AMERICAN APPAREL, INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - August 18, 2014

Attached files

file filename
8-K - 8-K - AMERICAN APPAREL, INCaai8-ker_2014q2.htm


Estimate Exhibit 99.1
AMERICAN APPAREL, INC. REPORTS SECOND QUARTER FINANCIAL RESULTS

LOS ANGELES, August 18, 2014 - American Apparel, Inc. (the "Company") (NYSE MKT: APP), a vertically integrated manufacturer, distributor, and retailer of branded fashion-basic apparel, announced financial results for its second quarter ended June 30, 2014.
Financial Performance Summary for the Second Quarter of 2014
•
Net sales remained flat at $162.4 million compared to $162.2 million for the 2013 period on a 6% decrease in retail comparable store sales and a 9% increase in wholesale net sales.
•
Gross profit declined 2% and was $82.4 million compared to $83.9 million for the 2013 period.
•
Operating expenses decreased 7% and were $79.8 million compared to $85.8 million for the 2013 period.
•
Adjusted EBITDA increased 85% to $14.6 million compared to $7.9 million for the 2013 period.
•
Net loss was $16.2 million compared to $37.5 million for the 2013 period.
•
The Company now estimates Adjusted EBITDA will be in a range of $40 million to $45 million for the year.
The strength in the Company’s US Wholesale business offset the negative impact of the decrease in comparable store sales. Additionally, increasing efficiency in operations caused a significant increase in the Company’s EBITDA performance in the quarter from $7.9 million to $14.6 million even with sales being essentially flat between the two comparable periods.
Operating Results
Comparing the second quarter of 2014 to the second quarter of 2013, net sales were essentially flat at $162.4 million with a 6% decrease in comparable store sales in the retail and online businesses offset by a 9% increase in net sales in the wholesale business. The following delineates the components of the changes for the quarterly periods ended June 30, 2014 and 2013 as compared to the corresponding quarter of the prior year:
 
2014 Second Quarter
2013 Second Quarter
Comparable Store Sales
(6)%
6%
Comparable Online Sales
(3)%
18%
Comparable Retail & Online
(6)%
7%
Wholesale Net Sales
9%
16%
Total Net Sales
—%
9%
Gross profit was $82.4 million for the second quarter of 2014 compared to $83.9 million for the second quarter of 2013. Gross margin decreased to 50.7% for the second quarter of 2014 compared to 51.7% for the second quarter of 2013. The decrease was due to a shift in the sales mix from retail and online sales to lower margin wholesale net sales.
Operating expense was $79.8 million for the second quarter of 2014 versus $85.8 million for the second quarter of 2013. As a percent of sales, operating expenses decreased to 49.1% for the second quarter of 2014 compared to 52.9% for the second quarter of 2013. The decrease includes approximately $4 million in lower payroll and associated costs and $2 million in reduced advertising and marketing expenses. The reductions were largely a result of cost reduction efforts. In addition, share based compensation




expense was lower by $1.7 million. These decreases were partially offset by a $2.0 million increase in professional fees, the majority of which was related to the suspension of Dov Charney as President and Chief Executive Officer of the Company, and a $1 million charge for an estimated settlement related to an industrial accident.
Other expense was $18.3 million for the second quarter of 2014 compared to $35.0 million for the second quarter of 2013. The $16.7 million change was primarily the result of (i) a charge in 2013 of $32.1 million due to the Company's refinancing activities, whereby the Company used net proceeds from the private offering of $206 million in senior secured notes, along with borrowings from a new revolving credit facility to repay and terminate the then existing loan and credit agreements with Lion Capital LLP and Crystal Financial LLC, respectively, and (ii) the charge for the change in fair value of warrants of $8.2 million incurred in the second quarter of 2014 as compared to an unrealized gain of $5.5 million in the second quarter of 2013. For further explanation, please see "Explanation of Unrealized Gain (Loss) of Change in Fair Value of Warrants."
Adjusted EBITDA increased 85% to $14.6 million for the second quarter of 2014 compared to $7.9 million for the second quarter of 2013. Please refer to Table A for a reconciliation of consolidated Adjusted EBITDA, a non-GAAP financial measure, to consolidated net loss.
Income tax provision was $0.5 million for the second quarter of 2014 compared to $0.6 million for the second quarter of 2013. In accordance with U.S. GAAP, the Company has discontinued recognizing potential tax benefits associated with net operating loss carryovers.
Net loss for the second quarter of 2014 was $16.2 million or $0.09 per common share, compared to net loss of $37.5 million, or $0.34 per common share for the second quarter of 2013.
Fully-diluted weighted average shares outstanding were 173.6 million in the second quarter of 2014 compared to 110.2 million for the second quarter of 2013. As of August 1, 2014 there were approximately 174.2 million shares outstanding.
Explanation of Unrealized Gain (Loss) of Change in Fair Value of Warrants
Lion Capital currently holds 24.5 million warrants to purchase the Company's common stock at a price of $0.66 per share and as the share price of the Company's stock increases the fair value of the warrant liability recorded on the balance sheet increases and the Company records an expense to recognize the increase in the fair value of the warrant liability. Conversely, when the share price of the Company's stock decreases, the Company records a gain to recognize the related reduction in the fair value of the warrant liability on the balance sheet. Although the income statement impacts associated with the warrants are appropriate and required under GAAP, they do not impact the operating performance of the Company nor do the credits and charges have an impact on cash balances since the liability recorded is not an obligation that will be settled with cash. Instead, these warrants will be reclassified to equity when they are exercised.
Company Outlook
The Company now estimates Adjusted EBITDA will be in a range of $40 million to $45 million for the year.
Liquidity and Capital Resources
As of June 30, 2014, the Company had $10.2 million in cash, $30.6 million outstanding on its $50 million asset-backed revolving credit facility and $16.9 million of availability for additional borrowings under the facility. As of August 1, 2014, the Company had $22.9 million available for borrowing.
The Company and Standard General are in the process of negotiating an unsecured credit agreement between one or more entities affiliated with Standard General and one or more foreign subsidiaries of the Company as borrowers. The Company expects to enter into this credit agreement as soon as practicable.





About American Apparel
American Apparel is a vertically integrated manufacturer, distributor, and retailer of branded fashion basic apparel based in downtown Los Angeles, California. As of June 30, 2014, American Apparel had approximately 10,000 employees and operated 247 retail stores in 20 countries, including the United States, Canada, Mexico, Brazil, United Kingdom, Ireland, Austria, Belgium, France, Germany, Italy, Netherlands, Spain, Sweden, Switzerland, Australia, Japan, South Korea, and China. American Apparel also operates a global e-commerce site that serves over 60 countries worldwide at http://www.americanapparel.com. In addition, American Apparel operates a leading wholesale business that supplies high quality T-shirts and other casual wear to distributors and screen printers.

This press release, and other statements that the Company may make, may contain forward-looking statements. Forward-looking statements are statements that are not historical facts and include statements regarding, among other things, the Company's future financial condition and liquidity including the impact of compliance with, and availability under, our debt instruments, results of operations, and future business plans and expectations, including statements related to the effect of, and our expectations with respect to, the operation of our new distribution center and future cost, inventory and sales impacts related thereto. Such forward-looking statements are based upon the current beliefs and expectations of American Apparel's management, but are subject to risks and uncertainties, which could cause actual results and/or the timing of events to differ materially from those set forth in the forward-looking statements, including, among others: our ability to generate or obtain from external sources sufficient liquidity for operations and debt service; our financial condition, operating results and projected cash flows; consequences of our significant indebtedness, including our relationship with our lenders and our ability to comply with our debt agreements and generate cash flow to service our debt, and the risk of acceleration of borrowings thereunder as a result of noncompliance; disruptions in the global financial markets; our ability to maintain compliance with the exchange rules of the NYSE MKT, LLC; adverse changes in our credit ratings and any related impact on financial costs and structure; continued compliance with U.S. and foreign government regulations, legislation, and regulatory environments, including environmental, immigration, labor, and occupational health and safety laws and regulations; loss of U.S. import protections or changes in duties, tariffs and quotas, and other risks associated with our foreign operations and foreign supply sources, including disruption of markets and foreign supply sources; changes in import and export laws, currency restrictions, and currency exchange rate fluctuations; the highly competitive and evolving nature of our business in the U.S. and internationally; changes in the level of consumer spending or preferences or demand for our products; our ability to pass on the added cost of raw materials and labor to customers; our ability to attract customers to our stores; the availability of store locations at appropriate terms and our ability to identify locations and negotiate new store leases effectively and to open new stores and expand internationally; loss or reduction in sales to our wholesale or retail customers or financial nonperformance by our wholesale customers; risks that our suppliers or distributors may not timely produce or deliver our products; changes in the cost of materials and labor, including increases in the price of raw materials in the global market and increases in minimum wage; our ability to effectively carry out and manage our strategy, including growth and expansion both in the U.S. and internationally; technological changes in manufacturing, wholesaling, or retailing; our ability to successfully implement our strategic, operating, financial and personnel initiatives; changes in key personnel, our ability to hire and retain key personnel, and our relationship with our employees; our ability to maintain the value and image of our brand and protect our intellectual property rights; our ability to improve manufacturing efficiency at our production facilities; our ability to operate our distribution facility located in La Mirada, California without further unanticipated costs or negative sales impacts, including the ability to achieve, as and when planned, labor cost reductions; location of our facilities in the same geographic area; the risk, including costs and timely delivery issues associated therewith, that information technology systems changes may disrupt our supply chain or operations and could impact our cash flow and liquidity, and our ability to upgrade our information technology infrastructure and other risks associated with the systems that operate our online retail operations; our ability to effectively manage inventory levels; our ability to renew leases at existing locations on economic terms; risks associated with the recent downturn in apparel spending in the United States; litigation and other inquiries and investigations, including the risks that we, our officers, or directors in cases where indemnification applies, will not be successful in defending any proceedings, lawsuits, disputes, claims or audits, and that exposure could exceed expectations or insurance coverage; tax assessments by domestic or foreign governmental authorities, including import or export duties on our products and the applicable rates for any such taxes or duties; the adoption of new accounting standards or changes in interpretations of accounting principles; seasonality and fluctuations in comparable store sales and wholesale net sales and associated margins; general economic conditions, including increases in interest rates, geopolitical events, other regulatory changes and inflation or deflation; disruptions due to severe weather or climate change; disruptions due to earthquakes, flooding, tsunamis or other natural disasters; and other risks detailed in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 2013 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2014. The Company's filings with the SEC are available at www.sec.gov. You are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-




looking statements, which are qualified in their entirety by this cautionary statement. The forward-looking statements speak only as of the date on which they are made and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Contact:
John Dillard and Liz Cohen
Weber Shandwick
(212) 445-8044




AMERICAN APPAREL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
(unaudited)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
2014
 
2013
 
2014
 
2013
 
Net sales
$
162,397

 
$
162,236

 
$
299,493

 
$
300,296

 
 
 
 
 
 
 
 
 
 
Cost of sales
80,010

 
78,366

 
145,132

 
143,558

 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
82,387

 
83,870

 
154,361

 
156,738

 
 
 
 
 
 
 
 
 
 
 
Operating expenses
79,807

 
85,784

 
159,277

 
169,129

 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from operations
2,580

 
(1,914
)
 
(4,916
)
 
(12,391
)
 
 
 
 
 
 
 
 
 
 
 
Interest expense
10,019

 
8,220

 
20,058

 
19,434

 
Foreign currency transaction loss
—

 
158

 
132

 
871

 
Unrealized loss (gain) on change
 
 
 
 
 
 
 
 
 
in fair value of warrants
8,202

 
(5,498
)
 
(4,465
)
 
18,147

 
Loss on extinguishment of debt
—

 
32,101

 
—

 
32,101

 
Other expense (income)
60

 
(11
)
 
52

 
(16
)
 
 
 
 
 
 
 
 
 
 
 
 
Loss before income taxes
(15,701
)
 
(36,884
)
 
(20,693
)
 
(82,928
)
 
Income tax provision
504

 
620

 
978

 
1,087

 
 
 
 
 
 
 
 
 
 
 
 
Net Loss
$
(16,205
)
 
$
(37,504
)
 
$
(21,671
)
 
$
(84,015
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss per-share, basic and diluted
$
(0.09
)
 
$
(0.34
)
 
$
(0.14
)
 
$
(0.76
)
 
 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding, basic and diluted
173,643

 
110,241

 
152,987

 
110,080

 
 







AMERICAN APPAREL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
 
June 30, 2014
 
December 31, 2013
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash
$
10,160

 
$
8,676

Trade accounts receivable, net of allowances
26,214

 
20,701

Prepaid expenses and other current assets
15,832

 
15,636

Inventories, net
150,751

 
169,378

Income taxes receivable and prepaid income taxes
476

 
306

Deferred income taxes, net of valuation allowance
620

 
599

Total current assets
204,053

 
215,296

PROPERTY AND EQUIPMENT, net
61,659

 
69,303

DEFERRED INCOME TAXES, net of valuation allowance
2,317

 
2,426

OTHER ASSETS, net
46,336

 
46,727

TOTAL ASSETS
$
314,365

 
$
333,752

LIABILITIES AND STOCKHOLDERS' DEFICIT
 

 
 

CURRENT LIABILITIES
 

 
 

Cash overdraft
$
—

 
$
3,993

Revolving credit facilities and current portion of long-term debt
30,568

 
44,042

Accounts payable
34,818

 
38,290

Accrued expenses and other current liabilities
47,364

 
50,018

Fair value of warrant liability
16,489

 
20,954

Income taxes payable
1,897

 
1,742

Deferred income tax liability, current
1,233

 
1,241

Current portion of capital lease obligations
1,186

 
1,709

Total current liabilities
133,555

 
161,989

LONG-TERM DEBT, net of unamortized discount
215,797

 
213,468

CAPITAL LEASE OBLIGATIONS, net of current portion
4,172

 
5,453

DEFERRED TAX LIABILITY
546

 
536

DEFERRED RENT, net of current portion
15,137

 
18,225

OTHER LONG-TERM LIABILITIES
12,760

 
11,485

TOTAL LIABILITIES
381,967

 
411,156

 
 
 
 
STOCKHOLDERS' DEFICIT
 

 
 

Common stock
17

 
11

Additional paid-in capital
216,537

 
185,472

Accumulated other comprehensive loss
(3,904
)
 
(4,306
)
Accumulated deficit
(278,095
)
 
(256,424
)
Less: Treasury stock
(2,157
)
 
(2,157
)
TOTAL STOCKHOLDERS' DEFICIT
(67,602
)
 
(77,404
)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
$
314,365

 
$
333,752






AMERICAN APPAREL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 
Six Months Ended June 30,
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Cash received from customers
$
295,135

 
$
297,293

Cash paid to suppliers, employees and others
(276,024
)
 
(305,435
)
Income taxes paid
(902
)
 
(724
)
Interest paid
(16,938
)
 
(5,067
)
Other
32

 
30

Net cash provided by (used in) operating activities
1,303

 
(13,903
)
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(7,087
)
 
(13,637
)
Proceeds from sale of fixed assets
29

 
30

Restricted cash
178

 
1,756

Net cash used in investing activities
(6,880
)
 
(11,851
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Cash overdraft
(3,993
)
 
4,117

Repayments of expired revolving credit facilities, net
—

 
(28,513
)
(Repayments) borrowings under current revolving credit facilities, net
(13,457
)
 
29,830

Repayments of term loans and notes payable
(53
)
 
(25,507
)
Repayment of Lion term loan
—

 
(144,149
)
Issuance of Senior Secured Notes
—

 
199,820

Payments of debt issuance costs
(699
)
 
(11,651
)
Net proceeds from issuance of common stock
28,446

 
—

Payment of payroll statutory tax withholding on share-based compensation associated with issuance of common stock
(301
)
 
(2,119
)
Repayments of capital lease obligations
(1,828
)
 
(1,081
)
Net cash provided by financing activities
8,115

 
20,747

 
 
 
 
EFFECT OF FOREIGN EXCHANGE RATE ON CASH
(1,054
)
 
(502
)
 
 
 
 
NET INCREASE (DECREASE) IN CASH
1,484

 
(5,509
)
CASH, beginning of period
8,676

 
12,853

CASH, end of period
$
10,160

 
$
7,344










AMERICAN APPAREL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
(unaudited)

 
Six Months Ended June 30,
 
2014
 
2013
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
 
 
 
Net loss
$
(21,671
)
 
$
(84,015
)
Depreciation and amortization of property and equipment, and other assets
13,418

 
12,417

Retail store impairment
728

 
78

Loss on disposal of property and equipment
76

 
15

Share-based compensation expense
2,658

 
6,816

Unrealized (gain) loss on change in fair value of warrants
(4,465
)
 
18,147

Amortization of debt discount and deferred financing costs
1,264

 
3,126

Loss on extinguishment of debt
—

 
32,101

Accrued interest paid-in-kind
2,078

 
4,653

Foreign currency transaction loss
132

 
871

Allowance for inventory shrinkage and obsolescence
818

 
1,346

Bad debt expense
517

 
301

Deferred income taxes
108

 
39

Deferred rent
(3,141
)
 
(1,120
)
Changes in cash due to changes in operating assets and liabilities:
 
 
 
Trade accounts receivables
(4,876
)
 
(3,304
)
Inventories
18,118

 
(1,809
)
Prepaid expenses and other current assets
(107
)
 
(4,040
)
Other assets
(157
)
 
(3,737
)
Accounts payable
(2,560
)
 
(5,562
)
Accrued expenses and other liabilities
(1,603
)
 
9,483

Income taxes receivable/payable
(32
)
 
291

Net cash provided by (used in) operating activities
$
1,303

 
$
(13,903
)
 
 
 
 








AMERICAN APPAREL, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Amounts in thousands)
(unaudited)
The following table presents key financial information for American Apparel's business segments before unallocated corporate expenses: 
 
Three Months Ended June 30, 2014
 
U.S. Wholesale
 
U.S. Retail
 
Canada
 
International
 
Consolidated
Net sales to external customers
$
58,254

 
$
48,970

 
$
13,017

 
$
42,156

 
$
162,397

Gross profit
16,056

 
32,033

 
7,051

 
27,247

 
82,387

Income from segment operations
9,147

 
1,919

 
941

 
3,550

 
15,557

Depreciation and amortization
2,187

 
3,051

 
454

 
1,011

 
6,703

Capital expenditures
952

 
1,333

 
81

 
763

 
3,129

Retail store impairment
—

 
66

 
—

 
163

 
229

Deferred rent expense (benefit)
47

 
(720
)
 
(51
)
 
(195
)
 
(919
)
 
 
 
Three Months Ended June 30, 2013
 
U.S. Wholesale
 
U.S. Retail
 
Canada
 
International
 
Consolidated
Net sales to external customers
$
52,741

 
$
51,164

 
$
15,452

 
$
42,879

 
$
162,236

Gross profit
14,634

 
33,302

 
9,347

 
26,587

 
83,870

Income from segment operations
6,097

 
525

 
1,153

 
2,491

 
10,266

Depreciation and amortization
1,790

 
3,089

 
448

 
1,059

 
6,386

Capital expenditures
1,411

 
4,090

 
247

 
535

 
6,283

Deferred rent expense (benefit)
18

 
(564
)
 
(82
)
 
(44
)
 
(672
)
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2014
 
U.S. Wholesale
 
U.S. Retail
 
Canada
 
International
 
Consolidated
Net sales to external customers
$
106,991

 
$
91,435

 
$
23,477

 
$
77,590

 
$
299,493

Gross profit
33,361

 
58,799

 
12,660

 
49,541

 
154,361

Income (loss) from segment operations
18,867

 
(2,795
)
 
596

 
2,651

 
19,319

Depreciation and amortization
4,365

 
6,165

 
855

 
2,033

 
13,418

Capital expenditures
2,157

 
2,472

 
193

 
2,265

 
7,087

Retail store impairment
—

 
115

 
—

 
613

 
728

Deferred rent benefit
(400
)
 
(2,352
)
 
(99
)
 
(290
)
 
(3,141
)
 
 
 
Six Months Ended June 30, 2013
 
U.S. Wholesale
 
U.S. Retail
 
Canada
 
International
 
Consolidated
Net sales to external customers
$
97,163

 
$
95,508

 
$
27,809

 
$
79,816

 
$
300,296

Gross profit
26,969

 
62,493

 
16,767

 
50,509

 
156,738

Income (loss) from segment operations
11,480

 
(1,922
)
 
501

 
3,304

 
13,363

Depreciation and amortization
3,393

 
6,059

 
881

 
2,084

 
12,417

Capital expenditures
4,487

 
6,990

 
430

 
1,730

 
13,637

Retail store impairment
—

 
78

 
—

 
—

 
78

Deferred rent expense (benefit)
38

 
(776
)
 
(213
)
 
(169
)
 
(1,120
)







AMERICAN APPAREL, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION (continued)
(in thousands)
(unaudited)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Reconciliation to Loss before Income Taxes
2014
 
2013
 
2014
 
2013
Income from segment operations
$
15,557

 
$
10,266

 
$
19,319

 
$
13,363

Unallocated corporate expenses
(12,977
)
 
(12,180
)
 
(24,235
)
 
(25,754
)
Interest expense
(10,019
)
 
(8,220
)
 
(20,058
)
 
(19,434
)
Foreign currency transaction loss
—

 
(158
)
 
(132
)
 
(871
)
Unrealized (loss) gain on change in fair value of warrants
(8,202
)
 
5,498

 
4,465

 
(18,147
)
Loss on extinguishment of debt
—

 
(32,101
)
 
—

 
(32,101
)
Other (expense) income
(60
)
 
11

 
(52
)
 
16

Consolidated loss before income taxes
$
(15,701
)
 
$
(36,884
)
 
$
(20,693
)
 
$
(82,928
)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
Net sales to external customers
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
U.S. Wholesale
 
 
 
 
 
 
 
Wholesale
$
48,945

 
$
43,219

 
$
87,182

 
$
77,927

Online consumer
9,309

 
9,522

 
19,809

 
19,236

Total
$
58,254

 
$
52,741

 
$
106,991

 
$
97,163

 
 
 
 
 
 
 
 
U.S. Retail
$
48,970

 
$
51,164

 
$
91,435

 
$
95,508

 
 
 
 
 
 
 
 
Canada
 
 
 
 
 
 
 
Wholesale
$
2,826

 
$
3,613

 
$
4,735

 
$
6,192

Retail
9,421

 
11,231

 
17,180

 
20,343

Online consumer
770

 
608

 
1,562

 
1,274

Total
$
13,017

 
$
15,452

 
$
23,477

 
$
27,809

 
 
 
 
 
 
 
 
International
 
 
 
 
 
 
 
Wholesale
$
2,200

 
$
2,631

 
$
4,000

 
$
4,572

Retail
35,534

 
35,899

 
65,212

 
66,351

Online consumer
4,422

 
4,349

 
8,378

 
8,893

Total
$
42,156

 
$
42,879

 
$
77,590

 
$
79,816

 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
Wholesale
$
53,971

 
$
49,463

 
$
95,917

 
$
88,691

Retail
93,925

 
98,294

 
173,827

 
182,202

Online consumer
14,501

 
14,479

 
29,749

 
29,403

Total
$
162,397

 
$
162,236

 
$
299,493

 
$
300,296







Table A
American Apparel, Inc. and Subsidiaries
Calculation and Reconciliation of Consolidated Adjusted EBITDA
(in thousands)
(unaudited)
In addition to its GAAP results, the Company considers non-GAAP measures of its performance. Adjusted EBITDA, as defined below, is an important supplemental financial measure of the Company's performance that is not required by, or presented in accordance with, GAAP. EBITDA represents net income (loss) before income taxes, interest expense and depreciation and amortization. Consolidated Adjusted EBITDA represents EBITDA further adjusted for other expense (income), foreign currency loss (gain), retail store impairment, and share-based compensation expense. The Company's management uses Adjusted EBITDA as a financial measure to assess the ability of its assets to generate cash sufficient to pay interest on its indebtedness, meet capital expenditure and working capital requirements, pay taxes, and otherwise meet its obligations as they become due. The Company's management believes that the presentation of Adjusted EBITDA provides useful information regarding its results of operations because they assist in analyzing and benchmarking the performance and value of its business. The Company believes that Adjusted EBITDA is useful to stockholders as a measure of comparative operating performance, as it is less susceptible to variances in actual performance resulting from depreciation and amortization and more reflective of changes in pricing decisions, cost controls and other factors that affect operating performance.
Adjusted EBITDA also is used by the Company's management for multiple purposes, including:
•
to calculate and support various coverage ratios with the Company's lenders
•
to allow lenders to calculate total proceeds they are willing to loan to the Company based on its relative strength compared to its competitors
•
to more accurately compare the Company's operating performance from period to period and company to company by eliminating differences caused by variations in capital structures (which affect relative interest expense), tax positions and amortization of intangibles.
In addition, Adjusted EBITDA is an important valuation tool used by potential investors when assessing the Company's relative performance in comparison to other companies in the same industry. Although the Company uses Adjusted EBITDA as a financial measure to assess the performance of its business, there are material limitations to using a measure such as Adjusted EBITDA, including the difficulty associated with using it as the sole measure to compare the results of one company to another and the inability to analyze significant items that directly affect a company's net income (loss) or operating income because it does not include certain material costs, such as interest and taxes, necessary to operate its business. In addition, the Company's calculation of Adjusted EBITDA may not be consistent with similarly titled measures of other companies and should be viewed in conjunction with measures that are computed in accordance with GAAP. The Company's management compensates for these limitations in considering Adjusted EBITDA in conjunction with its analysis of other GAAP financial measures, such as net income (loss).









Table A (continued)
American Apparel, Inc. and Subsidiaries
Calculation and Reconciliation of Consolidated Adjusted EBITDA
(in thousands)
(unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2014
 
2013
 
2014
 
2013
Net Loss
$
(16,205
)
 
$
(37,504
)
 
$
(21,671
)
 
$
(84,015
)
Income tax provision
504

 
620

 
978

 
1,087

Interest expense
10,019

 
8,220

 
20,058

 
19,434

Depreciation and amortization
6,703

 
6,386

 
13,418

 
12,417

Unrealized loss (gain) on change in fair value of warrants
8,202

 
(5,498
)
 
(4,465
)
 
18,147

Loss on extinguishment of debt
—

 
32,101

 
—

 
32,101

Share-based compensation expense
1,543

 
3,269

 
2,658

 
6,816

Foreign currency transaction loss
—

 
158

 
132

 
871

Retail store impairment
229

 
—

 
728

 
78

Non-recurring costs related to Mr. Charney's suspension
1,356

 
—

 
1,356

 
—

Estimated settlement related to an industrial accident
1,000

 
—

 
1,000

 
—

Other adjustments
1,208

 
125

 
1,780

 
248

Consolidated Adjusted EBITDA
$
14,559

 
$
7,877

 
$
15,972

 
$
7,184





AMERICAN APPAREL, INC Reports