A dark cloud is hanging over Authentic Fitness Corp., the L.A.-based manufacturer of several major swimsuit lines synonymous with sun and fun in California, as its parent company Warnaco Group Inc. struggles to stay out of bankruptcy.

Warnaco a multibillion-dollar manufacturer of bras, sportswear and swimwear is mired in losses and plans to cut 1,000 jobs this year. Its stock has plummeted from a 52-week high of $9.18 a share last May to $1.10 as of late last week.

"As Warnaco goes, so goes Authentic Fitness," said Ilse Metchek, executive director of the California Fashion Association, a trade organization for the L.A.-area garment industry.

While Warnaco's troubles could indeed sweep through Authentic Fitness, the two operations are actually quite different from a performance standpoint.

Warnaco lost $338 million ($6.41 a share) on $2.4 billion in sales in 2000. At year's end, it had only $11 million in cash and about $1.8 billion in debt. In short, it's very troubled.

Authentic Fitness, on the other hand, generated $355 million in revenues last year and is one of the few consistently profitable Warnaco units, although the company does not break out its profits. (In 1999, when it was still independent and reporting its earnings, Authentic Fitness posted net income of $21 million.)

Authentic Fitness is also the country's premier swimwear manufacturer, grabbing a 54 percent share of the U.S. swimwear market this year, up from 46 percent last year, according to Sports Trend Info, a market research firm in Florida.

Authentic's major coup is that it has the exclusive North American license to make and distribute Speedo swimsuits, active wear and accessories, which are sold in major department stores and in the company's chain of Speedo Authentic Fitness stores. Speedo is a major cash cow, generating nearly half of Authentic's total sales.

The L.A.-area company also pumps out an array of well-known swimwear lines such as Catalina, Cole of California, Anne Cole, Ralph Lauren, Oscar de la Renta and Sunset Beach.

Industry watchers are worried that Warnaco's troubles could seriously hurt Authentic Fitness if the parent company doesn't devise an effective recovery plan.

New York-based Warnaco, headed by Linda Wachner, 55, is trying to figure out how to pay its heavy debt load owed to several banks, which granted waivers on the company's loans until May 16. Warnaco officials insist their problems back East aren't affecting Authentic Fitness.

In a conference call with analysts in March, Wachner said the company had hired investment firm UBS Warburg to explore asset sales, causing some to wonder if Authentic Fitness or several of its branded swimwear lines might not be on the auction block.

Warnaco officials, who did not want to be named, maintained they were not interested in selling the profitable swimwear company or any parts of it. After all, it's only been 18 months since Warnaco acquired Authentic Fitness Corp. for $435 million and made it one of its units.

"There are only two or three companies that could buy Authentic Fitness," said one Los Angeles garment insider. "But knowing they have Warnaco by the throat, the swimwear company wouldn't fetch top dollar."

One company mentioned as a possible buyer is Nautica Enterprises Inc., a N.Y. sportswear company that recently agreed to buy L.A.-based Earl Jean for $65 million.

But Nautica officials said they aren't in the market for a swimwear company. "It is highly unlikely we would be purchasing another company in the near future," said one Nautica executive.

And it would seem logical for Warnaco to keep its more profitable divisions, such as intimate apparel and swimwear.

"It is conceivable they could sell off the brands, Metchek said. "I could see where the California lines and labels are worth more than the inventory. The brands are extremely valuable. It's a possibility they could be sold. But if they sold them, it would probably be at a loss. I don't know if they are willing to sell anything at a loss."

Uncertainty reigns

Meanwhile, Authentic Fitness employees and the company's affiliates wait in uncertainty.

"We wait and wonder," said Anne Cole, a swimwear designer whose line is manufactured by Authentic Fitness. "I think we have to think positively."

While Warnaco's financial problems are threatening Authentic Fitness on one end, a major lawsuit is threatening it on the other end.

Last year, Speedo International Ltd., which licenses the Speedo brand, sued Authentic Fitness and Warnaco to revoke its licensing agreement, charging trademark violations and breach of contract. In November, Warnaco filed a counterclaim denying those allegations.

"Whether they keep that license puts a wrinkle in the future of Authentic Fitness," said one industry observer who asked not to be identified.

It could also add one more major problem being heaped on Warnaco, which wasn't always so troubled. For years, the company and Wachner, chief executive since 1986, were hailed as entrepreneurial successes.

Wachner took over Warnaco in a hostile takeover and began building the apparel maker into an industry giant that manufacturers and distributes more than one-third of all the bras (under the Olga and Warner's labels) sold in the United States. She also revamped menswear brands Hathaway and Chaps by Ralph Lauren and coaxed new riches out of them pushing the stock price to $31.25 a share by 1993.

Only three years ago, Wachner was featured as one of Fortune magazine's 50 most powerful women in American business.

But then a few clouds appeared over the company's Park Avenue offices. Last year Calvin Klein sued Warnaco alleging trademark infringement and violation of a licensing contract by distributing Calvin Klein jeans to discount retailers like Sam's Club and Costco. Klein sought millions in damages and termination of the jeanswear license, which was not set to expire until 2044.

Warnaco countersued accusing Klein of trade libel. The two reached an out-of-court settlement in January of this year.

During the fourth quarter, a few of the company's big customers closed or merged. Wellesley, Mass.-based Filene's Basement Inc. filed for Chapter 11 bankruptcy protection, and Mercantile Stores Co. was sold to Dillard's Inc. of Arkansas.

And recently, a Warnaco shareholder sued the company after auditors gave the company a negative report. The lawsuit accuses Wachner and Warnaco of embarking on a campaign to conceal the adverse financial condition of the company to avoid a slide in the stock price. This has caused some to wonder if Authentic Fitness or several of its branded swimwear lines might not be on the auction block.

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