________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
(Amendment No. 1)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 30, 1995
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
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AUTHENTIC FITNESS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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)
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COPIES OF ALL COMMUNICATIONS TO:
AUTHENTIC FITNESS CORPORATION
90 PARK AVENUE
26TH FLOOR
NEW YORK, NEW YORK 10016
ATTENTION: GENERAL COUNSEL
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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
February 1, 1996 is as follows: 20,343,770.
________________________________________________________________________________
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUTHENTIC FITNESS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 30, JULY 1,
1995 1995
------------ --------
(UNAUDITED)
(AS AMENDED)
(IN THOUSANDS OF
DOLLARS)
ASSETS
Current assets:
Cash.............................................................................. $ 841 $ 772
Accounts receivable -- net........................................................ 85,095 71,410
Accounts receivable from affiliates............................................... 3,745 9,687
Inventories:
Finished goods............................................................... 78,360 53,944
Raw materials and work in process............................................ 18,209 19,059
------------ --------
Total inventories....................................................... 96,569 73,003
Other current assets................................................................... 19,800 7,636
------------ --------
Total current assets.................................................... 206,050 162,508
------------ --------
Property, plant and equipment, (net of accumulated depreciation of $8,205 and $5,891,
respectively)........................................................................ 39,585 35,185
Intangibles and other assets -- net.................................................... 84,324 80,546
------------ --------
$329,959 $278,239
------------ --------
------------ --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowing under revolving credit facility......................................... $ 92,264 $ 36,787
Current portion of long-term debt................................................. 7,371 7,388
Accounts payable and accrued liabilities.......................................... 28,185 31,894
Accounts payable to affiliates.................................................... 17,656 12,899
Federal and other income taxes.................................................... 226 7,489
------------ --------
Total current liabilities............................................... 145,702 96,457
------------ --------
Long-term debt......................................................................... 19,304 32,446
Deferred income taxes.................................................................. 7,430 7,428
Stockholders' equity:
Common Stock; $.001 par value..................................................... 20 18
Capital in excess of par value.................................................... 163,353 112,078
Cumulative translation adjustment................................................. (705) (740)
Retained earnings................................................................. (5,145) 30,552
------------ --------
Total stockholders' equity.............................................. 157,523 141,908
------------ --------
$329,959 $278,239
------------ --------
------------ --------
This Statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
2
AUTHENTIC FITNESS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
SECOND QUARTER ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
DECEMBER 30, DECEMBER 31, DECEMBER 30, DECEMBER 31,
1995 1994 1995 1994
------------ ------------ ------------ ------------
(AS AMENDED) (AS AMENDED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
Net revenues......................................... $ 77,298 $ 56,319 $120,206 $ 93,917
Cost of goods sold................................... 53,838 34,371 79,368 58,408
------------ ------------ ------------ ------------
Gross profit......................................... 23,460 21,948 40,838 35,509
Selling, general and administrative expenses......... 22,629 12,926 34,410 22,039
------------ ------------ ------------ ------------
Income before interest and income taxes.............. 831 9,022 6,428 13,470
Interest expense..................................... 2,686 1,475 4,923 2,423
------------ ------------ ------------ ------------
Income (loss) before income taxes.................... (1,855) 7,547 1,505 11,047
Provision (benefit) for income taxes................. (691) 3,093 494 4,528
------------ ------------ ------------ ------------
Net income (loss).................................... $ (1,164) $ 4,454 $ 1,011 $ 6,519
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income (loss) per share.......................... $ (0.06) $ 0.21 $ 0.05 $ 0.30
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number of common shares
outstanding........................................ 20,006 21,713 22,032 21,701
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Related parties transactions included in the
Consolidated Condensed Statements of Operations:
Product sales................................... $ 26 $ 159 $ 3,189 $ 1,183
Purchase of goods and services.................. 1,767 1,778 3,210 2,848
Royalties paid and accrued...................... 1,372 1,027 2,387 1,714
Interest expense................................ 335 256 554 433
This Statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
3
AUTHENTIC FITNESS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
SIX MONTHS ENDED
----------------------------
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
(AS AMENDED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
Cash flows from operating activities:
Net income..................................................................... $ 1,011 $ 6,519
Non-cash items included in net income:
Depreciation and amortization............................................. 3,948 2,653
Other..................................................................... 1,362 1,494
Change in deferred taxes.................................................. (4,261) --
Income taxes................................................................... (3,002) 2,947
Other changes in operating accounts............................................ (42,348) (26,857)
------------ ------------
Net cash used in operating activities..................................... (43,290) (13,244)
------------ ------------
Cash flows from investing activities:
Purchases of equipment and other long-term assets.............................. (10,447) (13,403)
Other, net..................................................................... (1,988) (2,367)
------------ ------------
Net cash used in investing activities..................................... (12,435) (15,770)
------------ ------------
Cash flows from financing activities:
Borrowings under revolving credit facility..................................... 55,477 30,227
Net proceeds from the sale of common stock and exercise of options............. 51,277 537
Purchase of Series A Warrant................................................... (36,484) --
Proceeds from Bridge Loan...................................................... 37,500 --
Dividends paid................................................................. (223) --
Payment of deferred financing fees............................................. (1,094) --
Proceeds from capitalized lease obligations.................................... 1,000 --
Repayments of debt............................................................. (51,659) (2,130)
------------ ------------
Net cash provided by financing activities................................. 55,794 28,634
------------ ------------
Net change in cash.................................................................. 69 (380)
Cash at beginning period............................................................ 772 1,461
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Cash at end of period............................................................... $ 841 $ 1,081
------------ ------------
------------ ------------
Other changes in operating accounts:
Accounts receivable............................................................ $ (7,743) $ (7,416)
Inventories.................................................................... (23,566) (28,483)
Other current assets........................................................... (12,164) (5,522)
Accounts payable and accrued liabiltiies....................................... 1,125 14,564
------------ ------------
$(42,348) $(26,857)
------------ ------------
------------ ------------
This Statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
4
AUTHENTIC FITNESS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. 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 December 30, 1995, as well as its
results of operations and cash flows for the periods ended December 30, 1995 and
December 31, 1994. The results of operations for the quarter and six months
ended December 30, 1995, reflect certain reserves (including adjustments) which
were recorded in the fourth quarter of fiscal 1996 which related to the second
quarter of fiscal 1996. Such reserves and adjustments reduced gross profit as
orginally reported by $6.7 million, pretax income as originally reported by
$10.9 million and net income as originally reported by $6.7 million. 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
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 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 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 will 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 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. 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%.
6. 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
AUTHENTIC FITNESS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
STATEMENT OF OPERATIONS (SELECTED DATA)
SECOND QUARTER ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
DECEMBER 30, DECEMBER 31, DECEMBER 30, DECEMBER 31,
1995 1994 1995 1994
------------ ------------ ------------ ------------
(AMOUNTS IN MILLIONS OF DOLLARS)
Net revenues......................................... $ 77.3 $ 56.3 $ 120.2 $ 93.9
Cost of goods sold................................... 53.8 34.4 79.4 58.4
------------ ------------ ------------ ------------
Gross profit......................................... 23.5 21.9 40.8 35.5
% to net revenue.................................. 30.3% 39.0% 34.0% 37.8%
Selling, general and administrative expenses......... 22.6 12.9 34.4 22.0
------------ ------------ ------------ ------------
Income before interest and income taxes.............. 0.8 9.0 6.4 13.5
Interest expense..................................... 2.7 1.5 4.9 2.4
Provision for income taxes........................... (0.7) 3.1 0.5 4.5
------------ ------------ ------------ ------------
Net income(loss)..................................... $(1.2) $ 4.5 $ 1.0 $ 6.5
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net revenues increased 37.3% to a record $77.3 million in the second
quarter of fiscal 1996 from $56.3 million in the first quarter of fiscal 1995.
The increase is primarily due to an increase in Speedo Division net revenues of
36.6% to $41.8 million from $30.6 million last year, an increase in Retail
Division net revenues of 89.4% to $10.1 million from $5.3 million recorded last
year and an increase in Designer Swimwear Division net revenues of 38.0% from
$20.2 million from $14.6 million for the second quarter of fiscal 1995. The
increase in Speedo Division net revenues for the second quarter primarily
reflects increases in racing swimwear of 18.7%, men's swimwear of 51.9% and
Authentic Fitness sportswear of over 150%. The increase in Retail Division net
revenues primarily reflects the opening of over 50 stores during the 1995 fiscal
year. At December 30, 1995, the Company had 91 stores open. Same store sales for
the 42 comparable stores for the second quarter of fiscal 1996 increased 11.8%
over the year earlier period. Net revenues for the first six months of fiscal
1996 increased 28.0% to $120.2 million from $93.9 million in the second quarter
of fiscal 1995. The increase in net revenues for the six month period is
attributable to an increase of 31.4% in Speedo Division net revenues to $64.5
million, an increase of 127.5% in Retail Division net revenues and an increase
of 25.4% in Designer Swimwear Division net revenues. White Stag/Skiwear Division
net revenues decreased slightly for both the quarter and six months due
primarily to the timing of certain Wal-Mart shipments and the decision to reduce
certain lower margin businesses.
Gross profit for the second quarter of fiscal 1996 increased to $23.5
million from $21.9 million in the second quarter of fiscal 1995. Gross profit
for the first six months of fiscal 1996 increased to $40.8 million from the
$35.5 million recorded in the first six months of fiscal 1995. The increase in
gross profit for both the quarter and the six months primarily reflects the
increased sales volume noted above partially offset by the impact of certain
inventory reserves (including adjustments) of $6.7 million that were recorded in
fiscal 1996. Gross profit as a percentage of net revenues decreased to 30.3% in
the second quarter of fiscal 1996 compared to 39.0% in the second quarter of
fiscal 1995. Gross profit as a percentage of net revenues decreased to 34.0% for
the first six months of fiscal 1996 compared to 37.8% in the first six 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 the higher mix of Retail Division net revenues which
generate a higher gross profit margin than the wholesale divisions and an
improvement in the White Stag/Skiwear Division gross profit margin resulting
from management's decision to reduce certain lower margin businesses.
6
AUTHENTIC FITNESS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
Selling, general and administrative expenses increased to $22.6 million
(29.3% of net revenues) in the second quarter of fiscal 1996 from $12.9 million
(23.0% of net revenues) in the second quarter of fiscal 1995. Selling, general
and administrative expenses increased to $34.4 million (28.6% of net revenues)
in the first six months of fiscal 1996 from $22.0 million (23.5% of net
revenues) in the first six months of fiscal 1995. The increase in selling,
general and administrative expenses reflects (i) certain reserves (including
adjustments) of $4.2 million primarily related to accounts receivable which were
recorded in fiscal 1996, (ii) higher sales volumes, as noted above, (iii) higher
depreciation and amortization expenses due to the increase in fixed assets
associated with the roll out of the Retail Store Division and (iv) the higher
mix of Retail Division sales which require a higher level of selling and
administrative expenses than the wholesale divisions. The increase in selling,
general and administrative expenses as a percentage of net revenues reflects the
impact of the reserves (including adjustments), retail Division selling costs
and higher depreciation and amortization expenses, all as noted above.
Interest expense was $2.7 million in the second quarter of fiscal 1996
compared to $1.5 million in the second quarter of fiscal 1995. Interest expense
for the first six months of fiscal 1996 was $4.9 million compared to $2.4
million in the first six months of fiscal 1995. The increase in interest expense
compared to last year for both the quarter and the first six months resulted
from (i) the borrowing under the Bridge Loan in September 1995 to repurchase the
Series A Warrant, (ii) additional borrowing for the increase in working capital
necessary to support the 28% sales growth achieved in the first half of fiscal
1996 and for expected sales growth in the second half of fiscal 1996 and, (iii)
the roll out of the retail stores where over 50 stores were added since last
year.
The provision (benefit) for income taxes in the second quarter of fiscal
1996 was $(0.7) million, an effective tax rate of 37.2% compared to $3.1 million
in fiscal 1995, an effective tax rate of 41%. The provision for income taxes for
the first six months of fiscal 1996 was $0.5 million, an effective tax rate of
32.8% compared to $4.5 million, an effective tax rate of 41% for the first six
months of fiscal 1995. The difference in the Company's effective tax rate
primarily reflects the impact of net loss carryback on the Company's income tax
provision. 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.
Net loss for the second quarter of fiscal 1996 was $(1.2) million compared
to net income of $4.5 million recorded in the second quarter of fiscal 1995. Net
income for the first six months of fiscal 1996 was 1.0 million compared to $6.5
million for the first six months of fiscal 1995. The decrease in net income
primarily reflects the impact of the reserves (including adjustments), as noted
above partially offset by the related income tax benefits.
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. On November 7, 1995 the Company
declared a cash dividend of 1.25[c] per share payable on January 3, 1996, to
shareholders of record on December 1, 1996. The initiation of a regular
quarterly cash dividend totalling 5[c] per share, 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 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 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
7
AUTHENTIC FITNESS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
written notice to GECC. The purchase price for the remaining 1,809,179 shares
will be $43,420,296 ($24 per share).
In October 1995, the Company sold 2,500,000 shares of its common stock in a
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.
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 eight stores under
construction and in pre construction (in addition to the 91 stores currently
open) for a total of 99 stores.
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
bear 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 can be reduced to as low as LIBOR
plus .50%
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 Bank Credit Agreement provides a term
loan facility in the amount of $22 million (after giving effect to the use of
proceeds from the Offering) and a revolving loan facility in the amount of $141
million (after giving effect to the amendment noted above). The Company's
revolving loan balance was approximately $99.0 million at January 31, 1996. At
January 31, 1996, the Company had approximately $42 million of additional credit
available under its revolving loan facility.
Cash used in operating activities for the first six months of fiscal 1996
was $(43.3) million compared to $(13.2) million in the first six months of
fiscal 1995. The increase in cash used in operating activities primarily
reflects increases in inventory, accounts receivable and other current assets
necessary to support the growth in sales noted above and to support sales
increases expected in the second half of fiscal 1996.
The Company believes that amounts available under its existing credit
agreements 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 for at least the next twelve months.
8
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11.1 Earnings per share.
(b) Reports on Form 8-K.
None.
9
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: February 18, 1997 By: /s/ WALLIS H. BROOKS
...................................................
WALLIS H. BROOKS
SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
10
STATEMENT OF DIFFERENCES
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The cent symbol shall be expressed as............................ [c]