UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly report period ended June 30, 2012
o 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: 000-51483
TRUE RELIGION APPAREL, INC.
(Exact name of registrant specified in its charter)
DELAWARE |
| 98-0352633 |
(State or other jurisdiction of |
| (IRS Employer Identification No.) |
2263 East Vernon Avenue, Vernon, CA 90058
(Address of Principal Executive Offices)
(323) 266-3072
Issuer’s telephone number, including area code
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the issuer (1) 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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x |
| Accelerated filer o |
|
|
|
Non-accelerated filer o |
| Smaller reporting company o |
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:
As of July 31, 2012, 25,789,745 shares of common stock were outstanding.
TRUE RELIGION APPAREL, INC.
|
| ||
|
| ||
| Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011 |
| 1 |
|
| 2 | |
|
| 3 | |
| Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011 |
| 4 |
|
| 5 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 13 | |
| 22 | ||
| 22 | ||
|
| ||
| 23 | ||
| 23 | ||
| 23 | ||
| 23 | ||
| 23 | ||
| 23 | ||
| 24 | ||
|
| 25 | |
|
|
|
|
EXHIBIT 10.1 |
|
|
|
EXHIBIT 31.1 |
|
|
|
EXHIBIT 31.2 |
|
|
|
EXHIBIT 32.1 |
|
|
|
EXHIBIT 32.2 |
|
|
|
PART I — Financial Information
Item 1. Financial Statements (Unaudited)
TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except par value amounts)
(Unaudited)
|
| June 30, |
| December 31, |
| ||
|
| 2012 |
| 2011 |
| ||
ASSETS |
|
|
|
|
| ||
Current Assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 51,315 |
| $ | 200,366 |
|
Short-term investments |
| 109,077 |
| — |
| ||
Accounts receivable, net of allowances |
| 25,938 |
| 23,959 |
| ||
Inventories |
| 57,862 |
| 53,320 |
| ||
Deferred income tax assets |
| 5,857 |
| 7,027 |
| ||
Prepaid income taxes |
| 3,723 |
| 3,879 |
| ||
Prepaid expenses and other current assets |
| 11,946 |
| 12,137 |
| ||
Total current assets |
| 265,718 |
| 300,688 |
| ||
Property and equipment, net |
| 60,464 |
| 53,698 |
| ||
Long-term investments |
| 40,711 |
| — |
| ||
Deferred income tax assets |
| 1,062 |
| 1,271 |
| ||
Other assets |
| 4,870 |
| 4,496 |
| ||
TOTAL ASSETS |
| $ | 372,825 |
| $ | 360,153 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
| ||
Accounts payable and accrued expenses |
| $ | 24,853 |
| $ | 22,872 |
|
Accrued salaries, wages and benefits |
| 9,157 |
| 11,506 |
| ||
Income taxes payable |
| 52 |
| 6,538 |
| ||
Total current liabilities |
| 34,062 |
| 40,916 |
| ||
Long-term deferred rent |
| 16,112 |
| 13,986 |
| ||
Long-term deferred income tax liabilities |
| 2,218 |
| 2,224 |
| ||
Long-term income tax payable |
| 620 |
| 604 |
| ||
Total long-term liabilities |
| 18,950 |
| 16,814 |
| ||
Total liabilities |
| 53,012 |
| 57,730 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
|
|
| ||
|
|
|
|
|
| ||
Redeemable noncontrolling interest |
| 2,902 |
| 2,635 |
| ||
|
|
|
|
|
| ||
Stockholders’ Equity: |
|
|
|
|
| ||
Preferred stock, $0.0001 par value, 20,000 shares authorized, no shares issued and outstanding |
| — |
| — |
| ||
Common stock, $0.0001 par value, 80,000 shares authorized, 25,790 and 25,492 issued and outstanding, respectively |
| 3 |
| 3 |
| ||
Additional paid-in capital |
| 84,602 |
| 77,950 |
| ||
Retained earnings |
| 231,636 |
| 221,122 |
| ||
Accumulated other comprehensive income, net |
| 670 |
| 713 |
| ||
Total stockholders’ equity |
| 316,911 |
| 299,788 |
| ||
|
|
|
|
|
| ||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 372,825 |
| $ | 360,153 |
|
The accompanying notes are an integral part of these financial statements.
TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
(Unaudited)
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Net sales |
| $ | 104,909 |
| $ | 98,263 |
| $ | 211,694 |
| $ | 192,025 |
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of sales |
| 37,428 |
| 33,895 |
| 75,312 |
| 66,912 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Gross profit |
| 67,481 |
| 64,368 |
| 136,382 |
| 125,113 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Selling, general and administrative expenses |
| 50,852 |
| 49,197 |
| 102,518 |
| 95,087 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
| 16,629 |
| 15,171 |
| 33,864 |
| 30,026 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other expense (income), net |
| 1,188 |
| (561 | ) | 337 |
| (481 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Income before provision for income taxes |
| 15,441 |
| 15,732 |
| 33,527 |
| 30,507 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Provision for income taxes |
| 5,603 |
| 5,966 |
| 12,976 |
| 11,696 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| 9,838 |
| 9,766 |
| 20,551 |
| 18,811 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Less: Net income attributable to redeemable noncontrolling interest |
| 61 |
| 333 |
| 361 |
| 395 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income attributable to True Religion Apparel, Inc. |
| $ | 9,777 |
| $ | 9,433 |
| $ | 20,190 |
| $ | 18,416 |
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per share attributable to True Religion Apparel, Inc.: |
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.39 |
| $ | 0.38 |
| $ | 0.81 |
| $ | 0.74 |
|
Diluted |
| $ | 0.39 |
| $ | 0.38 |
| $ | 0.80 |
| $ | 0.74 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
| ||||
Basic |
| 25,172 |
| 24,896 |
| 25,065 |
| 24,782 |
| ||||
Diluted |
| 25,310 |
| 25,026 |
| 25,315 |
| 25,044 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Dividends per common share |
| $ | 0.20 |
| $ | — |
| $ | 0.20 |
| $ | — |
|
The accompanying notes are an integral part of these financial statements.
TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
|
| Three Months Ended |
| Six months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Net income |
| $ | 9,838 |
| $ | 9,766 |
| $ | 20,551 |
| $ | 18,811 |
|
Cumulative translation adjustment |
| (163 | ) | 30 |
| (137 | ) | 418 |
| ||||
Comprehensive income |
| 9,675 |
| 9,796 |
| 20,414 |
| 19,229 |
| ||||
Comprehensive loss (income) attributable to redeemable noncontrolling interest |
| 115 |
| (375 | ) | (267 | ) | (566 | ) | ||||
Comprehensive income attributable to True Religion Apparel, Inc. |
| $ | 9,790 |
| $ | 9,421 |
| $ | 20,147 |
| $ | 18,663 |
|
The accompanying notes are an integral part of these financial statements.
TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
| Six Months Ended June 30 |
| ||||
|
| 2012 |
| 2011 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
| ||
Net income |
| $ | 20,551 |
| $ | 18,811 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 6,438 |
| 6,264 |
| ||
Provision for bad debts |
| — |
| 838 |
| ||
Stock-based compensation |
| 6,247 |
| 6,751 |
| ||
Tax benefit from stock-based compensation |
| 405 |
| 745 |
| ||
Excess tax benefit from stock-based compensation |
| (505 | ) | (1,204 | ) | ||
Deferred income taxes |
| 1,351 |
| 2,669 |
| ||
Other, net |
| 32 |
| 27 |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
| (2,239 | ) | 5,784 |
| ||
Inventories |
| (4,869 | ) | (5,255 | ) | ||
Prepaid expenses and other current assets |
| 627 |
| 769 |
| ||
Other assets |
| (698 | ) | 375 |
| ||
Accounts payable and accrued expenses |
| 744 |
| 4,250 |
| ||
Accrued salaries, wages and benefits |
| (2,338 | ) | (1,732 | ) | ||
Prepaid income taxes and income taxes payable |
| (6,277 | ) | (6,177 | ) | ||
Long-term deferred rent |
| 2,121 |
| 1,677 |
| ||
Net cash provided by operating activities |
| 21,590 |
| 34,592 |
| ||
|
|
|
|
|
| ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
| ||
Purchases of investments |
| (149,788 | ) | — |
| ||
Purchases of property and equipment |
| (12,099 | ) | (10,047 | ) | ||
Expenditures to establish trademarks |
| (3 | ) | (31 | ) | ||
Net cash used in investing activities |
| (161,890 | ) | (10,078 | ) | ||
|
|
|
|
|
| ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
| ||
Statutory tax withholding payment for stock-based compensation |
| (4,517 | ) | (5,428 | ) | ||
Cash dividends paid |
| (5,034 | ) | — |
| ||
Excess tax benefit from stock-based compensation |
| 505 |
| 1,204 |
| ||
Net cash used in financing activities |
| (9,046 | ) | (4,224 | ) | ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash |
| 295 |
| (335 | ) | ||
|
|
|
|
|
| ||
Net (decrease) increase in cash and cash equivalents |
| (149,051 | ) | 19,955 |
| ||
Cash and cash equivalents, beginning of period |
| 200,366 |
| 153,792 |
| ||
Cash and cash equivalents, end of period |
| $ | 51,315 |
| $ | 173,747 |
|
The accompanying notes are an integral part of these financial statements.
TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — Description of the Business
True Religion Apparel, Inc. and subsidiaries (referred to in the Quarterly Report on Form 10-Q as “the Company,” “our,” or “we”) designs, markets, sells and distributes premium fashion apparel, centered on our core denim products using the brand name “True Religion Brand Jeans.” Our products include jeans, pants, woven and knit tops and outerwear made from denim, fleece, jersey and other fabrics. We are known for our unique fits, washes and styling details. Our products are distributed through multiple wholesale and retail segments on six continents, including North America, Europe, Asia, Australia, Africa and South America.
We operate in four primary business segments: U.S. Consumer Direct, U.S. Wholesale, International, and Core Services. We sell directly to consumers in the United States through full-price stores, outlet stores and through our retail internet site located at www.truereligionbrandjeans.com. As of June 30, 2012, we operated 83 full price stores and 33 outlet stores in the U.S. Our U.S. Wholesale sales are made to leading nationwide premium department stores, specialty retailers and boutiques, and off-price retailers. Our International sales are made through a variety of channels, including subsidiaries and a joint venture that operate retail stores and sell to wholesale customers who operate retail stores; distributors who warehouse products at their expense and then ship to, and collect payment from, their customers; and directly to wholesale customers who operate retail stores. As of June 30, 2012, our International segment operated 14 full-price stores and nine outlet stores. In addition, we selectively license to third parties the right to use our various trademarks in connection with the manufacture and sale of designated products in specified geographical areas for specified periods. This licensing business is included in our Core Services segment. Our corporate operations, which include the design, production, marketing, distribution, credit, customer service, information technology, accounting, executive, legal, and human resources departments, are also included in the Core Services segment.
NOTE 2 — Summary of Significant Accounting Policies
Basis of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of True Religion Apparel, Inc., its subsidiaries, and its majority-owned subsidiary, which operates according to a joint venture agreement with its noncontrolling interest holder. All intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of True Religion Apparel, Inc. have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X for interim financial information issued by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements as permitted under applicable rules and regulations. The accompanying condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC. The same accounting policies are followed for preparing quarterly and annual financial information. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. The results of operations for the three and six months ended June 30, 2012, are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.
Concentration of Credit Risks
As of June 30, 2012 and December 31, 2011, the accounts receivable due from one customer was 31% and 22%, respectively, of our total accounts receivable, net of allowances.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and notes thereto. Actual results could differ materially from those estimates.
Significant estimates inherent in the preparation of the accompanying condensed consolidated financial statements include reserves for customer returns, chargebacks, allowances for bad debts, inventory valuation, contingencies, valuation of long-lived assets, fixed asset useful lives, income taxes and other tax contingencies, and the valuation of stock-based compensation and related forfeiture rates.
Gift Cards
We sell gift cards with no expiration dates to customers. We recognize revenue associated with our gift cards upon redemption of the gift card. In addition, we may recognize revenue from gift cards in the future when we determine that the likelihood of the gift card being redeemed is remote and that we have no legal obligation to remit the unredeemed gift card to relevant jurisdictions. We will utilize historical redemption patterns to consider the likelihood of gift card redemption. During the three and six months ended June 30, 2012 and 2011, no revenue was recognized related to gift card breakage.
NOTE 3 — Cash Equivalents and Investments
As of June 30, 2012 and December 31, 2011, we held $12.4 million and $175.1 million, respectively, of cash equivalents, which consist of an investment in a money market fund that invests only in U.S. Treasury securities. These investments are measured at fair value using quoted prices in active markets (Level 1 input).
Our Investments consist of U.S. Treasury securities, which are classified as held-to-maturity securities and are reported at amortized cost. The fair values for these investments were obtained from third-party broker statements, which are primarily derived from observable market-based inputs or unobservable inputs that are corroborated by market data (Level 2 input).
Investments consist of the following (amounts in thousands):
|
| June 30, 2012 |
| ||||||||||
|
| Carrying |
| Unrealized |
| Unrealized |
| Fair |
| ||||
Held-to-maturity: |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury securities |
| $ | 149,823 |
| $ | 7 |
| $ | 93 |
| $ | 149,737 |
|
The contractual maturities were as follows (amounts in thousands):
|
| June 30, 2012 |
| December 31, 2011 |
| ||
Due within one year |
| $ | 109,112 |
| $ | — |
|
Due within two years |
| 40,711 |
| — |
| ||
Total |
| $ | 149,823 |
| $ | — |
|
NOTE 4 — Accounts Receivable
We recorded the following allowances against our wholesale accounts receivable (amounts in thousands):
|
| As of |
| As of |
| ||
|
| 2012 |
| 2011 |
| ||
Reserve for returns |
| $ | 661 |
| $ | 807 |
|
Reserve for chargebacks and markdown allowances |
| 314 |
| 316 |
| ||
Reserve for bad debt |
| 608 |
| 860 |
| ||
Total |
| $ | 1,583 |
| $ | 1,983 |
|
In addition to the above reserves, we recorded an allowance for trade discounts of less than $0.1 million as of June 30, 2012 and December 31, 2011.
NOTE 5 — Inventories
Inventories consisted of the following (amounts in thousands):
|
| As of |
| As of |
| ||
|
| 2012 |
| 2011 |
| ||
Raw materials |
| $ | 940 |
| $ | 604 |
|
Work-in-progress |
| 2,852 |
| 2,395 |
| ||
Finished goods |
| 54,070 |
| 50,321 |
| ||
Total |
| $ | 57,862 |
| $ | 53,320 |
|
NOTE 6 — Property and Equipment, net
Property and equipment consisted of the following (amounts in thousands):
|
| As of |
| As of |
| ||
|
| 2012 |
| 2011 |
| ||
Computer systems and equipment |
| $ | 17,345 |
| $ | 15,357 |
|
Furniture and fixtures |
| 11,631 |
| 9,498 |
| ||
Leasehold improvements |
| 61,117 |
| 55,141 |
| ||
Machinery and equipment |
| 4,885 |
| 4,412 |
| ||
Trade show booths |
| 1,311 |
| 1,356 |
| ||
Construction in progress |
| 3,381 |
| 1,896 |
| ||
|
| 99,670 |
| 87,660 |
| ||
Less: accumulated depreciation |
| 39,206 |
| 33,962 |
| ||
Property and equipment, net |
| $ | 60,464 |
| $ | 53,698 |
|
Construction in progress as of June 30, 2012 and December 31, 2011 primarily represents the capital expenditures for retail stores that have not opened, or information technology projects that have not been completed, as of the balance sheet date. When the stores are opened or the information technology projects are completed, these balances will be transferred to the appropriate property and equipment category and depreciated according to their useful life.
Depreciation expense, which is included as a component of selling, general and administrative expenses in the accompanying condensed consolidated statements of income, was $6.4 million and $6.3 million for the six months ended June 30, 2012 and 2011, respectively.
NOTE 7—Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following (amounts in thousands):
|
| As of |
| As of |
| ||
|
| 2012 |
| 2011 |
| ||
Accounts payable |
| $ | 9,567 |
| $ | 6,761 |
|
Accrued expenses |
| 8,008 |
| 7,597 |
| ||
Accrued percentage rent |
| 1,457 |
| 1,785 |
| ||
Accrued sales and use taxes |
| 1,431 |
| 2,582 |
| ||
Other |
| 4,390 |
| 4,147 |
| ||
Accounts payable and accrued expenses |
| $ | 24,853 |
| $ | 22,872 |
|
NOTE 8 — Stock-based Compensation
The following table summarizes our stock-based compensation expense, which is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income (amounts in thousands):
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Stock-based compensation expense, before income tax benefit |
| $ | 3,031 |
| $ | 3,348 |
| $ | 6,247 |
| $ | 6,751 |
|
Income tax benefit |
| 1,144 |
| 1,238 |
| 2,358 |
| 2,496 |
| ||||
Stock-based compensation expense, after income tax benefit |
| $ | 1,887 |
| $ | 2,110 |
| $ | 3,889 |
| $ | 4,255 |
|
Restricted Stock Awards
Restricted shares awarded under the 2009 Incentive Plans entitle the shareholder to all the rights of common stock ownership except that the shares may not be sold, transferred, pledged, exchanged or otherwise disposed of during the restriction period nor are dividends paid until the restriction period ends. Upon termination, dividends accrued on non-vested shares will be forfeited. The restriction period is determined by the Compensation Committee of the Board of Directors and may not exceed 10 years. Restricted stock awards have generally been granted with vesting periods of up to three years. Subject to employment agreements entered into with senior executives, all unvested restricted shares are forfeited if the recipient of the restricted stock award no longer provides services, as defined, to us.
Non-vested performance-based awards
During the six months ended June 30, 2012 and 2011, we awarded performance-based restricted stock to executive officers that vest over a period of two years, which is a service condition. Upon achieving the performance condition, the non-vested performance awards partially vest on the first anniversary of the grant date and the remainder on the second anniversary of the grant date for a combined service period of two years. In order for these performance awards to vest, the Company’s annual adjusted earnings before interest and income tax expenses (“Adjusted EBIT”) must exceed a minimum amount; depending upon the Company’s actual annual Adjusted EBIT, additional restricted stock may be earned, up to a maximum amount.
The following table summarizes our performance-based restricted stock activities for the six months ended June 30, 2012:
|
|
|
|
|
| Weighted |
|
|
| ||
|
|
|
| Weighted |
| Average |
|
|
| ||
|
|
|
| Average Grant |
| Remaining |
| Intrinsic |
| ||
|
|
|
| Date Fair |
| Contractual |
| Value |
| ||
|
| Shares |
| Value |
| Life (Years) |
| ($000’s) |
| ||
Prior year awards: |
|
|
|
|
|
|
|
|
| ||
Non-vested, beginning of year |
| 391,174 |
| $ | 23.98 |
|
|
|
|
| |
Vested |
| (281,896 | ) | $ | 24.41 |
|
|
|
|
| |
Service forfeited |
| — |
| $ | — |
|
|
|
|
| |
Non-vested prior year awards, end of period |
| 109,278 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
Awards granted in 2012, at maximum: |
| 353,215 |
| $ | 26.04 |
|
|
|
|
| |
Performance forfeited |
| — |
| $ | — |
|
|
|
|
| |
Service forfeited |
| — |
| $ | — |
|
|
|
|
| |
Non-vested current year awards, end of period |
| 353,215 |
|
|
|
|
|
|
| ||
Total non-vested, end of period |
| 462,493 |
| $ | 25.31 |
| 1.1 |
| $ | 13,403 |
|
The estimated fair value of the performance-based stock awarded is based on the price of our common stock at the date of grant and an assumed forfeiture rate of 1.4% as of June 30, 2012; this forfeiture rate assumption is based on historical experience adjusted for unusual, large forfeitures. The fair value of the performance-based stock awarded in the six months ended June 30, 2012 and 2011 was $9.2 million and $11.6 million, respectively. The total fair value of performance-based stock vested during the six months ended June 30, 2012 and 2011 was $6.9 million and $7.9 million, respectively. As of June 30, 2012, the total unamortized stock-based compensation expense related to the performance-based stock was $7.1 million, which is expected to be recognized over a weighted average period of 1.1 years.
Non-vested service-based awards
During the six months ended June 30, 2012 and 2011, we awarded restricted stock to employees and directors that vest over a period of up to three years.
The following table summarizes our non-vested service-based restricted stock activities for the six months ended June 30, 2012:
|
| Shares |
| Weighted |
| Weighted |
| Intrinsic |
| ||
Non-vested, beginning of year |
| 170,062 |
| $ | 23.35 |
|
|
|
|
| |
Granted |
| 117,625 |
| $ | 26.26 |
|
|
|
|
| |
Vested |
| (129,168 | ) | $ | 24.05 |
|
|
|
|
| |
Forfeited |
| (5,008 | ) | $ | 27.19 |
|
|
|
|
| |
Non-vested, end of period |
| 153,511 |
| $ | 24.86 |
| 1.6 |
| $ | 4,449 |
|
The estimated fair value of the non-vested, service-based stock awarded is based on the price of our common stock at the date of grant and an assumed forfeiture rate of 7.4% as of June 30, 2012; this forfeiture rate assumption is based on historical experience adjusted for unusual, large forfeitures. The fair value of service-based stock awarded in the six months ended June 30, 2012 and 2011 was $3.1 million and $3.2 million, respectively. The total fair value of service-based stock vested during the six months ended June 30, 2012 and 2011 was $3.1 million and $3.6 million, respectively. As of June 30, 2012, the total unamortized stock-based compensation expense related to the non-vested, service-based stock was $3.1 million which is expected to be recognized over a weighted average period of 1.6 years.
Minimum Statutory Income Taxes on Restricted Awards
We have a practice of withholding common shares, upon an employee’s or director’s request, to satisfy employee and director minimum statutory income tax withholdings for restricted shares when they vest. During the six months ended June 30, 2012 and 2011, we withheld 167,772 and 226,579 shares for a total value of $4.5 million and $5.4 million, respectively. These amounts are considered a financing activity and recorded as statutory tax withholding payment for stock-based compensation in the accompanying condensed consolidated statements of cash flows.
NOTE 9 — Commitments and Contingencies
Leases
We lease our headquarters facilities and retail store locations under operating lease agreements expiring on various dates through January 2024. Some of these leases require us to make periodic payments for property taxes, utilities and common area operating expenses. Certain leases include lease incentives, rent abatements and fixed rent escalations, for which the effects are being recorded and amortized over the initial lease term on a straight-line basis. We have options to renew certain leases under various terms as specified within each lease agreement. We have no capitalized lease obligations.
As of June 30, 2012, we had 166 long-term lease agreements, which consisted of 124 retail stores in the U.S., 28 international retail stores, two distribution and administrative facilities in Vernon, California, two showrooms in the U.S., and administrative offices and/or showrooms in Japan, South Korea, Hong Kong, Germany, Italy, the U.K. and Switzerland. Our leased properties aggregate 678,000 square feet of space, which consists of 374,000 square feet for our distribution and administrative functions, 290,000 square feet of retail space and 14,000 square feet of showroom space. Our lease agreements for 135 of the retail stores leases require payment of a percentage of sales, ranging from 4% to 18%, if our net sales at the retail store exceed a defined threshold.
Rent expense was $17.6 million and $14.3 million for the six months ended June 30, 2012 and 2011, respectively. These amounts include contingent rental expense of $1.9 million and $1.5 million for the six months ended June 30, 2012 and 2011, respectively.
Future minimum lease payments under these operating leases as of June 30, 2012 are summarized as follows (amounts in thousands):
Year Ending December 31, |
|
|
| |
2012 (remainder of year) |
| $ | 14,151 |
|
2013 |
| 29,649 |
| |
2014 |
| 29,805 |
| |
2015 |
| 29,562 |
| |
2016 |
| 29,145 |
| |
Thereafter |
| 97,639 |
| |
Total minimum lease payments |
| $ | 229,951 |
|
Legal Proceedings
From time to time, we are involved in various legal proceedings arising in the ordinary course of business. We believe the recorded reserves in our condensed consolidated balance sheets as of June 30, 2012 are adequate in light of the probable and estimable liabilities. As of the date of this report, we do not believe there are any currently identified claims, proceedings or litigation, either alone or in the aggregate, that will have a material impact on our results of operations, financial position or cash flows. Since these matters are subject to inherent uncertainties, our view of them may change in the future.
Income Taxes
In connection with an examination of the Company’s U.S. federal income tax return filed for the tax year ended December 31, 2009, the Internal Revenue Service (“IRS”) has disallowed the domestic production activities deduction claimed by the Company. During the quarter ended June 30, 2012, the IRS issued an assessment for $1.4 million in tax and a $0.3 million penalty.
The Company has completed its income tax provision for 2010, 2011 and 2012 using the same position that the IRS has challenged in its 2009 federal income tax return. The cumulative income tax credit for those periods is $4.3 million.
The Company filed a formal protest with the Office of Appeals Division within the IRS and intends to vigorously defend its position. In the event of an unfavorable outcome at the Office of Appeals, the Company will strongly consider litigating the matter in U.S. Tax Court. The unpaid assessment will continue to accrue interest at the statutory rate until resolved. Although the outcome remains uncertain, management believes a taxpayer favorable resolution will be obtained and therefore the full tax benefit for the deduction has been recognized.
NOTE 10 —Redeemable Noncontrolling Interest
We calculated the fair value of the redeemable noncontrolling interest by discounting the estimated future cash flows of our majority-owned subsidiary, True Religion Brand Jeans Germany GmbH (“TRBJ Germany”), and determined that the fair value of the noncontrolling interest was lower than the carrying value as of June 30, 2012. As no previous increases have been recorded, the noncontrolling interest approximated the greater of the fair market value or the carrying value as of June 30, 2012 and December 31, 2011.
The following table presents a reconciliation of the redeemable noncontrolling interest (amounts in thousands):
|
| Six Months Ended |
| ||||
|
| June 30, |
| ||||
|
| 2012 |
| 2011 |
| ||
Redeemable noncontrolling interest, beginning of year |
| $ | 2,635 |
| $ | 1,925 |
|
Net income attributable to redeemable noncontrolling interest |
| 361 |
| 395 |
| ||
Foreign currency translation adjustment |
| (94 | ) | 171 |
| ||
Redeemable noncontrolling interest, end of period |
| $ | 2,902 |
| $ | 2,491 |
|
NOTE 11 — Earnings Per Share
The following is a reconciliation of the shares used to compute basic and diluted earnings per share attributable to True Religion Apparel, Inc. (in thousands, except per share information):
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Net income attributable to True Religion Apparel, Inc. |
| $ | 9,777 |
| $ | 9,433 |
| $ | 20,190 |
| $ | 18,416 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic shares |
| 25,172 |
| 24,896 |
| 25,065 |
| 24,782 |
| ||||
Dilutive effect of unvested restricted stock |
| 138 |
| 130 |
| 250 |
| 262 |
| ||||
Diluted shares |
| $ | 25,310 |
| $ | 25,026 |
| $ | 25,315 |
| $ | 25,044 |
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per share attributable to True Religion Apparel, Inc. — basic |
| $ | 0.39 |
| $ | 0.38 |
| $ | 0.81 |
| $ | 0.74 |
|
Earnings per share attributable to True Religion Apparel, Inc. — diluted |
| $ | 0.39 |
| $ | 0.38 |
| $ | 0.80 |
| $ | 0.74 |
|
For the three and six months ended June 30, 2012, 353,215 and 183,438 weighted shares, respectively, of restricted stock awards which are subject to performance conditions that have not been achieved were excluded from the calculation of dilutive shares. For the three and six months ended June 30, 2011, 503,286 and 260,031 weighted shares, respectively, of restricted stock awards which are subject to performance conditions that have not been achieved were excluded from the calculation of dilutive shares.
NOTE 12 — Segment Information
Summarized financial information concerning our reportable segments is shown in the following table (amounts in thousands):
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
| ||||
U.S. Consumer Direct |
| $ | 64,362 |
| $ | 58,836 |
| $ | 129,819 |
| $ | 112,208 |
|
U.S. Wholesale |
| 22,416 |
| 21,001 |
| 43,861 |
| 41,869 |
| ||||
International |
| 17,724 |
| 18,090 |
| 36,856 |
| 36,560 |
| ||||
Core Services |
| 407 |
| 336 |
| 1,158 |
| 1,388 |
| ||||
|
| $ | 104,909 |
| $ | 98,263 |
| $ | 211,694 |
| $ | 192,025 |
|
|
|
|
|
|
|
|
|
|
| ||||
Gross Profit: |
|
|
|
|
|
|
|
|
| ||||
U.S. Consumer Direct |
| $ | 44,905 |
| $ | 42,897 |
| $ | 90,955 |
| $ | 81,439 |
|
U.S. Wholesale |
| 11,204 |
| 10,937 |
| 22,635 |
| 22,122 |
| ||||
International |
| 10,965 |
| 10,198 |
| 21,634 |
| 20,164 |
| ||||
Core Services |
| 407 |
| 336 |
| 1,158 |
| 1,388 |
| ||||
|
| $ | 67,481 |
| $ | 64,368 |
| $ | 136,382 |
| $ | 125,113 |
|
|
|
|
|
|
|
|
|
|
| ||||
Operating income: |
|
|
|
|
|
|
|
|
| ||||
U.S. Consumer Direct |
| $ | 21,075 |
| $ | 21,549 |
| $ | 43,401 |
| $ | 40,199 |
|
U.S. Wholesale |
| 9,759 |
| 8,670 |
| 19,653 |
| 17,948 |
| ||||
International |
| 1,715 |
| 3,170 |
| 4,216 |
| 6,365 |
| ||||
Core Services |
| (15,920 | ) | (18,218 | ) | (33,406 | ) | (34,486 | ) | ||||
|
| $ | 16,629 |
| $ | 15,171 |
| $ | 33,864 |
| $ | 30,026 |
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
| ||||||||||
|
| 2012 |
| 2011 |
| ||||||||
Capital expenditures: |
|
|
|
|
| ||||||||
U.S. Consumer Direct |
| $ | 5,711 |
| $ | 6,718 |
| ||||||
U.S. Wholesale |
| 34 |
| 115 |
| ||||||||
International |
| 4,429 |
| 1,999 |
| ||||||||
Core Services |
| 1,925 |
| 1,215 |
| ||||||||
|
| $ | 12,099 |
| $ | 10,047 |
| ||||||
|
|
|
|
|
| ||||||||
|
| June 30, |
| ||||||||||
|
| 2012 |
| 2011 |
| ||||||||
Total assets: |
|
|
|
|
| ||||||||
U.S. Consumer Direct |
| $ | 80,610 |
| $ | 71,083 |
| ||||||
U.S. Wholesale |
| 29,232 |
| 31,895 |
| ||||||||
International |
| 50,285 |
| 29,569 |
| ||||||||
Core Services |
| 212,698 |
| 184,037 |
| ||||||||
|
| $ | 372,825 |
| $ | 316,584 |
|
NOTE 13 — Stockholders’ Equity
In April 2012, our Board of Directors approved a stock repurchase program granting the Company authority to repurchase up to $30,000,000 of the Company’s common stock. Under the stock repurchase program, the Company will repurchase shares in the open market from time to time, depending on market conditions. The primary objective of the stock repurchase program is to offset the share dilution attributable to stock based compensation beginning in 2012. The Company may suspend or discontinue the repurchase program at any time. For the quarter ended June 30, 2012, we did not purchase any shares of our common stock and had $30,000,000 in remaining share repurchase capacity. The actual number and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission rules.
During the six months ended June 30, 2012, the Company paid $5.0 million in cash dividends to holders of its common stock.
In July 2012, our Board of Directors approved a quarterly cash dividend to our stockholders of $0.20 per share. The quarterly dividend will be paid on August 29, 2012 to all stockholders of record as of August 15, 2012. Future dividends will be subject to Board approval.
NOTE 14 — Supplemental Disclosure of Cash Flow Information
During the six months ended June 30, 2012 and 2011, we paid income taxes of $17.8 million and $14.7 million, respectively.
As of June 30, 2012, and 2011, we had recorded the purchase of $1.4 million and $1.1 million, respectively, of property and equipment even though the vendors had not yet been paid. These amounts have been excluded from “Purchases of property and equipment” and “Accounts payable and accrued expenses” in the accompanying condensed consolidated statements of cash flows.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains 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. We generally identify forward-looking statements in this report using words like “believe,” “intend,” “expect,” “estimate,” “may,” “plan,” “should plan,” “project,” “contemplate,” “anticipate,” “predict,” “potential,” “continue,” or similar expressions. You may find some of these statements below and elsewhere in this Quarterly Report. These forward-looking statements are not historical facts and are inherently uncertain and outside of our control. Any or all of our forward-looking statements in this report may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this report will be important to determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. Factors that may cause our plans, expectations, future financial condition and results to change are described throughout this report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed on February 29, 2012 (the “2011 Annual Report”), particularly in “Risk Factors,” Part 1, Item 1A of that report, and include the following:
· the negative general economic conditions and the current global financial crisis;
· our ability to predict fashion trends;
· our ability to continue to maintain our brand image and reputation;
· competition from companies with significantly greater resources than ours;
· increases in the price of raw materials or their reduced availability; and
· our ability to continue and control our expansion plans.
The forward-looking information set forth in this Quarterly Report on Form 10-Q is as of August 1, 2012, and we undertake no duty to update this information. Shareholders and prospective investors can find information filed with the SEC after August 1, 2012 at our website at www.truereligionbrandjeans.com or at the SEC website at www.sec.gov.
RESULTS OF OPERATIONS
We design, market, sell and distribute premium fashion apparel, centered on our core denim products using the brand name “True Religion Brand Jeans.” Our products include jeans, pants, woven and knit tops and outerwear made from denim, fleece, jersey and other fabrics. We are known for our unique fits, washes and styling details. Our products are distributed through multiple wholesale and retail channels on six continents, including North America, Europe, Asia, Australia, Africa and South America. As of June 30, 2012, we had 116 retail stores in the United States compared to 109 as of December 31, 2011, and 102 as of June 30, 2011. As of June 30, 2012 we had 23 international stores compared to 16 as of December 31, 2011 and nine as of June 30, 2011.
Second quarter 2012 Compared to Second quarter 2011
The following table summarizes results of operations for the three months ended June 30, 2012 and 2011 (dollar amounts in thousands, except per share data):
|
| Three Months Ended June 30, |
| |||||||||||||
|
| 2012 |
| 2011 |
| Change |
| |||||||||
|
| Amount |
| % |
| Amount |
| % |
| Amount |
| % |
| |||
Net sales |
| $ | 104,909 |
| 100.0 | % | $ | 98,263 |
| 100.0 | % | $ | 6,646 |
| 6.8 | % |
Gross profit |
| 67,481 |
| 64.3 | % | 64,368 |
| 65.5 | % | 3,113 |
| 4.8 | % | |||
Selling, general and administrative expenses |
| 50,852 |
| 48.5 | % | 49,197 |
| 50.1 | % | 1,655 |
| 3.4 | % | |||
Operating income |
| 16,629 |
| 15.9 | % | 15,171 |
| 15.4 | % | 1,458 |
| 9.6 | % | |||
Other expense (income), net |
| 1,188 |
| 1.1 | % | (561 | ) | (0.6 | )% | 1,749 |
| NM |
| |||
Provision for income taxes |
| 5,603 |
| 5.3 | % | 5,966 |
| 6.1 | % | (363 | ) | (6.1 | )% | |||
Net income attributable to True Religion Apparel, Inc. |
| $ | 9,777 |
| 9.3 | % | $ | 9,433 |
| 9.6 | % | $ | 344 |
| 3.6 | % |
Net income per share attributable to True Religion Apparel, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Basic |
| $ | 0.39 |
|
|
| $ | 0.38 |
|
|
| $ | 0.01 |
| 2.6 | % |
Diluted |
| $ | 0.39 |
|
|
| $ | 0.38 |
|
|
| $ | 0.01 |
| 2.6 | % |
Net Sales
The following table summarizes net sales by segment (dollar amounts in thousands):
|
| Three Months Ended, |
| Change |
| |||||||
|
| 2012 |
| 2011 |
| Amount |
| % |
| |||
U.S. Consumer Direct |
| $ | 64,362 |
| $ | 58,836 |
| $ | 5,526 |
| 9.4 | % |
U.S. Wholesale |
| 22,416 |
| 21,001 |
| 1,415 |
| 6.7 |
| |||
International |
| 17,724 |
| 18,090 |
| (366 | ) | (2.0 | ) | |||
Core Services |
| 407 |
| 336 |
| 71 |
| 21.1 |
| |||
Total net sales |
| $ | 104,909 |
| $ | 98,263 |
| $ | 6,646 |
| 6.8 | % |
The following table summarizes the percentage of total net sales by segment:
|
| Three Months Ended, |
| ||
|
| 2012 |
| 2011 |
|
U.S. Consumer Direct |
| 61.3 | % | 59.9 | % |
U.S. Wholesale |
| 21.4 |
| 21.4 |
|
International |
| 16.9 |
| 18.4 |
|
Core Services |
| 0.4 |
| 0.3 |
|
Total net sales |
| 100.0 | % | 100.0 | % |
The increase in the U.S. Consumer Direct segment’s net sales (which includes our retail stores and e-commerce site) of 9.4% resulted from the expansion of our retail store count and a 2.4% same store sales increase. We ended the second quarter of 2011 with 102 stores and we had 116 stores in the U.S. at the end of the second quarter of 2012. Compared to the prior year, sales of men’s merchandise increased, but sales of women’s merchandise declined. During the remainder of 2012, we expect to open six retail stores in the United States.
U.S. Wholesale net sales increased 6.7% to $22.4 million primarily due to an increase in sales to the Off Price and Specialty channels, which was partially offset by a decrease in sales to Majors. This is the second consecutive year-over-year quarterly sales increase for this segment.
International net sales declined by 2.0% to $17.7 million primarily due to a slowdown in wholesale sales in Korea and Canada. Partially offsetting this decrease is a 114% increase in our international retail sales due to an increase in our retail store count from nine in the second quarter of 2011 to 23 in the same period of 2012. During the remainder of 2012, we expect to open seven international retail stores.
Core Services net sales is comprised of royalties due under licensing arrangements. Core Services net sales increased 21.1% to $0.4 million due to an increase in contractual minimum royalties.
Gross Profit
The following table summarizes gross profit by segment (dollar amounts in thousands):
|
| Three Months Ended, |
| Change |
| |||||||
|
| 2012 |
| 2011 |
| Amount |
| % |
| |||
U.S. Consumer Direct |
| $ | 44,905 |
| $ | 42,897 |
| $ | 2,008 |
| 4.7 | % |
U.S. Wholesale |
| 11,204 |
| 10,937 |
| 267 |
| 2.4 |
| |||
International |
| 10,965 |
| 10,198 |
| 767 |
| 7.5 |
| |||
Core Services |
| 407 |
| 336 |
| 71 |
| 21.1 |
| |||
Total gross profit |
| $ | 67,481 |
| $ | 64,368 |
| $ | 3,113 |
| 4.8 | % |
The following table summarizes gross profit as a percentage of net sales (“gross margin”) by segment:
|
| Three Months Ended, |
| Change |
| ||
|
| 2012 |
| 2011 |
| % |
|
U.S. Consumer Direct |
| 69.8 | % | 72.9 | % | (3.1 | )% |
U.S. Wholesale |
| 50.0 |
| 52.1 |
| (2.1 | ) |
International |
| 61.9 |
| 56.4 |
| 5.5 |
|
Core Services |
| 100.0 |
| 100.0 |
| 0.0 |
|
Total gross margin |
| 64.3 | % | 65.5 | % | (1.2 | )% |
Overall gross profit increased 4.8% to $67.5 million in the second quarter of 2012, driven primarily by the overall sales growth. The gross margin decreased 120 basis points to 64.3% primarily due to the 310 basis point decrease in the U.S. Consumer Direct segment’s gross margin.
The U.S. Consumer Direct gross margin decreased to 69.8% in the second quarter of 2012 from 72.9% in the same quarter in 2011. This decrease is primarily due to increased markdowns in our Outlet stores to sell-through slower moving women’s merchandise.
U.S. Wholesale gross margin decreased by 210 basis points, to 50.0%, primarily due to an increase in sales to the Off-Price channel, which earns a lower gross margin. Also contributing to the gross-margin decrease was a sales mix shift within the Off-Price channel towards excess merchandise.
The International gross margin increased to 61.9% in the second quarter of 2012 from 56.4% in the same quarter in 2011 driven primarily by the sales mix shift towards our international direct retail business, which earns a higher gross margin than our international wholesale business.
Selling, General and Administrative Expenses
The following table presents the components of selling, general & administrative expenses (“SG&A”) by segment (dollar amounts in thousands):
|
| Three Months Ended, |
| Change |
| |||||||
|
| 2012 |
| 2011 |
| Amount |
| % |
| |||
U.S. Consumer Direct |
| $ | 23,831 |
| $ | 21,348 |
| $ | 2,483 |
| 11.6 | % |
U.S. Wholesale |
| 1,445 |
| 2,267 |
| (822 | ) | (36.3 | ) | |||
International |
| 9,250 |
| 7,028 |
| 2,222 |
| 31.6 |
| |||
Core Services |
| 16,326 |
| 18,554 |
| (2,228 | ) | (12.0 | ) | |||
Total selling, general and administrative expenses |
| $ | 50,852 |
| $ | 49,197 |
| $ | 1,655 |
| 3.4 | % |
The following table summarizes SG&A as a percentage of net sales (“SG&A rate”) by segment:
|
| Three Months Ended, |
| Change |
| ||
|
| 2012 |
| 2011 |
| % |
|
U.S. Consumer Direct |
| 37.0 | % | 36.3 | % | 0.7 | % |
U.S. Wholesale |
| 6.4 |
| 10.8 |
| (4.4 | ) |
International |
| 52.2 |
| 38.9 |
| 13.3 |
|
Core Services |
| NM |
| NM |
| NM |
|
Total SG&A rate |
| 48.5 | % | 50.1 | % | (1.6 | )% |
The U.S. Consumer Direct SG&A increased $2.5 million, from $21.3 million in the second quarter of 2011 to $23.8 million in the second quarter of 2012. This increase is primarily related to the store expansion over the past year, from 102 stores at the end of June 2011 to 116 stores at the end of June 2012. Also contributing to the increase are the addition of field management and merchandise planning and buying resources to support the sales growth in this segment. As a percentage of net sales, U.S. Consumer Direct SG&A increased from 36.3% in the second quarter of 2011 to 37.0% in the second quarter of 2012 due to the addition of field management and merchandise planning and buying resources to support the sales growth in this segment.
U.S. Wholesale SG&A decreased $0.8 million, from $2.3 million in the second quarter of 2011 to $1.5 million in the second quarter of 2012 primarily due to a decrease in bad debt expense of $0.7 million. In the second quarter of 2011, we wrote off a $0.7 million receivable as a result of a former customer’s bankruptcy filing. The decrease in SG&A costs combined with the segment’s increase in net sales contributed to the U.S. Wholesale SG&A rate decreasing from 10.8% in the second quarter of 2011 to 6.4% in the second quarter of 2012.
International SG&A increased $2.2 million, from $7.0 million in the second quarter of 2011 to $9.2 million in the second quarter of 2012, due to our planned expansion, including an increase in the number of branded retail stores from nine stores at June 30, 2011 to 23 stores at June 30, 2012. The increase in the SG&A rate from 38.9% in the second quarter of 2011 to 52.2% in the second quarter of 2012 is primarily due to the wholesale sales decrease and the sales mix shift to the direct retail business, which has a higher SG&A rate than the wholesale business.
Core Services SG&A decreased $2.2 million, from $18.6 million in the second quarter of 2011 to $16.3 million in the second quarter of 2012. The decrease is primarily due to a $1.5 million litigation settlement expense we recorded in the second quarter of 2011. As a percentage of total net sales, Core Services SG&A decreased from 18.9% in the second quarter of 2011 to 15.6% in the second quarter of 2012. The 330 basis points decrease in the Core Services SG&A rate is due to the 6.8% increase in total net sales, which produced leverage on fixed costs, and the decrease in the litigation expense.
Operating Income
The following table summarizes operating income by segment (dollar amounts in thousands):
|
| Three Months Ended, |
| Change |
| |||||||
|
| 2012 |
| 2011 |
| Amount |
| % |
| |||
U.S. Consumer Direct |
| $ | 21,075 |
| $ | 21,549 |
| $ | (474 | ) | (2.2 | )% |
U.S. Wholesale |
| 9,759 |
| 8,670 |
| 1,089 |
| 12.6 |
| |||
International |
| 1,715 |
| 3,170 |
| (1,455 | ) | (45.9 | ) | |||
Core Services |
| (15,920 | ) | (18,218 | ) | 2,298 |
| 12.6 |
| |||
Total operating income |
| $ | 16,629 |
| $ | 15,171 |
| $ | 1,458 |
| 9.6 | % |
The following table summarizes operating income as a percentage of net sales (“operating margin”) by segment:
|
| Three Months Ended, |
| Change |
| ||
|
| 2012 |
| 2011 |
| % |
|
U.S. Consumer Direct |
| 32.7 | % | 36.6 | % | (3.9 | )% |
U.S. Wholesale |
| 43.5 |
| 41.3 |
| 2.2 |
|
International |
| 9.7 |
| 17.5 |
| (7.8 | ) |
Core Services |
| NM |
| NM |
| NM |
|
Total operating income margin |
| 15.9 | % | 15.4 | % | 0.5 | % |
Operating income totaled $16.6 million, up 9.6% from the second quarter of last year. Operating margin was 15.9% in the second quarter of 2012 versus 15.4% in the second quarter of 2011. The operating margin for the second quarter of 2011 adjusted for the litigation settlement and bad debt expenses, which totaled $2.2 million, was 17.7% or 180 basis points better than the second quarter of 2012. The women’s merchandise sales decline and the related reduced gross margin on women’s merchandise is the primary driver of this decrease.
The U.S. Consumer Direct operating margin decreased from 36.6% in the second quarter of 2011 to 32.7% in the second quarter of 2012 primarily due to the decreased gross margin on women’s merchandise and the segment’s planned increases in field management and merchandise planning and buying resources to support the sales growth in this segment.
The U.S. Wholesale operating margin increased from 41.3% in the second quarter of 2011 to 43.5% in the second quarter of 2012 driven by the reduction in bad debt in the second quarter of 2012 as compared to the second quarter of 2011.
The International operating margin decreased from 17.5% in the second quarter of 2011 to 9.7% in the second quarter of 2012 primarily due to wholesale sales decreases in Korea and Canada.
Other Expense (Income), net
Net other expense (income) was $1.2 million in the second quarter of 2012 compared to $(0.6) million in the second quarter of 2011. This decrease is primarily due to the foreign exchange losses on our intercompany balances with our foreign subsidiaries.
Provision for Income Taxes
The effective tax rate for the second quarter of 2012 was 36.3% compared to 37.9% for the second quarter of 2011. The 2012 effective tax rate decrease over 2011 is linked to an increase in foreign sales and earnings being taxed at lower rates along with an increase in the estimate of U.S. versus foreign manufactured merchandise.
Net Income attributable to True Religion Apparel, Inc. and Earnings Per Diluted Share
Net income attributable to True Religion Apparel, Inc. was $9.8 million, or $0.39 per diluted share, for the second quarter of 2012 compared to $9.4 million, or $0.38 per diluted share, for the second quarter of 2011. The increase in net income attributable to True Religion Apparel, Inc. resulted primarily from a reduction of SG&A expenses due to litigation settlement and bad debt expenses totaling $2.2 million, recorded in the second quarter of 2012 compared to the same period of 2011.
Year-to-Date 2012 Compared to Year-to-Date 2011
The following table summarizes results of operations for the six months ended June 30, 2012 and 2011 (dollar amounts in thousands, except per share data):
|
| Six Months Ended June 30, |
| |||||||||||||
|
| 2012 |
| 2011 |
| Change |
| |||||||||
|
| Amount |
| % |
| Amount |
| % |
| Amount |
| % |
| |||
Net sales |
| $ | 211,694 |
| 100.0 | % | $ | 192,025 |
| 100.0 | % | $ | 19,669 |
| 10.2 | % |
Gross profit |
| 136,382 |
| 64.4 | % | 125,113 |
| 65.2 | % | 11,269 |
| 9.0 | % | |||
Selling, general and administrative expenses |
| 102,518 |
| 48.4 | % | 95,087 |
| 49.5 | % | 7,431 |
| 7.8 | % | |||
Operating income |
| 33,864 |
| 16.0 | % | 30,026 |
| 15.6 | % | 3,838 |
| 12.8 | % | |||
Other expense (income), net |
| 337 |
| 0.2 | % | (481 | ) | (0.3 | )% | 818 |
| NM |
| |||
Provision for income taxes |
| 12,976 |
| 6.1 | % | 11,696 |
| 6.1 | % | 1,280 |
| 10.9 | % | |||
Net income attributable to True Religion Apparel, Inc. |
| $ | 20,190 |
| 9.5 | % | $ | 18,416 |
| 9.6 | % | $ | 1,774 |
| 9.6 | % |
Net income per share attributable to True Religion Apparel, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Basic |
| $ | 0.81 |
|
|
| $ | 0.74 |
|
|
| $ | 0.07 |
| 9.5 | % |
Diluted |
| $ | 0.80 |
|
|
| $ | 0.74 |
|
|
| $ | 0.06 |
| 8.1 | % |
Net Sales
The following table summarizes net sales by segment (dollar amounts in thousands):
|
| Six Months Ended |
| Change |
| |||||||
|
| 2012 |
| 2011 |
| Amount |
| % |
| |||
U.S. Consumer Direct |
| $ | 129,819 |
| $ | 112,208 |
| $ | 17,611 |
| 15.7 | % |
U.S. Wholesale |
| 43,861 |
| 41,869 |
| 1,992 |
| 4.8 |
| |||
International |
| 36,856 |
| 36,560 |
| 296 |
| 0.8 |
| |||
Core Services |
| 1,158 |
| 1,388 |
| (230 | ) | (16.6 | ) | |||
Total net sales |
| $ | 211,694 |
| $ | 192,025 |
| $ | 19,669 |
| 10.2 | % |
The following table summarizes the percentage of total net sales by segment:
|
| Six Months Ended |
| ||
|
| 2012 |
| 2011 |
|
U.S. Consumer Direct |
| 61.3 | % | 58.4 | % |
U.S. Wholesale |
| 20.7 |
| 21.8 |
|
International |
| 17.4 |
| 19.1 |
|
Core Services |
| 0.6 |
| 0.7 |
|
Total net sales |
| 100.0 | % | 100.0 | % |
The increase in the U.S. Consumer Direct segment’s net sales (which includes our retail stores and e-commerce site) of 15.7% resulted from the expansion of our retail store count and a 7.8% same store sales increase. The same store sales increase was driven by favorable men’s merchandise sales trends.
U.S. Wholesale net sales increased 4.8% to $43.9 million primarily due to an increase in sales to the Specialty and Off Price channels, which was partially offset by a decrease in sales to Majors.
International net sales increased 0.8% to $36.9 million primarily due to the increase of our 2012 retail store count. The net sales reduction is due to wholesale sales slowdowns in Korea, Canada, and Germany.
Core Services net sales is comprised of royalties earned through licensing arrangements. Core Services net sales decreased 16.6% to $1.2 million as we have been impacted by reduced sales by the licensees.
Gross Profit
The following table summarizes gross profit by segment (dollar amounts in thousands):
|
| Six Months Ended |
| Change |
| |||||||
|
| 2012 |
| 2011 |
| Amount |
| % |
| |||
U.S. Consumer Direct |
| $ | 90,955 |
| $ | 81,439 |
| $ | 9,516 |
| 11.7 | % |
U.S. Wholesale |
| 22,635 |
| 22,122 |
| 513 |
| 2.3 |
| |||
International |
| 21,634 |
| 20,164 |
| 1,470 |
| 7.3 |
| |||
Core Services |
| 1,158 |
| 1,388 |
| (230 | ) | (16.6 | ) | |||
Total gross profit |
| $ | 136,382 |
| $ | 125,113 |
| $ | 11,269 |
| 9.0 | % |
The following table summarizes gross profit as a percentage of net sales (“gross margin”) by segment:
|
| Six Months Ended, |
| Change |
| ||
|
| 2012 |
| 2011 |
| % |
|
U.S. Consumer Direct |
| 70.1 | % | 72.6 | % | (2.5 | )% |
U.S. Wholesale |
| 51.6 |
| 52.8 |
| (1.2 | ) |
International |
| 58.7 |
| 55.2 |
| 3.5 |
|
Core Services |
| 100.0 |
| 100.0 |
| 0.0 |
|
Total gross margin |
| 64.4 | % | 65.2 | % | (0.8 | )% |
Overall gross profit increased 9.0% to $136.4 million in the first six months of 2012, driven primarily by the overall sales growth. The gross margin decreased 80 basis points to 64.4% primarily due to the 250 basis point decrease in the U.S. Consumer Direct segment’s gross margin, which was partially offset by the 350 basis point increase in the International segment’s gross margin.
The U.S. Consumer Direct gross margin decreased to 70.1% in the first six months of 2012 from 72.6% in the same period in 2011. During the first six months of 2012, we took increased markdowns in our outlet stores in order to clear slower moving women’s merchandise. Also contributing to the reduction was our strategy to price selected new women’s styles and new European sportswear competitively.
U.S. Wholesale gross margin decreased by 120 basis points, to 51.6%, primarily due to a sales mix shift within the Off-Price channel towards excess merchandise.
The International gross margin increased to 58.7% in the first six months of 2012 from 55.2% in the same period in 2011 driven primarily by the sales mix shift towards our international direct retail business, which earns a higher gross margin than our international wholesale business.
Selling, General and Administrative Expenses
The following table presents the components of selling, general & administrative expenses (“SG&A”) by segment (dollar amounts in thousands):
|
| Six Months Ended |
| Change |
| |||||||
|
| 2012 |
| 2011 |
| Amount |
| % |
| |||
U.S. Consumer Direct |
| $ | 47,554 |
| $ | 41,240 |
| $ | 6,314 |
| 15.3 | % |
U.S. Wholesale |
| 2,982 |
| 4,174 |
| (1,192 | ) | (28.6 | ) | |||
International |
| 17,418 |
| 13,799 |
| 3,619 |
| 26.2 |
| |||
Core Services |
| 34,564 |
| 35,874 |
| (1,310 | ) | (3.7 | ) | |||
Total selling, general and administrative expenses |
| $ | 102,518 |
| $ | 95,087 |
| $ | 7,431 |
| 7.8 | % |
The following table summarizes SG&A as a percentage of net sales (“SG&A rate”) by segment:
|
| Six Months Ended, |
| Change |
| ||
|
| 2012 |
| 2011 |
| % |
|
U.S. Consumer Direct |
| 36.6 | % | 36.8 | % | (0.2 | )% |
U.S. Wholesale |
| 6.8 |
| 10.0 |
| (3.2 | ) |
International |
| 47.3 |
| 37.7 |
| 9.6 |
|
Core Services |
| NM |
| NM |
| NM |
|
Total SG&A rate |
| 48.4 | % | 49.5 | % | (1.1 | )% |
The U.S. Consumer Direct SG&A increased $6.3 million, from $41.2 million in the first six months of 2011 to $47.5 million in the first six months of 2012. This increase is primarily related to the store expansion over the past year, from 102 stores at the end of June 2011 to 116 stores at the end of June 2012. Also contributing to the increase are the increases in field management and merchandise planning and buying resources to support the sales growth in this segment. As a percentage of net sales, U.S. Consumer Direct SG&A decreased from 36.8% in the first six months of 2011 to 36.6% in the first six months of 2012 primarily due to the increase in same store sales of 7.8%, which produced leverage on fixed costs.
U.S. Wholesale SG&A decreased $1.2 million, from $4.2 million in the first six months of 2011 to $3.0 million in the first six months of 2012 due to a decrease in bad debt expense. In the second quarter of 2011, we wrote off a $0.7 million receivable from a former customer as a result of its bankruptcy filing. The decrease in SG&A costs combined with the segment’s increase in net sales contributed to the U.S. Wholesale SG&A rate decreasing from 10.0% in the first six months of 2011 to 6.8% in the first six months of 2012.
International SG&A increased $3.6 million, from $13.8 million in the first six months of 2011 to $17.4 million in the first six months of 2012, due to our planned expansion, including an increase in the number of branded retail stores from nine stores at June 30, 2011 to 23 stores at June 30, 2012. The 960 basis points increase in the SG&A rate is primarily due to the wholesale sales decrease and the sales mix shift to the direct retail business, which has a higher SG&A rate than the wholesale business.
Core Services SG&A decreased $1.3 million, from $35.9 million in the first six months of 2011 to $34.6 million in the first six months of 2012, primarily due to a decrease in litigation settlement expense in 2012 as compared to 2011, when we recorded a $1.5 million settlement for a trademark dispute. As a percentage of total net sales, Core Services SG&A decreased from 18.7% in the first six months of 2011 to 16.3% in the first six months of 2012 due to the 10.2% increase in total net sales and the decrease in litigation settlement expense.
Operating Income
The following table summarizes operating income by segment (dollar amounts in thousands):
|
| Six Months Ended |
| Change |
| |||||||
|
| 2012 |
| 2011 |
| Amount |
| % |
| |||
U.S. Consumer Direct |
| $ | 43,401 |
| $ | 40,199 |
| $ | 3,202 |
| 8.0 | % |
U.S. Wholesale |
| 19,653 |
| 17,948 |
| 1,705 |
| 9.5 |
| |||
International |
| 4,216 |
| 6,365 |
| (2,149 | ) | (33.8 | ) | |||
Core Services |
| (33,406 | ) | (34,486 | ) | 1,080 |
| (3.1 | ) | |||
Total operating income |
| $ | 33,864 |
| $ | 30,026 |
| $ | 3,838 |
| 12.8 | % |
The following table summarizes operating income as a percentage of net sales (“operating margin”), by segment:
|
| Six Months Ended, |
| Change |
| ||
|
| 2012 |
| 2011 |
| % |
|
U.S. Consumer Direct |
| 33.4 | % | 35.8 | % | (2.4 | )% |
U.S. Wholesale |
| 44.8 |
| 42.9 |
| 1.9 |
|
International |
| 11.4 |
| 17.4 |
| (6.0 | ) |
Core Services |
| NM |
| NM |
| NM |
|
Total operating income margin |
| 16.0 | % | 15.6 | % | 0.4 | % |
Operating income totaled $33.9 million, up 12.8% from the first six months of last year. Operating margin was 16.0% in the first six months of 2012 versus 15.6% in the first six months of 2011. The operating margin for the first six months of 2011 adjusted for the litigation settlement expense and bad debt expenses, which totaled $2.2 million, was 16.8% or 80 basis points better than the first six months of 2012. The reduced gross margin in our U.S. Consumer Direct segment combined with the increased SG&A of our International segment are the primary drivers of this decrease.
The U.S. Consumer Direct operating margin decreased from 35.8% in the first six months of 2011 to 33.4% in the first six months of 2012 primarily due to reduced gross margin on women’s merchandise.
U.S. Wholesale operating margin increased from 42.9% in the first six months of 2011 to 44.8% in the first six months of 2012 driven by the reduction in bad debt expense and the segment’s growth in net sales.
International operating margin decreased from 17.4% in the first six months of 2011 to 11.4% in the first six months of 2012 primarily due to wholesale sales slowdowns in Korea, Canada, and Germany.
Other Expense (Income), net
Net other expense (income) was not significant in the first six months of 2012 and 2011.
Provision for Income Taxes
The effective tax rate for the first six months of 2012 was 38.7%, compared to 38.3% for the first six months of 2011. The 2012 effective tax rate increase over 2011 is due to our assessment in 2012 that the likelihood of utilizing certain international net operating loss carryforwards is no longer more likely than not, which resulted in additional tax expense in 2012.
Net Income attributable to True Religion Apparel, Inc. and Earnings Per Diluted Share
Net income attributable to True Religion Apparel, Inc. was $20.2 million, or $0.80 per diluted share, for the first six months of 2012 compared to $18.4 million, or $0.74 per diluted share, for the first six months of 2011. The increase in net income attributable to True Religion Apparel, Inc. resulted primarily from a reduction of SG&A expenses due to litigation settlement and bad debt expenses totaling $2.2 million recorded in the first six months of 2011.
Inflation
Historically, our operations have not been materially affected by inflation. We cannot assure that our operations will not be affected by inflation in the future.
LIQUIDITY AND CAPITAL RESOURCES
In the first six months of 2012, cash and cash equivalents decreased by $149.1 million from the beginning of the year due to the purchase of $149.8 million in short and long-term investments.
Operating Activities
Net cash provided by operating activities for the first six months of 2012 was $21.6 million compared to $34.6 million in the first six months of 2011. This decrease in net cash provided by operating activities is primarily due to the reduction in U.S. Wholesale sales in late 2011 compared to late 2010, which caused cash receipts to decline in 2012 compared to 2011.
Investing Activities
Net cash used in investing activities was $161.9 million in the first six months of 2012, an increase of $151.8 million, compared to the first six months of 2011, which is primarily made up of purchases of short and long-term investments. In 2012, we purchased U.S Treasury securities so we would have more direct control of our investments, which were previously held in a money market fund that invested in U.S. Treasury securities.
Financing Activities
Net cash used in financing activities was $9.0 million in the first six months of 2012, an increase of $4.8 million compared to the first six months of 2011. This increase is primarily due to our first cash dividend, which amounted to $5.0 million and was paid in the second quarter of 2012.
Liquidity
Our primary ongoing cash requirements are currently expected to be for our ongoing operations, capital expenditures for new retail stores, our expansion internationally, and information technology and other infrastructure needs. Management believes that cash flows from continuing operations and on-hand cash and cash equivalents will provide adequate funds for the foreseeable working capital needs and planned capital expenditures. Over the long term, we manage our cash and capital structure to strengthen our financial position, maximize shareholder return, and maintain flexibility for future strategic initiatives. We believe our cash, cash equivalents and future operating cash flows will be sufficient, for at least the next twelve months, to fund scheduled future payments and potential long-term initiatives. The availability of financing in the form of debt or equity is influenced by many factors, including our profitability, operating cash flows, debt levels, debt ratings, and market conditions, and we cannot guarantee that we would be able to obtain financing on favorable terms, if needed.
Capital expenditures for the remainder of 2012 are expected to approximate $8 million.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonable likely to have a current or future effect on our financial condition, changes in financial condition, net sales or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors, except our contractual obligations discussed below.
Contractual Obligations
As compared to December 31, 2011, the only material change in our contractual obligations as specified in Item 303(a)(5) of Regulation S-K as of July 31, 2012 is the execution of 26 new retail leases and two administrative office leases which have aggregate future minimum lease payments of $40.4 million. For additional information regarding our contractual obligations as of December 31, 2011, see the Management’s Discussion and Analysis section of the 2011 Annual Report.
Seasonality of Business
Due to the holiday shopping season in December, our U.S. Wholesale segment’s sales historically have been higher in the second half of the year and our U.S. Consumer Direct segment sales historically have been highest in the fourth quarter.
CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and net sales and expenses during the period. We base our estimates on historical experience and on other factors and assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. Our critical accounting policies and methodologies in the six months ended June 30, 2012 are consistent with those discussed in our 2011 Annual Report.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Exchange Rate Risk
We operate a wholesale business and four retail stores in Japan; a portion of our wholesale sales and all of our retail sales and SG&A expenses in Japan are denominated in Japanese Yen. We operate a wholesale business and five retail stores in the United Kingdom, which have sales and SG&A expenses denominated in British Pounds. We operate a wholesale business in Germany and nearby countries, four retail stores in Germany and one retail store each in the Netherlands and Austria, through a consolidated joint venture. All of the joint venture’s sales and SG&A expenses are denominated in Euros. We operate seven retail stores in Canada, whose sales and SG&A expenses are denominated in Canadian Dollars. We operate one retail store in Ireland and all of this store’s retail sales and SG&A expenses are denominated in Euros. In the first quarter of 2011 we established a regional sales office in Switzerland, which has wholesale sales which are denominated in Euros or British Pounds and SG&A expenses denominated in Euros or Swiss Francs. Because the transactions denominated in foreign currencies are not significant to our overall business, our exposure to exchange rate fluctuations between the U.S. Dollar and these foreign currencies are not considered material as of June 30, 2012. We received U.S. Dollars for all other merchandise sales and licensing revenue during the six months ended June 30, 2012. Merchandise purchases from contract manufacturers are denominated in U.S. Dollars, except for an immaterial amount which is denominated in Euros.
Interest Rate Risk
Interest income is sensitive to changes in the general level of U.S. interest rates. However, based on the nature and current level of our short-term and long-term investments, which primarily consist of U.S. Treasury securities, we do not believe there is material risk of exposure to changes in the fair value of our short-term and long-term investments as a result of changes in interest rates.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this Quarterly Report on Form 10-Q, we performed an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the design and effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act of 1934 as amended (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing and reporting of material financial and non-financial information within the time periods specified within the SEC’s rules and forms. Our Chief Executive Officer and Chief Financial Officer also concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the second quarter of 2012, we completed the process of implementing a new fixed assets system. This new system replaces a fixed asset system we previously used. We engaged in pre-implementation planning, design and testing of the system, and we also conducted post-implementation monitoring, testing and process modifications to ensure the effectiveness of internal controls over financial reporting. We have not experienced any significant difficulties to date in connection with the implementation or operation of the new fixed asset system.
There were no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
From time to time, we are involved in various legal proceedings arising in the ordinary course of business. We believe the recorded reserves in our condensed balance sheets as of June 30, 2012 are adequate in light of the probable and estimable liabilities. As of the date of this report, we do not believe there are any currently identified claims, proceedings or litigation, either alone or in the aggregate, that will have a material impact on our results of operations, financial position or cash flows. Since these matters are subject to inherent uncertainties, our view of them may change in the future.
In our 2011 Annual Report, we discussed the Company’s risk factors in Part I, “Item 1A. Risk Factors.” Our risk factors are unchanged from those discussed in the 2011 Annual Report.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None
(b) None
(c) See below
This table provides certain information with respect to our purchases of shares of our common stock during the second quarter of 2012:
|
|
|
|
|
| Total Number of |
| Approximate Dollar |
| |
|
| Total Number |
| Average |
| Shares Purchased as |
| Value of Shares That |
| |
|
| of Shares |
| Price Paid |
| Part of Publicly |
| May Yet Be Purchased |
| |
Period |
| Purchased (a) |
| Per Share (a) |
| Announced Plan |
| Under the Plan |
| |
April 1, 2012 – April 30, 2012 |
| 9,472 |
| $ | 26.06 |
| — |
| — |
|
May 1, 2012 – May 31, 2012 |
| 878 |
| $ | 28.21 |
| — |
| — |
|
June 1, 2012 – June 30, 2012 |
| 245 |
| $ | 28.93 |
| — |
| — |
|
Total |
| 10,595 |
| $ | 26.30 |
| — |
| — |
|
(a) |
| These columns reflect the surrender to the Company of shares of common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock issued to employees or directors. |
|
|
|
ITEM 3. |
| |
|
|
|
|
| None |
|
|
|
ITEM 4. |
| |
|
|
|
|
| None |
|
|
|
ITEM 5. |
| |
|
|
|
|
| None |
ITEM 6. |
|
The following exhibits are either filed herewith or incorporated herein by reference:
Exhibit |
|
|
Number |
| Description |
|
|
|
31.1 |
| Certification of the Chief Executive Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934. |
|
|
|
31.2 |
| Certification of the Chief Financial Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934. |
|
|
|
32.1 |
| Certification of the Chief Executive Officer provided pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2 |
| Certification of the Chief Financial Officer provided pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS |
| XBRL Instance Document* |
|
|
|
101.SCH |
| XBRL Taxonomy Extension Schema Document* |
|
|
|
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document* |
|
|
|
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document* |
|
|
|
101.LAB |
| XBRL Taxonomy Extension Labels Linkbase Document* |
|
|
|
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document* |
* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a Registration Statement or Prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise not subject to liability.
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.
| TRUE RELIGION APPAREL, INC. | |
|
|
|
| By: | /s/ JEFFREY LUBELL |
|
| Jeffrey Lubell, Chief Executive Officer and Chairman of the Board |
|
| (Principal Executive Officer) |
|
|
|
|
|
|
| Date: August 1, 2012 | |
|
|
|
|
|
|
| By: | /s/ PETER F. COLLINS |
|
| Peter F. Collins, Chief Financial Officer |
|
| (Principal Financial Officer |
|
|
|
| Date: August 1, 2012 |