<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 5, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
COMMISSION FILE NUMBER 1-11202
AUTHENTIC FITNESS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-4268251
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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.
[X] Yes [ ] No
The number of shares outstanding of the registrant's Common Stock as of May 15,
1997 is: 22,419,730.
<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUTHENTIC FITNESS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
April 5, 1997 July 6, 1996
------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,035 $ 1,499
Accounts receivable - net 115,173 75,274
Accounts receivable from affiliates 3,670 4,004
Inventories:
Finished goods 60,260 45,960
Raw materials and work in process 32,795 18,817
--------- ---------
Total inventories 93,055 64,777
Other current assets 8,038 19,710
---------- ---------
Total current assets 220,971 165,264
---------- ---------
Property, plant and equipment, (net of accumulated
depreciation of $15,721 and $11,062, respectively) 53,224 42,786
Intangibles and other assets - net 73,528 73,416
---------- ---------
$ 347,723 $ 281,466
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowing under revolving credit facility $ 107,803 $ 68,214
Current portion of long-term debt 2,839 2,844
Accounts payable and accrued liabilities 35,500 29,701
Accounts payable to affiliates 24,178 14,132
Federal and other income taxes 4,143 --
---------- ---------
Total current liabilities 174,463 114,891
---------- ---------
Long-term debt 49,283 49,432
Deferred income taxes 414 420
Stockholders' equity:
Common Stock; $.001 par value 23 21
Capital in excess of par value 159,239 159,239
Cumulative translation adjustment (823) (723)
Retained earnings (deficit) (34,876) (41,814)
---------- ---------
Total stockholders' equity 123,563 116,723
---------- ---------
$ 347,723 $ 281,466
========== =========
</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 OPERATIONS (UNAUDITED)
(IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
April 5, March 30, April 5, March 30,
1997 1996 1997 1996
---------- ------------ --------- --------
<S> <C> <C> <C> <C>
Net revenues $ 104,952 $ 98,860 $ 214,060 $ 219,066
Cost of goods sold 58,364 68,622 129,697 147,990
--------- --------- --------- ---------
Gross profit 46,588 30,238 84,363 71,076
Selling, general and admini-
strative expenses 25,213 33,670 63,692 68,107
--------- --------- --------- ---------
Income (loss) before interest and
income taxes 21,375 (3,432) 20,671 2,969
Interest expense 3,484 3,402 9,684 8,332
--------- --------- --------- ---------
Income (loss) before income
taxes 17,891 (6,834) 10,987 (5,363)
Provision (benefit) for
income taxes 3,955 (2,631) 3,955 (2,171)
--------- --------- --------- ---------
Income (loss) before extra-
ordinary item 13,936 (4,203) 7,032 (3,192)
Extraordinary item -- (1,359) -- (1,359)
--------- --------- --------- ---------
Net income (loss) $ 13,936 $ (5,562) $ 7,032 $ (4,551)
========= ========= ========= =========
Income (loss) per common share:
Income (loss) before extraordinary
item $ 0.62 $ (0.21) $ 0.31 $ (0.17)
Extraordinary item -- (0.07) -- (0.07)
--------- --------- --------- ---------
Net income (loss) per share $ 0.62 $ (0.27) $ 0.31 $ (0.24)
========= ========= ========= =========
Weighted average number of
common shares outstanding 22,565 20,356 22,494 19,326
========= ========= ========= =========
Related parties transactions included in the Consolidated Condensed Statements of Operations:
Product sales $ 2,648 $ 2,130 $ 15,552 $ 5,319
Purchases of goods
and services 1,447 1,366 4,026 4,576
Royalties paid and accrued 1,951 1,828 4,086 4,215
Interest expense 3,025 204 4,887 758
</TABLE>
This Statement should be read in conjunction with the accompanying Notes to
Consolidated Condensed Financial Statements.
3
<PAGE>
<PAGE>
AUTHENTIC FITNESS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
April 5, 1997 March 30, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 7,032 $ (4,551)
Non-cash items included in net income:
Depreciation and amortization 6,557 5,608
Herman's bad debt loss -- 11,763
Extraordinary item -- 1,359
Change in deferred taxes -- (7,198)
Other 2,597 2,052
Income taxes 11,833 (2,772)
Other changes in operating accounts (40,592) (77,865)
-------- --------
Net cash used in operating activities (12,573) (71,604)
Cash flows from investing activities:
Purchases of equipment and other long-term assets (18,803) (13,318)
Other, net (2,773) (1,562)
-------- --------
Net cash used in investing activities (21,576) (14,880)
Cash flows from financing activities:
Borrowing under revolving credit facility (10,411) 112,477
Net proceeds from the sale of common stock and exercise of
options 773 51,712
Purchase of Series A Warrant -- (36,484)
Issuance of long-term debt 50,274 38,500
Dividends paid (861) (732)
Payment of deferred financing fees (5,663) (2,070)
Repayments of debt (427) (76,291)
-------- --------
Net cash provided by financing activities 33,685 87,112
-------- --------
Net change in cash (464) 628
Cash at beginning period 1,499 772
-------- --------
Cash at end of period $ 1,035 $ 1,400
======== ========
Other changes in operating accounts:
Accounts receivable $(31,065) $(43,438)
Inventories (28,277) (14,330)
Other current assets 2,910 (12,180)
Accounts payable and accrued liabilities 15,840 (7,917)
-------- --------
$(40,592) $(77,865)
======== ========
</TABLE>
This Statement should be read in conjunction with the accompanying Notes to
Consolidated Condensed Financial Statements.
4
<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 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 April 5, 1997 as well as its results of operations and cash flows
for the periods ended April 5, 1997 and March 30, 1996. Operating results
for interim periods may not be indicative of results for the full fiscal
year. The Consolidated Condensed Balance Sheet at July 6, 1996 has been
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 (the "$200 Million Credit Agreement") with GE Capital, The Bank
of Nova Scotia, The Bank of California and Societe Generale, 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 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 (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
7.7% at April 5, 1997). 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.
5. As of July 6, 1996 the Company had approximately $3.5 million of net
operating loss carryforwards ($1.2 million of income tax benefit)
available to offset future provisions for income taxes for financial
reporting purposes. The Company had recorded valuation allowances equal to
such future benefits at July 6, 1996. The Company's provision for income
taxes for the nine month period ended April 5, 1997 reflects an income tax
rate of 36% which represents the Company's expected income tax rate for
the full 1997 fiscal year. In addition, the Company has recognized the
benefit related to its net operating loss carryforward in the third
quarter of fiscal 1997.
6. On January 1, 1997, one of the Company's three distribution centers,
located in Sparks Nevada, was flooded destroying certain inventory owned
by the Company. The Company is insured
5
<PAGE>
<PAGE>
AUTHENTIC FITNESS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
for such losses as well as for profits lost due to business interruption.
As of April 5, 1997, the Company had recorded a $20.2 million receivable
from the insurance company related to this claim representing $9.5 million
for the cost of inventory damaged in the flood, $7.5 million of lost
profit on orders that were that were lost due to the flood and $3.2
million of other covered expenses. As of April 5, 1997 the Company had
received $12.0 million from the insurance Company against such claim
receivable.
7. During the second quarter of fiscal 1997, the Company realized a gain of
approximately $3 million from the sale of certain barter assets to the
issuing barter company. The barter assets had an original face value of
$12.3 million of which approximately $2.8 million had been utilized by the
Company through December 1996 and an adjusted net book value of
approximately $5.5 million. The Company received $8.5 million from the
sale. The sale of the barter asset was negotiated by certain officers and
directors of the Company who also serve as officers and directors of
Warnaco.
8. In fiscal 1996, the Company discussed with its auditors certain weaknesses
in the Company's internal accounting and control procedures primarily
related to the timely analysis of balance sheet and income statement
accounts in connection with the preparation of interim financial
statements and specifically the valuation and adjustment of inventory and
other account balances. These items involved the allocation of overhead
costs to inventory, the valuation of certain prior and current season
inventory, certain book to physical inventory adjustments and the interim
analysis of certain accrual, prepaid and reserve accounts.
Commencing in 1996, the Company effected improvements in its internal
accounting controls and procedures by improving its inventory
monitoring systems and controls including the development of a cycle count
program for its raw material and trim inventory, implementing supplemental
procedures to review and adjust interim balance sheets and income
statements and by appointing additional financial and accounting
personnel. In addition, the Company has effected certain structural
changes in its business and operations which the Company believes
eliminates certain inventory control issues including subcontracting
substantially all manufacturing and production control functions,
closing its Company-owned outlet stores and exiting the skiwear business.
The Company believes that these systems improvements, personnel changes
and structural changes have significantly enhanced the Company's internal
control structure and operations.
9. On May 9th 1997, the Company's Board of Directors authorized the
repurchase of up to $10.0 million of the Company's Common Stock.
6
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS.
STATEMENT OF OPERATIONS (SELECTED DATA)
(amounts in millions of dollars)
<TABLE>
<CAPTION>
Third Quarter ended Nine Months Ended
------------------------- --------------------------
April 5, March 30, April 5, March 30,
1997 1996 1997 1996
---- ---- ---- -----
<S> <C> <C> <C> <C>
Net revenues $105.0 $ 98.9 $214.1 $219.1
Cost of goods sold 58.4 68.7 129.7 148.0
------ ------ ------ ------
Gross profit 46.6 30.2 84.4 71.1
% to net revenue 44.4% 30.6% 39.4% 32.4%
Selling, general and administrative
expenses 25.2 33.6 63.7 68.1
------ ------ ------ ------
Income (loss) before interest and
income taxes 21.4 (3.4) 20.7 3.0
Interest expense 3.5 3.4 9.7 8.3
Provision (benefits) for income taxes 4.0 2.6 4.0 (2.1)
------ ------ ------ ------
Income (loss) before extraordinary
items $ 13.9 $ (4.2) $ 7.0 $ (3.2)
====== ====== ====== ======
</TABLE>
Net revenues for the third quarter of fiscal 1997 increased 6.2% to $105.0
million from $98.9 million in the third quarter of fiscal 1996. Net revenues for
the third quarter of fiscal 1997 were negatively impacted by approximately
$15.5 million reflecting orders cancelled due to the previously announced flood
and consequent lost shipping in January. Adjusting for the impact of the
flood, net revenues would have increased over 21% compared to last year. Speedo
Division net revenues for the third quarter of fiscal 1997 were $56.3 million,
10.5% ahead of last year's net revenues of $51.0 million. Adjusting for
the lost shipments related to the flood, net revenues for the Speedo Division
would have increased over 40% in fiscal 1997 compared to fiscal 1996.
Designer swimwear division net revenues for the third quarter of fiscal 1997
were $34.3 million, 14.2% ahead of last year of $30.0 million. Net revenues
for the Authentic Fitness Retail Stores for the third quarter of fiscal
1997 increased 26.6% to $10.5 million from $8.3 million in the third quarter of
fiscal 1996. The Company currently has 146 stores, an increase of 42 stores
since the end of fiscal 1996. Net revenues for the first nine months of fiscal
1997 were $214.1 million a decrease of 2.3% from $219.1 million reported in the
first nine months of fiscal 1996. The decrease in net revenues for the first
nine months of fiscal 1997 compared to fiscal 1996 is primarily attributable the
loss of revenue due to the flood of approximately $24.1 million, discontinuance
of the outlet store and skiwear businesses of approximately $7.0 million and the
loss of net revenues attributable to Herman's of $4.6 million. Adjusting net
revenues for the discontinued operations and the flood, net revenues would have
increased approximately 10.4% in the first nine months of fiscal 1997 compared
to fiscal 1996.
Gross profit for the third quarter of fiscal 1997 increased 54.1% to $46.6
million from the $30.2 million reported in the third quarter of fiscal 1996.
Gross profit for the first nine months of fiscal 1997 increased to $84.4 million
from $71.1 million in the first nine months of fiscal 1996. Gross profit as a
percentage of net revenues (after adjusting for the flood ) was 41.9% in the
third quarter of fiscal 1997 compared to 38.0% (before charges) in the third
quarter of fiscal 1996. The increase reflects strong regular
7
<PAGE>
<PAGE>
price selling and the positive impact of discontinuing the outlet store and
skiwear businesses. Gross profit as a percentage of net revenues for the first
nine months of fiscal 1997 was 39.4%,compared to 32.4% for the same period of
fiscal 1996.
Selling, general and administrative expenses decreased to $25.2 million
(24.0% of net revenues) in the third quarter of fiscal 1997 from $33.7 million
(34.0% of net revenues) in the third quarter of fiscal 1996. Selling, general
and administrative expenses decreased to $63.7 million (29.7% of net revenues)
in the first nine months of fiscal 1997 from $68.1 million (31.0% of net
revenues) in the first nine months of fiscal 1996. Selling, general and
administrative expenses for the third quarter and first nine months of fiscal
1996 includes an $11.7 million bad debt write off related to the Herman's
bankruptcy. Selling, general and administrative expenses before the impact of
the Herman's bankruptcy for fiscal 1996 were $22.0 million and $51.7 million for
the quarter and nine months, respectively. The increase in selling, general and
administrative expenses for the third quarter of fiscal 1997 compared to fiscal
1996 reflects the impact of opening over 40 additional Authentic Fitness Retail
Stores since the end of the third quarter of fiscal 1996. The increase in
selling, general and administrative expenses for the first nine months of
fiscal 1997 compared to fiscal 1996 reflects approximately $3.6 million of
additional advertising expenses incurred in the first half of fiscal 1997
related to the Olympics and Inner-City Games, the higher mix of Retail
Division sales which require a higher level of selling and administrative
expenses than the wholesale divisions, higher depreciation and amortization
expenses of $0.8 million and severance costs of $1.3 million related to a
reduction in force that is expected to save the Company approximately $3 million
per year.
Income (loss) before interest and income taxes was $17.9 million in the
third quarter of fiscal 1997 an increase of $24.7 million compared to the loss
of $6.8 million reported in fiscal 1996. Income (loss) before interest and
income taxes for the first nine months of fiscal 1997 was $11.0 million compared
to a loss of $5.4 million in the comparable fiscal 1996 period. The increase in
income before interest and income taxes in fiscal 1997 compared to fiscal 1996
reflects the increased gross profit and lower selling, general and
administrative expenses, as noted above.
Interest expense was $3.5 million in the third quarter of fiscal 1997
compared to $3.4 million in the third quarter of fiscal 1996. Interest expense
for the first nine months of fiscal 1997 was $9.7 million compared to $8.3
million in the first nine months of fiscal 1996. The increase in interest
expense compared to last year for both the quarter and the first nine months
resulted primarily from borrowing to support the expansion of the Company's
Authentic Fitness Retail Stores and the increase in the interest rate of the
Company's outstanding borrowings.
The Company did not record an income tax provision or benefit for the
first six months of fiscal 1997. The Company's provision for income taxes for
the nine months period ended April 5, 1997 reflects an income tax rate of 36%
which represents the Company's expected income tax rate for the full 1997 fiscal
8
<PAGE>
<PAGE>
year. The Company recognized benefit related to its net operating loss
carryforward in the third quarter of fiscal 1997 of approximately $3.0 million.
Net income for the third quarter of fiscal 1997 was $13.9 million compared
to a net loss of $5.6 million in the third quarter of fiscal 1996. Net income
for the first nine months of fiscal 1997 was $7.0 million compared to a net loss
of $4.6 million in fiscal 1996. The improved net income reflects the higher
gross profit and lower selling, general and administrative expenses, 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 $0.0125 per share, equivalent to an annual rate of $0.05 per
share. The Company has since declared seven successive quarterly cash dividends
of $0.0125 per share. The Company believes that the 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 (the "$200 Million Credit Agreement") with GE Capital, The Bank of
Nova Scotia, The Bank of California and Societe Generale 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 outstanding balance on the Company's Revolving Loan at May 15,
1997 was approximately $103 million and the outstanding balance under the Term
Loan was $50 million.
The Company plans to expand its channels of distribution and provide
growth in its operations by opening additional Speedo Authentic Fitness
retail stores. The Company currently has 146 stores open. 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, which
is approximately equal to the average for fiscal 1997.
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 rapid roll-out of the Authentic Fitness
Retail Stores.
Net cash used in operating activities was $12.6 million in the first nine
months of fiscal 1997 compared to a use of $71.7 million in the first nine
months of fiscal 1996. The improvement in cash flow from operations reflects
improved working capital usage, primarily prepaid expenses and accounts payable.
The improvement in prepaid expenses reflects the increased spending last year
leading up to the Olympic Games. The improvement in accounts payable and accrued
liabilities reflects the timing of certain payments for goods purchased
offshore.
9
<PAGE>
<PAGE>
Cash used in investing activities for the first nine months of fiscal 1997
was $21.6 million compared to $14.9 million in fiscal 1996. Capital expenditures
were $15.1 million in the first nine months of fiscal 1997 compared to $13.3
million in the first nine months of fiscal 1996. Capital expenditures are
primarily related to the opening of the Company's Authentic Fitness Retail
Stores.
Cash flow from financing activities was $33.7 million in the first nine
months of fiscal 1997 compared to $87.1 million in the first nine months of
fiscal 1996. Total debt increased by $39.4 million in the first nine months of
fiscal 1997 reflecting the seasonal usage of working capital as discussed above.
In fiscal 1996 the Company sold 2,500,000 shares of its common stock which
generated approximately $51.7 million of cash proceeds to the Company. In
addition, in fiscal 1996 the Company purchased one-half of the Series A Warrant
from GE Capital for $36.5 million. The Company utilized proceeds from the
issuance of the Bridge Loan to complete the Series A Warrant purchase.
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.
In fiscal 1996, the Company discussed with its auditors certain weaknesses
in the Company's internal accounting and control procedures primarily related to
the timely analysis of balance sheet and income statement accounts in connection
with the preparation of interim financial statements and specifically the
valuation and adjustment of inventory and other account balances. These items
involved the allocation of overhead costs to inventory, the valuation of certain
prior and current season inventory, certain book to physical inventory
adjustments and the interim analysis of certain accrual, prepaid and reserve
accounts.
Commencing in 1996, the Company effected improvements in its internal
controls and procedures by improving its inventory monitoring systems
and controls including the development of a cycle count program for its raw
material and trim inventory, implementing supplemental procedures to review
and adjust interim balance sheets and income statements and by appointing
additional financial and accounting personnel. In addition, the Company has
effected certain structural changes in its business and operations which the
Company believes eliminate certain inventory control issues including
subcontracting substantially all manufacturing and production control functions
and closing its company-owned outlet stores and exiting the skiwear business.
The Company believes that these systems improvements, personnel changes and
structural changes have significantly enhanced the Company's internal control
structure and operations.
10
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
11.1 Earnings per share.
27.0 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a Form 8-K dated March 26, 1997 and a
Form 8-K/A dated April 7, 1997 reporting a change in the
Company's certifying accountant.
11
<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
Date: May 20, 1997 By: /s/ WALLIS H. BROOKS
--------------------
Wallis H. Brooks
Senior Vice President
and Chief Financial Officer
Principal Financial and Accounting
Officer
Date: May 20, 1997 By: CHRISTOPHER G. STAFF
--------------------
Christopher G. Staff
President and Chief
Operating Officer
12
<PAGE>
<PAGE>
EXHIBIT 11.1
AUTHENTIC FITNESS CORPORATION
CALCULATION OF INCOME PER COMMON SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
------------------------- --------------------------
April 5, March 30, April 5, March 30,
1997 1996 1997 1996
---- ---- ---- -----
<S> <C> <C> <C> <C>
Income (loss) before extraordinary
item(1) $13,936 ($4,203) $7,032 ($3,192)
======= ======= ====== =======
Extraordinary item -- ($1,359) -- ($1,359)
======= ======= ====== =======
Net income (loss) $13,936 ($5,562) $7,032 ($4,551)
======= ======= ====== =======
Weighted average number of shares
of common stock outstanding during
the period
Common shares outstanding 22,393,686 17,843,770 22,333,730 17,789,104
Common shares sold in public offering
completed in October 1995 -- 2,500,000 -- 1,488,985
Common shares issued due to the
exercise of options 11,802 11,852 24,286 47,767
Common stock equivalents:
Series A Warrants -- -- -- --
Option shares outstanding using the
treasury stock method 159,968 -- 136,315 --
---------- ---------- --------- ----------
Weighted average number of shares
of common stock outstanding 22,565,456 20,355,622 22,494,331 19,325,856
========== ========== ========== ==========
Net income (loss) per common share:
Income before extraordinary items $0.62 ($0.21) $0.31 ($0.17)
Extraordinary item -- (0.07) -- (0.07)
---------- ---------- --------- ----------
Net income (loss) per share $0.62 ($0.27) $0.31 ($0.24)
========== ========== ========== ==========
</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 APRIL 5, 1997 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-05-1997
<PERIOD-START> JUL-06-1996
<PERIOD-END> APR-05-1997
<CASH> 1,035
<SECURITIES> 0
<RECEIVABLES> 129,653
<ALLOWANCES> 10,810
<INVENTORY> 93,055
<CURRENT-ASSETS> 220,971
<PP&E> 68,945
<DEPRECIATION> 15,721
<TOTAL-ASSETS> 347,723
<CURRENT-LIABILITIES> 174,463
<BONDS> 49,283
0
0
<COMMON> 23
<OTHER-SE> 123,563
<TOTAL-LIABILITY-AND-EQUITY> 347,723
<SALES> 205,343
<TOTAL-REVENUES> 214,060
<CGS> 129,697
<TOTAL-COSTS> 129,697
<OTHER-EXPENSES> 63,192
<LOSS-PROVISION> 500
<INTEREST-EXPENSE> 9,684
<INCOME-PRETAX> 10,987
<INCOME-TAX> 3,955
<INCOME-CONTINUING> 7,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,032
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
