARS)
<S> <C> <C>
Net revenues.................. $38.7 $42.9
Cost of goods sold............ 27.5 25.5
------ ------
Gross profit.................. 11.2 17.4
% to net revenue........... 29.0% 40.5%
Selling, general and
administrative expenses..... 20.0 11.8
------ ------
Income (loss) before interest
and income taxes............ (8.8) 5.6
Interest expense.............. 2.7 2.2
Provision for income taxes.... __ 1.2
------ ------
Net income (loss)............. (11.5) 2.2
Pro-forma income tax
benefit..................... (4.2) --
------ ------
Pro-forma income (loss)....... $(7.3) $2.2
------ ------
------ ------
</TABLE>
Net revenues decreased 9.9% to $38.7 million in the first quarter of fiscal
1997 from $42.9 million in the first quarter of fiscal 1996. Net revenues for
the first quarter of fiscal 1996 included $9.6 million of net revenues related
to the discontinued skiwear and outlet store operations and included $2.6
million of shipments of Speedo products to Herman's Sporting Goods, Inc
('Herman's'). Excluding these items, net revenues increased 11.5% primarily due
to an increase of 33.5% in Authentic Fitness Retail Division net revenues.
Speedo Division net revenues decreased to $20.4 million in the first quarter of
fiscal 1997 from $22.7 million in the first quarter of fiscal 1996 due primarily
to the loss of outlet store (which were closed in July 1996) and Herman's sales.
The Designer Swimwear Division's net revenues were approximately equal to last
year, after adjusting for outlet store sales recorded in fiscal 1996. Authentic
Fitness Retail Division net revenues increased 33.5% to $11.3 million in the
first quarter of fiscal 1997 from $8.5 million in the first quarter of fiscal
1996. At November 14, 1996 the Company had 124 stores open. Same store sales for
the 74 comparable stores for the first quarter of fiscal 1997 increased 2.6%
over the year earlier period.
Gross profit for the first quarter of fiscal 1997 of $11.2 million compares
to $17.4 million in the first quarter of fiscal 1996. The decrease in gross
profit reflects the lower Speedo net revenues, as noted above, and a decrease in
full price skiwear sales resulting from the decision to exit this business in
the fourth quarter of fiscal 1996. Gross profit as a percentage of net revenues
was 29.0% in the first quarter of fiscal 1997 compared to 40.5% in the first
quarter of fiscal 1996. The decrease in gross profit as a percentage of net
revenue reflects the lost regular price margin in skiwear as well as higher
Speedo Division off-price sales resulting from the continuing impact of the
Herman's liquidation, which the Company expects will continue through the second
quarter of fiscal 1997.
Selling, general and administrative expenses increased 69.8% to $20.0
million in the first quarter of fiscal 1997 from $11.8 million in the first
quarter of fiscal 1996. The increase in selling, general and administrative
expenses reflects an increase in Speedo'r' advertising of $5.6 million related
to the Olympics and Inner-City Games, $1.8 million related to higher retail
selling costs, $0.6 million of severance related to a reduction in force and
$0.2 million higher depreciation and amortization expense. The reduction in
workforce is expected to save the Company approximately $3.0 million, annually.
5
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AUTHENTIC FITNESS CORPORATION
Interest expense was $2.7 million in the first quarter of fiscal 1997
compared to $2.2 million in the first quarter of fiscal 1996. The increase of
$500,000 in interest expense compared to last year is primarily a result of
higher borrowing to finance the growth of the Authentic Fitness'r' Retail Stores
Division.
The Company did not record an income tax benefit in the first quarter of
fiscal 1997. The Company expects its effective income tax rate to be 36% for
fiscal 1997, equal to the rate for the first quarter of fiscal 1996. The Company
incurred a net loss in fiscal 1996 and has incurred a cumulative net loss
through the first six months of fiscal 1997, and as a result, will not record
future benefits from its net operating loss carryforward until the Company
realizes cumulative net income for the current fiscal year, which is expected to
occur in the third quarter of fiscal 1997.
Net loss for the first quarter of fiscal 1997 was $(11.5) million. Net loss
for the first quarter of fiscal 1997, after giving effect to a pro-forma income
tax benefit of 36%, was $(7.4) million compared to net income of $2.2 million in
the first quarter of fiscal 1996. The decrease in income reflects the lower
operating income and higher interest expense noted above.
CAPITAL RESOURCES AND LIQUIDITY.
On August 16, 1995, consistent with the Company's goal of providing
increased shareholder value, the Company declared its first quarterly cash
dividend of 1.25[c] per share, equivalent to an annual rate of 5[c] per share.
The Company has since declared five successive quarterly cash dividends of
1.25[c] per share. The Company believes that a payment of a regular quarterly
cash dividend helps broaden the Company's Shareholder base.
On September 6, 1996, the Company entered into a $200 million Credit
Agreement with GE Capital, The Bank of Nova Scotia, Societe Generale and Bank of
California (the '$200 Million Credit Agreement'), which replaced the Company's
previous $250 Million Credit Agreement. The decrease in the total amount of the
Credit Agreement commitment reflects the Company's intent not to exercise their
option to repurchase the remaining portion of the Series A Warrant from GE
Capital representing 1.8 million shares at $24 per share. The $200 Million
Credit Agreement is for a term of five years and provides for a term loan (the
'Term Loan') in the amount of $50 million and a revolving loan facility in the
amount of $150 million (the 'Revolving Loan'). Borrowing under the $200 Million
Credit Agreement accrues interest at the lenders' base rate or at LIBOR plus
1.5%. In addition, the agreement allows the Company to repurchase up to $10
million of its own common stock after March 1, 1997, under certain conditions.
The Company plans to expand its channels of distribution and provide growth
in its operations by opening additional Authentic Fitness Retail Stores. The
Company currently has 124 stores open (including 20 stores in Bally's Health and
Fitness Centers) and expects to open approximately 200 additional stores over
the next six years. The cost of leasehold improvements, fixtures and the
additional working capital associated with the opening of an average new store
is expected to be approximately $250,000.
The Company's liquidity requirements arise primarily from its debt service
requirements and the funding of the Company's working capital needs, primarily
inventory and accounts receivable. The Company's borrowing requirements are
seasonal, with peak working capital needs arising at the end of the third
quarter and beginning of the fourth quarter of the fiscal year. The Company
typically generates nearly all of its operating cash flow in the fourth quarter
of the fiscal year reflecting third and fourth quarter shipments and the sale of
inventory built during the first half of the fiscal year. The Company meets its
seasonal working capital needs by utilizing amounts available under its
revolving line of credit. The Company has amended and increased its lines of
credit several times in the last two years, primarily to support the growth in
its swimwear divisions and to fund the growth of its swimwear divisions and to
fund the rapid rollout of the Authentic Fitness Retail Stores.
6
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AUTHENTIC FITNESS CORPORATION
Net cash used by operating activities was $4.6 million in the first quarter
of fiscal 1997, an improvement of $20.1 million, over the $24.7 million reported
in the first quarter of fiscal 1996. The improvement in operating cash flow is
primarily a result of improved working capital usage reflecting higher accounts
receivable collections, lower seasonal inventory usage, and the timing of
certain payments.
Cash used in investing activities was $7.3 million in the first quarter of
fiscal 1997 compared to $4.2 million in fiscal 1996. Capital expenditures,
primarily related to the expansion of the Company's Authentic Fitness Retail
Stores, were $6.3 million and $3.5 million in the first quarters of fiscal 1997
and 1996, respectively. During the first quarter of fiscal 1997 the Company
opened ten Authentic Fitness Retail Stores compared to eight stores in the first
quarter of fiscal 1996. The Company opened eight additional stores in the month
of October 1996 (none in October 1995).
Cash provided from financing activities was $10.4 million in fiscal 1997
compared to $28.3 million in fiscal 1996. The decrease in cash provided from
financing activities reflects lower borrowing. Total debt increased by $16.2
million in fiscal 1997 due to seasonal working capital requirements compared to
$65.2 million in fiscal 1996. Cash flow from financing activities includes $5.1
million in deferred financing costs in fiscal 1997 compared to $1.0 million in
fiscal 1996. During the first quarter of fiscal 1996 the Company repurchased
one-half of the Series A Warrants from GE Capital for $36.2 million.
The Company's Revolving Loan balance was approximately $84.4 million at the
end of the first quarter of fiscal 1997. There was no change in balance with
respect to the Company's Term Loan at the end of the first quarter of fiscal
1997. At November 14, 1996 the Company had approximately $65 million of
additional credit available under its revolving loan facility.
The Company believes that funds available under its current $200 Million
Credit Agreement, as noted above, combined with cash flow to be generated from
future operations will be sufficient for the operations of the Company,
including debt service, dividend payments and costs associated with the
expansion of its Authentic Fitness Retail Division for at least the next twelve
months. Although the Company believes that its current credit agreement and cash
flow to be generated from future operations will also be sufficient for its
long-term operations (periods beyond the next twelve months) circumstances may
arise that would require the Company to seek additional financing. In those
circumstances the Company expects to evaluate additional sources of funds, for
example, sales of additional common stock and expanded or additional bank credit
facilities.
7
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PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's annual meeting of shareholders was held on November 14, 1996.
The following matters were voted upon by the shareholders:
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(1) Election of Directors
(a) Mr. Robert D. Walter was re-elected to the Board of Directors to serve a two year term expiring at the
1998 Annual Meeting of Stockholders. 20,235,910 votes were cast for the election of Mr. Walter, and
220,129 withheld, abstained and broker non votes.
(b) Mr. Joseph A. Califano, Jr. was re-elected to the Board of Directors to serve a three year term
expiring at the 1999 Annual Meeting of Stockholders. 20,227,001 votes were cast for the election of
Mr. Califano, and 229,038 withheld, abstained and broker non votes.
(c) Mr. Stanley F. Arkin was re-elected to the Board of Directors to serve a three year term expiring at
the 1999 Annual Meeting of Stockholders. 20,228,001 votes were cast for the election of Mr. Arkin, and
228,038 withheld, abstained and broker non votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
</TABLE>
(a) Exhibits.
11.1 -- Earnings per share.
27.1 -- Financial Data Schedule.
(b) Reports on Form 8-K.
None.
8
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SIGNATURES
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.
AUTHENTIC FITNESS CORPORATION
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<S> <C>
Date: February 18, 1997 By: /s/ WALLIS H. BROOKS
...............................................
WALLIS H. BROOKS
SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
</TABLE>
9
STATEMENT OF DIFFERENCES
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The registered trademark symbol shall be expressed as ...................'r'
The cent symbol shall be expressed as ...................................[c]
