<PAGE>
<PAGE>
________________________________________________________________________________
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q/A
(Amendment No. 1)
<TABLE>
<S> <C>
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 30, 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
------------------------
AUTHENTIC FITNESS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<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
26TH FLOOR
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 outstanding of the registrant's Common Stock as of May
6, 1996 is as follows: 22,164,776.
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AUTHENTIC FITNESS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 30, JULY 1,
1996 1995
------------ ------
(UNAUDITED)
(AS AMENDED)
<S> <C> <C>
(IN THOUSANDS OF
DOLLARS)
ASSETS
Current assets:
Cash.............................................................................. $ 1,400 $ 772
Accounts receivable -- net........................................................ 109,001 71,410
Accounts receivable from affiliates............................................... 3,771 9,687
Inventories:
Finished goods............................................................... 66,991 53,944
Raw materials and work in process............................................ 20,342 19,059
-------- --------
Total inventories....................................................... 87,333 73,003
Other current assets.............................................................. 19,816 7,636
-------- --------
Total current assets.................................................... 221,321 162,508
-------- --------
Property, plant and equipment, (net of accumulated depreciation of $9,557 and $5,891,
respectively)........................................................................ 40,830 35,185
Intangibles and other assets -- net.................................................... 81,974 80,546
-------- --------
$344,125 $278,239
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowing under revolving credit facility......................................... $149,264 $ 36,787
Current portion of long-term debt................................................. 355 7,388
Accounts payable and accrued liabilities.......................................... 23,170 31,894
Accounts payable to affiliates.................................................... 13,672 12,899
Federal and other income taxes.................................................... -- 7,489
-------- --------
Total current liabilities............................................... 186,461 96,457
-------- --------
Long-term debt......................................................................... 1,688 32,446
Deferred income taxes.................................................................. 4,107 7,428
Stockholders' equity:
Common Stock; $.001 par value..................................................... 21 18
Capital in excess of par value.................................................... 163,744 112,078
Cumulative translation adjustment................................................. (681) (740)
Retained earnings................................................................. (11,215) 30,552
-------- --------
Total stockholders' equity.............................................. 151,869 141,908
-------- --------
$344,125 $278,239
-------- --------
-------- --------
</TABLE>
This Statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
1
<PAGE>
<PAGE>
AUTHENTIC FITNESS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- --------------------------
MARCH 30, APRIL 1, MARCH 30, APRIL 1,
1996 1995 1996 1995
------------ ------- ----------- ----------
(AS AMENDED) (AS AMENDED)
<S> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
Net revenues.............................................. $ 98,860 $74,848 $ 219,066 $168,765
Cost of goods sold........................................ 68,622 46,585 147,991 104,993
-------- ------- ----------- ----------
Gross profit.............................................. 30,238 28,263 71,075 63,772
Selling, general and administrative expenses.............. 22,045 16,417 56,454 38,456
Herman's bad debt loss.................................... 11,623 -- 11,623 --
-------- ------- ----------- ----------
Income (loss) before interest and income taxes............ (3,430) 11,846 2,998 25,316
Interest expense.......................................... 3,313 2,171 8,236 4,594
-------- ------- ----------- ----------
Income (loss) before income taxes......................... (6,743) 9,675 (5,238) 20,722
Provision (benefit) for income taxes...................... (2,540) 3,700 (2,046) 8,228
-------- ------- ----------- ----------
Income (loss) before extraordinary item................... (4,203) 5,975 (3,192) 12,494
Extraordinary item -- net of income tax benefit of $833... (1,359) -- (1,359) --
--------- ------- ----------- ----------
Net income (loss).......................... $ (5,562) $ 5,975 $ (4,551) $ 12,494
--------- ------- ----------- ----------
--------- ------- ----------- ----------
Earnings per share:
Income (loss) before extraordinary item.............. $ (0.20) $ 0.28 $ (0.17) $ 0.58
Extraordinary item................................... (0.07) -- (0.07) --
--------- ------- ----------- ----------
Net income (loss).......................... $ (0.27) $ 0.28 $ (0.24) $ 0.58
--------- ------- ----------- ----------
--------- ------- ----------- ----------
Weighted average number of common shares outstanding...... 20,356 21,708 19,320 21,701
--------- ------- ----------- ----------
--------- ------- ----------- ----------
Related party transactions included in the Consolidated
Condensed Statements of Operations:
Product sales........................................ $ 2,130 $ 1,204 $ 5,319 $ 2,387
Purchases of goods and services...................... 1,366 1,248 4,576 4,096
Royalties paid and accrued........................... 1,828 1,500 4,215 3,214
Interest expense..................................... 204 299 758 732
</TABLE>
This Statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
2
<PAGE>
<PAGE>
AUTHENTIC FITNESS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
MARCH 30, 1996 APRIL 1, 1995
-------------- -------------
(AS AMENDED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................. $ (4,551) $ 12,494
Non-cash items included in net income:
Extraordinary item....................................................... 1,359 --
Depreciation and amortization............................................ 5,608 4,539
Herman's bad debt loss................................................... 11,623 --
Other.................................................................... 2,192 1,636
Change in deferred taxes................................................. (7,198) --
Income taxes.................................................................. (2,772) (1,300)
Other changes in operating accounts........................................... (77,865) (63,915)
--------- ---------
Net cash used in operating activities............................... 71,604 (46,546)
Cash flows from investing activities:
Purchases of property and equipment........................................... 13,240 (14,635)
Increase in intangibles and other assets...................................... (78) (9,350)
Other, net.................................................................... (1,562) (1,716)
--------- ---------
Net cash used in investing activities............................... 14,880 (25,701)
Cash flows from financing activities:
Borrowings under revolving credit facility.................................... 112,477 54,091
Net proceeds from the sale of common stock and exercise of options............ 51,712 537
Purchase of Series A Warrant.................................................. (36,484) --
Proceeds from Bridge Loan and other debt...................................... 38,500 20,000
Dividends paid................................................................ (732) --
Payment of deferred financing fees............................................ (2,070) (505)
Repayments of debt............................................................ (76,291) (2,196)
--------- ---------
Net cash provided by financing activities........................... 87,112 71,927
--------- ---------
Net change in cash................................................................. 628 (320)
Cash at beginning period........................................................... 772 1,081
--------- ---------
Cash at end of period.............................................................. $ 1,400 $ 761
--------- ---------
--------- ---------
Other changes in operating accounts:
Accounts receivable........................................................... $(43,438) $(30,066)
Inventories................................................................... (14,330) (40,930)
Other current assets.......................................................... (12,180) (4,774)
Accounts payable and accrued liabilities...................................... (7,917) 11,855
--------- ---------
$(77,685) $(63,915)
--------- ---------
--------- ---------
</TABLE>
This Statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
<PAGE>
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 for interim
financial information. Accordingly, they do not include 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 the adjustments (all of
which were of a normal recurring nature, except as noted below) necessary to
present fairly the financial position of the Company as of March 30, 1996 as
well as its results of operations and cash flows for the periods ended March 30,
1996 and April 1, 1995. The results of operations for the quarter and nine
months ended March 30, 1996 reflect certain reserves (including adjustments)
which were recorded in the fourth quarter of fiscal 1996 which related to the
second and third quarters of fiscal 1996. Such reserves and adjustments reduced
gross profit as originally reported by $7.3 million and $14.0 million,
respectively, pretax income as originally reported by $7.7 million and $18.7
million, respectively, and net income as originally reported by $4.8 million and
$11.5 million for the quarter and nine months ended March 30, 1996,
respectively. Operating results for interim periods may not be indicative of
results for the full fiscal year. The Consolidated Condensed Balance Sheet as of
July 1, 1995 has been derived from the audited Consolidated Balance Sheet
included in the Company's 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 1, 1995.
2. Certain amounts for prior periods have been reclassified to be
comparable with the current period presentation.
3. On September 13, 1995 the Company purchased from General Electric
Capital Corporation ('GECC') one-half of a warrant to acquire 3,618,358 shares
of the Company's common stock at $.005 per share (the Series A Warrant) for
36,183,580 or $20 per share (representing 1,809,179 shares). The Company had
agreed to purchase 1,309,179 of the remaining shares subject to the Series A
Warrant in January 1996 for an additional $26,183,580 or $20 per share. The
Company and GECC have amended their agreement to provide that the Company has
the option, at its sole discretion, to repurchase the remaining 1,809,179 shares
of common stock subject to the Series A Warrant at any time, on or before March
17, 1997 (in full but not in part), by giving ten days written notice to GECC.
The purchase price for the remaining 1,809,179 shares should the Company decide
to exercise its option would be $43,420,296 ($24 per share). The purchase of the
Series A Warrant was funded with the proceeds of a five-year bridge loan (the
'Bridge Loan') provided under the Company's Credit Agreement.
4. On October 16, 1995 the Company sold 2, 500,000 shares of its common
stock in an underwritten public offering (the 'Offering'). Net proceeds from the
Offering were approximately $51 million and were used to repay outstanding
amounts under the Bridge Loan and to repay certain amounts outstanding under the
term loan portion of the Company's Bank Credit Agreement.
5. On January 11, 1996, the Company amended its Bank Credit Agreement to
increase amounts available under its revolving loan from $105 million to
approximately $141 million ('Amended Bank Credit Agreement'). Amounts
outstanding under the Amended Bank Credit Agreement bear interest at the bank's
base rate plus .75% or at LIBOR plus 1.75%. Under certain conditions the
interest rate payable on amounts outstanding under the Company's amended Bank
Credit Agreement can be reduced to as low as LIBOR plus .50%
On March 26, 1996, the Company entered into a $250 million Amended and
Restated Credit Agreement with its existing banks (the '250 Million Credit
Agreement'). The $250 Million Credit Agreement provides the Company with a $250
million revolving line of credit and replaced the Amended Bank Credit Agreement.
Amounts outstanding under the $250 Million Credit Agreement bear interest at the
Bank's base rate or at LIBOR plus .75%. The interest rate payable on outstanding
indebtedness can be reduced as low as LIBOR plus .50% if the Company meets
certain financial tests. Borrowing under the $250 Million Credit Agreement is
secured by substantially all of the assets of the Company. The $250 Million
Credit Agreement requires that the Company meet certain financial tests
4
<PAGE>
<PAGE>
AUTHENTIC FITNESS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
and ratios including, (i) interest and lease coverage ratio, (ii) minimum
adjusted net worth, (iii) maximum total debt to EBITDA ratio, (iv) minimum
EBITDA and (v) maximum capital expenditures. The Company repaid amounts
outstanding under the term loan portion of the Amended Bank Credit Agreement
with amounts available under the $250 Million Credit Agreement on March 26,
1996.
6. On April 26, 1996, Herman's Sporting Goods, Inc . ('Herman's') filed
bankruptcy and on May 2, 1996 announced their liquidation. As a result, the
Company recorded a special bad debt loss of $11.6 million ($7.2 million net of
income tax benefit) in the third quarter of fiscal 1996 attributable to the
write-off of uncollectible accounts receivable and the write-down in the value
of Herman's common stock received as a distribution to creditors from Herman's
original bankruptcy settlement. The special bad debt loss includes anticipated
recoveries from the Company's credit insurance policy of approximately $4.6
million.
7. In March 1996, in conjunction with the refinancing of the Company's bank
credit agreement, the Company recorded a non-cash extraordinary charge of $1,359
(net of income tax benefits of $0.8 million) related to the write-off of
deferred financing costs under the Amended Bank Credit Agreement.
8. The Company's provision for income taxes differs from U.S. statutory
income tax rates due to the impact of state income taxes in excess of 35%,
non-deductible intangible amortization and foreign income taxes in excess of
35%, partially offset by certain tax credits.
5
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
STATEMENT OF OPERATIONS (SELECTED DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
MARCH 30, APRIL 1, MARCH 30, APRIL 1,
1996 1995 1996 1995
--------- -------- --------- --------
(AMOUNTS IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Net revenues................................................ $98.9 $ 74.8 $ 219.1 $168.8
Cost of goods sold.......................................... 68.6 46.6 148.0 105.0
----- -------- --------- --------
Gross profit................................................ 30.2 28.3 71.1 63.8
Percent to net revenue................................. 30.6% 37.8% 32.4% 37.8%
Selling, general and administrative expenses................ 22.0 16.4 56.5 38.5
----- -------- --------- --------
Income before special bad debt loss, interest and income
taxes..................................................... 8.2 11.9 14.6 25.3
Special bad debt loss....................................... 11.6 -- 11.6 --
Interest expense............................................ 3.3 2.2 8.2 4.6
Provision for income taxes.................................. (2.5) 3.7 (2.0) 8.2
Extraordinary item.......................................... 1.4 -- 1.4 --
------ -------- --------- --------
Net income (loss)........................................... $(5.6) $ 6.0 $ (4.6) $ 12.5
------ -------- --------- --------
------ -------- --------- --------
</TABLE>
Net revenues increased 32.1% to a record $98.9 million in the third quarter
of fiscal 1996 from $74.8 million in the third quarter of fiscal 1995. The
increase in net revenues reflects sales increases across all divisions. Speedo
Division net revenues increased 24.5% to $50.7 million in the third quarter of
fiscal 1996 compared to the third quarter of fiscal 1995 primarily due to
increases of 36.1% in men's swim, 89.6% in sportswear and Olympic merchandise
and 47.0% in fitness swimwear. Retail Division net revenues increased 64.3% to
$8.3 million. The Company had 100 stores open at the end of the third quarter of
fiscal 1996. The Company has six stores under construction that are expected to
open by June 30, 1996 for a total 106 stores. Designer Swimwear net revenues
increased 21.8% to $30.0 million due to increased sales of the Catalina brand.
White Stag/Skiwear Division net revenues increased 121% to $9.9 million in the
third quarter of fiscal 1996 compared to the third quarter of fiscal 1995
representing sales to Wal-Mart. Net revenues for the first nine months of fiscal
1996 increased 29.8% to $219.1 million from $168.8 million in the first nine
months of fiscal 1995. The increase in net revenues for the nine months is
attributable to an increase of 28.3% in Speedo Division net revenues to $115.2
million, an increase of 103.4% in Retail Division net revenues to $26.9 million,
an increase of 23.2% in Designer Swimwear Division net revenues to $53.9 million
and an increase in White Stag/Skiwear Division net revenues of 4.6% to $23.2
million.
Gross profit for the third quarter of fiscal 1996 increased to $30.2
million from $28.3 million in the third quarter of fiscal 1995. Gross profit for
the first nine months of fiscal 1996 increased to $71.1 million from the $63.8
million recorded in the first nine months of fiscal 1995. The increase in gross
profit in the third quarter of fiscal 1996 compared to the third quarter of
fiscal 1995 primarily reflects the increased sales volume noted above, partially
offset by the impact of certain inventory reserves (including adjustments) of
$7.3 million and $14.0 million, respectively, that were recorded in fiscal 1996.
Gross profit as a percentage of net revenues decreased to 30.6% in the third
quarter of fiscal 1996 compared to 37.8% in the third quarter of fiscal 1995.
Gross profit as a percentage of net revenues decreased to 32.4% for the first
nine months of fiscal 1996 compared to 37.8% in the first nine months of fiscal
1995. The decrease in gross profit as a percentage of net revenues primarily
reflects the impact of the reserves (including adjustments), as noted above,
partially offset by a higher mix of Retail Division net revenues which generate
a higher gross profit margin than the wholesale division.
Selling, general and administrative expenses increased to $22.0 million
(22.3% of net revenues) in the third quarter of fiscal 1996 from $16.4 million
(21.9% of net revenues) in the third quarter of fiscal 1995. The increase in
selling, general and administrative expenses for the third quarter of fiscal
1996 is primarily a result of an increase in advertising expenses of 46% to $5.2
million compared $3.2 million in
6
<PAGE>
<PAGE>
the third quarter of fiscal 1995. Selling, general and administrative expenses
increased to $56.5 million (25.8% of net revenues) in the first nine months of
fiscal 1996 from $38.5 million (22.8% of net revenues) in the first nine months
of fiscal 1995. The increase in selling, general and administrative expenses for
the nine months reflects (i) certain reserves (including adjustments) primarily
related to accounts receivable that were recorded in fiscal 1996, (ii) the
higher advertising expenses noted above, (iii) higher sales volumes, (iv) higher
depreciation and amortization expenses due to the increase in fixed assets
associated with the roll out of the Retail Store Division and (v) the higher mix
of Retail Division sales which require a higher level of selling and
administrative expenses than the wholesale divisions.
Interest expense was $3.3 million in the third quarter of fiscal 1996
compared to $2.2 million in the third quarter of fiscal 1995 reflecting
increased working capital necessary to support the 32.1% increase in net
revenues, as noted above. Interest expense for the first nine months of fiscal
1996 was $8.2 million compared to $4.6 million in the first nine months of
fiscal 1995. The increase in interest expense compared to last year for the
first nine months resulted from (i) the borrowing under the Bridge Loan in
September 1996 to repurchase the Series A Warrant, (ii) additional borrowing for
the increase in working capital necessary to support the 29.8% sales growth
achieved in the first nine months of fiscal 1996 and for expected sales growth
in the fourth quarter of fiscal 1996 and, (iii) the roll out of the retail
stores which reached 100 stores at the end of the third quarter of fiscal 1996.
On April 26, 1996, Herman's Sporting Goods, Inc. ('Herman's') filed
bankruptcy and on May 2, 1996 announced their liquidation. As a result, the
Company recorded a special bad debt loss of $11.6 million ($7.2 million net of
income tax benefits) attributable the write-off of uncollectible accounts
receivable and write-down of the value of Herman's common stock received as a
distribution from Herman's original bankruptcy settlement. The special bad debt
loss is net of anticipated gross recoveries from the Company's credit insurance
policy of approximately $4.6 million.
The provision (benefit) for income taxes in the third quarter of fiscal
1996 was $(2.5) million, an effective tax rate of 37.7% compared to $3.7 million
in fiscal 1995, an effective tax rate of 38.2%. The provision (benefit) for
income taxes for the first nine months of fiscal 1996 was $(2.0) million, an
effective tax rate of 39.0% compared to $8.2 million, an effective tax rate of
39.7% for the first nine months of fiscal 1995. The Company's tax rate differs
from the U.S. federal statutory tax rate of 35% due to the impact of state
income taxes, foreign income taxes in excess of 35% and non-deductible
intangible amortization partially offset by the tax credits.
The extraordinary item of $1.4 million (net of income tax benefits of $0.8
million) reflects the non-cash write-off of deferred financing costs associated
with the refinancing of the Company's previous bank credit agreement in March
1996.
The net loss for the third quarter of fiscal 1996 was $(5.6) million
compared to net income of $6.0 million in the third quarter of fiscal 1995. The
net loss for the first nine months of fiscal 1996 was $(4.6) million compared to
net income of $12.5 million in the first nine months of fiscal 1995. The
decrease in net income for both the quarter and nine months reflects the special
bad debt loss related to Herman's bankruptcy of $7.2 million (net of income tax
benefits of $4.4 million), the effect of the reserves (including adjustments) of
$18.7 million and the extraordinary item for early extinguishment of debt of
$1.4 million partially offset by the income tax benefits reported of $7.2
million, all as 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 dividend payment of approximately $223,000 was paid on October 2, 1995 to
shareholders of record on August 30, 1995. The Company has since declared three
quarterly cash dividends of 1.25[c] per share. The initiation of a regular
quarterly cash dividend totalling 5[c] per share per year, is expected to
broaden the Company's shareholder base.
On September 13, 1995 the Company purchased one half of a warrant for the
purchase of 3,618,358 shares of the Company's common stock for $.005 per share
(the 'Series A Warrant') from General Electric Capital Corporation ('GECC'). The
Series A Warrant was issued in conjunction with the original capitalization of
the Company in May 1990. The purchase price was $36,183,580 or $20 per
7
<PAGE>
<PAGE>
share (representing 1,809,179 shares of common stock). The Company and GECC have
amended their agreement to provide that the Company has the option, at its sole
discretion, to repurchase the 1,809,179 shares subject to the Series A Warrant
at any time, on or before March 17, 1997 (in full but not in part), by giving
ten days written notice to GECC. The purchase price for the remaining 1,809,179
shares should the Company decide to exercise its option would be $43,420,296
($24 per share).
In October 1995 the Company sold 2,500,000 shares of its common stock in an
underwritten public offering. Net proceeds from the ('Offering') were
approximately $51 million and were used to repay the amount outstanding under
the Bridge Loan and certain amounts outstanding under the term loan portion of
the Company's Credit Agreement.
On January 13, 1996, the Company amended its Bank Credit Agreement
('Amended Bank Credit Agreement') to increase amounts available under its
revolving loan. As a result of the amendment, the maximum amount of funds
available under the Company's revolving loan increased to approximately $141
million. Interest on amounts outstanding under the Amended Bank Credit Agreement
bore interest at the Bank's base lending rate plus .75% or at LIBOR plus 1.75%.
Under certain conditions the interest rate payable on amounts outstanding under
the Company's Amended Bank Credit Agreement could be reduced to as low as LIBOR
plus .50%. On March 26, 1996 the Company entered into a $250,000,000 Amended and
Restated Credit Agreement (the '$250 Million Credit Agreement'), with its
existing banks. The $250 Million Credit Agreement provides the Company with a
$250 million revolving loan with no required amortization payments. Interest on
amounts borrowed under the $250 million Credit Agreement bear interest at the
Bank's base rate or at LIBOR plus .75%. Under certain conditions the interest
rate payable on amounts outstanding under the $250 Million Credit Agreement can
be reduced to as low as LIBOR plus .50%.
The Company is continuing to expand its channels of distribution by opening
additional Speedo Authentic Fitness Retail Stores. The cost of leasehold
improvements, fixtures and working capital associated with the opening of a new
store is approximately $310,000. The Company currently has six stores under
construction (in addition to the 100 stores currently open) for a total of 106
stores.
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
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's $250 Million Credit Agreement provides
for a revolving loan facility in the amount of $250 million with no required
amortization payments. The Company's revolving loan balance was approximately
$149.3 million at March 30, 1996. At March 30, 1996 the Company had
approximately $95 million of additional credit available under its revolving
loan facility.
Cash used in operating activities for the first nine months of fiscal 1996
was $(71.6) million compared to $(46.5) million for the first nine months of
fiscal 1995. The increase in cash used in operating activities primarily
reflects increased use of working capital, primarily in accounts payable and
accrued liabilities reflecting the timing of trade payments compared to fiscal
1995. Seasonal inventory increases were lower than last year reflecting higher
shipments and improved inventory control. Accounts receivable increased compared
to last year reflecting the higher level of shipments in March 1996 compared to
March 1995. Days sales outstanding improved to 100 days from 101 last year.
The Company believes that amounts available under its existing credit
agreement combined with cash flow to be generated from future operations will be
sufficient for the operations of the Company including debt repayments,
dividends and capital expenditures.
8
<PAGE>
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<S> <C>
3.1** -- Restated Certificate of Incorporation of the Registrant.
3.2** -- By-Laws of the Registrant.
10.1* -- Management Stock Subscription Agreement dated May 11, 1990 among the Registrant and the Management
Participants listed therein.
10.2** -- Amendment to Management Stock Subscription Agreement dated as of June 1, 1992 among the Registrant
and the Management Participants listed therein.
10.3* -- Registration Rights Agreement dated as of May 14, 1990 among the Registrant and the Management
Participants listed therein.
10.4** -- Amendment to Registration Rights Agreement dated as of June 1, 1992 among the Registrant, Warnaco
Inc., Pentland Ventures Ltd. and the Management Participants listed therein.
10.5* -- Series A Warrant for 633,200 shares of Class A Common Stock of the Registrant (1,809,179 shares of
Class A Common Stock as adjusted for the 2.8572-for-1 stock split) issued to General Electric
Capital Corporation.
10.6** -- Amendment to Series A Warrant dated as of June 1, 1992 between the Registrant and General Electric
Capital Corporation.
10.7*`D' -- License Agreement dated May 10, 1990 among Speedo International Limited, Speedo International B.V.,
Warnaco Inc. and Warnaco International Inc. and related assignments to Authentic Fitness Products,
Inc. (formerly S Acquisition Corp.) (United States, its territories and possessions, and Canada).
10.8*`D' -- License Agreement dated May 10, 1990 among Speedo Knitting Mills Pty. Limited, Warnaco Inc. and
Warnaco International Inc. and related assignments to Authentic Fitness Products, Inc. (formerly S
Acquisition Corp.) (Mexico and the Caribbean Islands).
10.9* -- Buying Agency Agreement dated as of May 14, 1990 among Authentic Fitness Products, Inc. (formerly S
Acquisition Corp.), 171173 Canada Inc., Asco International Sourcing Limited and Soaring Force
Limited.
10.10* -- Amendment to Buying Agency Agreement dated as of June 1, 1992 among Authentic Fitness Products,
Inc. (formerly S Acquisition Corp.), 171173 Canada Inc., Asco International Sourcing Limited and
Soaring Force Limited.
10.11** -- Employment Agreement ('Employment Agreement') dated as of July 2, 1992 between the Registrant and
Linda J. Wachner.
10.12*** -- First Amendment to Employment Agreement.
10.13* -- Incentive Compensation Plan.
10.14* -- 1990 Key Management Stock Option Plan.
10.15**** -- 1992 Long-Term Stock Incentive Plan.
10.16***** -- 1993 Stock Option Plan for Non-Employee Directors.
10.17* -- Form of Indemnification Agreements between the Registrant and its directors and executive officers.
10.18 -- $250,000,000 Amended and Restated Credit Agreement dated as of March 26, 1996 (the 'Credit
Agreement') among Authentic Fitness Products, Inc., as Borrower and Authentic Fitness Corporation
and the Financial Institutions named herein, as Lenders, and The Bank of Nova Scotia and Citicorp
USA, Inc., as Agents, and The Bank of Nova Scotia, as Administrative Agent, Paying Agent, Swing
Line Bank, and Fronting Bank, and Citicorp USA, Inc., as Documentation Agent and Collateral Agent
and Chemical Bank, Societe Generale and The Bank of New York as Co-Agents.
11.1 -- Calculation of Income (Loss) per common share.
21.1***** -- Subsidiaries of the Registrant.
23.1**** -- Consent of Ernst & Young LLP.
28.1** -- Amended and Restated Stockholders Agreement dated as of June 1, 1992 among the Registrant, Pentland
Ventures Ltd., General Electric Capital Corporation, Warnaco Inc. and the Management Participants
listed therein.
</TABLE>
(footnotes on next page)
9
<PAGE>
<PAGE>
(footnotes from previous page)
* Incorporated herein by reference to the Company's Registration Statement
on Form S-1, No. 33-47907.
** Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended July 3, 1993.
*** Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended July 2, 1994.
**** Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended July 1, 1995.
***** Incorporated herein by reference to the Company's Registration Statement
on Form S-3 No. 33-71540.
`D' Confidential treatment granted.
(b) Reports on Form 8-K.
None.
10
<PAGE>
<PAGE>
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
<TABLE>
<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>
11
STATEMENT OF DIFFERENCES
The cent symbol shall be expressed as ......................[c]
The dagger symbol shall be expressed as ......................'D'
<PAGE>
<PAGE>
AUTHENTIC FITNESS CORPORATION
CALCULATION OF INCOME PER COMMON SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
(As Amended)
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
---------------------- ----------------------
MARCH 30, APRIL 1, MARCH 31, APRIL 1,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary item....................... ($ 4,203) $ 5,975 ($ 3,192) $ 12,494
--------- --------- --------- ---------
--------- --------- --------- ---------
Extraordinary item............................................ ($ 1,359) -- ($ 1,359) --
--------- --------- --------- ---------
--------- --------- --------- ---------
Net Income (loss)............................................. ($ 5,562) $ 5,975 ($ 4,551) $ 12,494
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of shares of common stock outstanding
during the period........................................... 17,855,597 17,789,104 17,827,404 17,775,300
Common shares sold in public offering completed in October
1995........................................................ 2,500,000 -- 1,492,641 --
Common stock equlvalents:
Series A Warrants........................................ -- 3,618,358 -- 3,618,358
Option shares outtanding using the treasury sock
method................................................. -- 300,387 -- 307,061
--------- --------- --------- ---------
Weighted average number of shares of common stock
outstanding................................................. 20,355,597 21,707,849 19,320,045 21,700,719
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (loss) per common share:
Income before extraordinary items........................ ($ 0.20) $ 0.28 ($ 0.17) $ 0.58
Extraordinary item....................................... (0.07) -- (0.07) --
--------- --------- --------- ---------
Net income (loss) per share................................... ($ 0.27) $ 0.28 ($ 0.24) $ 0.58
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AUTHENTIC FITNESS CORPORATION FOR THE QUARTER
ENDED MARCH 30, 1996, AS AMENDED, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-06-1996
<PERIOD-START> JUL-02-1995
<PERIOD-END> MAR-30-1996
<CASH> 1,400
<SECURITIES> 0
<RECEIVABLES> 116,831
<ALLOWANCES> 4,059
<INVENTORY> 87,333
<CURRENT-ASSETS> 221,321
<PP&E> 50,387
<DEPRECIATION> 9,557
<TOTAL-ASSETS> 344,125
<CURRENT-LIABILITIES> 186,461
<BONDS> 1,688
<COMMON> 21
0
0
<OTHER-SE> 151,848
<TOTAL-LIABILITY-AND-EQUITY> 344,125
<SALES> 219,066
<TOTAL-REVENUES> 219,066
<CGS> 147,991
<TOTAL-COSTS> 147,991
<OTHER-EXPENSES> 56,454
<LOSS-PROVISION> 11,623
<INTEREST-EXPENSE> 8,236
<INCOME-PRETAX> (5,238)
<INCOME-TAX> (2,046)
<INCOME-CONTINUING> (3,192)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,359)
<CHANGES> 0
<NET-INCOME> (4,551)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
