Exhibit 99.1
AMERICAN APPAREL REPORTS THIRD QUARTER 2009 FINANCIAL RESULTS
| • | | Third quarter net sales of $150.3 million, a decrease of 2.9% from the third quarter of 2008. |
| • | | Third quarter diluted earnings per share of $0.05 vs. $0.03 in the prior year third quarter ($0.16 before merger related share based compensation expense of $13.2 million, or $0.13 per share) |
LOS ANGELES, November 10, 2009 – American Apparel, Inc. (NYSE Amex: APP), a vertically integrated manufacturer, distributor, and retailer of branded fashion basic apparel, today announced its financial results for the third quarter of 2009 and for the nine months ended September 30, 2009.
American Apparel reported net sales for the third quarter of 2009 of $150.3 million, a 2.9% decrease from net sales of $154.8 million for the quarter ended September 30, 2008. Total retail sales increased 3.7% to $101.0 million for the third quarter of 2009 from $97.4 million for the prior year third quarter, with comparable store sales for stores open at least 12 months decreasing 16% on a constant currency basis. American Apparel ended the third quarter of 2009 with 276 stores, having opened 4 net new stores in the quarter, and 50 net new stores during the last twelve months. Total wholesale sales declined 14.5% to $40.2 million for the third quarter of 2009 from $47.0 million in the third quarter of 2008. Online consumer sales declined to $9.1 million from $10.4 million in the prior year third quarter, a decrease of 12.5%.
Gross margin for the third quarter of 2009 was 58.1% as compared to 49.1% for the prior year third quarter. The gross margin in the third quarter of 2008 was negatively impacted by $13.2 million in share based compensation expense relating to the award of approximately 1.9 million shares of stock to manufacturing employees during the third quarter of 2008, granted pursuant to the 2007 merger between American Apparel, Inc. (formerly Endeavor Acquisition Corp.) and American Apparel, Inc., a California corporation (“Old American Apparel”). The net impact of the share based compensation expense was to negatively impact gross margin by 850 basis points in the period. The balance of the increase in gross margin was driven by the favorable shift in mix towards greater retail sales, as wholesale sales declined to 26.7% from 30.4% of total net sales a year ago. The improvement in gross margin was somewhat offset by unfavorable currency shifts due to the appreciation of the US dollar against foreign currencies compared to the third quarter last year.
Operating expenses, including selling, warehouse and distribution, and general and administrative expenses, increased to 50.6% of net sales for the third quarter of 2009, compared to 44.7% for the third quarter of 2008. Operating expenses increased due to higher payroll, rent, occupancy, and depreciation expenses related to the greater number of retail stores in operation in the period versus the same period last year. Operating expenses as a percentage of net sales increased given the negative comparable store sales performance for the quarter, and the decreases in wholesale and online consumer sales. Pre-opening expenses for retail stores were $0.4 million in the third quarter of 2009, versus $4.3 million in the prior year third quarter.
Operating income for the third quarter of 2009 was $11.2 million. This compares to $6.8 million in the third quarter of 2008, which included the merger related share based compensation expense of $13.2 million. Operating margin for the third quarter of 2009 was 7.5% versus 4.4% for the third quarter of 2008.
Interest expense for the third quarter of 2009 increased to $5.4 million versus $3.2 million for the same period last year. The increase in interest expense was largely due to the amortization of debt discount and deferred financing costs, and a higher weighted average interest rate on outstanding borrowings by the Company, as compared to in the third quarter of 2008.
The Company’s income tax provision for the third quarter of 2009 was $3.3 million, as compared to $0.9 million in the third quarter of 2008. The Company’s effective tax rate increased to 44.5%, compared to 26.9% in the third quarter of 2008.
Net income for the third quarter of 2009 was $4.2 million, or $0.05 per diluted common share. This compares to $2.3 million, or $0.03 per diluted common share, for the third quarter of 2008. Last year’s earnings per diluted share was negatively impacted by $0.13 due to the after-tax impact of the $13.2 million merger related share based compensation expense. Please see Table B for more background on the impact of the merger related share based compensation expense on the 2008 results.
During the third quarter, the Company reduced the drawn balance on its revolving credit facilities by approximately $18.5 million, to $32.7 million at the end of the period from $51.2 million at the end of the second quarter, primarily from cash flow from operations. As of September 30, 2009, the Company had $23.0 million of availability under its U.S. revolving credit facility. Total debt decreased by $14.7 million, to $104.6 million at the end of the third quarter, down from $119.3 million at the end of the second quarter. Total inventories were $152.6 million at the end of the third quarter, a reduction of $6.6 million from $159.3 million at the end of the second quarter.
Dov Charney, Chairman and Chief Executive Officer, stated: “While we are pleased that we were able to deliver a profit in the third quarter in spite of the difficult environment, I believe the successes we had in terms of streamlining our inventories and significantly reducing our indebtedness will prove particularly valuable as we move forward. While it is still very early, we are encouraged by some indications pointing to the beginning of momentum in our sales. We believe that for the long term, our business remains on track as we continue to expand our brand’s presence both in the U.S. and internationally.”
Outlook
As of October 31, 2009, American Apparel had opened 23 new store locations since the beginning of the year and closed 5 locations. The Company currently has 4 signed leases for new retail stores in its store pipeline, with 3 of those locations likely to open before the end of 2009.
Management continues to expect the previously communicated financial guidance for 2009: net sales in the range of $540 to $555 million, income from operations in the range of $25 to $30 million, and a net (loss) income in the range of ($1) to $4 million. These estimates are before any non-cash share based compensation expense from any equity awards that may be made to employees under the Company’s 2007 Performance Equity Plan.
A conference call will be held today at 9:00 a.m. ET to discuss the third quarter results. A live webcast of the conference call will be accessible through the company’s website under the investor relations section at http://investors.americanapparel.net.
Please refer to the tables attached to this press release:
| • | | Table A presents a calculation and reconciliation of consolidated net income (loss) to unaudited Consolidated Adjusted EBITDA for American Apparel, Inc. and Subsidiaries for the three months ended September 30, 2009 and 2008 and for the nine months ended September 30, 2009 and 2008. |
| • | | Table B presents certain financial information that excludes the impact of the third quarter 2008 stock award of approximately 1.9 million shares of stock to manufacturing employees and the related share based compensation expense, with reconciliations to the most directly comparable GAAP measure for the three and nine months ended September 30, 2008. |
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 October 31, 2009, American Apparel employed approximately 9,700 people and operated over 275 retail stores in 20 countries, including the United States, Canada, Mexico, Brazil, United Kingdom, Austria, Belgium, France, Germany, Ireland, Italy, the Netherlands, Spain, Sweden, Switzerland, Israel, Australia, Japan, South Korea, and China. American Apparel also operates a leading wholesale business that supplies high quality T-shirts and other casual wear to distributors and screen printers. In addition to its retail stores and wholesale operations, American Apparel operates an online retail e-commerce website at http://www.americanapparel.com.
Safe Harbor Statement
This press release may contain forward-looking statements which are based upon the current beliefs and expectations of our 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: changes in the level of consumer spending or preferences or demand for our products; increasing competition; our ability to hire and retain key personnel and our relationship with our employees; suitable store locations and our ability to attract customers to our stores; effectively carrying out and managing our growth strategy; failure to maintain the value and image of our brand and protect our intellectual property rights; declines in comparable store sales; seasonality; consequences of our significant indebtedness, including our ability to comply with our debt agreements, generate cash flow to service our debt; our ability to extend, renew or refinance our existing debt; costs of materials and labor; location of our facilities in the same geographic area; manufacturing, supply or distribution difficulties or disruptions; risks of financial nonperformance by customers; investigations, enforcement actions and litigation; compliance with or changes in laws and regulations; costs as a result of operating as a public company; material weaknesses in internal controls; interest rate and foreign currency risks; loss of U.S. import protections or changes in duties, tariffs and quotas and other risks associated with international business; our ability to upgrade our information technology infrastructure and other risks associated with the systems that operate our online retail operations; general economic and industry conditions, including worsening U.S. and foreign economic conditions and turmoil in the financial markets; and other risks detailed in our filings with the Securities and Exchange Commission, including our 2008 Annual Report on Form 10-K/A. Our filings with the SEC are available atwww.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.
AMERICAN APPAREL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(unaudited)
| | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, |
| | | 2009 | | | 2008 | | | 2009 | | | 2008 |
NET SALES | | $ | 150,318 | | | $ | 154,801 | | | $ | 400,663 | | | $ | 399,406 |
COST OF SALES | | | 63,033 | | | | 78,725 | | | | 167,768 | | | | 184,395 |
| | | | | | | | | | | | | | | |
GROSS PROFIT | | | 87,285 | | | | 76,076 | | | | 232,895 | | | | 215,011 |
OPERATING EXPENSES | | | 76,071 | | | | 69,234 | | | | 218,277 | | | | 188,176 |
| | | | | | | | | | | | | | | |
INCOME FROM OPERATIONS | | | 11,214 | | | | 6,842 | | | | 14,618 | | | | 26,835 |
INTEREST AND OTHER (INCOME) EXPENSE | | | | | | | | | | | | | | | |
Interest expense | | | 5,371 | | | | 3,237 | | | | 17,846 | | | | 10,274 |
Foreign currency transaction (gain) loss | | | (1,844 | ) | | | 1,049 | | | | (2,684 | ) | | | 1,047 |
Other (income) expense | | | 195 | | | | (636 | ) | | | (291 | ) | | | 133 |
| | | | | | | | | | | | | | | |
TOTAL INTEREST AND OTHER (INCOME) EXPENSE | | | 3,722 | | | | 3,650 | | | | 14,871 | | | | 11,454 |
| | | | | | | | | | | | | | | |
INCOME BEFORE INCOME TAXES | | | 7,492 | | | | 3,192 | | | | (253 | ) | | | 15,381 |
INCOME TAX PROVISION | | | 3,332 | | | | 859 | | | | 1,684 | | | | 5,153 |
| | | | | | | | | | | | | | | |
NET INCOME | | $ | 4,160 | | | $ | 2,333 | | | $ | (1,937 | ) | | $ | 10,228 |
| | | | | | | | | | | | | | | |
Earnings per common share – basic | | $ | 0.06 | | | $ | 0.03 | | | $ | (0.03 | ) | | $ | 0.15 |
Earnings per common share – diluted | | $ | 0.05 | | | $ | 0.03 | | | $ | (0.03 | ) | | $ | 0.15 |
| | | | |
Weighted average common shares outstanding – basic | | | 71,034 | | | | 70,257 | | | | 71,024 | | | | 69,055 |
Weighted average common shares outstanding – diluted | | | 78,465 | | | | 70,257 | | | | 71,024 | | | | 70,157 |
AMERICAN APPAREL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(unaudited)
| | | | | | | | |
| | | September 30,
2009 | | | December 31,
2008 | |
ASSETS | | | | | | | | |
CURRENT ASSETS | | | | | | | | |
Cash | | $ | 6,100 | | | $ | 11,368 | |
Trade accounts receivable, net of allowances of $1,678 and $1,441 at September 30, 2009 and December 31, 2008, respectively | | | 18,685 | | | | 16,439 | |
Prepaid expenses and other current assets | | | 6,637 | | | | 5,369 | |
Inventories | | | 152,639 | | | | 148,154 | |
Income taxes receivable | | | 4,436 | | | | 604 | |
Deferred income taxes | | | 2,891 | | | | 3,935 | |
| | | | | | | | |
Total current assets | | | 191,388 | | | | 185,869 | |
| | |
PROPERTY AND EQUIPMENT,net | | | 106,514 | | | | 112,408 | |
DEFERRED INCOME TAXES | | | 9,824 | | | | 10,137 | |
OTHER ASSETS, NET | | | 27,006 | | | | 25,195 | |
| | | | | | | | |
TOTAL ASSETS | | $ | 334,732 | | | $ | 333,609 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| | |
CURRENT LIABILITIES | | | | | | | | |
Cash overdraft | | $ | — | | | $ | 2,413 | |
Revolving credit facilities and current portion of long-term debt | | | 32,735 | | | | 34,318 | |
Accounts payable | | | 15,302 | | | | 32,731 | |
Accrued expenses | | | 29,306 | | | | 22,140 | |
Income taxes payable | | | 1,522 | | | | 8,582 | |
Current portion of capital lease obligations | | | 2,047 | | | | 2,616 | |
| | | | | | | | |
Total current liabilities | | | 80,912 | | | | 102,800 | |
| | |
LONG-TERM DEBT,net of unamortized discount of $21,387 and none at September 30, 2009 and December 31, 2008, respectively | | | 64,750 | | | | 67,050 | |
SUBORDINATED NOTES PAYABLE TO RELATED PARTY | | | 4,273 | | | | 3,292 | |
CAPITAL LEASE OBLIGATIONS, net of current portion | | | 829 | | | | 1,986 | |
DEFERRED RENT | | | 21,184 | | | | 16,011 | |
OTHER LONG TERM LIABILITIES | | | 7,364 | | | | 6,058 | |
| | | | | | | | |
TOTAL LIABILITIES | | | 179,312 | | | | 197,197 | |
| | | | | | | | |
COMMITMENTS AND CONTINGENCIES | | | | | | | | |
| | |
STOCKHOLDERS’ EQUITY | | | | | | | | |
Preferred stock, $.0001 par value, authorized 1,000 shares; none issued | | | — | | | | — | |
Common stock, $.0001 par value, authorized 120,000 shares; 72,467 shares issued and 71,034 shares outstanding at September 30, 2009 and 72,221 shares issued and 70,787 shares outstanding at December 31, 2008 | | | 7 | | | | 7 | |
Additional paid-in capital | | | 150,449 | | | | 131,252 | |
Accumulated other comprehensive loss | | | (955 | ) | | | (2,703 | ) |
Retained earnings | | | 15,963 | | | | 17,900 | |
Treasury stock, 1,434 shares at cost | | | (10,044 | ) | | | (10,044 | ) |
| | | | | | | | |
TOTAL STOCKHOLDERS’ EQUITY | | | 155,420 | | | | 136,412 | |
| | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 334,732 | | | $ | 333,609 | |
| | | | | | | | |
AMERICAN APPAREL, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Amounts in thousands)
(unaudited)
The following table presents key financial information for the Company’s business segments before unallocated corporate expenses:
| | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, 2009 |
| | | U.S.
Wholesale | | | U.S. Retail | | Canada | | International | | Consolidated |
Net sales to external customers | | $ | 40,087 | | | $ | 50,546 | | $ | 18,742 | | $ | 40,943 | | $ | 150,318 |
Gross profit | | | 10,058 | | | | 36,364 | | | 12,517 | | | 28,346 | | | 87,285 |
Income from operations | | | 5,559 | | | | 6,167 | | | 4,554 | | | 4,060 | | | 20,340 |
Depreciation and amortization | | | 2,324 | | | | 2,591 | | | 599 | | | 1,896 | | | 7,410 |
Capital expenditures | | | 737 | | | | 1,182 | | | 441 | | | 1,197 | | | 3,557 |
Deferred rent expense | | | 103 | | | | 819 | | | 163 | | | 34 | | | 1,119 |
| |
| | | Three Months Ended September 30, 2008 |
| | | U.S.
Wholesale | | | U.S. Retail | | Canada | | International | | Consolidated |
Net sales to external customers | | $ | 46,219 | | | $ | 46,675 | | $ | 19,874 | | $ | 42,033 | | $ | 154,801 |
Gross (loss) profit | | | (4,927 | ) | | | 35,561 | | | 13,882 | | | 31,560 | | | 76,076 |
(Loss) income from operations | | | (11,172 | ) | | | 10,640 | | | 6,383 | | | 10,409 | | | 16,260 |
Depreciation and amortization | | | 1,912 | | | | 1,810 | | | 355 | | | 1,346 | | | 5,423 |
Capital expenditures | | | 1,713 | | | | 8,203 | | | 1,339 | | | 5,938 | | | 17,193 |
Deferred rent expense | | | 168 | | | | 1,032 | | | 107 | | | 173 | | | 1,480 |
| |
| | | Nine Months Ended September 30, 2009 |
| | | U.S.
Wholesale | | | U.S. Retail | | Canada | | International | | Consolidated |
Net sales to external customers | | $ | 101,702 | | | $ | 134,901 | | $ | 48,136 | | $ | 115,924 | | $ | 400,663 |
Gross profit | | | 25,878 | | | | 98,673 | | | 29,785 | | | 78,559 | | | 232,895 |
Income from operations | | | 10,003 | | | | 11,320 | | | 9,520 | | | 13,029 | | | 43,872 |
Depreciation and amortization | | | 6,664 | | | | 8,706 | | | 529 | | | 5,109 | | | 21,008 |
Capital expenditures | | | 4,290 | | | | 8,794 | | | 786 | | | 3,234 | | | 17,104 |
Deferred rent expense | | | 233 | | | | 2,919 | | | 365 | | | 1,359 | | | 4,876 |
| |
| | | Nine Months Ended September 30, 2008 |
| | | U.S.
Wholesale | | | U.S. Retail | | Canada | | International | | Consolidated |
Net sales to external customers | | $ | 124,665 | | | $ | 118,838 | | $ | 48,549 | | $ | 107,354 | | $ | 399,406 |
Gross profit | | | 12,559 | | | | 90,043 | | | 33,861 | | | 78,548 | | | 215,011 |
(Loss) income from operations | | | (4,953 | ) | | | 24,330 | | | 12,300 | | | 23,654 | | | 55,331 |
Depreciation and amortization | | | 5,090 | | | | 4,688 | | | 1,409 | | | 3,127 | | | 14,314 |
Capital expenditures | | | 11,200 | | | | 20,293 | | | 3,188 | | | 14,545 | | | 49,226 |
Deferred rent expense | | | 62 | | | | 2,692 | | | 319 | | | 2,512 | | | 5,585 |
| | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
Reconciliation to Income before Income Taxes | | | | | | | | | | | | | | | | |
Consolidated income from operations of reportable segments | | $ | 20,340 | | | $ | 16,260 | | | $ | 43,872 | | | $ | 55,331 | |
Unallocated corporate expenses | | | (9,126 | ) | | | (9,418 | ) | | | (29,254 | ) | | | (28,496 | ) |
Interest expense | | | (5,371 | ) | | | (3,237 | ) | | | (17,846 | ) | | | (10,274 | ) |
Other (expense) income | | | (195 | ) | | | 636 | | | | 291 | | | | (133 | ) |
Foreign currency transaction gain (loss) | | | 1,844 | | | | (1,049 | ) | | | 2,684 | | | | (1,047 | ) |
| | | | | | | | | | | | | | | | |
Consolidated Income (Loss) Before Income Taxes | | $ | 7,492 | | | $ | 3,192 | | | $ | (253 | ) | | $ | 15,381 | |
| | | | | | | | | | | | | | | | |
| | |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
Net Sales by Class of Customer | | | | | | | | | | | | | | | | |
| | | | |
U.S. Wholesale | | | | | | | | | | | | | | | | |
Wholesale | | $ | 34,298 | | | $ | 39,624 | | | $ | 86,045 | | | $ | 106,806 | |
Online consumer | | | 5,789 | | | | 6,595 | | | | 15,657 | | | | 17,859 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 40,087 | | | $ | 46,219 | | | $ | 101,702 | | | $ | 124,665 | |
| | | | | | | | | | | | | | | | |
U.S. Retail | | $ | 50,546 | | | $ | 46,675 | | | $ | 134,901 | | | $ | 118,838 | |
| | | | | | | | | | | | | | | | |
Canada | | | | | | | | | | | | | | | | |
Wholesale | | $ | 2,973 | | | $ | 3,574 | | | $ | 8,415 | | | $ | 9,751 | |
Retail | | | 15,418 | | | | 15,818 | | | | 38,643 | | | | 37,531 | |
Online consumer | | | 351 | | | | 482 | | | | 1,078 | | | | 1,267 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 18,742 | | | $ | 19,874 | | | $ | 48,136 | | | $ | 48,549 | |
| | | | | | | | | | | | | | | | |
International | | | | | | | | | | | | | | | | |
Wholesale | | $ | 2,907 | | | $ | 3,778 | | | $ | 9,089 | | | $ | 11,566 | |
Retail | | | 35,083 | | | | 34,935 | | | | 97,649 | | | | 86,920 | |
Online consumer | | | 2,953 | | | | 3,320 | | | | 9,186 | | | | 8,868 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 40,943 | | | $ | 42,033 | | | $ | 115,924 | | | $ | 107,354 | |
| | | | | | | | | | | | | | | | |
Consolidated | | | | | | | | | | | | | | | | |
Wholesale | | $ | 40,178 | | | $ | 46,976 | | | $ | 103,549 | | | $ | 128,123 | |
Retail | | | 101,047 | | | | 97,428 | | | | 271,193 | | | | 243,289 | |
Online consumer | | | 9,093 | | | | 10,397 | | | | 25,921 | | | | 27,994 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 150,318 | | | $ | 154,801 | | | $ | 400,663 | | | $ | 399,406 | |
| | | | | | | | | | | | | | | | |
Table A
American Apparel, Inc. and Subsidiaries
Calculation and Reconciliation of Consolidated Adjusted EBITDA
(Amounts in thousands)
(unaudited)
In addition to its financial results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), American Apparel considers non-GAAP measures of its performance. Adjusted EBITDA, as defined below, is an important supplemental financial measure of American Apparel’s performance that is not required by, or presented in accordance with, GAAP. Adjusted EBITDA represents net income (loss) before income taxes, interest other expense, and depreciation and amortization. American Apparel’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. American Apparel’s management believes that the presentation of Adjusted EBITDA provides useful information regarding American Apparel’s results of operations because it assists in analyzing and benchmarking the performance and value of American Apparel’s business. American Apparel 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 is also used by American Apparel’s management for multiple purposes, including:
| | • | | to calculate and support various leverage and coverage ratios for American Apparel’s lenders |
| | • | | to allow lenders to calculate total proceeds they are willing to loan to American Apparel based on its relative strength compared to its competitors |
| | • | | to more accurately compare American Apparel’s operating performance from period to period and company to company by eliminating differences caused by variations in capital structures (which affects 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 relative performance of American Apparel in comparison to other companies in the same industry. Although American Apparel 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, American Apparel’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. American Apparel’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 (cont.)
American Apparel, Inc. and Subsidiaries
Calculation and Reconciliation of Consolidated Adjusted EBITDA
(Amounts in thousands)
(unaudited)
| | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | | 2009 | | | 2008 | | 2009 | | | 2008 |
Net income (loss) | | $ | 4,160 | | | $ | 2,333 | | $ | (1,937 | ) | | $ | 10,228 |
Income tax provision | | | 3,332 | | | | 859 | | | 1,684 | | | | 4,294 |
Interest expense and other income, net | | | 5,566 | | | | 2,601 | | | 17,555 | | | | 10,407 |
Depreciation and amortization | | | 7,410 | | | | 5,423 | | | 21,008 | | | | 14,314 |
| | | | | | | | | | | | | | |
EBITDA | | $ | 20,468 | | | $ | 11,216 | | $ | 38,310 | | | $ | 40,102 |
Foreign currency transaction (gain) loss | | | (1,844 | ) | | | 1,049 | | | (2,684 | ) | | | 1,047 |
| | | | | | | | | | | | | | |
Consolidated Adjusted EBITDA | | $ | 18,624 | | | $ | 12,265 | | $ | 35,626 | | | $ | 41,149 |
| | | | | | | | | | | | | | |
Table B
Impact of Merger Related Stock Based Compensation Expense
(Amounts in thousands, except per share amounts)
(unaudited)
In the third quarter of 2008, American Apparel awarded approximately 1.9 million shares of common stock to eligible manufacturing employees in accordance with the terms of the merger agreement between American Apparel, Inc. (formerly Endeavor Acquisition Corp.) and Old American Apparel, resulting in $13.2 million of share based compensation expense, consisting of $12.1 million of share based compensation expense and $1.1 million of employer related payroll taxes, in the Consolidated Financial Statements for the three and nine months ended September 30, 2008. Set forth below is certain financial information about our operating performance that excludes the impact of the stock award and the related share based compensation expense. This information is not calculated in accordance with accounting principles generally accepted in the United States (GAAP) and should be considered in addition to, and not as a substitute for, the related GAAP measurements. We use these non-GAAP measures, along with GAAP measures, as a measure of profitability and operating performance because the adjustments allow us to compare our performance on a consistent basis by removing from our operating results the effect of the non-cash share based compensation expense, which may vary from period to period due to a number of factors. We believe that the presentation of the non-GAAP financial information provides investors with useful additional information regarding our financial condition and results of operations because it allows a consistent basis of comparison against our historical operating performance and guidance as well as against the operating performance of our competitors. The following reconciles each non-GAAP measure, which excludes the expenses related to the stock award, to the most directly comparable GAAP measure for the three and nine months ended September 30, 2008:
Table B (cont’d)
Impact of Merger Related Stock Based Compensation Expense
(Amounts in thousands, except per share amounts)
(unaudited)
| | | | | | | | | | | | |
| | | Three Months Ended September 30, 2008 | |
| | | As Reported | | | Stock Based
Compensation
Expense | | | Non-GAAP
Measurement | |
Net sales | | $ | 154,801 | | | | | | | $ | 154,801 | |
Cost of sales | | | 78,725 | | | | (13,197 | ) | | | 65,528 | |
| | | | | | | | | | | | |
Gross profit | | | 76,076 | | | | 13,197 | | | | 89,273 | |
Operating expense | | | 69,234 | | | | | | | | 69,234 | |
| | | | | | | | | | | | |
INCOME FROM OPERATIONS | | | 6,842 | | | | 13,197 | | | | 20,039 | |
| | | |
INTEREST AND OTHER (INCOME) EXPENSE | | | | | | | | | | | | |
Interest expense | | | 3,237 | | | | | | | | 3,237 | |
Foreign currency transaction loss | | | 1,049 | | | | | | | | 1,049 | |
Other (income) expense | | | (636 | ) | | | | | | | (636 | ) |
| | | | | | | | | | | | |
INCOME BEFORE INCOME TAXES | | | 3,192 | | | | 13,197 | | | | 16,389 | |
Income Tax Provision | | | 859 | | | | 4,421 | | | | 5,280 | |
| | | | | | | | | | | | |
NET INCOME | | $ | 2,333 | | | $ | 8,776 | | | $ | 11,109 | |
| | | | | | | | | | | | |
Basic earnings per common share | | $ | .03 | | | $ | .13 | | | $ | .16 | |
Diluted earnings per common share | | $ | .03 | | | $ | .13 | | | $ | .16 | |
| | | | | | | | | | |
| | | Nine Months Ended September 30, 2008 |
| | | As Reported | | Stock Based
Compensation
Expense | | | Non-GAAP
Measurement |
Net sales | | $ | 399,406 | | | | | | $ | 399,406 |
Cost of sales | | | 183,395 | | | (13,197 | ) | | | 171,198 |
| | | | | | | | | | |
Gross profit | | | 215,011 | | | 13,197 | | | | 228,208 |
Operating expense | | | 188,176 | | | | | | | 188,176 |
| | | | | | | | | | |
INCOME FROM OPERATIONS | | | 26,835 | | | 13,197 | | | | 40,032 |
| | | |
INTEREST AND OTHER (INCOME) EXPENSE | | | | | | | | | | |
Interest expense | | | 10,274 | | | | | | | 10,274 |
Foreign currency transaction loss | | | 1,047 | | | | | | | 1,047 |
Other (income) expense | | | 133 | | | | | | | 133 |
| | | | | | | | | | |
INCOME BEFORE INCOME TAXES | | | 15,381 | | | 13,197 | | | | 28,578 |
Income Tax Provision | | | 5,153 | | | 4,421 | | | | 9,574 |
| | | | | | | | | | |
NET INCOME | | $ | 10,228 | | $ | 8,776 | | | $ | 19,004 |
| | | | | | | | | | |
Basic earnings per common share | | $ | .15 | | $ | .13 | | | $ | .28 |
Diluted earnings per common share | | $ | .15 | | $ | .13 | | | $ | .27 |
Contact:
Joseph Teklits / Jean Fontana
ICR, Inc.
(203) 682-8200
Adrian Kowalewski
Chief Financial Officer
American Apparel
(213) 488-0226
