Exhibit 99.1
AMERICAN APPAREL, INC. REPORTS SECOND QUARTER 2012 FINANCIAL RESULTS AND RAISES EBITDA OUTLOOK FOR 2012
LOS ANGELES, August 14, 2012 - American Apparel, Inc. (NYSE MKT: APP), a vertically integrated manufacturer, distributor, and retailer of branded fashion-basic apparel, announced financial results for its second quarter ended June 30, 2012.
Dov Charney, Chairman and CEO of American Apparel, Inc. stated, “We are pleased with our second quarter results that again show solid growth and continuing momentum in all business segments and major geographies. Though the first two quarters are historically our slowest, significant sales growth allowed us to more than double our EBITDA performance to $7.6 million in the second quarter of 2012 from $3.7 million in the second quarter of 2011. In the second quarter we saw over 30% of our stores with sales growth in excess of 20% and as we continue to scale our operations and further implement store-level improvements, we believe we can raise the overall sales performance even further.”
Some of the more significant tactics the Company is employing to improve sales and profitability include:
| |
| • | Implementation of tighter inventory management systems through the RFID program. Approximately half of the stores are still to have RFID implemented. |
| |
| • | Continued store renovations to improve presentation and sales per square foot, with approximately 70 stores remaining to be renovated. |
| |
| • | Installation of traffic counters remaining to be completed in over half of stores to improve customer conversions. Full implementation of this technology is expected to be completed in 2013. |
| |
| • | The process to build a new distribution center infrastructure is underway and will improve the speed and accuracy of shipments to stores and will also significantly reduce operating expenses. Completion of this project is expected by early 2013. |
Although these programs have a short-term cost, their completion will allow for further growth in sales and profit margins that fall in line with the industry. As EBITDA approaches the range indicated in the current outlook, the Company believes it will be in a position to refinance its high cost debt and it plans to do so in late 2012 or early 2013.
The Company has reported double digit comparable store sales growth each month since November of 2011. For the month of August, the Company expects that comparable store sales will increase in the upper teen to low twenty percent range and it estimates the percent increase in net sales will be in the 10% to 15% range versus the prior year. Accordingly, the Company is raising its adjusted EBITDA guidance for 2012 to between $36 to $44 million from the prior estimate of $32 to $40 million.
Operating Results
Comparing the second quarter 2012 to the corresponding period last year, net sales increased 13% to $149.5 million on a 14% increase in comparable store sales in the retail business, a 10% increase in net sales in the wholesale business and a 2% decrease in the average number of stores.
The following delineates the components of the net sales increase for the quarterly period ended June 30, 2012 as compared to the corresponding quarter of the prior year:
|
| | |
| | 2012 | 2011 |
| | Second Quarter | Second Quarter |
| Comparable Store Sales | 14% | —% |
| Comparable Online Sales | 28% | 17% |
| Comparable Retail & Online | 16% | 1% |
| Wholesale Net Sales | 10% | (4)% |
Gross profit of $79.0 million for the second quarter of 2012 increased 9% from the $72.4 million reported for the second quarter of 2011. Holding foreign currency rates constant to those last year, gross profit in the 2012 second quarter would have been $81.2 million or 12% higher than reported in the 2011 second quarter. Gross margin rate for the 2012 second quarter decreased to 53% from 55% for the 2011 second quarter. The gross margin reduction was due to planned promotional activities, the effect of “warehouse-type” clearance sales as a part of our overall inventory reduction strategy and the negative impact of the strengthening US dollar on margins from our international segment. Partially offsetting these impacts was a shift in mix to higher margin retail sales in the 2012 second quarter.
As a percent of revenue, operating expenses for the quarter decreased 500 basis points to 53% from 58% for the second quarter 2011. Included in operating expense in the 2012 second quarter was a combined $5.8 million in depreciation and retail store impairment charges versus $7.4 million in the second quarter of 2011. After excluding the effects of store impairment and depreciation charges between the quarterly periods, there was a 300 basis point decrease in operating expenses as a percent of net revenues. The decrease was primarily due to a reduction in corporate overhead expenses and the fixed cost leverage as a result of increased sales.
Other expense for the second quarter of 2012 was $13.4 million versus other income of $5.5 million in the comparable quarter last year. The change of $18.9 million was primarily due to the unrealized gain on change in the fair value of warrants and purchase rights in the second quarter of 2011 and increased interest expense associated with our asset-based loan.
The second quarter 2012 net loss included an income tax provision of $1.1 million versus $0.5 million in the 2011 second quarter. In accordance with U.S. GAAP, the Company does not recognize potential tax benefits associated with current operating losses. As of June 30, 2012, the Company has available Federal net operating carry forwards of approximately $75.7 million and unused Federal and State tax credits of $16.2 million.
Net loss for the second quarter of 2012 was $15.3 million, or $0.14 per common share, compared to net loss for the second quarter of 2011 of $0.2 million or $0.00 per common share. Weighted average shares outstanding were 105.9 million in the second quarter of 2012 versus 89.1 million for the second quarter of 2011.
As of August 1, 2012 there were approximately 106.2 million shares outstanding.
Consolidated Adjusted EBITDA was $7.6 million in the second quarter of 2012 versus $3.7 million in last year's second quarter. For a reconciliation of consolidated net loss to consolidated adjusted EBITDA, a non-GAAP financial measure, please refer to Table A attached to this press release.
2012 Outlook
For 2012, the Company is raising its adjusted EBITDA outlook to $36 to $44 million from the prior estimate of $32 million to $40 million. This outlook assumes net sales of $604 million to $611 million and a gross profit margin of 53% to 54%. Capital expenditures are estimated at $13.7 million for 2012.
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 July 31, 2012, American Apparel had approximately 10,000 employees and operated 251 retail stores in 20 countries, including the United States, Canada, Mexico, Brazil, United Kingdom, Ireland, Austria, Belgium, France, Germany, Italy, 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.net.
Safe Harbor Statement
This press release, and other statements that the Company may make, may contain forward-looking statements. Forward-looking statements are statements that are not historical facts and include statements regarding, among other things, the Company's future financial condition, results of operations and plans and the Company's prospects and strategies for future growth and cost savings. Such forward-looking statements are based upon the current beliefs and expectations of American Apparel's management, but are subject to risks and uncertainties, which could cause actual results and/or the timing of events to differ materially from those set forth in the forward-looking statements, including, among others: the ability to generate sufficient liquidity for operations and debt service; changes in the level of consumer spending or preferences or demand for the Company's products; increasing competition, both in the U.S. and internationally; the evolving nature of the Company's business; the Company's ability to hire and retain key personnel and the Company's relationship with its employees; suitable store locations and the Company's ability to attract customers to its stores; the availability of store locations at appropriate terms and the Company's ability to identify and negotiate new store locations effectively and to open new stores and expand internationally; effectively carrying out and managing the Company's strategy, including growth and expansion both in the U.S. and internationally; disruptions in the global financial markets; failure to maintain the value and image of the Company's brand and protect its intellectual property rights; declines in comparable store sales and wholesale revenues; financial nonperformance by the Company's wholesale customers; the adoption of new accounting pronouncements or changes in interpretations of accounting principles; seasonality of the business; consequences of the Company's significant indebtedness, including the Company's relationships with its lenders and the Company's ability to comply with its debt agreements, including the risk of acceleration of borrowings thereunder as a result of noncompliance; the Company's ability to generate cash flow to service its debt; the Company's liquidity and losses from operations; the Company's ability to develop and implement plans to improve its operations and financial position; costs of materials and labor, including increases in the price of yarn and the cost of certain related fabrics; the Company's ability to pass on the added cost of raw materials to its wholesale and retail customers; the Company's ability to improve manufacturing efficiency at its production facilities; the Company's ability to effectively manage inventory and inventory reserves; location of the Company's facilities in the same geographic area; manufacturing, supply or distribution difficulties or disruptions; risks of financial nonperformance by customers; investigations, enforcement actions and litigation, including exposure from which could exceed expectations; compliance with or changes in U.S. and foreign government laws and regulations, legislation and regulatory environments, including environmental, immigration, labor and occupational health and safety 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 including disruption of markets and foreign supply sources and changes in import and export laws; technological changes in manufacturing, wholesaling, or retailing; the Company's ability to upgrade its information technology infrastructure and other risks associated with the systems that are used to operate the Company's online retail operations and manage the Company's other operations; adverse changes in its credit ratings and any related impact on financing costs and structure; general economic and industry conditions, including U.S. and worldwide economic conditions; disruptions due to severe weather or climate change; and other risks detailed in the Company's filings with the Securities and Exchange Commission, including the Company's Reports on Form 10-K for the year ended December 31, 2011. The Company's filings with the SEC are available at www.sec.gov. You are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. The forward-looking statements speak only as of the date on which they are made and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
Contacts:
John J. Luttrell
Chief Financial Officer
(213) 488-0226
John Rouleau
Managing Director
ICR, Inc.
(203) 682-8342
AMERICAN APPAREL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(unaudited)
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2012 | | 2011 | | 2012 | | 2011 |
| Net sales | $ | 149,462 |
| | $ | 132,804 |
| | $ | 282,122 |
| | $ | 248,871 |
|
| | | | | | | | |
| Cost of sales | 70,426 |
| | 60,378 |
| | 133,030 |
| | 112,807 |
|
| | | | | | | | | |
| | Gross profit | 79,036 |
| | 72,426 |
| | 149,092 |
| | 136,064 |
|
| | | | | | | | | |
| Operating expenses | 79,745 |
| | 77,650 |
| | 159,596 |
| | 154,378 |
|
| | | | | | | | | |
| | Loss from operations | (709 | ) | | (5,224 | ) | | (10,504 | ) | | (18,314 | ) |
| | | | | | | | | |
| Interest expense | 10,267 |
| | 7,752 |
| | 19,820 |
| | 14,883 |
|
| Foreign currency transaction loss (gain) | 1,776 |
| | (263 | ) | | 826 |
| | (1,074 | ) |
| Unrealized loss (gain) on change in fair value | | | | | | | |
| | of warrants and purchase rights | 1,377 |
| | (13,000 | ) | | 2,028 |
| | (15,100 | ) |
| (Gain) loss on extinguishment of debt | — |
| | — |
| | (11,588 | ) | | 3,114 |
|
| Other expense (income) | 24 |
| | (20 | ) | | 152 |
| | (55 | ) |
| | | | | | | | | |
| | (Loss) income before income taxes | (14,153 | ) | | 307 |
| | (21,742 | ) | | (20,082 | ) |
| Income tax provision | 1,119 |
| | 520 |
| | 1,421 |
| | 876 |
|
| | | | | | | | | |
| | Net loss | $ | (15,272 | ) | | $ | (213 | ) | | $ | (23,163 | ) | | $ | (20,958 | ) |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Basic and diluted loss per share | $ | (0.14 | ) | | $ | — |
| | $ | (0.22 | ) | | $ | (0.26 | ) |
| Weighted average basic and diluted | | | | | | | |
| | shares outstanding | 105,924 |
| | 89,111 |
| | 105,810 |
| | 81,668 |
|
AMERICAN APPAREL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(unaudited)
|
| | | | | | | |
| | June 30, 2012 | | December 31, 2011 |
| ASSETS | | | |
| CURRENT ASSETS | | | |
| Cash | $ | 7,777 |
| | $ | 10,293 |
|
| Trade accounts receivable, net of allowances | 23,123 |
| | 20,939 |
|
| Prepaid expenses and other current assets | 10,149 |
| | 7,631 |
|
| Inventories, net | 180,944 |
| | 185,764 |
|
| Restricted cash | 5,918 |
| | — |
|
| Income taxes receivable and prepaid income taxes | 2,041 |
| | 5,955 |
|
| Deferred income taxes, net of valuation allowance | 84 |
| | 148 |
|
| Total current assets | 230,036 |
| | 230,730 |
|
| PROPERTY AND EQUIPMENT, net | 63,893 |
| | 67,438 |
|
| DEFERRED INCOME TAXES, net of valuation allowance | 1,500 |
| | 1,529 |
|
| OTHER ASSETS, net | 31,291 |
| | 25,024 |
|
| TOTAL ASSETS | $ | 326,720 |
| | $ | 324,721 |
|
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | |
|
| CURRENT LIABILITIES | |
| | |
|
| Cash overdraft | $ | 2,512 |
| | $ | 1,921 |
|
| Revolving credit facilities and current portion of long-term debt | 74,848 |
| | 50,375 |
|
| Accounts payable | 34,433 |
| | 33,920 |
|
| Accrued expenses and other current liabilities | 37,578 |
| | 43,725 |
|
| Fair value of warrant liability | 15,143 |
| | 9,633 |
|
| Income taxes payable | 781 |
| | 2,445 |
|
| Deferred income tax liability, current | 58 |
| | 150 |
|
| Current portion of capital lease obligations | 1,046 |
| | 1,181 |
|
| Total current liabilities | 166,399 |
| | 143,350 |
|
| LONG-TERM DEBT, net of unamortized discount | 96,051 |
| | 97,142 |
|
| CAPITAL LEASE OBLIGATIONS, net of current portion | 1,288 |
| | 1,726 |
|
| DEFERRED TAX LIABILITY | 98 |
| | 96 |
|
| DEFERRED RENT, net of current portion | 21,731 |
| | 22,231 |
|
| OTHER LONG-TERM LIABILITIES | 12,236 |
| | 12,046 |
|
| TOTAL LIABILITIES | 297,803 |
| | 276,591 |
|
| | | | |
| STOCKHOLDERS' EQUITY | |
| | |
|
| Common stock | 11 |
| | 11 |
|
| Additional paid-in capital | 170,887 |
| | 166,486 |
|
| Accumulated other comprehensive loss | (3,807 | ) | | (3,356 | ) |
| Accumulated deficit | (136,017 | ) | | (112,854 | ) |
| Less: Treasury stock | (2,157 | ) | | (2,157 | ) |
| TOTAL STOCKHOLDERS' EQUITY | 28,917 |
| | 48,130 |
|
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 326,720 |
| | $ | 324,721 |
|
AMERICAN 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 | | | |
| Cash received from customers | $ | 280,131 |
| | $ | 248,714 |
|
| Cash paid to suppliers, employees and others | (285,400 | ) | | (252,752 | ) |
| Income taxes refunded (paid) | 808 |
| | (2,030 | ) |
| Interest paid | (3,868 | ) | | (2,550 | ) |
| Other | (133 | ) | | 125 |
|
| Net cash used in operating activities | (8,462 | ) | | (8,493 | ) |
| | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | |
| Capital expenditures | (7,599 | ) | | (4,727 | ) |
| Proceeds from sale of fixed assets | 70 |
| | 68 |
|
| Restricted cash | (5,932 | ) | | — |
|
| Net cash used in investing activities | (13,461 | ) | | (4,659 | ) |
| | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | |
| Cash overdraft | 591 |
| | (2,148 | ) |
| Repayments of expired revolving credit facilities, net | (48,324 | ) | | (836 | ) |
| Borrowings under current revolving credit facilities, net | 42,878 |
| | — |
|
| Borrowings (repayments) of term loans and notes payable | 29,994 |
| | (7 | ) |
| Payment of debt issuance costs | (4,699 | ) | | (1,213 | ) |
| Net proceeds from issuance of common stock and purchase rights | — |
| | 14,418 |
|
| Proceeds from equipment lease financing | — |
| | 3,100 |
|
| Repayment of capital lease obligations | (572 | ) | | (651 | ) |
| Net cash provided by financing activities | 19,868 |
| | 12,663 |
|
| | | | |
| EFFECT OF FOREIGN EXCHANGE RATE ON CASH | (461 | ) | | (286 | ) |
| | | | |
| NET DECREASE IN CASH | (2,516 | ) | | (775 | ) |
CASH, beginning of period | 10,293 |
| | 7,656 |
|
CASH, end of period | $ | 7,777 |
| | $ | 6,881 |
|
AMERICAN APPAREL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Amounts in thousands)
(unaudited)
|
| | | | | | | |
| | Six Months Ended June 30, |
| | 2012 | | 2011 |
| RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES | | | |
| Net loss | $ | (23,163 | ) | | $ | (20,958 | ) |
| Depreciation and amortization of property and equipment, and other assets | 11,502 |
| | 12,983 |
|
| Retail store impairment charges | 129 |
| | 1,652 |
|
| Loss on disposal of property and equipment | 20 |
| | 71 |
|
| Share-based compensation expense | 4,384 |
| | 2,445 |
|
| Unrealized loss (gain) on change in fair value of warrants and purchase rights | 2,028 |
| | (15,100 | ) |
| Amortization of debt discount and deferred financing costs | 5,250 |
| | 3,564 |
|
| (Gain) loss on extinguishment of debt | (11,588 | ) | | 3,114 |
|
| Accrued interest paid-in-kind | 10,702 |
| | 8,781 |
|
| Foreign currency transaction loss (gain) | 826 |
| | (1,074 | ) |
| Allowance for inventory shrinkage and obsolescence | (288 | ) | | (75 | ) |
| Bad debt expense | 23 |
| | 343 |
|
| Deferred income taxes | (58 | ) | | 608 |
|
| Deferred rent | (417 | ) | | (1,378 | ) |
| Changes in cash due to changes in operating assets and liabilities: | | | |
| Trade accounts receivables | (2,015 | ) | | (501 | ) |
| Inventories | 4,557 |
| | (12,294 | ) |
| Prepaid expenses and other current assets | (2,917 | ) | | 2,282 |
|
| Other assets | (3,902 | ) | | (1,439 | ) |
| Accounts payable | 72 |
| | 9,606 |
|
| Accrued expenses and other liabilities | (5,828 | ) | | 639 |
|
| Income taxes receivable/payable | 2,221 |
| | (1,762 | ) |
| Net cash used in operating activities | $ | (8,462 | ) | | $ | (8,493 | ) |
| | | | |
| NON-CASH INVESTING AND FINANCING ACTIVITIES | | | |
| Property and equipment acquired and included in accounts payable | $ | 455 |
| | $ | 375 |
|
| Reclassification of Lion warrants from equity to debt | — |
| | 11,339 |
|
| Conversion of debt to equity | — |
| | 4,688 |
|
| Issuance of warrants at fair value | — |
| | 5,036 |
|
AMERICAN APPAREL, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Amounts in thousands)
(unaudited)
The following table presents key financial information for American Apparel's business segments before unallocated corporate expenses:
|
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2012 |
| | U.S. Wholesale | | U.S. Retail | | Canada | | International | | Consolidated |
| Net sales to external customers | $ | 43,430 |
| | $ | 48,121 |
| | $ | 15,041 |
| | $ | 42,870 |
| | $ | 149,462 |
|
| Gross profit | 11,951 |
| | 31,328 |
| | 9,393 |
| | 26,364 |
| | 79,036 |
|
| Income from segment operations | 5,987 |
| | 437 |
| | 105 |
| | 3,550 |
| | 10,079 |
|
| Depreciation and amortization | 1,611 |
| | 2,682 |
| | 374 |
| | 983 |
| | 5,650 |
|
| Capital expenditures | 2,109 |
| | 410 |
| | 304 |
| | 1,086 |
| | 3,909 |
|
| Retail store impairment charges | — |
| | — |
| | 129 |
| | — |
| | 129 |
|
| Deferred rent expense (benefit) | 47 |
| | (277 | ) | | (50 | ) | | (129 | ) | | (409 | ) |
| | |
| | Three Months Ended June 30, 2011 |
| | U.S. Wholesale | | U.S. Retail | | Canada | | International | | Consolidated |
| Net sales to external customers | $ | 38,139 |
| | $ | 40,359 |
| | $ | 14,363 |
| | $ | 39,943 |
| | $ | 132,804 |
|
| Gross profit | 10,533 |
| | 27,685 |
| | 8,075 |
| | 26,133 |
| | 72,426 |
|
| Income (loss) from segment operations | 5,094 |
| | (1,510 | ) | | (547 | ) | | 3,900 |
| | 6,937 |
|
| Depreciation and amortization | 2,015 |
| | 2,592 |
| | 409 |
| | 1,333 |
| | 6,349 |
|
| Capital expenditures | 301 |
| | 1,645 |
| | 53 |
| | 165 |
| | 2,164 |
|
| Retail store impairment charges | — |
| | 68 |
| | — |
| | 934 |
| | 1,002 |
|
| Deferred rent (benefit) expense | (84 | ) | | (127 | ) | | (414 | ) | | 78 |
| | (547 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2012 |
| | U.S. Wholesale | | U.S. Retail | | Canada | | International | | Consolidated |
| Net sales to external customers | $ | 84,765 |
| | $ | 90,730 |
| | $ | 28,379 |
| | $ | 78,248 |
| | $ | 282,122 |
|
| Gross profit | 23,709 |
| | 59,616 |
| | 16,461 |
| | 49,306 |
| | 149,092 |
|
| Income (loss) from segment operations | 12,513 |
| | (2,667 | ) | | (2,609 | ) | | 4,147 |
| | 11,384 |
|
| Depreciation and amortization | 3,349 |
| | 5,327 |
| | 713 |
| | 2,113 |
| | 11,502 |
|
| Capital expenditures | 3,202 |
| | 1,854 |
| | 816 |
| | 1,727 |
| | 7,599 |
|
| Retail store impairment charges | — |
| | — |
| | 129 |
| | — |
| | 129 |
|
| Deferred rent expense (benefit) | 96 |
| | (160 | ) | | (98 | ) | | (255 | ) | | (417 | ) |
| | |
| | Six Months Ended June 30, 2011 |
| | U.S. Wholesale | | U.S. Retail | | Canada | | International | | Consolidated |
| Net sales to external customers | $ | 72,789 |
| | $ | 77,379 |
| | $ | 26,992 |
| | $ | 71,711 |
| | $ | 248,871 |
|
| Gross profit | 21,621 |
| | 52,424 |
| | 16,031 |
| | 45,988 |
| | 136,064 |
|
| Income (loss) from segment operations | 11,537 |
| | (6,505 | ) | | (1,427 | ) | | 2,279 |
| | 5,884 |
|
| Depreciation and amortization | 4,182 |
| | 5,288 |
| | 842 |
| | 2,671 |
| | 12,983 |
|
| Capital expenditures | 1,341 |
| | 2,679 |
| | 132 |
| | 575 |
| | 4,727 |
|
| Retail store impairment charges | — |
| | 177 |
| | 2 |
| | 1,473 |
| | 1,652 |
|
| Deferred rent expense (benefit) | 152 |
| | (1,046 | ) | | (436 | ) | | (48 | ) | | (1,378 | ) |
AMERICAN APPAREL, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION (continued)
(Amounts in thousands)
(unaudited)
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| Reconciliation to Loss (Income) before Income Taxes | 2012 | | 2011 | | 2012 | | 2011 |
| Consolidated income from segment operations | $ | 10,079 |
| | $ | 6,937 |
| | $ | 11,384 |
| | $ | 5,884 |
|
| Unallocated corporate expenses | (10,788 | ) | | (12,161 | ) | | (21,888 | ) | | (24,198 | ) |
| Interest expense | (10,267 | ) | | (7,752 | ) | | (19,820 | ) | | (14,883 | ) |
| Foreign currency transaction (loss) gain | (1,776 | ) | | 263 |
| | (826 | ) | | 1,074 |
|
| Unrealized (loss) gain on warrants and purchase rights | (1,377 | ) | | 13,000 |
| | (2,028 | ) | | 15,100 |
|
| Gain (loss) on extinguishment of debt | — |
| | — |
| | 11,588 |
| | (3,114 | ) |
| Other (expense) income | (24 | ) | | 20 |
| | (152 | ) | | 55 |
|
| Consolidated loss (income) before income taxes | $ | (14,153 | ) | | $ | 307 |
| | $ | (21,742 | ) | | $ | (20,082 | ) |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| Net sales to external customers | 2012 | | 2011 | | 2012 | | 2011 |
| | | | | | | | |
| U.S. Wholesale | | | | | | | |
| Wholesale | $ | 36,598 |
| | $ | 32,945 |
| | $ | 70,518 |
| | $ | 62,061 |
|
| Online consumer | 6,832 |
| | 5,194 |
| | 14,247 |
| | 10,728 |
|
| Total | $ | 43,430 |
| | $ | 38,139 |
| | $ | 84,765 |
| | $ | 72,789 |
|
| | | | | | | | |
| U.S. Retail | $ | 48,121 |
| | $ | 40,359 |
| | $ | 90,730 |
| | $ | 77,379 |
|
| | | | | | | | |
| Canada | | | | | | | |
| Wholesale | $ | 3,379 |
| | $ | 3,337 |
| | $ | 6,234 |
| | $ | 5,753 |
|
| Retail | 11,175 |
| | 10,582 |
| | 21,095 |
| | 20,302 |
|
| Online consumer | 487 |
| | 444 |
| | 1,050 |
| | 937 |
|
| Total | $ | 15,041 |
| | $ | 14,363 |
| | $ | 28,379 |
| | $ | 26,992 |
|
| | | | | | | | |
| International | | | | | | | |
| Wholesale | $ | 2,848 |
| | $ | 2,786 |
| | $ | 5,070 |
| | $ | 4,654 |
|
| Retail | 34,900 |
| | 32,853 |
| | 63,603 |
| | 58,814 |
|
| Online consumer | 5,122 |
| | 4,304 |
| | 9,575 |
| | 8,243 |
|
| Total | $ | 42,870 |
| | $ | 39,943 |
| | $ | 78,248 |
| | $ | 71,711 |
|
| | | | | | | | |
| Consolidated | | | | | | | |
| Wholesale | $ | 42,825 |
| | $ | 39,068 |
| | $ | 81,822 |
| | $ | 72,468 |
|
| Retail | 94,196 |
| | 83,794 |
| | 175,428 |
| | 156,495 |
|
| Online consumer | 12,441 |
| | 9,942 |
| | 24,872 |
| | 19,908 |
|
| Total | $ | 149,462 |
| | $ | 132,804 |
| | $ | 282,122 |
| | $ | 248,871 |
|
Table A
American Apparel, Inc. and Subsidiaries
Calculation and Reconciliation of Consolidated Adjusted EBITDA
(Amounts in thousands)
(unaudited)
In addition to its GAAP results, American Apparel considers non-GAAP measures of its performance. 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. EBITDA represents net income (loss) before income taxes, interest and other expense (income), and depreciation and amortization. American Apparel's management uses 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 EBITDA provides useful information regarding American Apparel's results of operations because they assist in analyzing and benchmarking the performance and value of American Apparel's business. American Apparel believes that 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.
EBITDA also is used by American Apparel's management for multiple purposes, including:
| |
| • | to calculate and support various coverage ratios with 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 affect relative interest expense), tax positions and amortization of intangibles. |
In addition, 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 EBITDA as a financial measure to assess the performance of its business, there are material limitations to using a measure such as 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 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 EBITDA in conjunction with its analysis of other GAAP financial measures, such as net income (loss).
Table A (continued)
American Apparel, Inc. and Subsidiaries
Calculation and Reconciliation of Consolidated Adjusted EBITDA
(Amounts in thousands)
(unaudited)
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2012 | | 2011 | | 2012 | | 2011 |
| Net loss | | $ | (15,272 | ) | | $ | (213 | ) | | $ | (23,163 | ) | | $ | (20,958 | ) |
| Income tax provision | | 1,119 |
| | 520 |
| | 1,421 |
| | 876 |
|
| Interest and other expense, net | | 11,668 |
| | (5,268 | ) | | 10,412 |
| | 2,842 |
|
| Depreciation and amortization | | 5,650 |
| | 6,349 |
| | 11,502 |
| | 12,983 |
|
| Foreign currency loss (gain) | | 1,776 |
| | (263 | ) | | 826 |
| | (1,074 | ) |
| Retail store impairment charges | | 129 |
| | 1,002 |
| | 129 |
| | 1,652 |
|
| Stock based compensation expense | | 2,542 |
| | 1,574 |
| | 4,384 |
| | 2,445 |
|
| Consolidated Adjusted EBITDA | | $ | 7,612 |
| | $ | 3,701 |
| | $ | 5,511 |
| | $ | (1,234 | ) |
