


<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 JANUARY 2, 1999
 
                                         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 IDENTIFICATION NO.)
      OF INCORPORATION OR ORGANIZATION)

 
                               6040 BANDINI BLVD.
                           COMMERCE, CALIFORNIA 90040
             (ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                                 (323) 726-1262
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
                        COPIES OF ALL COMMUNICATIONS TO:
                         AUTHENTIC FITNESS CORPORATION
                                 90 PARK AVENUE
                            NEW YORK, NEW YORK 10016
                           ATTENTION: GENERAL COUNSEL
 
                            ------------------------
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [x] Yes  [ ] No
 
     The number of shares of the registrant's Common Stock outstanding as of
February 8, 1999 was: 22,996,686.
 
________________________________________________________________________________

<PAGE>



<PAGE>
                        PART I -- FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                         AUTHENTIC FITNESS CORPORATION
                     CONSOLIDATED CONDENSED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                      JANUARY 2, 1999    JULY 4, 1998
                                                                                      ---------------    ------------
                                                                                        (UNAUDITED)
                                                                                         (IN THOUSANDS OF DOLLARS)
 
<S>                                                                                   <C>                <C>
                                      ASSETS
Current assets:
     Cash..........................................................................      $   1,230         $    638
     Accounts receivable, net......................................................         93,089          114,710
     Accounts receivable from affiliates...........................................          3,666            7,250
     Inventories:
          Finished goods...........................................................         71,533           46,156
          Raw material and work in process.........................................         28,828           17,754
                                                                                      ---------------    ------------
               Total inventories...................................................        100,361           63,910
     Other current assets..........................................................         13,028            8,080
                                                                                      ---------------    ------------
               Total current assets................................................        211,374          194,588
Property, plant and equipment, (net of accumulated depreciation of $27,465 and
  $23,289, respectively)...........................................................         50,872           50,417
Other assets, net..................................................................         64,810           71,157
                                                                                      ---------------    ------------
                                                                                         $ 327,056         $316,162
                                                                                      ---------------    ------------
                                                                                      ---------------    ------------
 
                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Borrowing under revolving credit facility.....................................      $ 115,683         $ 61,963
     Current maturities of long-term debt..........................................         10,390            9,324
     Accounts payable and accrued liabilities......................................         40,347           30,065
     Payable to affiliates.........................................................         22,208           16,604
     Accrued (prepaid) income taxes................................................         (2,641)           4,386
     Deferred income taxes.........................................................          3,149            3,149
                                                                                      ---------------    ------------
               Total current liabilities...........................................        189,136          125,491
Long-term debt.....................................................................         28,073           33,178
Deferred income taxes..............................................................          6,634            6,651
Stockholders' equity:
     Preferred Stock; $.01 par value...............................................        --                --
     Common Stock; $.001 par value.................................................             23               23
     Additional paid-in capital....................................................        163,164          163,164
     Cumulative translation adjustment.............................................         (1,453)          (1,173)
     Accumulated deficit...........................................................         (8,796)          (2,286)
     Treasury stock, at cost.......................................................        (49,725)          (8,886)
                                                                                      ---------------    ------------
               Total stockholders' equity..........................................        103,213          150,842
                                                                                      ---------------    ------------
                                                                                         $ 327,056         $316,162
                                                                                      ---------------    ------------
                                                                                      ---------------    ------------
</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
<TABLE>
<CAPTION>
                                                                                                     SIX MONTHS
                                                                    SECOND QUARTER ENDED                ENDED
                                                             ----------------------------------    ---------------
                                                               JANUARY 2,         JANUARY 3,         JANUARY 2,
                                                                  1999               1998               1999
                                                             ---------------    ---------------    ---------------
                                                                                  (UNAUDITED)
                                                                  (IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
 
<S>                                                          <C>                <C>                <C>
Net revenues...............................................      $78,037            $72,652           $ 117,656
Cost of goods sold.........................................       44,700             40,211              70,128
                                                             ---------------    ---------------    ---------------
Gross profit...............................................       33,337             32,441              47,528
Selling, general and administrative expenses (See
 Note 5)...................................................       23,150             22,909              47,295
                                                             ---------------    ---------------    ---------------
Income before interest and income taxes....................       10,187              9,532                 233
Interest expense...........................................        3,471              3,532               5,940
                                                             ---------------    ---------------    ---------------
Income (loss) before provision for income taxes............        6,716              6,000              (5,707)
Provision (benefit) for income taxes.......................        2,619              2,340              (2,226)
                                                             ---------------    ---------------    ---------------
Income (loss) before cumulative effect of change in
  accounting principle.....................................        4,097              3,660              (3,481)
Cumulative effect of change in accounting principle, net of
  tax benefit (See Note 3).................................      --                 --                   (2,518)
                                                             ---------------    ---------------    ---------------
Net income (loss)..........................................      $ 4,097            $ 3,660           $  (5,999)
                                                             ---------------    ---------------    ---------------
                                                             ---------------    ---------------    ---------------
Basic earnings (loss) per share:
     Income (loss) before cumulative effect of change in
       accounting principle................................      $  0.21            $  0.17           $   (0.17)
     Cumulative effect of change in accounting principle...      --                 --                    (0.12)
                                                             ---------------    ---------------    ---------------
Basic earnings (loss) per share............................      $  0.21            $  0.17           $   (0.29)
                                                             ---------------    ---------------    ---------------
                                                             ---------------    ---------------    ---------------
Diluted earnings (loss) per share:
     Income (loss) before cumulative effect of change in
       accounting principle................................      $  0.20            $  0.16           $   (0.17)
     Cumulative effect of change in accounting principle...      --                 --                    (0.12)
                                                             ---------------    ---------------    ---------------
Diluted earnings (loss) per share..........................      $  0.20            $  0.16           $   (0.29)
                                                             ---------------    ---------------    ---------------
                                                             ---------------    ---------------    ---------------
Cash dividends per share of common stock...................      $  0.01            $  0.01           $    0.03
                                                             ---------------    ---------------    ---------------
                                                             ---------------    ---------------    ---------------
Weighted average number of shares of common stock
  outstanding:
     Basic.................................................   19,934,253         22,160,939          21,002,868
                                                             ---------------    ---------------    ---------------
                                                             ---------------    ---------------    ---------------
     Diluted...............................................   20,234,322         22,808,151          21,002,868
                                                             ---------------    ---------------    ---------------
                                                             ---------------    ---------------    ---------------
 
<CAPTION>
                                                          SIX MONTHS ENDED
                                                          -----------------
                                                               JANUARY 3,
                                                                  1998
                                                             ---------------
 
<S>                                                              <C>
Net revenues...............................................     $ 109,620
Cost of goods sold.........................................        64,110
                                                             ---------------
Gross profit...............................................        45,510
Selling, general and administrative expenses (See Note
  5).......................................................        44,112
                                                             ---------------
Income before interest and income taxes....................         1,398
Interest expense...........................................         6,628
                                                             ---------------
Income (loss) before provision for income taxes............        (5,230)
Provision (benefit) for income taxes.......................        (2,039)
                                                             ---------------
Income (loss) before cumulative effect of change in
  accounting principle.....................................        (3,191)
Cumulative effect of change in accounting principle, net of
  tax benefit (See Note 3).................................       --
                                                             ---------------
Net income (loss)..........................................     $  (3,191)
                                                             ---------------
                                                             ---------------
Basic earnings (loss) per share:
     Income (loss) before cumulative effect of change in
       accounting principle................................     $   (0.14)
     Cumulative effect of change in accounting principle...       --
                                                             ---------------
Basic earnings (loss) per share............................     $   (0.14)
                                                             ---------------
                                                             ---------------
Diluted earnings (loss) per share:
     Income (loss) before cumulative effect of change in
       accounting principle................................     $   (0.14)
     Cumulative effect of change in accounting principle...       --
                                                             ---------------
Diluted earnings (loss) per share..........................     $   (0.14)
                                                             ---------------
                                                             ---------------
Cash dividends per share of common stock...................     $    0.03
                                                             ---------------
                                                             ---------------
Weighted average number of shares of common stock
  outstanding:
     Basic.................................................    22,201,971
                                                             ---------------
                                                             ---------------
     Diluted...............................................    22,201,971
                                                             ---------------
                                                             ---------------
</TABLE>
 
                            ------------------------
 
Related party transactions included in the Consolidated Condensed Statements of
Operations:
<TABLE>
<S>                                                          <C>                <C>                <C>                  <C>
     Product sales.........................................        $4,302            $1,316               $6,542      $1,598
     Purchases of goods and services.......................         5,630             1,636                7,851       2,461
     Royalties paid or accrued.............................         1,792             1,867                2,847       2,826
     Interest expense......................................         1,139             1,334                1,978       2,419
     Rent..................................................           138               144                  277         289
</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 FLOWS
 
<TABLE>
<CAPTION>
                                                                                            SIX MONTHS ENDED
                                                                                   ----------------------------------
                                                                                   JANUARY 2, 1999    JANUARY 3, 1998
                                                                                   ---------------    ---------------
                                                                                              (UNAUDITED)
                                                                                       (IN THOUSANDS OF DOLLARS)
<S>                                                                                <C>                <C>
Cash flows from operating activities:
     Net income (loss)..........................................................      $  (5,999)         $  (3,191)
     Non-cash items included in net income (loss):
          Depreciation and amortization.........................................          5,267              5,159
          Other.................................................................          1,657                575
          Non-recurring item....................................................          3,074              1,408
          Cumulative effect of change in accounting principle...................          4,128            --
     Income taxes...............................................................         (7,027)            (3,527)
     Other changes in operating accounts........................................         (1,963)           (28,832)
                                                                                   ---------------    ---------------
          Net cash used in operating activities.................................           (863)           (28,408)
                                                                                   ---------------    ---------------
Cash flows from investing activities:
     Purchase of equipment and other long-term assets...........................         (5,233)            (2,910)
     Other, net.................................................................         (1,150)               604
                                                                                   ---------------    ---------------
          Net cash used in investing activities.................................         (6,383)            (2,306)
                                                                                   ---------------    ---------------
Cash flows from financing activities:
     Net borrowing under revolving credit facility..............................         53,720             38,096
     Net proceeds from the sale of common stock and exercise of stock options...              2                336
     Repayments of debt.........................................................         (4,039)            (2,823)
     Purchase of treasury stock.................................................        (40,839)            (3,075)
     Dividends paid.............................................................           (551)              (560)
     Payment of deferred financing fees.........................................           (455)              (521)
                                                                                   ---------------    ---------------
          Net cash provided by financing activities.............................          7,838             31,453
                                                                                   ---------------    ---------------
Increase in cash................................................................            592                739
Cash at beginning of period.....................................................            638              1,246
                                                                                   ---------------    ---------------
Cash at end of period...........................................................      $   1,230          $   1,985
                                                                                   ---------------    ---------------
                                                                                   ---------------    ---------------
Other changes in operating accounts:
     Accounts receivable........................................................      $  25,205          $   8,489
     Inventories................................................................        (37,148)           (41,636)
     Other current assets.......................................................         (4,948)            (4,714)
     Accounts payable and accrued liabilities...................................         14,928              9,029
                                                                                   ---------------    ---------------
                                                                                      $  (1,963)         $ (28,832)
                                                                                   ---------------    ---------------
                                                                                   ---------------    ---------------
</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 -- BASIS OF PRESENTATION
 
     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 January 2, 1999 as well as its results
of operations and cash flows for the periods ended January 2, 1999 and January
3, 1998. Operating results for interim periods may not be indicative of results
for the full fiscal year. The consolidated condensed balance sheet as of July 4,
1998 is derived from the audited consolidated balance sheet included in the
Company's Annual Report on 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 4, 1998. Certain amounts for prior periods have been reclassified to
be comparable with the current period presentation.
 
2 -- CAPITAL STOCK
 
     On November 20, 1998, the Company's Board of Directors declared a quarterly
cash dividend of $0.0125 per share to be paid on January 5, 1999 to shareholders
of record as of December 4, 1998. In 1997, the Company's Board of Directors
authorized a stock repurchase program which currently allows the Company to buy
up to $50.0 million of its outstanding Common Stock. As of January 2, 1999, the
Company had purchased approximately 3.3 million shares of its Common Stock for
an aggregate purchase price of approximately $49.7 million including 593,500
shares under equity option arrangements at a cost of approximately $11.6 million
in the first six months of fiscal 1999.
 
3 -- NEW ACCOUNTING STANDARDS
 
     In April 1998, the Financial Accounting Standards Board ('FASB') approved
the Statement of Position ('SOP') 98-5 'Reporting on the Costs of Start-Up
Activities'. The Company adopted SOP 98-5 effective with the beginning of fiscal
1999. The SOP requires that start-up costs, as defined, be expensed as incurred.
It had been the Company's consistent accounting policy to capitalize such costs
for amortization over appropriate periods from 12 to 36 months. The Company
recorded a cumulative charge of approximately $2.5 million, net of income tax
benefits (or $0.12 per diluted share). The effect of adopting SOP 98-5 had an
immaterial effect on income (loss) before the cumulative effect of change in
accounting principle in the first six months of fiscal 1999.
 
     The Company adopted Statement of Accounting Standards No. 130, 'Reporting
Comprehensive Income' ('SFAS 130') effective with the beginning of fiscal 1999.
SFAS 130 establishes standards for reporting and display of changes in equity
from nonowner sources in the financial statements, however, the adoption of SFAS
130 has no impact on the Company's net earnings or stockholder's equity. SFAS
130 requires, among other things, foreign currency translation adjustments,
which prior to adoption were reported separately in stockholders' equity, to be
included in other comprehensive income. Total comprehensive income (loss) was
approximately $(6.3) million and $(3.4) million for the six month periods ended
January 2, 1999 and January 3, 1998, respectively.
 
4 -- DEBT
 
     In March 1998, the Company entered into a restated credit agreement
(increasing the facility by $15 million) with GE Capital, The Bank of Nova
Scotia, Societe Generale, Union Bank of California and such other lenders as
identified in the agreement (the 'Restated Credit Agreement'). In September
1998, the Company amended the Restated Credit Agreement (the 'Credit Agreement')
 
                                       5


 <PAGE>

<PAGE>
                         AUTHENTIC FITNESS CORPORATION
      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
 
such that the Company's ability to purchase its own Common Stock was increased
to $50 million. The terms of the Company's Credit Agreement are the same as
those of the Restated Credit Agreement. Borrowings under the Company's Restated
Credit Agreement bear interest at LIBOR plus 1.00%. The rate of interest payable
on outstanding borrowings will be automatically reduced, to as low as LIBOR plus
0.75%, as the Company's EBITDA to debt ratio improves to 2.5 to 1. The Restated
Credit Agreement matures on September 1, 2001.
 
     On December 23, 1998, the Company entered into a $50 million credit
agreement ('Trade Credit Facility') with certain lenders under the Company's
Credit Agreement for the issuance of letters of credit and trade financing. The
trade financing portion of the Trade Credit Facility has a $40 million limit and
accrues interest at the lender's base rate plus 0.50% or at LIBOR plus 1.50% on
the unpaid principal. The Trade Credit Facility expires on December 21, 1999. In
conjunction with entering into the Trade Credit Facility, the Company also
amended certain portions of its Credit Agreement to facilitate such Trade Credit
Facility.
 
     In June 1998, the Company entered into an interest rate swap agreement (the
'Swap Agreement') with a bank that is a lender in the Restated Credit Agreement.
The Swap Agreement allows the Company to convert variable rate borrowings with a
notional amount of $75 million to a fixed rate interest rate. Borrowings under
the Swap Agreement are currently fixed at 6.66% until maturity in September
2003. The variable rate under the Swap Agreement of LIBOR is approximately 5.4%
as of January 2, 1999. Differences between the fixed interest rate and the
variable interest rate are settled quarterly and resulted in increased interest
expense of approximately $0.1 million for the six months ended January 2, 1999.
 
5 -- NON-RECURRING EXPENSES
 
     On October 2, 1998, the Company announced plans to discontinue sourcing
from KT West, Inc. from the Company's owned Checotah, Oklahoma facility and to
consolidate sourcing from the Company's leased Montebello, California facility
into the Company's Commerce, California facility. This decision was part of the
Company's continued strategy to secure the most efficient sourcing of its
products. The Company recorded a charge of approximately $2.0 million, net of
income tax benefits (or $0.09 per diluted share) in the first six months of
fiscal 1999 primarily related to the above, including pre-tax charges of $2.2
million in non-cash asset write-offs, $0.6 million in connection with
contractual obligations to KT West, Inc. and $0.5 million in other costs.
 
     The first six months of fiscal 1998 includes a non-recurring expense of
approximately $0.9 million, net of income tax benefits (or $0.04 per diluted
share) related to the write-off of certain assets and other costs associated
with closing the Company's Bally's Fitness Centers stores, as well as a
consolidation of the Company's manufacturing facilities.
 
                                       6


 <PAGE>

<PAGE>
                         AUTHENTIC FITNESS CORPORATION
      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
 
6 -- EARNINGS (LOSS) PER SHARE
 
     The following table sets forth the computation of basic and diluted
earnings per share:
 
<TABLE>
<CAPTION>
                                                            SECOND QUARTER ENDED          SIX MONTHS ENDED
                                                          ------------------------    ------------------------
                                                          JANUARY 2,    JANUARY 3,    JANUARY 2,    JANUARY 3,
                                                             1999          1998          1999          1998
                                                          ----------    ----------    ----------    ----------
                                                                  (IN THOUSANDS EXCEPT PER SHARE DATA)
 
<S>                                                       <C>           <C>           <C>           <C>
Numerator for basic and diluted earnings per share --
     Income (loss) before cumulative effect of change
       in accounting principle.........................    $  4,097      $  3,660      $ (3,481)     $ (3,191)
                                                          ----------    ----------    ----------    ----------
                                                          ----------    ----------    ----------    ----------
Denominator for basic earnings per share --
     Weighted average shares...........................      19,934        22,161        21,033        22,202
Effect of dilutive securities:
     Employee stock options............................         300           647        --            --
                                                          ----------    ----------    ----------    ----------
Denominator for diluted earnings per share --
     Weighted average adjusted shares..................      20,234        22,808        21,033        22,202
                                                          ----------    ----------    ----------    ----------
                                                          ----------    ----------    ----------    ----------
Basic earnings (loss) per share before cumulative
  effect of change in accounting principle.............     $0.21         $0.17        $(0.17)       $(0.14)
                                                          ----------    ----------    ----------    ----------
                                                          ----------    ----------    ----------    ----------
Diluted earnings (loss) per share before cumulative
  effect of change in accounting principle.............     $0.20         $0.16        $(0.17)       $(0.14)
                                                          ----------    ----------    ----------    ----------
                                                          ----------    ----------    ----------    ----------
</TABLE>
 
     Options to purchase approximately 4.6 million shares of common stock were
not included in the computation of diluted earnings per share for the six months
ended January 2, 1999 as the impact would be antidilutive.
 
                                       7


 <PAGE>

<PAGE>
                         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)
 
<TABLE>
<CAPTION>
                                                                      SECOND QUARTER ENDED          SIX MONTHS ENDED
                                                                    ------------------------    ------------------------
                                                                    JANUARY 2,    JANUARY 3,    JANUARY 2,    JANUARY 3,
                                                                       1999          1998          1999          1998
                                                                    ----------    ----------    ----------    ----------
                                                                              (AMOUNTS IN MILLIONS OF DOLLARS)
 
<S>                                                                 <C>           <C>           <C>           <C>
Net revenues.....................................................     $ 78.0        $ 72.7        $117.7        $109.6
Cost of goods sold...............................................       44.7          40.2          70.1          64.1
                                                                    ----------    ----------    ----------    ----------
Gross profit.....................................................       33.3          32.4          47.5          45.5
  % of net revenues..............................................       42.7%         44.7%         40.4%         41.6%
Selling, general and administrative expenses.....................       23.1          22.9          44.0          42.7
Non-recurring item...............................................      --            --              3.3           1.4
                                                                    ----------    ----------    ----------    ----------
Income before interest and income taxes..........................       10.2           9.5           0.2           1.4
Interest expense.................................................        3.5           3.5           5.9           6.6
Provision (benefit) for income taxes.............................        2.6           2.3          (2.2)         (2.0)
                                                                    ----------    ----------    ----------    ----------
Income (loss) before cumulative effect of change in accounting
  principle......................................................        4.1           3.7          (3.5)         (3.2)
Cumulative effect of change in accounting principle..............      --            --             (2.5)        --
                                                                    ----------    ----------    ----------    ----------
Net income (loss)................................................     $  4.1        $  3.7        $ (6.0)       $ (3.2)
                                                                    ----------    ----------    ----------    ----------
                                                                    ----------    ----------    ----------    ----------
</TABLE>
 
     Net revenue for the second quarter of fiscal 1999 increased 7.4% to $78.0
million compared to $72.7 million in the second quarter of fiscal 1998.
Speedo'r' Division net revenues for the second quarter of fiscal 1999 increased
16.9% to $40.6 million from $34.8 million in the second quarter of fiscal 1998.
The Speedo'r' division sales mix improved dramatically as regular price
shipments increased 23.0% compared to last year and off-price shipments
decreased 4.8%. Accessories increased 55% over last year, while fitness swimwear
increased 42% and kids were up 21%. Speedo'r' Authentic Fitness'r' Retail
Division net revenue increased 4.8% to $16.0 million in the second quarter of
fiscal 1999 from $15.3 million in the second quarter of fiscal 1998. At
February 8, 1999 the Company had 141 stores open. Same store sales for the
second quarter of fiscal 1999 increased 6.2% over the year earlier period. The
Designer Swimwear Division's net revenue decreased 5.4% to $21.4 million in the
second quarter of fiscal 1999 from $22.6 million last year, due primarily to the
timing of Catalina shipments into the third quarter. Net revenue for the first
six months of fiscal 1999 increased 7.3% to $117.7 million compared to $109.6
million in the first six months of fiscal 1998. Speedo'r' Division net revenues
increased 12.4% compared to last year as regular price sales increased 17.7% and
off-price sales decreased 6.2%. Speedo'r' Authentic Fitness'r' Retail Division
net revenues increased 6.0% while Designer swimwear net revenues decreased 2.7%.
 
     Gross profit for the second quarter of fiscal 1999 increased to $33.3
million from $32.4 million in the second quarter of fiscal 1998. The increase in
gross profit reflects increased Speedo'r' division and Speedo'r' Authentic
Fitness'r' Retail Division sales. Gross profit as a percentage of net revenue
was 42.7% in the second quarter of fiscal 1999 compared to 44.7% in the second
quarter of fiscal 1998. Gross profit for the first six months of fiscal 1999
increased to $47.5 million, an increase of 4.4% compared to $45.5 million in the
first six months of fiscal 1998. The increase in gross profit for the first six
months of fiscal 1999 reflects improved Speedo'r' sales mix and higher Speedo'r'
division and Speedo'r' Authentic Fitness'r' Retail Division sales, as noted
above. Gross profit as a percentage of net revenues was 40.4% in the first six
months of fiscal 1999 versus 41.6% recorded in the first half of fiscal 1998.
The decrease in gross profit as a percentage of net revenues for both the second
quarter and first six months of fiscal 1999 is due to the costs incurred in
conjunction with the Company's decision to consolidate manufacturing
 
                                       8


 <PAGE>


<PAGE>
                         AUTHENTIC FITNESS CORPORATION
      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
 
facilities, partially offset by improved regular price sales mix in the
Speedo'r' Division and the higher level of Speedo'r' Authentic Fitness'r' Retail
Division sales, which generate a higher gross profit margin than the wholesale
divisions.
 
     Selling, general and administrative expenses were $23.1 million in the
second quarter of fiscal 1999 compared to $22.9 million in the second quarter of
fiscal 1998. The increase in selling, general and administrative expenses
results primarily from higher variable selling expense related to the higher net
revenues. S,G&A as a percentage of net revenues decreased to 29.6% in the second
quarter of fiscal 1999 compared to 31.6% in the second quarter of fiscal 1998.
Selling, general and administrative expenses for the first six months of fiscal
1999 were $44.0 million compared to $42.7 million in the first six months of
fiscal 1998. The increase in S,G&A expenses reflects increased marketing and
depreciation and amortization expenses. S,G&A as a percentage of net revenues
decreased to 37.4% in the first half of fiscal 1999 compared to 38.9% in the
first half of fiscal 1998. The decrease in S,G&A as a percentage of net revenues
in both the second quarter and first half of fiscal 1999 resulted from leverage
on the higher sales volume.
 
     The Company recorded a non-recurring expense of $2.0 million, net of income
tax benefits (or $0.09 per diluted share) in the first six months of fiscal 1999
related to the Company's decision to discontinue sourcing from KT West, Inc.
from the Company's owned Checotah, Oklahoma facility and to consolidate sourcing
from the Company's leased Montebello, California facility into the Company's
Commerce, California facility.
 
     Interest expense was $3.5 million in the second quarter of fiscal 1999,
equal to the second quarter of fiscal 1998. Interest expense for the first six
months of fiscal 1999 was $5.9 million compared to $6.6 million in the first six
months of fiscal 1998. The decrease in interest expense is primarily a result of
lowered borrowing due to a $27.7 million inventory reduction versus prior year,
the result of improved inventory controls, as well as a significant increase in
accounts receivable collections, partially offset by the Company's completion of
its $50 million stock buyback program.
 
     The Company's effective income tax rate for the second quarter and first
six months of fiscal 1999 and fiscal 1998 was 39%.
 
     The Company recorded a cumulative charge of approximately $2.5 million, net
of income tax benefits (or $0.12 per diluted share) in the first six months of
fiscal 1999 to reflect the adoption of SOP 98-5 'Reporting on the Costs of
Start-Up Activities'. The Company adopted SOP 98-5 effective with the beginning
of fiscal 1999. The SOP requires that start-up costs, as defined, be expensed as
incurred. It had been the Company's consistent accounting policy to capitalize
such costs for amortization over appropriate periods from 12 to 36 months. The
effect of adopting SOP 98-5 had an immaterial effect on income (loss) before the
cumulative effect of change in accounting principle in the first six months of
fiscal 1999.
 
     Net income for the second quarter of fiscal 1999 was $4.1 million compared
to $3.7 million in the second quarter of fiscal 1998. The increase in net income
for the second quarter reflects the higher operating income, noted above. Net
loss for the first six months of fiscal 1999 was $(6.0) million compared to a
net loss of $(3.2) million recorded in the first six months of fiscal 1998. The
increased net loss in the first six months of fiscal 1999 compared to the first
six months of fiscal 1998 reflects the impact of the Company's decision to
consolidate manufacturing facilities and the adoption of the SOP regarding the
costs of start-up activities, partially offset by the higher operating income
and decreased interest expense, as noted above.
 
CAPITAL RESOURCES AND LIQUIDITY
 
     On March 18, 1998, the Company entered into a restated credit agreement
(increasing the facility by $15 million) with GE Capital, The Bank of Nova
Scotia, Societe Generale, Union Bank of California and such other lenders as
identified in the agreement (the 'Restated Credit Agreement'). On
 
                                       9


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<PAGE>
                         AUTHENTIC FITNESS CORPORATION
      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
 
September 14, 1998, the Company amended the Restated Credit Agreement (the
'Credit Agreement') such that the Company's ability to purchase its own Common
Stock was increased to $50 million. The terms of the Company's Credit Agreement
are the same as those of the Restated Credit Agreement. The Restated Credit
Agreement expires in September 2001 and provides for a term loan ('Term Loan')
in the amount of $45 million and a revolving loan facility ('Revolving Loan') in
the amount of $165 million. Borrowings under the Restated Credit Agreement
accrue interest at the lenders' base rate or at LIBOR plus 1.00%. The rate of
interest payable on outstanding borrowing will be automatically reduced to as
low as LIBOR plus 0.75%, as the Company's EBITDA to debt ratio improves to 2.5
to 1.
 
     On December 23, 1998, the Company entered into a $50 million credit
agreement ('Trade Credit Facility') with certain lenders under the Company's
Credit Agreement for the issuance of letters of credit and trade financing. The
trade financing portion of the Trade Credit Facility has a $40 million limit and
accrues interest at the lender's base rate plus 0.50% or at LIBOR plus 1.50% on
the unpaid principal. The Trade Credit Facility expires on December 21, 1999. In
conjunction with entering into the Trade Credit Facility, the Company also
amended certain portions of its Credit Agreement to facilitate such Trade Credit
Facility.
 
     In 1997, the Company's Board of Directors authorized a stock repurchase
program which currently allows the Company to buy up to $50.0 million of its
outstanding Common Stock. As of February 8, 1999, the Company had purchased
approximately 3.3 million shares of its Common Stock at an aggregate cost of
approximately $49.7 million.
 
     On November 20, 1998, consistent with the Company's goal of providing
increased shareholder value, the Company declared its fourteenth successive
quarterly cash dividend of 1.25[c] per share, equivalent to an annual rate of
5[c] per share. The Company believes that its stock repurchase program as well
as the regular quarterly cash dividend demonstrates the Company's ongoing
commitment to increase stockholder value.
 
     The Company plans to expand its channels of distribution and provide growth
in its operations by opening additional Speedo'r' Authentic Fitness'r' retail
stores. The Company currently has 141 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.
 
     The Company's liquidity requirements have historically arisen 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.
 
     Cash used in operating activities in the first six months of fiscal 1999
was $(0.9) million compared to $(28.4) million in the first six months of fiscal
1998. The significant improvement in cash used in operating activities in the
first six months of fiscal 1999 is primarily due to a decrease in accounts
receivable of $25.2 million.
 
     Cash used in investing activities increased to $(6.4) million in the first
six months of fiscal 1999 compared to $(2.3) million in the first six months of
fiscal 1998 primarily reflecting increased capital expenditures. Fiscal 1999
capital expenditures primarily relate to new information systems, the
establishment of the Company's new Internet website -- Speedo.com and the
opening of new Speedo'r' Authentic Fitness'r' retail stores.
 
     Cash provided by financing activities was $7.8 million in the first six
months of fiscal 1999 compared to $31.5 million in the first six months of
fiscal 1998. The decrease in cash provided by financing activities primarily
reflects the repurchase of $40.8 million of the Company's Common Stock partially
 
                                       10


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<PAGE>
                         AUTHENTIC FITNESS CORPORATION
      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
 
offset by seasonal borrowing under the Company's revolving line of credit. The
Company's revolving loan balance was $115.7 million at the end of the second
quarter of fiscal 1999. At February 8, 1999, the Company had approximately $35
million of additional credit available under its Revolving Loan.
 
     The Company believes that funds available under its 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 Speedo'r'
Authentic Fitness'r' 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.
 
YEAR 2000 COMPLIANCE
 
     Comprehensive plans for achieving Year 2000 compliance were finalized
during fiscal 1998 and implementation work is well underway as of the end of the
second quarter of fiscal 1999. The Company is currently implementing the Year
2000 critical business processes and application systems. All required systems
modifications are expected to be completed by the end of fiscal 1999. Also
during fiscal 1999, attention has been and will continue to be focused on
compliance attainment efforts of vendors and other third parties, including key
system interfaces with customers and suppliers. Notwithstanding the efforts
described above, the Company could potentially experience disruptions to some
aspects of its various activities and operations as a result of non-compliant
systems utilized by unrelated business entities. Contingency plans are therefore
under development to mitigate the extent of such potential disruption to
business operations. The total estimated cost to the Company for enhanced
hardware and software applications and to achieve Year 2000 compliant systems is
expected to require expenditures, primarily capital, of approximately $6.0
million.
 
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
 
     This Report includes 'forward-looking statements' within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended which represent the Company's
expectations or beliefs concerning future events that involve risks and
uncertainties, including those associated with the effect of national and
regional economic conditions, the overall level of consumer spending, the
performance of the Company's products within the prevailing retail environment,
customer acceptance of both new designs and newly-introduced product lines,
possible Year 2000 disruption and financial difficulties encountered by
customers. All statements other than statements of historical facts included in
this quarterly report, including, without limitation, the statements under
'Management's Discussion and Analysis of Financial Condition', are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable; it can give no
assurance that such expectations will prove to have been correct.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     The Company is exposed to market risk related to changes in interest rates
and foreign currency exchange rates and selectively uses financial instruments
to manage these risks. The Company does not enter into financial instruments for
speculation or trading purposes. The Company has an interest rate swap agreement
with a financial institution to limit exposure to interest rate volatility. The
value of market risk sensitive instruments is subject to change as a result of
movements in market rates and prices. Based on a hypothetical (one-percentage
point) increase in interest rates, the potential losses in future earnings, fair
value and cash flows are immaterial.
 
                                       11


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<PAGE>
                          PART II -- OTHER INFORMATION
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     The Company's annual meeting of stockholders was held on November 19, 1998.
The following matters were voted upon by the shareholders:
 
          (1) Election of Directors
 
             (a) Mrs. Linda J. Wachner was re-elected to the Board of Directors
        to serve a three-year term expiring at the 2001 Annual Meeting of
        Stockholders. 12,950,006 votes were cast for the election of Mrs.
        Wachner and 319,275 votes were withheld, abstained or were broker non
        votes.
 
             (b) Mr. Robert D. Walter was re-elected to the Board of Directors
        to serve a three-year term expiring at the 2001 Annual Meeting of
        Stockholders. 12,951,086 votes were cast for the election of Mr. Walter
        and 318,195 votes were withheld, abstained or were broker non votes.
 
ITEM 6. EXHIBITS AND REPORTS ON FORMS 8-K.
 
     (a) Exhibits
 
<TABLE>
        <S>    <C>
        10.2   -- Second Amendment, dated as of December 23, 1998, to the Restated Credit Agreement dated as of
                 March 18, 1998, among Authentic Fitness Products, Inc. as Borrower, Authentic Fitness Corporation
                 as Parent, The Financial Institutions named as Lenders, The Bank of Nova Scotia and General
                 Electric Capital Corporation as Agents, The Bank of Nova Scotia as Administrative Agent, Paying
                 Agent, Swing Line Bank and Fronting Bank, General Electric Credit Corporation as Documentation
                 Agent and Collateral Agent and Societe Generale as Co-Agent.
        10.3   -- Trade Credit Facility, dated as of December 23, 1998, among Authentic Fitness Products, Inc. as
                 Borrower, Authentic Fitness Corporation as Parent, The Financial Institutions named as Lenders and
                 The Bank of Nova Scotia as Lead Arranger and Administrative Agent.
        27.1   -- Financial Data Schedule
</TABLE>
 
     (b) Reports on Form 8-K
 
         None.
 
                                       12


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<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: February 16, 1999                   By:      /S/ CHRISTOPHER G. STAFF
                                             ...................................
                                                    CHRISTOPHER G. STAFF
                                               PRESIDENT AND CHIEF OPERATING
                                                         OFFICER
 
Date: February 16, 1999                   By:       /S/ MICHAEL P. MC HUGH
                                             ...................................
                                                     MICHAEL P. MC HUGH
                                              SENIOR VICE PRESIDENT AND CHIEF
                                                    FINANCIAL OFFICER
                                             PRINCIPAL FINANCIAL AND ACCOUNTING
                                                         OFFICER
 
                                       13

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