American Apparel, Inc. (the "Company") (NYSE MKT: APP), a
vertically-integrated manufacturer, distributor, and retailer of
branded fashion basic apparel, announced financial results for its
second quarter ended June 30, 2015.
Summary
- Announced the next phase of its
strategic turnaround plan including approximately $30 million in
cost-cutting initiatives over the next 18 months.
- Strengthened the leadership team with
hiring of General Manager of Global Retail and President of
Wholesale to help execute its global retail and wholesale
turnaround strategies.
- Loss per share in the second quarter
2015 was $0.11 and included $0.05 of significant charges
- Adjusted EBITDA in the second quarter
2015 was $4.1 million
- Operating expenses in the second
quarter 2015 decreased $8.2 million, or 10.2%, compared to the same
period in 2014
- Inventories in the second quarter 2015
decreased $32.6 million, or 22.1%, compared to December 31,
2014.
Operating Results - Second Quarter 2015
Net sales for the second quarter of 2015 decreased 17.2% to
$134.4 million from $162.4 million for the same period in 2014.
Excluding the year over year impact from foreign exchange and
stores closed in 2014, net sales decreased 14% from the same period
in 2014. The decline in comparable sales was attributable to the
lack of new style introduction for the spring and summer selling
season. Net sales also decreased approximately $3 million due to
the store closures. In addition, the unfavorable impact of foreign
currency exchange rate changes contributed to the sales decrease of
approximately 4% or $6.2 million.
Gross profit for the second quarter of 2015 decreased 25.3% to
$61.5 million from $82.4 million for the same period in 2014. Gross
margin for the second quarter of 2015 was 45.8% compared to 50.7%
for the same period in 2014. The decrease was primarily related to
lower retail sales coupled with the negative effects of foreign
currency exchange rate changes and an increase in workers
compensation and health benefit costs.
Operating expense for the second quarter of 2015 decreased 10.2%
to $71.4 million from $79.6 million for the same period in 2014 due
primarily to lower payroll and reduced shipping, rent, supplies and
miscellaneous activities, all primarily as a result of our cost
reduction efforts. Excluding the effects of the significant charges
described below, operating expenses decreased 12.8% to $65.1
million from the same period in 2014.
Net loss for the second quarter of 2015 was $19.4 million or
$0.11 per share, compared to net loss of $16.2 million, or $0.09
per share for the second quarter of 2014. Results for the second
quarter of 2015 include $8.3 million, or $0.05 per share, related
to significant charges.
Liquidity and Capital Resources
Under the $10 million "at-the-market" offering program, we may,
from time to time and at our discretion, offer and sell shares of
our common stock having an aggregate gross sales price of up to $10
million (but in no event more than 15 million shares). We have used
the net proceeds generated through the program for working capital
and general corporate purposes. As of June 30, 2015, we had issued
4 million shares of our common stock for net proceeds of $2.0
million. Sales of common stock under the "at-the-market" offering
program are at our sole discretion and subject to the terms and
conditions of the sales agreement related thereto, and there are no
assurances that such sales will continue in the future.
As of June 30, 2015, we had $6.9 million in cash, $38.4
million outstanding on our $50.0 million asset-backed revolving
credit facility with Capital One and $6.1 million of availability
for additional borrowings as of such date. On August 11, 2015,
we had $11.2 million in cash. As of June 30, 2015, we had $210.6
million aggregate principal amount of senior secured notes (the
"Notes") outstanding. On April 14, 2015, we paid $13.8 million
in interest on the Notes. The next scheduled interest payment on
the Notes due on October 15, 2015 is approximately $13.9
million.
As of June 30, 2015, we were not in compliance with the minimum
fixed charge coverage ratio and the minimum adjusted EBITDA
covenants under the Capital One Credit Facility. For the April 1,
2015 through June 30, 2015 covenant reference period, our fixed
charge coverage ratio (as defined in the Capital One Credit
Facility) was 0.07 to 1.00 as compared with the covenant minimum of
0.33 to 1.00, and our adjusted EBITDA (as defined in the Capital
One Credit Facility) was $4.1 million as compared with the covenant
minimum of $7.4 million.
On August 17, 2015, Capital One assigned its rights and
obligations as a lender to a syndicate of lenders that includes
certain of our existing creditors, including funds associated with
Standard General L.P., Monarch Alternative Capital L.P., Coliseum
Capital LLC and Goldman Sachs Asset Management, L.P., and was
replaced by Wilmington Trust, National Association ("Wilmington
Trust") as administrative agent. Additionally, on August 17, the
Capital One Credit Facility was amended pursuant to an amended and
restated credit agreement among us, the new syndicate of lenders
and Wilmington Trust (the "Wilmington Trust Credit Facility"). In
connection with such amendment, the syndicate of lenders received
certain amendment and closing fees and reimbursement of closing
expenses. The covenant violations existing at June 30, 2015 were
waived under the Wilmington Trust Credit Facility.
The Wilmington Trust Credit Facility provides for a $90 million
asset-based revolving credit facility and matures on April 4, 2018,
subject to a January 15, 2018 maturity in limited circumstances.
Borrowings under the Wilmington Trust Credit Facility are subject
to specified borrowing base requirements which is increased by $15
million, but such $15 million increase cannot increase the
borrowing base above $60 million. Amounts repaid under the
Wilmington Trust Credit Facility cannot be re-borrowed.
Borrowings currently outstanding under the Capital One Credit
Facility will continue under the Wilmington Trust Credit Facility
and bear interest at a LIBOR based rate plus 5.00% or a rate based
on the prime rate plus 4.00%. New borrowings under the Wilmington
Trust Credit Facility bear interest at a LIBOR based rate plus
7.00% or a rate based on the prime rate plus 6.00%.
Additionally, on August 17, 2015, we entered into amendments to
the indenture agreement governing the Senior Notes and the Standard
General Loan Agreement to permit us to enter into the Wilmington
Trust Credit Facility.
We incurred losses from operations and negative cash flows from
operating activities for the six months ended June 30, 2015 and
such losses might continue for the remainder of 2015. Based upon
the trends occurring in our operations since June 30, 2015 and
through the date of this release, together with our current
expectations and projections for the next four fiscal quarters, we
believe that we may not have sufficient liquidity necessary to
sustain operations for the next twelve months. These factors, among
others, raise substantial doubt that we may be able to continue as
a going concern.
As a result of the Capital One Credit Facility covenant default
and the liquidity uncertainty described above, we have been working
with our advisers and have begun discussions with certain key
financial stakeholders to analyze potential strategic and financial
alternatives, which may include, among other things, refinancing or
new capital raising transactions, amendments to or restructuring of
our existing indebtedness and other obligations, and consideration
of other restructuring and recapitalization transactions. As of the
date of this release, substantial uncertainty exists as to the
ultimate outcome of those discussions, and there are no assurances
that such efforts will result in any transaction or agreement, or
that any such transaction or agreement, if proposed and/or
implemented, will be successful. In addition, whether or not any
such transactions or agreements were implemented or successful, our
existing and any new investors could suffer substantial or total
losses of their investment in our common stock.
Unrealized Gain/Loss on Change in Fair Value of
Warrants
As of June 30, 2015, Lion Capital LLP held warrants to
purchase 24.5 million shares of our common stock. As a result of
the "at-the-market" offering program, Lion received the right to
purchase an additional 12,000 shares of our common stock with an
adjusted exercise price of all of the Lion-held warrants at
$0.66.
As the share price of our stock increases, the fair value of
warrant liability recorded on the balance sheet increases, and we
record an expense to recognize the increase in fair value of the
warrant liability. Conversely, when the share price of our stock
decreases, we record a gain to recognize the related reduction in
the fair value of the warrant liability on the balance sheets.
Although the income statement impacts associated with warrants are
appropriate and required under GAAP, they do not impact our
operating performance nor do the credits and charges have an impact
on the cash balances since the liability recorded is not an
obligation that will be settled with cash. Instead, these warrants
will be reclassified to equity when they are exercised.
EBITDA add backs
Sale of slow-moving inventory program discounts - In the first
quarter management implemented an initiative to accelerate the sale
of slow moving inventory with a graduated sales discount program
through our retail and online sales channels, as well as through
certain off-price channels. The program resulted in a significant
reduction of slow moving inventory. This program is a part of
management’s strategic shift to change the profile of our inventory
and actively reduce inventory levels to improve store
merchandising, working capital and liquidity. There was minimal
activity related to this program in the second quarter.
Customs settlements and contingencies - As previously disclosed,
we have been subject to, and have recorded charges related to,
customs and similar audit settlements and contingencies in certain
jurisdictions.
Litigation and professional fees - We incurred additional legal,
litigation and consulting costs related to various claims and
lawsuits and the sale of the slow moving inventory in the first
quarter.
Employment settlements and severance - We had previously
disclosed employment-related claims and experienced unusually high
employee severance costs during 2014 and 2015.
Lease amendment - On July 27, 2015, we entered into a second
amendment to the lease agreement for our headquarters and
manufacturing facility in Los Angeles, California, resolving
certain alleged breaches from early 2014 under the lease agreement
with the landlord.
Definitions and Disclosures Regarding Non-GAAP Financial
Information
The Company reports and discusses its operating results using
financial measures consistent with generally accepted accounting
principles (GAAP) and believes that this should be the primary
basis for evaluating the Company's performance.
The preceding discussion of the Company's results of operations
includes a discussion of non-GAAP financial measures including the
following: Adjusted Earnings before Interest, Taxes, Depreciation
and Amortization (Adjusted EBITDA); gross profit, excluding
significant charges; operating expenses, excluding significant
charges; and (loss) income from operations, excluding significant
charges. These non-GAAP measures should not be viewed as
alternatives or substitutes for GAAP reporting.
The Company believes the presentation of these non-GAAP measures
is useful to investors because they are used by lenders to measure
its ability to service debt, by industry analysts to determine the
market value of the Company and by management to identify cash
available to service debt, make investments, maintain capital
assets and fund ongoing operations and working capital needs.
Additionally, these measures allow management to gauge company
operating performance by isolating the effects of significant
charges.
Adjusted EBITDA is calculated as income or loss from operations
plus income tax provision, interest expense, depreciation and
amortization, share based compensation expense, retail store
impairment, and the effects of significant charges (sale of slow
moving inventory, and internal investigation, litigation and
professional fees), plus or minus unrealized gain or loss on change
in fair value of warrants and foreign currency transaction gain or
loss.
Gross profit, excluding significant charges, is calculated as
gross profit less significant charges related to the sale of slow
moving inventory, and internal investigation, litigation and
professional fees.
Operating expenses excluding a significant charge is calculated
as operating expenses less significant charges related to the
internal investigation, litigation and professional fees.
Loss from operations excluding a significant charge is
calculated as loss from operations less a significant charge
related to the sale of slow moving inventory, and internal
investigation, litigation and professional fees.
About American Apparel
American Apparel, Inc. (the "Company," "we," "us," and "our") is
a manufacturer, distributor, and retailer of branded fashion basic
apparel based in downtown Los Angeles, California. As of June 30,
2015, the Company had approximately 10,000 employees and operated
237 retail stores in 20 countries including the United States and
Canada. The Company also operates a global e-commerce site that
serves over 50 countries worldwide at http://www.americanapparel.com. In addition, the
Company operates a leading wholesale business that supplies high
quality T-shirts and other casual wear to distributors and screen
printers.
This press release, and other statements that
the Company may make, may contain forward-looking statements.
Forward-looking statements are statements that are not historical
facts and include statements regarding, among other things, the
Company's future financial condition and liquidity including the
impact of compliance with, and availability under, our debt
instruments, results of operations, and future business plans and
expectations, including statements related to the effect of, and
our expectations with respect to, the operation of our business,
inventory and sales impacts related thereto. Such forward-looking
statements are based upon the current beliefs and expectations of
the Company's management, but are subject to risks and
uncertainties, which could cause actual results and/or the timing
of events to differ materially from those set forth in the
forward-looking statements, including, among others: our ability to
remain in compliance with, or obtain waivers in respect of, certain
financial covenants under our existing financing agreements and the
consequences of the acceleration of our debt obligations; our
liquidity and ability to continue as a going concern; ability to
generate or obtain from external sources sufficient liquidity for
operations and debt service; consequences of the termination of Dov
Charney, our former chief executive officer, including any
litigation or regulatory investigations, any alleged actions of Dov
Charney, or any impact on our sales or brand related thereto;
changes in key personnel, our ability to hire and retain key
personnel, and our relationship with our employees; voting control
by our directors, lenders and other affiliates, including Standard
General Group and Dov Charney; ability to successfully implement
our strategic, operating, financial and personnel initiatives;
ability to maintain the value and image of our brand and protect
our intellectual property rights; general economic conditions,
geopolitical events, other regulatory changes, and inflation or
deflation; disruptions in the global financial markets; the highly
competitive and evolving nature of our industry in the U.S. and
internationally; risks associated with fluctuations and trends of
consumer apparel spending in the U.S.; changes in consumer
preferences or demand for our products; our ability to attract
customers to our retail and online stores; loss or reduction in
sales to wholesale or retail customers or financial nonperformance
by our wholesale customers; seasonality and fluctuations in
comparable store sales and wholesale net sales and associated
margins; ability to improve manufacturing efficiency at our
production facilities; changes in the price of materials and labor,
including increases in the price of raw materials in the global
market and minimum wages; ability to pass on the added cost of raw
materials and labor to customers; ability to effectively manage
inventory levels; risks that our suppliers or distributors may not
timely produce or deliver products; ability to renew leases on
economic terms; risks associated with our facilities being
concentrated in one geographic area; ability to identify new store
locations and the availability of store locations at appropriate
terms; ability to negotiate new store leases effectively; and
ability to open new stores and expand internationally; adverse
changes in our credit ratings and any related impact on financial
costs and structure; continued compliance with U.S. and foreign
government regulations and legislation, including environmental,
immigration, labor, and occupational health and safety laws and
regulations; loss of U.S. import protections or changes in duties,
tariffs and quotas, risks associated with our foreign operations
and supply sources such as market disruption, changes in import and
export laws, and currency restrictions and exchange rate
fluctuations; litigation and other inquiries and investigations,
including the risks that we, our officers or directors in cases
where indemnification applies, will not be successful in defending
any proceedings, lawsuits, disputes, claims or audits, and that
exposure could exceed expectations or insurance coverage; tax
assessments by domestic or foreign governmental authorities,
including import or export duties on our products and the
applicable rates for any such taxes or duties; ability to maintain
compliance with the exchange rules of the NYSE MKT LLC; the
adoption of new accounting standards or changes in interpretations
of accounting principles; adverse weather conditions or natural
disaster, including those which may be related to climate change;
technological changes in manufacturing, wholesaling, or retailing;
the risk, including costs and timely delivery issues associated
therewith, that information technology systems changes may disrupt
our supply chain or operations and could impact cash flow and
liquidity, and ability to upgrade information technology
infrastructure and other risks associated with the systems that
operate our online retail operations; the risk of failure to
protect the integrity and security of our information systems and
customers' information; and other risks detailed in the Company's
filings with the Securities and Exchange Commission, including the
Company's Annual Report on Form 10-K, as amended, for the year
ended December 31, 2014 and Quarterly Report on Form 10-Q for the
quarter ended June 30, 2015. 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.
AMERICAN APPAREL, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share
amounts)
(unaudited)
Three Months Ended June 30,
Six Months Ended June 30, 2015
2014 2015 2014 Net sales $
134,394 $ 162,397 $ 258,657 $ 299,493 Cost of sales 72,848
80,010 149,649 145,132 Gross profit 61,546
82,387 109,008 154,361 Selling and distribution expenses 45,430
52,443 90,902 106,505 General and administrative expenses 25,992
27,135 50,854 52,044 Retail store impairment 3,120 229
3,178 728 (Loss) income from operations
(12,996 ) 2,580 (35,926 ) (4,916 ) Interest expense
10,467 10,019 20,248 20,058 Foreign currency transaction loss 79 0
704 132 Unrealized (gain) loss on change in fair value of warrants
(4,413 ) 8,202 (11,921 ) (4,465 ) Other expense (income) 30
60 (111 ) 52 Loss before income taxes (19,159 )
(15,701 ) (44,846 ) (20,693 ) Income tax provision 191 504
928 978 Net loss $ (19,350 ) $ (16,205 ) $
(45,774 ) $ (21,671 )
Net loss per share, basic and
diluted(a)
$ (0.11 ) $ (0.09 ) $ (0.26 ) $ (0.14 )
Weighted-average shares outstanding, basic
and diluted(a)
177,856 173,643 177,062 152,987 (a) The dilutive impact of
incremental shares is excluded from loss position in accordance
with U.S. generally accepted accounting principles.
AMERICAN APPAREL, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, 2015 December
31, 2014 ASSETS (unaudited) Current
assets: Cash $ 6,852 $ 8,343 Trade accounts receivable, net of
allowances 26,591 25,298 Prepaid expenses and other current assets
15,854 16,442 Inventories, net 114,961 147,578 Income taxes
receivable and prepaid income taxes 388 648 Deferred income taxes,
net of valuation allowance 663 681
Total current
assets 165,309 198,990 Property and equipment, net 37,016
49,317 Deferred income taxes, net of valuation allowance 2,519
2,194 Other assets, net 45,211 43,888
TOTAL
ASSETS $ 250,055 $ 294,389
LIABILITIES
AND STOCKHOLDERS' DEFICIT Current liabilities: Cash
overdraft $ 1,799 $ 5,714 Revolving credit facilities and current
portion of long-term debt 38,424 34,312 Accounts payable 35,086
35,554 Accrued expenses and other current liabilities 58,968 61,369
Fair value of warrant liability 7,318 19,239 Income taxes payable
1,723 2,063 Deferred income tax liability, current 1,213 1,045
Current portion of capital lease obligations 3,024 2,978
Total current liabilities 147,555 162,274 Long-term
debt, net of unamortized discount 234,895 217,388 Capital lease
obligations, net of current portion 452 1,982 Deferred tax
liability 198 200 Deferred rent, net of current portion 12,363
13,346 Other long-term liabilities 15,635 14,715
TOTAL LIABILITIES 411,098 409,905
STOCKHOLDERS' DEFICIT Common stock 18 18 Additional paid-in
capital 221,176 218,779 Accumulated other comprehensive loss (9,065
) (6,915 ) Accumulated deficit (371,015 ) (325,241 ) Less: Treasury
stock (2,157 ) (2,157 )
TOTAL STOCKHOLDERS' DEFICIT (161,043
) (115,516 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $
250,055 $ 294,389
AMERICAN APPAREL,
INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended June 30, 2015
2014 CASH FLOWS FROM OPERATING
ACTIVITIES Cash received from customers $ 257,045 $ 295,135
Cash paid to suppliers, employees and others (254,567 ) (276,024 )
Income taxes paid (840 ) (902 ) Interest paid (15,737 ) (16,938 )
Other 136 32 Net cash (used in) provided by operating
activities (13,963 ) 1,303
CASH FLOWS FROM
INVESTING ACTIVITIES Capital expenditures (1,942 ) (7,087 )
Proceeds from sale of fixed assets 0 29 Restricted cash 0
178 Net cash used in investing activities (1,942 ) (6,880 )
CASH FLOWS FROM FINANCING ACTIVITIES Cash overdraft
(3,915 ) (3,993 ) Borrowings (repayments) under current revolving
credit facilities, net 4,112 (13,457 ) Borrowings (repayments) of
term loans and notes payable 14,996 (53 ) Payments of debt issuance
costs (323 ) (699 ) Net proceeds from issuance of common stock
1,998 28,446 Payment of payroll statutory tax withholding on
share-based compensation associated with issuance of common stock
(24 ) (301 ) Repayments of capital lease obligations (1,486 )
(1,828 ) Net cash provided by financing activities 15,358
8,115 Effect of foreign exchange rate on cash (944 )
(1,054 ) Net (decrease) increase in cash (1,491 ) 1,484 Cash,
beginning of period 8,343 8,676 Cash, end of period $
6,852 $ 10,160
AMERICAN APPAREL,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (continued)
(in thousands)
(unaudited)
Six Months Ended June 30, 2015
2014 RECONCILIATION OF NET LOSS TO NET CASH
(USED IN) PROVIDED BY OPERATING ACTIVITIES Net loss $ (45,774 )
$ (21,671 ) Depreciation and amortization of property and
equipment, and other assets 10,727 13,418 Retail store impairment
3,178 728 Loss on disposal of property and equipment 27 76
Share-based compensation expense 414 2,658 Unrealized gain on
change in fair value of warrants (11,921 ) (4,465 ) Amortization of
debt discount and deferred financing costs 1,918 1,264 Accrued
interest paid-in-kind 2,132 2,078 Foreign currency transaction loss
704 132 Allowance for inventory shrinkage and obsolescence 136 818
Bad debt expense 261 517 Deferred income taxes (235 ) 108 Deferred
rent 1 (3,141 ) Changes in cash due to changes in operating assets
and liabilities: Trade accounts receivables (1,873 ) (4,876 )
Prepaid expenses and other current assets 395 (107 ) Inventories
31,007 18,118 Other assets (3,245 ) (157 ) Accounts payable (246 )
(2,560 ) Accrued expenses and other liabilities (1,416 ) (1,603 )
Income taxes receivable / payable (153 ) (32 ) Net cash (used in)
provided by operating activities $ (13,963 ) $ 1,303
AMERICAN APPAREL, INC. AND SUBSIDIARIES BUSINESS
SEGMENT INFORMATION
(in thousands)
(unaudited)
The following table presents key financial
information for our reportable segments before unallocated
corporate expenses:
Three Months Ended June 30, 2015
U.S. Wholesale U.S. Retail
Canada International
Consolidated Total net sales $ 52,305 $ 40,643 $ 10,199 $
31,247 $ 134,394 Gross profit 12,311 25,974 5,317 17,944 61,546
Income (loss) from segment operations 7,364 (2,105 ) 191 (1,991 )
3,459 Depreciation and amortization 2,043 2,007 209 1,136 5,395
Capital expenditures 443 (3 ) 250 132 822 Retail store impairment 0
1,631 222 1,267 3,120 Deferred rent (benefit) expense (31 ) 1,131
(46 ) (141 ) 913
Three Months Ended June 30, 2014
U.S. Wholesale U.S. Retail Canada
International Consolidated Total net sales $ 58,254 $
48,970 $ 13,017 $ 42,156 $ 162,397 Gross profit 16,056 32,033 7,051
27,247 82,387 Income from segment operations 9,147 1,919 941 3,550
15,557 Depreciation and amortization 2,187 3,051 454 1,011 6,703
Capital expenditures 952 1,333 81 763 3,129 Retail store impairment
0 66 0 163 229 Deferred rent expense (benefit) 47 (720 ) (51 ) (195
) (919 )
Six Months Ended June 30, 2015 U.S.
Wholesale U.S. Retail Canada International
Consolidated Total net sales $ 101,342 $ 77,945 $ 19,510 $
59,860 $ 258,657 Gross profit 21,629 46,072 8,138 33,169 109,008
Income (loss) from segment operations 10,113 (9,393 ) (2,040 )
(4,780 ) (6,100 ) Depreciation and amortization 4,233 4,250 498
1,746 10,727 Capital expenditures 1,013 224 519 186 1,942 Retail
store impairment 0 1,689 222 1,267 3,178 Deferred rent (benefit)
expense (17 ) 584 (79 ) (487 ) 1
Six Months Ended June
30, 2014 U.S. Wholesale U.S. Retail Canada
International Consolidated Total net sales $ 106,991
$ 91,435 $ 23,477 $ 77,590 $ 299,493 Gross profit 33,361 58,799
12,660 49,541 154,361 Income (loss) from segment operations 18,867
(2,795 ) 596 2,651 19,319 Depreciation and amortization 4,365 6,165
855 2,033 13,418 Capital expenditures 2,157 2,472 193 2,265 7,087
Retail store impairment 0 115 0 613 728 Deferred rent benefit (400
) (2,352 ) (99 ) (290 ) (3,141 )
AMERICAN APPAREL,
INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(continued)
(in thousands)
(unaudited)
Three Months Ended June 30,
Six Months Ended June 30, Reconciliation to Loss
before Income Taxes 2015 2014 2015
2014 Consolidated income (loss) from operations of
reportable segments $ 3,459 $ 15,557 $ (6,100 ) $ 19,319
Unallocated corporate expenses (16,455 ) (12,977 ) (29,826 )
(24,235 ) Interest expense (10,467 ) (10,019 ) (20,248 ) (20,058 )
Foreign currency transaction loss (79 ) 0 (704 ) (132 ) Unrealized
gain (loss) on change in fair value of warrants 4,413 (8,202 )
11,921 4,465 Other (expense) income (30 ) (60 ) 111 (52 )
Consolidated loss before income taxes $ (19,159 ) $ (15,701
) $ (44,846 ) $ (20,693 )
Three Months Ended June
30, Six Months Ended June 30, Total net sales
2015 2014 2015 2014 U.S.
Wholesale Wholesale $ 44,701 $ 48,945 $ 82,411 $ 87,182 Online
consumer 7,604 9,309 18,931 19,809
Total $ 52,305 $ 58,254 $ 101,342 $ 106,991
U.S. Retail $ 40,643 $ 48,970 $
77,945 $ 91,435
Canada Wholesale $
1,932 $ 2,826 $ 3,725 $ 4,735 Retail 7,718 9,421 14,224 17,180
Online consumer 549 770 1,561 1,562
Total $ 10,199 $ 13,017 $ 19,510 $ 23,477
International Wholesale $ 1,871 $ 2,200 $
3,272 $ 4,000 Retail 25,956 35,534 49,037 65,212 Online consumer
3,420 4,422 7,551 8,378 Total $ 31,247
$ 42,156 $ 59,860 $ 77,590
Consolidated Wholesale $ 48,504 $ 53,971 $ 89,408 $ 95,917
Retail 74,317 93,925 141,206 173,827 Online consumer 11,573
14,501 28,043 29,749 Total $ 134,394 $
162,397 $ 258,657 $ 299,493
Calculation and Reconciliation of Consolidated Adjusted
EBITDA
(in thousands)
(unaudited)
Three Months Ended June 30,
Six Months Ended June 30, 2015
2014 2015 2014 Net Loss $
(19,350 ) $ (16,205 ) $ (45,774 ) $ (21,671 ) Income tax provision
191 504 928 978 Interest expense 10,467 10,019 20,248 20,058
Depreciation and amortization 5,395 6,703 10,727 13,418 Unrealized
(gain) loss on change in fair value of warrants (4,413 ) 8,202
(11,921 ) (4,465 ) Retail store impairment 3,120 229 3,178 728
Share-based compensation expense 311 1,533 414 2,658 Foreign
currency transaction loss and other expense 109 60 593 184 Legal,
litigation and consulting fees incurred for various lawsuits and
claims 3,589 1,356 5,055 1,356 Effect of sales discounting on slow
moving inventory 1,710 0 9,755 0 Employment settlements and
severance 446 2,728 446 2,728 Customs contingencies and settlements
287 0 287 0 Lease amendment 2,070 0 2,070 0 Lease termination cost
178 761 178 761
Consolidated
Adjusted EBITDA $ 4,110 $ 15,890 $ (3,816 ) $
16,733
Significant Charges
The table below summarizes the impact to our earnings of certain
costs which we consider to be significant and presents gross
profit, operating expenses and income from operations on an
as-adjusted basis, together with the reconciliation to the most
directly comparable GAAP measure (in thousands, except for
percentages; unaudited):
Three Months Ended June 30, 2015
% of Net Sales 2014
% of Net Sales Gross profit $ 61,546 45.8 % $ 82,387
50.7 % Sales of slow moving inventory 1,710 0 Customs settlements
and contingencies 287 0 Gross profit -
adjusted (Non-GAAP) $ 63,543 46.7 % $ 82,387 50.7 %
Operating expenses $ 71,422 53.1 % $ 79,578 49.0 %
Litigation and professional fees (3,589 ) (1,356 ) Employment
settlements and severance (446 ) (2,728 ) Lease amendment (2,070 )
0 Lease termination cost (178 ) (761 ) Operating
expenses - adjusted (Non-GAAP) $ 65,139 48.5 % $ 74,733
46.0 % (Loss) income from operations $ (12,996 ) (9.7
)% $ 2,580 1.6 % Sales of slow moving inventory 1,710 0 Customs
settlements and contingencies 287 0 Litigation and professional
fees 3,589 1,356 Employment settlements and severance 446 2,728
Lease amendment 2,070 0 Lease termination cost 178
761 (Loss) income from operations - adjusted
(Non-GAAP) $ (4,716 ) (3.5 )% $ 7,425 4.6 %
Six Months Ended June 30, 2015 % of Net Sales
2014 % of Net Sales Gross profit $ 109,008 42.1 % $
154,361 51.5 % Sales of slow moving inventory 9,755 0 Customs
settlements and contingencies 287 0
Gross profit - adjusted (Non-GAAP) $ 119,050 44.4 % $
154,361 51.5 % Operating expenses $ 141,756 54.8 % $
158,549 52.9 % Litigation and professional fees (5,055 ) (1,356 )
Employment settlements and severance (446 ) (2,728 ) Lease
amendment (2,070 ) 0 Lease termination cost (178 ) (761 )
Operating expenses - adjusted (Non-GAAP) $ 134,007
51.8 % $ 153,704 51.3 % Loss from operations $
(35,926 ) (13.9 )% $ (4,916 ) (1.6 )% Sales of slow moving
inventory 9,755 0 Customs settlements and contingencies 287 0
Litigation and professional fees 5,055 1,356 Employment settlements
and severance 446 2,728 Lease amendment 2,070 0 Lease termination
cost 178 761 Loss from operations -
adjusted (Non-GAAP) $ (18,135 ) (7.0 )% $ (71 ) 0.0 %
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American Apparel, Inc.Hassan Natha, 213-488-0226Executive Vice
President and Chief Financial Officer