<PAGE>
________________________________________________________________________________
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
AMENDMENT NO. 1
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
[FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JULY 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NUMBER: 1-11202
----------------------------
AUTHENTIC FITNESS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------------------
<TABLE>
<S> <C>
DELAWARE 95-4268251
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
</TABLE>
6040 BANDINI BOULEVARD
COMMERCE, CALIFORNIA 90040
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
(323) 726-1262
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
<S> <C>
Common Stock, par value $.001 per share New York Stock Exchange
Series A Junior Participating Preferred
Stock, par value $.01 per share New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of October 25, 1999 was approximately $252,665,000.
The number of shares of Common Stock outstanding as of October 25, 1999 was
20,071,061.
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
PART III*
* This information is being filed pursuant to Form 10-K/A in connection with
the Registrant's decision to postpone its Annual Meeting of Stockholders
pending Registrant's consideration of an acquisition proposal from The
Warnaco Group, Inc.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS. The name, age (as of October 1, 1999), principal occupation for
the last five years, selected biographical information and the period of service
as a director of the Company of each director is set forth below.
Mr. Stanley S. Arkin, 61, has been a Director of the Company since October
1995. Mr. Arkin is the Senior Partner of the New York law firm of Arkin,
Schaffer & Kaplan LLP. He is a fellow of the American College of Trial Lawyers
and has been Chairman of the Association of the Bar of the City of New York
Committee on the Criminal Courts, Law and Procedure, and its Committee on
Professional Discipline, and has been a member of the Association's Executive
Committee. He is the author of several treatises and writes a regular column for
the New York Law Journal. Mr. Arkin is also a member of the Board of Directors
for the American Committee of the Weizmann Institute of Science and a member of
the Board of Directors and Treasurer of the American Craft Museum.
Mr. Stuart D. Buchalter, 62, has been a Director of the Company since May
1990. Mr. Buchalter is of counsel to the California law firm of Buchalter,
Nemer, Fields and Younger. Mr. Buchalter served as Chairman of the Board and
Chief Executive Officer of The Art Stores until January 1995. From August 1980
to June 1993 he served as Chairman of the Board and Chief Executive Officer of
Standard Brands Paint Company. In 1975, Mr. Buchalter was a Special Counsel to
the Division of Enforcement of the Securities and Exchange Commission in
Washington, D.C., and was a Lecturer-at-Law at the UCLA School of Law in
'Securities Regulation' in Spring, 1990. Mr. Buchalter also serves as a director
of City National Corp. (bank holding company), Earl Scheib, Inc. (automotive
painter), e4L, Inc. (direct marketer) and Faroudja, Inc. (video imaging
enhancement company). He is Vice Chairman of the Board of Trustees of Otis
College of Art and Design and served as a Director of the California Chamber of
Commerce until December 1993.
Mr. Joseph A. Califano, Jr., 68, has been a Director of the Company since
November 1993. Mr. Califano is Chairman and President of The National Center on
Addiction and Substance Abuse at Columbia University. Mr. Califano is also a
director of Automatic Data Processing, Inc., HealthPlan Services, Inc., Kmart
Corporation, True North Communications, Inc. and The Warnaco Group, Inc.
('Warnaco'). Mr. Califano is a Trustee of New York University and the Twentieth
Century Fund and a Governor of New York Presbyterian Hospital. He is founding
Chairman of the Board of the Institute for Social and Economic Policy in the
Middle East at the Kennedy School of Government at Harvard University and is a
member of the Institute of Medicine of the National Academy of Sciences. Mr.
Califano served as Secretary of the United States Department of Health,
Education and Welfare from 1977 to 1979. He was Special Assistant for Domestic
Affairs to the President of the United States from 1965 to 1969. He is the
author of nine books.
Mr. William S. Finkelstein, 51, has been a Director of the Company since
May 1992. Mr. Finkelstein has been Senior Vice President of Warnaco since May
1992 and Chief Financial Officer and a Director of Warnaco since May 1995. Mr.
Finkelstein served as Vice President and Controller of Warnaco from November
1988 until his appointment as Senior Vice President. Mr. Finkelstein served as
Senior Vice President, Treasurer and Secretary of the Company from May 1990
to May 1992. Mr. Finkelstein served as Vice President of Finance of Warnaco's
Activewear and Olga Divisions from March 1988 until his appointment as
Controller of Warnaco. Mr. Finkelstein served as Vice President and Controller
of SPI Pharmaceuticals Inc. from February 1986 to March 1988 and held various
financial positions including Assistant Corporate Controller with Max Factor and
Company, between 1977 and 1985.
Mrs. Linda J. Wachner, 53, has been a Director, Chairman of the Board and
Chief Executive Officer of the Company since its inception in May 1990. Mrs.
Wachner concurrently serves as and has been a Director, President and Chief
Executive Officer of Warnaco since August 1987, and the Chairman of the Board of
Warnaco since August 1991. Mrs. Wachner was a Director and President of Warnaco
from March 1986 to August 1987. Mrs. Wachner held various positions, including
President and Chief Executive Officer, with Max Factor and Company from December
1978 to October 1984.
2
<PAGE>
Mrs. Wachner also serves as a Director of Applied Graphics Technologies, Inc.
and The New York Stock Exchange, Inc.
Mr. Robert D. Walter, 69, has been a Director of the Company since November
1992. Mr. Walter served as a Vice President and Chief Financial Officer of
Warnaco from June 1986 to February 1988 pursuant to a consulting contract. Mr.
Walter served successively as Treasurer, Vice President and Chief Accounting
Officer, and Senior Vice President and Chief Financial Officer and Member of the
Office of the Chairman of Norton Simon Inc., a diversified consumer products
company, from 1971 to 1983.
EXECUTIVE OFFICERS. The executive officers of the Company, their ages and
their positions are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Linda J. Wachner.......................... 53 Director, Chairman of the Board and Chief
Executive Officer
Christopher G. Staff...................... 57 President and Chief Operating Officer
Michael P. Mc Hugh........................ 60 Senior Vice President and Chief Financial
Officer
Susan Guensch............................. 39 President Speedo'r' Division
</TABLE>
Mrs. Linda J. Wachner has been a Director, Chairman of the Board and Chief
Executive Officer of the Company since its inception in May 1990. Mrs. Wachner
concurrently serves as and has been a Director, President and Chief Executive
Officer of Warnaco since August 1987, and the Chairman of the Board of Warnaco
since August 1991. Mrs. Wachner was a Director and President of Warnaco from
March 1986 to August 1987. Mrs. Wachner held various positions, including
President and Chief Executive Officer, with Max Factor and Company from December
1978 to October 1984. Mrs. Wachner also serves as a Director of Applied Graphics
Technologies, Inc. and The New York Stock Exchange, Inc.
Mr. Christopher G. Staff has been President and Chief Operating Officer of
the Company since February 1997. Mr. Staff served as President of the Speedo'r'
and White Stag'r'/Skiwear Divisions and Chief Operating Officer of the Company
from April 1992 until September 1994 and as President of the Company from May
1990 until April 1992. Mr. Staff also served as a Director of the Company from
May 1990 until September 1994. Mr. Staff served as President and Chief Executive
Officer of Van's, Inc. from September 1994 until June 1995 and as a consultant
to the apparel and sportswear industry from June 1995 until November 1996. Mr.
Staff rejoined the Company in November 1996.
Mr. Michael P. Mc Hugh has been the Senior Vice President and Chief
Financial Officer of the Company since May 1998. Mr. Mc Hugh served as Corporate
Vice President and Chief Financial Officer of J. Crew Group, Inc. from September
1986 to April 1998. From 1983 to 1986, Mr. Mc Hugh was Vice President of Finance
and Chief Financial Officer of the Regina Company and from 1977 to 1983 was
Controller of Operations for Revlon, Inc. Mr. Mc Hugh served as U.S. Controller
of Canada Dry Corporation from 1975 to 1977 and from 1968 to 1975 was with
Borden, Inc. holding various divisional positions including Controller, Group
Controller and Vice President of Finance and Administration.
Ms. Susan Guensch has been President of the Speedo'r' Division since July
1996. Ms. Guensch joined the Company in June 1984 as Assistant Merchandiser for
the Speedo'r' Division and since that time has served in various positions of
increasing responsibility with the Company and its predecessor.
Compliance With Section 16(a) of the Exchange Act. Section 16(a) of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), requires the
Company's executive officers and directors and persons who own more than ten
percent of the Company's Common Stock, to file reports of ownership and changes
in ownership on Forms 3, 4 and 5 with the SEC and NYSE. Executive officers,
directors and greater than ten percent shareholders are required by SEC
regulations to furnish the Company with copies of all such Section 16(a) forms
they file. Based solely on review of the copies of such forms furnished to the
Company and written representations that no other forms were required when
applicable, the Company believes that, during the fiscal year ended July 3,
1999, all Section 16(a) filing requirements applicable to the Company's
executive officers, directors and more than ten percent shareholders were
complied with.
3
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION. Set forth below are tables prescribed by Regulation
S-K which present compensation information for the Company's Chief Executive
Officer and the other most highly compensated executive officers whose aggregate
annual salary and bonus exceeds $100,000 in fiscal 1999 (collectively, the
'Named Executives').
SUMMARY COMPENSATION TABLE
The following table discloses compensation earned by the Named Executives
in each of the three fiscal years ended July 5, 1997, July 4, 1998 and July 3,
1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------- ---------------------------------
AWARDS
-----------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARDS SARs(#) PAYOUTS SATION
-------- ---- ------ ----- ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Linda J. Wachner................ 1999 $1,063,357 $ -- $ (d) $ -- 1,000,000 -- $ --
Chairman and Chief 1998 1,044,336 -- (d) -- 1,741,900 -- --
Executive Officer 1997 1,019,179 -- (d) -- 500,000 -- --
Christopher G. Staff(a)......... 1999 351,697 -- (d) -- 20,000 -- 3,150(e)
President and Chief 1998 319,049 -- (d) -- 50,000 -- 1,618(e)
Operating Officer 1997 188,888 -- (d) -- 50,000 -- 94(e)
Michael P. Mc Hugh(b)........... 1999 352,152 100,000 (d) -- -- -- 50(e)
Senior Vice President and 1998 50,071 -- (d) -- 50,000 -- --
Chief Financial Officer 1997 -- -- -- -- -- -- --
Susan Guensch(c)................ 1999 289,193 -- (d) -- 50,000 -- 1,081(e)
President Speedo'r' 1998 253,657 -- (d) -- 40,000 -- 929(e)
Division 1997 244,176 -- (d) -- 40,000 -- 1,125(e)
</TABLE>
- ------------
(a) Mr. Staff was appointed President and Chief Operating Officer on February
18, 1997.
(b) Mr. Mc Hugh was appointed Senior Vice President and Chief Financial Officer
on May 7, 1998.
(c) Ms. Guensch was appointed President of the Speedo'r' Division on September
27, 1996.
(d) Other compensation was less than $50,000 or 10% of such officer's annual
salary and bonus for such year.
(e) Represents employer matching contributions under the Company's Employee
Savings Plan.
4
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information on options granted in fiscal 1999
to the Named Executives.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS/SARs EXERCISE OR OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO BASE PRICE FOR OPTION TERM(c)
OPTIONS/SARs EMPLOYEES IN $ PER --------------------------------------
NAME GRANTED FISCAL 1999 SHARE EXPIRATION DATE 0%(d) 5% 10%
---- ------- ----------- ----- --------------- ----- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Linda J. Wachner........... 444,300(a) 28.2% $12.50 Aug. 19, 2008 0 $3,492,724 $ 8,851,247
555,700(a) 35.3% $12.50 Aug. 19, 2008 0 $4,368,459 $11,070,534
Christopher G. Staff....... 20,000(b) 1.3% $12.50 Aug. 19, 2008 0 $ 157,224 $ 398,436
Michael P. Mc Hugh......... -- -- -- -- -- -- --
Susan Guensch.............. 50,000(b) 3.2% $12.50 Aug. 19, 2008 0 $ 393,059 $ 996,089
</TABLE>
- ------------
(a) All of such options were granted on August 19, 1998 and are fully vested as
of such date. Such options have stock-for-stock exercise and tax
withholding features which allow the holder, in lieu of paying cash for the
exercise price and any tax withholding, to have the Company commensurately
reduce the number of such shares of common stock to which the optionee
would otherwise be entitled upon exercise of such options.
(b) All of such options were granted on August 19, 1998 and one-third of such
options vest annually until fully vested on August 19, 2001. Such options
have stock-for-stock exercise and tax withholding features which allow the
holders, in lieu of paying cash for the exercise price and any tax
withholding, to have the Company commensurately reduce the number of such
shares of common stock to which the optionee would otherwise be entitled
upon exercise of such options.
(c) The dollar amounts under these columns are the result of calculations at 0%
and at the 5% and 10% rates set by the SEC based upon the closing price of
the Company's common stock on the date of grant. These amounts are not
intended to forecast future appreciation, if any, of the Company's stock
price.
(d) No gain to the optionee is possible without an increase in stock price
appreciation, which will benefit all stockholders commensurately. A zero
percent gain in stock price appreciation will result in zero dollars for
the optionee.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
The following table provides information on option/SAR exercises in fiscal
1999 by the Named Executives and the values of such officers' unexercised
options at July 3, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SARs THE-MONEY OPTIONS/SARs
AT JULY 3, 1999 AT JULY 3, 1999
------------------------- -------------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Linda J. Wachner....... -- -- 2,741,900/0 $5,000,000/$0
Christopher G. Staff... -- -- 66,667/53,333 $270,833/$191,667
Michael P. Mc Hugh..... -- -- 16,667/33,333 $0/$0
Susan Guensch.......... -- -- 164,000/90,000 $607,167/$383,333
</TABLE>
COMPENSATION OF DIRECTORS. The Company does not pay any additional
remuneration to employees for serving as directors. In fiscal 1999, Directors of
the Company who are not employees received an annual retainer fee of $50,000
plus fees of $1,500 per day for attendance at meetings of the Board of Directors
and $1,000 per day for attendance at meetings of its committees. Directors are
also reimbursed for out-of-pocket expenses.
During fiscal 1999, each of the non-employee directors, Messrs. Arkin,
Buchalter, Califano, Finkelstein and Walter, was granted an option under the
1998 Stock Plan for Non-Employee Directors
5
<PAGE>
to purchase 10,000 shares of the Company's Common Stock at an exercise price of
$14.6875 per share, the fair market value at the date of grant.
Employment Agreement. The Company and Mrs. Wachner have entered into an
employment agreement which was amended on November 1, 1993 (the 'Employment
Agreement'), pursuant to which the Company has agreed to employ Mrs. Wachner as
the Chief Executive Officer of the Company and of Authentic Fitness Products,
Inc. through October 31, 2000, with automatic one-year renewals thereafter, and
to use its best efforts to ensure that she is elected to serve as a director of
the Company for two successive three year terms. The Employment Agreement
provides for Mrs. Wachner to receive a base salary of $975,000 per year for the
term of the Employment Agreement with automatic cost of living increases
beginning January 1, 1996. Under the Employment Agreement, Mrs. Wachner is also
eligible for annual bonuses, as determined by the Compensation Committee. In
this regard, the stockholders approved the Executive Incentive Compensation Plan
('Executive Plan') at the 1994 Annual Meeting of Stockholders.
The Employment Agreement provides that Mrs. Wachner shall devote such time
to the business and affairs of the Company as is reasonably necessary to perform
the duties of her position, except that she is not required to perform any
duties or responsibilities which would be likely to result in noncompliance with
or breach or violation of her employment contract with Warnaco.
In the event that Mrs. Wachner's employment is terminated by the Company
other than for 'cause,' or by Mrs. Wachner for 'good reason,' in each case as
defined in the Employment Agreement, she will be entitled to receive a lump-sum
payment equal to the present value of base salary payments owing pursuant to the
Employment Agreement through the end of the then current term of employment, all
other accrued but unpaid amounts owing to her in connection with her employment,
and a lump-sum termination payment of $2,000,000. If Mrs. Wachner's employment
is terminated by the Company for cause or if she voluntarily terminates her
employment without good reason, she will be entitled to receive any amounts
owing to her under the Employment Agreement through the date of termination. In
the case of any other termination of employment, Mrs. Wachner will receive
continued payments of base salary through the end of the term of employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1999, Mr. Arkin, Mr. Califano and Mr. Walter served as
members of the Compensation Committee. Mrs. Wachner, an executive officer of the
Company, serves as Chairman of the Board of Directors, President and Chief
Executive Officer and is a significant shareholder of Warnaco. Mr. Califano
serves on the board of directors of Warnaco. Mr. Walter served as Vice President
and Chief Financial Officer of Warnaco from June 1986 until February 1988
pursuant to a consulting contract and as a Director of Warnaco from January 1987
to June 1996.
The Company acquired substantially all of the business of the Activewear
Division of Warnaco in 1990. Warnaco, a Delaware corporation, designs,
manufactures and markets a broad line of women's intimate apparel, men's,
women's, junior's and kid's jeans and jeans-related sportswear, men's dress and
sport shirts, sportswear, neckwear, underwear and accessories and women's
dresses and sportswear all of which are sold under a variety of internationally
recognized owned and licensed brand names.
From time to time, Warnaco and the Company jointly negotiate contracts and
agreements with vendors and suppliers.
The Company rents certain office facilities in New York, New York and Los
Angeles, California from Warnaco pursuant to month to month leases. Payments for
the leased facilities amounted to approximately $0.6 million for fiscal 1999.
During fiscal 1999, the Company purchased certain services from Warnaco
including contract manufacturing, occupancy services related to leased
facilities, laboratory testing, transportation and other services. Payments for
such services totaled approximately $22.7 million for fiscal 1999.
In fiscal 1994, the Company and Warnaco entered into an exclusive license
agreement for the manufacture and distribution of certain men's and women's
sportswear under the Catalina'r' brand name. The Company recorded royalty income
of approximately $1.3 million under this agreement in fiscal 1999. In fiscal
1995, the Company entered into a sub-license agreement with Warnaco to
manufacture and market certain women's intimate apparel under the Speedo'r'
name. Royalty income
6
<PAGE>
related to this agreement was approximately $0.1 million in fiscal 1999. In
addition, the Company sells merchandise to Warnaco and provides other services
from time to time. Net revenues relating to sales of such merchandise and other
services, totaled approximately $18.1 million for fiscal 1999.
The Company believes that arrangements with Warnaco are on approximately
the same terms as could be obtained from third persons.
Mr. Arkin is the Senior Partner of the New York law firm of Arkin, Schaffer
& Kaplan LLP which, from time to time, provides legal services to the Company.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of the Directors is responsible for
administering the executive compensation plans and programs of the Company and
for making recommendations to the Board of Directors regarding the compensation
of and benefits provided to the Chief Executive Officer and the Named
Executives. The names of the Committee members are set forth below.
GENERAL POLICIES REGARDING COMPENSATION OF EXECUTIVE OFFICERS
The Committee's goals in establishing compensation levels and administering
executive compensation plans are (1) to attract and retain individuals of
superior ability and managerial talent, (2) to reward executives for superior
individual contributions to the achievement of the Company's business objectives
and (3) to motivate executive officers to increase Company performance. The
Company's compensation structure consists of base salary, variable annual cash
compensation (bonuses) and stock-based long-term incentive awards.
Base Salary. The Committee establishes base salaries at levels that reflect
the Committee's subjective assessment of prevailing salary levels among the
Company's competitors. The Company's competitors, for this purpose, include
certain of the companies included in the industry peer group index used for
comparison with the Company's performance in the performance graph following
this report as well as other companies with which, in the Committee's view, the
Company competes for executive talent. This group of companies may include
non-public companies and companies in related industries such as retailing or
general apparel manufacturing.
In general, the Committee attempts to set base salaries at levels that will
attract and retain highly qualified individuals. In selected cases, the
Committee may feel that excellent executive talent may only be attracted and
retained by compensation in excess of prevailing levels among the Company's
competitors.
In establishing the appropriate compensation level for any particular
officer, as well as in determining which companies should form the comparison
group for this purpose, the Committee from time to time may consult with
independent compensation consultants. However, the Committee ultimately reviews
the case of each executive officer individually, relying heavily on the
recommendations of the Chief Executive Officer as well as on its members' own
subjective judgment. The Committee did not engage outside consultants during
fiscal 1999.
Annual Bonus. The Committee generally believes that, at higher executive
levels, a greater percentage of an individual's total annual cash compensation
opportunity should consist of variable compensation tied to the Company's
performance. Annual bonus opportunities for executive officers, other than Mrs.
Wachner, range from 0% to 100% of base salary. Starting with fiscal 1995, Mrs.
Wachner's annual bonus has been determined in accordance with the Executive
Plan (see 'Employment Agreement' on page 6).
The Committee's practice with regard to awarding annual bonuses to
executive officers other than Mrs. Wachner has been to establish those measures
of corporate performance which the Committee has determined in its sole
discretion to be appropriate under the circumstances, and to assign such
relative weight to any such factors as it determines to be appropriate. The
Committee focuses particularly on such factors as growth in earnings (measured
by earnings before interest, taxes, depreciation and amortization (EBITDA)) and
cash flow, as well as discretionary factors in determining whether or not
bonuses are paid. The Committee also pays bonuses to selected individuals on an
ad hoc basis in connection with, or in recognition of, special events or
projects such as major acquisitions and financing and licensing arrangements. In
making all of such determinations, the Committee takes into
7
<PAGE>
consideration and gives significant weight to the recommendations of the Chief
Executive Officer with respect to bonuses of executive officers other than
herself.
For fiscal 2000, the Committee generally intends to maintain its customary
approach to determining annual bonuses as described above.
Long-Term Incentive Compensation. Stock-based incentives, at the present
time consisting solely of stock options granted at 100% of the stock's fair
market value on the grant date, constitute the long-term incentive portion of
the Company's executive compensation package. Stock options provide an incentive
for executives to increase the Company's stock price and, therefore, the return
to the Company's shareholders. The Committee has not heretofore granted stock
appreciation rights ('SARs') or other stock-based awards, although it has the
authority to do so under the 1992 Long Term Stock Incentive Plan. The Committee
reserves the discretion to consider any factors its considers relevant, and to
give all factors considered the relative weight it considers appropriate under
the circumstances then prevailing, in reaching its determination regarding the
size and timing of option grants.
Limitations on Deductibility of Executive Compensation. Section 162(m) of
the Internal Revenue Code, enacted as part of the Revenue Reconciliation Act of
1993, limits the deductibility of compensation paid to certain executive
officers of the Company beginning with the Company's 1995 taxable year. To
qualify for deductibility under Section 162(m), compensation in excess of
$1,000,000 per year paid to the Chief Executive Officer and the four other most
highly compensated executive officers at the end of such fiscal year generally
must be either (1) paid pursuant to a written binding contract in effect on
February 17, 1993, and which was not modified thereafter in any material respect
before such remuneration is paid or (2) 'performance-based' compensation, as
determined under Section 162(m). In order to be considered 'performance-based,'
for this purpose, compensation must be paid solely on account of the attainment
of one or more pre-established performance goals established by a committee of
two or more 'outside directors,' pursuant to an arrangement that has been
disclosed to and approved by shareholders. Also, in order for an arrangement to
give rise to fully deductible 'performance-based' compensation, the terms of the
arrangement must preclude the exercise of any discretion in the administration
of the plan that would have the effect of increasing compensation paid
thereunder.
The Company generally intends to comply with the requirements for full
deductibility of executive compensation under Section 162(m). However, the
Committee will balance the costs and burdens involved in such compliance against
the value of the tax benefits to be obtained by the Company thereby, and may in
certain instances pay compensation that is not fully deductible if in its
determination such costs and burdens outweigh such benefits.
1999 Compensation. In awarding the options granted to the Named Executives
as shown in the table labeled 'Option/SAR Grants in Last Fiscal Year', the
Committee considered the number of option shares available for grant under the
Company's stock option plan and the stockholder dilution represented by the
total number of options authorized and outstanding under such plan. The
Committee then determined, in its discretion, the number of options it wished to
grant for fiscal 1999 and allocated the options available for grant among
executive officers based on its subjective assessment of individual performance,
seniority and relative position level. In making such assessments, the Committee
reviewed the number of outstanding options held by each executive officer. In
making these determinations and allocations, the Committee also relied on the
recommendations of the Chief Executive Officer with respect to option grants to
executives other than herself.
Compensation of the Chief Executive Officer. Mrs. Wachner's annual base
salary and annual bonus are governed by the Employment Agreement with the
Company, described on page 6. Pursuant to the Employment Agreement, Mrs.
Wachner's base salary was adjusted in 1999 solely to reflect changes in the cost
of living. Other than cost of living increases, Mrs. Wachner has not received a
base salary increase since 1993.
Joseph A. Califano, Jr.
Stanley S. Arkin
Robert D. Walter
8
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The Company's Common Stock commenced trading on the NYSE on June 28, 1992.
The Stock Price performance graph below compares cumulative total return through
July 3, 1999, assuming reinvestment of dividends, by an investor who invested
$100.00 on July 2, 1994 in each of (i) the Common Stock of the Company, (ii) the
Wilshire 5000 Total Return Composite Index and (iii) the S&P Textile-Apparel
Index. The stock price performance shown on the graph below is not necessarily
indicative of future price performance.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
7/2/94 7/1/95 7/6/96 7/5/97 7/4/98 7/3/99
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Authentic Fitness........................... 100.00 119.64 131.54 88.93 114.86 126.54
Wilshire 5000............................... 100.00 124.71 157.29 203.62 262.38 313.78
S&P Textiles-Apparel........................ 100.00 104.36 130.40 143.88 166.47 115.66
</TABLE>
9
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of October 5, 1999 by (i)
each of the Company's directors, (ii) each of the Company's executive officers,
(iii) all directors and executive officers as a group and (iv) each person who
is known by the Company to beneficially own five percent or more of any class of
the Company's voting securities.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
COMMON STOCK
--------------------------
NUMBER
NAME OF SHARES PERCENT
---- --------- -------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS(a)
Linda J. Wachner(a)(b)...................................... 4,688,242 20.6%
Christopher G. Staff(a)..................................... 112,554 *
Michael P. Mc Hugh(a)....................................... 18,680 *
Susan Guensch(a)............................................ 211,131 1.0%
Stanley S. Arkin(c)......................................... 37,600 *
Stuart D. Buchalter(d)...................................... 61,600 *
Joseph A. Califano, Jr.(d).................................. 47,000 *
William S. Finkelstein(d)................................... 164,714 *
Robert D. Walter(d)......................................... 47,000 *
All directors and executive officers
as a group (9 persons).................................... 5,388,521 23.1%
OTHER 5% STOCKHOLDERS
Pentland Ventures, Ltd ..................................... 5,067,458 25.2%
Pentland Center
Lakeside, Squires Lane
Finchley N3
London, England
General Electric Capital Corporation ....................... 1,809,179 9.0%
260 Long Ridge Road
Stamford, Connecticut 06902
John J. Lattanzio (e) ...................................... 1,755,800 8.7%
277 Park Ave. 27th Floor
New York, New York 10172
Fayez Sarofim & Co.(f) ..................................... 1,306,600 6.5%
2907 Two Houston Center
Houston, TX 77010
Leon G. Cooperman (g) ...................................... 1,277,300 6.4%
88 Pine St., Wall St Plaza, 31st Floor
New York, New York 10005
</TABLE>
- ------------
* Less than 1%
(a) The business address of each of the directors and executive officers is c/o
Authentic Fitness Corporation, 6040 Bandini Blvd., Commerce, California
90040. The number of shares beneficially owned by the following officers
includes vested but unexercised options in the following amounts: Mrs.
Wachner: 2,741,900; Mr. Staff: 90,000; Mr. Mc Hugh: 16,667; and Ms.
Guensch: 194,000.
(b) Includes 601,780 shares of Common Stock held by a trust, the shares of
which Mrs. Wachner has the sole power to vote and no power to dispose of
such 601,780 shares.
(c) Includes vested but unexercised options to purchase 35,000 shares of Common
Stock granted pursuant to the 1993 Stock Plan for Non-Employee Directors
and the 1998 Stock Plan for Non-Employee Directors.
(d) Includes vested but unexercised options to purchase 45,000 shares of Common
Stock granted pursuant to the 1993 Stock Plan for Non-Employee Directors
and the 1998 Stock Plan for Non-Employee Directors.
(e) Information based on a Schedule 13G, dated February 12, 1999, filed with
the Securities and Exchange Commission (the 'SEC') by John J. Lattanzio
reporting the beneficial ownership of the
(footnotes continued on next page)
10
<PAGE>
(footnotes continued from previous page)
shares of Common Stock set forth in the table. According to such Schedule
13G, Mr. Lattanzio has sole power to vote or direct the vote of 1,155,200
shares and shared power to vote or direct the vote of 600,600 shares, sole
dispositive power for 1,155,200 shares and shared dispositive power for
600,600 shares.
(f) Information based on a Schedule 13G, dated February 12, 1999, filed with
the SEC by Fayez Sarofim & Co. ('Fayez') reporting the beneficial
ownership of the shares of Common Stock set forth in the table. According
to such Schedule 13G, Fayez has sole power to vote or direct the vote of
550,000 shares and shared power to vote or direct the vote of 634,200
shares, sole dispositive power for 550,000 shares and shared dispositive
power for 756,600 shares.
(g) Information based on a Schedule 13G, dated September 7, 1999, filed with
the SEC by Leon G. Cooperman reporting the beneficial ownership of the
shares of Common Stock set forth in the table. According to such Schedule
13G, Mr. Cooperman has sole power to vote or direct the vote of 860,000
shares and shared power to vote or direct the vote of 417,300 shares, sole
dispositive power for 860,000 shares and shared dispositive power for
417,300 shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Speedo International Ltd., an affiliate of Pentland Ventures, Ltd., has
licensed the Company to design, manufacture and market certain men's, women's
and children's apparel and accessories under the Speedo'r' trademark and certain
related trademarks, including Speedo'r' Surf Walker'r' and Speedo'r' Authentic
Fitness'r'. Such license was granted in perpetuity and is exclusive in the
United States, its territories and possessions, Canada, Mexico and the Caribbean
Islands. The Company has paid royalties and other fees pursuant to the licensing
agreements with Speedo International Ltd. of approximately $7.0 million for
fiscal 1999.
ASCO International Sourcing Limited and Soaring Force Limited
(collectively, 'ASCO'), both affiliates of Pentland Ventures, Ltd., acted as
buying agents on behalf of the Company until June 1999 in certain Far East
countries, including China, Hong Kong, India, Japan, Korea, the Philippines,
Singapore and Thailand. The Company has paid interest, commissions and other
fees associated with the Company's Buying Agency Agreement with ASCO of
approximately $2.9 million in fiscal 1999. The Buying Agency Agreement was
terminated in June 1999 as the Company opened its own buying office in the Far
East.
An affiliate of Pentland Ventures, Ltd. also purchases certain merchandise
from the Company, principally goggles. Sales of such merchandise aggregated
approximately $0.4 million for fiscal 1999.
Mr. Buchalter is of counsel to the California law firm of Buchalter, Nemer,
Fields and Younger, which, from time to time, provides legal services to the
Company.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 1st day of
November 1999.
AUTHENTIC FITNESS CORPORATION
BY: /S/ LINDA J. WACHNER
...................................
LINDA J. WACHNER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ LINDA J. WACHNER Chairman of the Board of Directors; November 1, 1999
......................................... Chief Executive Officer (Principal
(LINDA J. WACHNER) Executive Officer)
/s/ MICHAEL P. MC HUGH Senior Vice President and Chief November 1, 1999
......................................... Financial Officer (Principal
(MICHAEL P. MC HUGH) Financial and Accounting Officer)
/s/ STANLEY S. ARKIN Director November 1, 1999
.........................................
(STANLEY S. ARKIN)
/s/ STUART S. BUCHALTER Director November 1, 1999
.........................................
(STUART S. BUCHALTER)
/s/ JOSEPH A. CALIFANO, JR. Director November 1, 1999
.........................................
(JOSEPH A. CALIFANO, JR.)
/s/ WILLIAM S. FINKELSTEIN Director November 1, 1999
.........................................
(WILLIAM S. FINKELSTEIN)
/s/ ROBERT D. WALTER Director November 1, 1999
.........................................
(ROBERT D. WALTER)
</TABLE>
12
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as ........................... 'TM'
The registered trademark symbol shall be expressed as ................ 'r'
