American Apparel, Inc. Reports Third Quarter 2012 Financial Results

  American Apparel, Inc. Reports Third Quarter 2012 Financial Results

Business Wire

LOS ANGELES -- November 13, 2012

American Apparel, Inc. (NYSE MKT: APP), a vertically integrated manufacturer,
distributor, and retailer of branded fashion-basic apparel, announced
financial results for its third quarter ended September 30, 2012.

Dov Charney, Chairman and CEO of American Apparel, Inc., stated, “We are
pleased with our third quarter results that again show solid growth and
continuing momentum in all business segments and major geographies.
Significant sales growth allowed us to more than double our EBITDA performance
to $13 million for the third quarter of 2012 from $6 million for the third
quarter of 2011. Year-to-date our EBITDA performance has improved to $19
million from $5 million for the corresponding period last year (See Graph 1).
EBITDA performance for the twelve months ended September 30, 2012 was $28
million or double that reported for the full year in 2011 (See Graph 2). As we
improve store productivity and aggressively grow our online and wholesale
businesses we expect operating expense leverage will allow us to continue to
significantly grow EBITDA performance.

"We continue to make meaningful progress in improving inventory efficiency
with a 5% reduction in unit inventory in this quarter. This brings our total
unit reduction to over 18% since we began this undertaking in 2011. Although
our aggressive approach to reducing inventories has caused a modest amount of
margin erosion, improving inventory turns by driving unit sales will improve
inventory efficiency, lower carrying costs and reduce working capital
requirements over the long-term. These efforts, together with other operating
performance improvements will assist in our near-term refinancing efforts."

So far, through November 12, 2012, comparable sales for the Company's retail
stores have increased 13%.

Operating Results

Comparing the third quarter 2012 to the corresponding period last year, net
sales increased 15% to $162.2 million on a 20% increase in comparable store
sales in the retail business, a 6% increase in net sales in the wholesale
business and a 1% increase in the average number of stores.

The following delineates the components of the net sales increase for the
quarterly period ended September 30, 2012 as compared to the corresponding
quarter of the prior year:

                                     2012         2011
                                            Third        Third
                                                     Quarter          Quarter
              Comparable Store Sales         20   %       2    %
              Comparable Online              21   %       11   %
              Sales
              Comparable Retail &            20   %       3    %
              Online
              Wholesale Net Sales            6    %       9    %
                                                         

Gross profit of $85.2 million for the third quarter of 2012 increased 14% from
$75.0 million reported for the third quarter of 2011. Holding foreign currency
rates constant to those last year, gross profit in the 2012 third quarter
would have been $87.1 million or 16% higher than reported in the 2011 third
quarter. Gross margin rate for the 2012 third quarter decreased to 52.5% from
53.2% for the 2011 third 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 third quarter, lower inventory shrink reserves reflecting
the benefits of our RFID implementation and lower costs of production in our
manufacturing operations.

As a percent of revenue, operating expenses for the quarter decreased 540
basis points to 49.7% from 55.1% for the third quarter 2011. Included in
operating expense in the 2012 third quarter was $5.5 million in depreciation
expense versus a combined $6.9 million in depreciation expense and store
impairment charges in the third quarter of 2011. After excluding the effects
of store impairment and depreciation charges between the quarterly periods,
there was a 390 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 third quarter of 2012 was $23.1 million versus $4.4
million in the comparable quarter last year. The $18.7 million increase was
primarily due to the increase in the fair market value of our outstanding
warrants at September 30, 2012 as compared with September 30, 2011, resulting
in a net change in unrealized loss of $19.4 million. As our warrant liability
is deemed to be a derivative financial instrument it is marked-to-market based
primarily upon the change in our stock price between accounting periods. The
warrant liability will not result in a future cash outflow by the Company and
classified as equity when the warrants are exercised. Additionally, we
incurred higher interest expense due to a higher average balance of debt
outstanding and higher interest rates related to the Crystal Credit Agreement.

The third quarter 2012 net loss included an income tax provision of $0.5
million versus $0.2 million in the 2011 third quarter. In accordance with U.S.
GAAP, we discontinued recognizing potential tax benefits associated with
current operating losses. As of September 30, 2012, we had available federal
net operating carry forwards of approximately $73.3 million and unused federal
and state tax credits of $16.2 million.

Net loss for the third quarter of 2012 was $19.0 million, or $0.18 per common
share, compared to net loss for the third quarter of 2011 of $7.2 million or
$0.07 per common share. The 2012 third quarter net loss and net loss per
common share includes $13.3 million of expense ($0.13 per common share)
associated with a non-cash charge for an increase in the fair value of
outstanding warrants. The 2011 third quarter includes an income statement
credit of $6.1 million ($0.06 per common share) for a non-cash reduction in
the fair value of the same warrant liability. Weighted average shares
outstanding were 106.2 million in the third quarter of 2012 versus 102.3
million for the third quarter of 2011.

As of November 1, 2012 there were approximately 106.4 million shares
outstanding.

For a reconciliation of consolidated net loss and consolidated adjusted
EBITDA, a non-GAAP financial measure, please refer to the Table A attached to
this press release.

2012 Outlook Update

For 2012, the Company is updating its adjusted EBITDA outlook to $36 to $40
million from the prior estimate of $36 million to $44 million. The adjustment
to our estimate reflects in part a reduction to the business lost as a result
of Hurricane Sandy, and additional investments in advertising and store
technologies. This outlook assumes net sales of $604 million to $610 million
and a gross profit margin of 53% to 54%. Capital expenditures are estimated at
approximately $17 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 October 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, Australia,
Japan, South Korea and China. American Apparel also operates a global
e-commerce site that serves over 60 countries worldwide at
http://www.americanapparel.net. In addition, American Apparel also operates a
leading wholesale business that supplies high quality T-shirts and other
casual wear to distributors and screen printers.

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.

                                                
                                                     
AMERICAN APPAREL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts and shares in thousands, except per share amounts)

(unaudited)
                                                     
                                                     
                    Three Months Ended September     Nine Months Ended
                    30,                              September 30,
                    2012            2011            2012         2011
Net sales           $  162,160      $ 140,889       $ 444,282    $ 389,760
                                                                   
Cost of sales       76,960          65,898         209,990      178,705   
                                                                   
Gross profit        85,200           74,991          234,292       211,055
                                                                   
Operating           80,583          77,619         240,179      231,997   
expenses
                                                                   
Income (loss)       4,617            (2,628    )     (5,887    )   (20,942   )
from operations
                                                                   
Interest            10,454           8,832           30,274        23,715
expense
Foreign
currency            (685        )    1,855           141           780
transaction
(gain) loss
Unrealized loss
(gain) on
change in fair      13,312           (6,101    )     15,340        (21,201   )
value of
warrants and
purchase rights
(Gain) loss on
extinguishment      —                —               (11,588   )   3,114
of debt
Other expense       36              (186      )     188          (240      )
(income)
                                                                   
Loss before         (18,500     )    (7,028    )     (40,242   )   (27,110   )
income taxes
Income tax          512             166            1,933        1,042     
provision
                                                                   
Net loss            $  (19,012  )    $ (7,194  )     $ (42,175 )   $ (28,152 )
                                                                   
                                                                   
                                                                   
Basic and
diluted loss        $  (0.18    )    $ (0.07   )     $ (0.40   )   $ (0.32   )
per share
Weighted
average basic
and diluted         106,248          102,279         105,960       88,614
shares
outstanding
                                                                             
                                                                             

                                                        
                                                             
AMERICAN APPAREL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(unaudited)
                                                             
                                                             
                                      September 30, 2012     December 31, 2011
ASSETS
CURRENT ASSETS
Cash                                  $    7,186             $   10,293
Trade accounts receivable, net of     25,951                 20,939
allowances
Prepaid expenses and other            10,800                 7,631
current assets
Inventories, net                      180,879                185,764
Restricted cash                       5,928                  —
Income taxes receivable and           1,475                  5,955
prepaid income taxes
Deferred income taxes, net of         639                   148           
valuation allowance
Total current assets                  232,858                230,730
PROPERTY AND EQUIPMENT, net           65,959                 67,438
DEFERRED INCOME TAXES, net of         1,559                  1,529
valuation allowance
OTHER ASSETS, net                     33,269                25,024        
TOTAL ASSETS                          $    333,645          $   324,721   
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Cash overdraft                        $    2,625             $   1,921
Revolving credit facilities and       71,586                 50,375
current portion of long-term debt
Accounts payable                      37,247                 33,920
Accrued expenses and other            38,750                 43,725
current liabilities
Fair value of warrant liability       28,455                 9,633
Income taxes payable                  389                    2,445
Deferred income tax liability,        697                    150
current
Current portion of capital lease      1,017                 1,181         
obligations
Total current liabilities             180,766                143,350
LONG-TERM DEBT, net of                103,964                97,142
unamortized discount
CAPITAL LEASE OBLIGATIONS, net of     1,083                  1,726
current portion
DEFERRED TAX LIABILITY                108                    96
DEFERRED RENT, net of current         21,597                 22,231
portion
OTHER LONG-TERM LIABILITIES           12,250                12,046        
TOTAL LIABILITIES                     319,768               276,591       
                                                             
STOCKHOLDERS' EQUITY
Common stock                          11                     11
Additional paid-in capital            173,787                166,486
Accumulated other comprehensive       (2,735         )       (3,356        )
loss
Accumulated deficit                   (155,029       )       (112,854      )
Less: Treasury stock                  (2,157         )       (2,157        )
TOTAL STOCKHOLDERS' EQUITY            13,877                48,130        
TOTAL LIABILITIES AND                 $    333,645          $   324,721   
STOCKHOLDERS' EQUITY
                                                                           
                                                                           

                                            
                                               
AMERICAN APPAREL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(unaudited)
                                               
                                               
                                               Nine Months Ended September 30,
                                               2012             2011
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers                   $  439,634        $  387,780
Cash paid to suppliers, employees and          (431,915    )     (392,684    )
others
Income taxes refunded (paid)                   646               (1,413      )
Interest paid                                  (6,635      )     (3,959      )
Other                                          (160        )     323         
Net cash provided by (used in) operating       1,570            (9,953      )
activities
                                                                 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures                           (14,257     )     (7,284      )
Proceeds from sale of fixed assets             70                72
Restricted cash                                (5,926      )     —           
Net cash used in investing activities          (20,113     )     (7,212      )
                                                                 
CASH FLOWS FROM FINANCING ACTIVITIES
Cash overdraft                                 704               (2,484      )
Repayments of expired revolving credit         (48,324     )     (1,309      )
facilities, net
Borrowings under current revolving credit      39,337            —
facilities, net
Borrowings (repayments) of term loans and      30,042            (10         )
notes payable
Payment of debt issuance costs                 (4,965      )     (1,690      )
Net proceeds from issuance of common stock     —                 21,710
and purchase rights
Proceeds from equipment lease financing        —                 3,100
Repayment of capital lease obligations         (810        )     (996        )
Net cash provided by financing activities      15,984           18,321      
                                                                 
EFFECT OF FOREIGN EXCHANGE RATE ON CASH        (548        )     (844        )
                                                                
NET (DECREASE) INCREASE IN CASH                (3,107      )     312
CASH, beginning of period                      10,293           7,656       
CASH, end of period                            $  7,186         $  7,968    
                                                                             
                                                                             

                                            
                                               
AMERICAN APPAREL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Amounts in thousands)

(unaudited)
                                               
                                               
                                               Nine Months Ended September 30,
                                               2012             2011
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES
Net loss                                       $  (42,175  )     $  (28,152  )
Depreciation and amortization of property      17,040            19,109
and equipment, and other assets
Retail store impairment                        129               2,436
Loss on disposal of property and equipment     28                83
Share-based compensation expense               7,333             4,538
Unrealized loss (gain) on change in fair       15,340            (21,201     )
value of warrants and purchase rights
Amortization of debt discount and deferred     7,655             6,120
financing costs
(Gain) loss on extinguishment of debt          (11,588     )     3,114
Accrued interest paid-in-kind                  15,984            13,636
Foreign currency transaction loss              141               780
Allowance for inventory shrinkage and          (339        )     783
obsolescence
Bad debt expense                               73                503
Deferred income taxes                          32                793
Deferred rent                                  (649        )     (1,862      )
Changes in cash due to changes in
operating assets and liabilities:
Trade accounts receivables                     (4,721      )     (2,483      )
Inventories                                    6,238             (8,651      )
Prepaid expenses and other current assets      (3,343      )     (174        )
Other assets                                   (5,756      )     (2,880      )
Accounts payable                               2,471             1,492
Accrued expenses and other liabilities         (4,750      )     3,227
Income taxes receivable/payable                2,427            (1,164      )
Net cash used in operating activities          $  1,570         $  (9,953   )
                                                                 
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Property and equipment acquired and            $  98             $  1,488
included in accounts payable
Reclassification of Lion warrants from         —                 11,339
equity to debt
Conversion of debt to equity                   —                 4,688
Issuance of warrants and purchase rights       —                 6,387
at fair value
Exercise of purchase rights                    —                 2,857
                                                                             
                                                                             

              
                 
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 September 30, 2012
                 U.S.        U.S. Retail  Canada      International  Consolidated
                 Wholesale
Net sales to
external         $ 46,847     $ 52,714      $ 16,717     $  45,882       $  162,160
customers
Gross profit     12,873       34,361        10,166       27,800          85,200
Income from
segment          5,811        3,116         721          4,192           13,840
operations
Depreciation
and              1,446        2,747         394          951             5,538
amortization
Capital          3,300        2,136         328          894             6,658
expenditures
Deferred
rent expense     297          (349      )   (58      )   (122        )   (232       )
(benefit)
                 
                 Three Months Ended September 30, 2011
                 U.S.         U.S. Retail   Canada       International   Consolidated
                 Wholesale
Net sales to
external         $ 42,405     $ 43,104      $ 15,264     $  40,116       $  140,889
customers
Gross profit     8,897        29,607        9,432        27,055          74,991
Income
(loss) from      4,465        (622      )   (527     )   5,339           8,655
segment
operations
Depreciation
and              1,833        2,599         404          1,290           6,126
amortization
Capital          838          1,169         77           473             2,557
expenditures
Retail store     —            119           640          25              784
impairment
Deferred
rent expense     59           (294      )   (30      )   (219        )   (484       )
(benefit)
                 
                 Nine Months Ended September 30, 2012
                 U.S.         U.S. Retail   Canada       International   Consolidated
                 Wholesale
Net sales to
external         $ 131,612    $ 143,444     $ 45,096     $  124,130      $  444,282
customers
Gross profit     36,582       93,977        26,627       77,106          234,292
Income
(loss) from      18,324       449           (1,888   )   8,339           25,224
segment
operations
Depreciation
and              4,795        8,074         1,107        3,064           17,040
amortization
Capital          6,502        3,990         1,144        2,621           14,257
expenditures
Retail store     —            —             129          —               129
impairment
Deferred
rent expense     393          (509      )   (156     )   (377        )   (649       )
(benefit)
                 
                 Nine Months Ended September 30, 2011
                 U.S.         U.S. Retail   Canada       International   Consolidated
                 Wholesale
Net sales to
external         $ 115,193    $ 120,483     $ 42,256     $  111,828      $  389,760
customers
Gross profit     30,518       82,031        25,463       73,043          211,055
Income
(loss) from      16,002       (7,126    )   (1,954   )   7,618           14,540
segment
operations
Depreciation
and              6,015        7,887         1,246        3,961           19,109
amortization
Capital          2,179        3,848         209          1,048           7,284
expenditures
Retail store     —            296           642          1,498           2,436
impairment
Deferred
rent expense     211          (1,341    )   (78      )   (654        )   (1,862     )
(benefit)
                                                                                    
                                                                                    

                                                
                                                     
AMERICAN APPAREL, INC. AND SUBSIDIARIES

BUSINESS SEGMENT INFORMATION (continued)

(Amounts in thousands)

(unaudited)
                                                     
                                                     
                    Three Months Ended September   Nine Months Ended
                    30,                              September 30,
Reconciliation
to Loss before      2012            2011          2012         2011
Income Taxes
Income from
segment             $  13,840        $ 8,655         $ 25,224      $ 14,540
operations
Unallocated
corporate           (9,223      )    (11,283   )     (31,111   )   (35,482   )
expenses
Interest            (10,454     )    (8,832    )     (30,274   )   (23,715   )
expense
Foreign
currency            685              (1,855    )     (141      )   (780      )
transaction
gain (loss)
Unrealized
(loss) gain on      (13,312     )    6,101           (15,340   )   21,201
warrants and
purchase rights
Gain (loss) on
extinguishment      —                —               11,588        (3,114    )
of debt
Other (expense)     (36         )    186            (188      )   240       
income
Consolidated
loss before         $  (18,500  )    $ (7,028  )     $ (40,242 )   $ (27,110 )
income taxes
                                                     
                                                     
                    Three Months Ended September   Nine Months Ended
                    30,                              September 30,
Net sales to
external            2012             2011          2012          2011
customers
                                                                   
U.S. Wholesale
Wholesale           $  39,862        $ 36,780        $ 110,380     $ 98,840
Online consumer     6,985           5,625          21,232       16,353    
Total               $  46,847       $ 42,405       $ 131,612    $ 115,193 
                                                                   
U.S. Retail         $  52,714       $ 43,104       $ 143,444    $ 120,483 
                                                                   
Canada
Wholesale           $  3,215         $ 2,958         $ 9,449       $ 8,711
Retail              13,086           11,944          34,181        32,246
Online consumer     416             362            1,466        1,299     
Total               $  16,717       $ 15,264       $ 45,096     $ 42,256  
                                                                   
International
Wholesale           $  2,113         $ 2,825         $ 7,183       $ 7,479
Retail              39,256           33,244          102,859       92,059
Online consumer     4,513           4,047          14,088       12,290    
Total               $  45,882       $ 40,116       $ 124,130    $ 111,828 
                                                                   
Consolidated
Wholesale           $  45,190        $ 42,563        $ 127,012     $ 115,030
Retail              105,056          88,292          280,484       244,788
Online consumer     11,914          10,034         36,786       29,942    
Total               $  162,160      $ 140,889      $ 444,282    $ 389,760 
                                                                             
                                                                             

                                   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 September       Nine Months Ended
                  30,                                September 30,
                  2012             2011             2012         2011
Net loss          $  (19,012  )     $  (7,194  )     $ (42,175 )   $ (28,152 )
Income tax        512               166              1,933         1,042
provision
Interest and
other             23,802            2,545            34,214        5,388
expense, net
Depreciation
and               5,538             6,126            17,040        19,109
amortization
Foreign
currency          (685        )     1,855            141           780
(gain) loss
Retail store      —                 784              129           2,436
impairment
Share-based
compensation      2,949             2,093            7,333         4,538
expense
Other             210                              206          —         
Consolidated
Adjusted          $  13,314        $  6,375        $ 18,821     $ 5,141   
EBITDA
                                                                             

               Year Ended December 31,                              
                 2008        2009        2010         2011          TTM 2012
                                                                       ^(1)
Net Loss         $ 14,112     $ 1,112      $ (86,315 )   $ (39,314 )   $ (53,337 )
Income tax       7,255        3,816        12,164        1,721         2,612
provision
Interest and
other            14,076       22,407       24,784        12,621        41,447
expense, net
Depreciation
and              20,844       28,151       28,130        24,980        22,911
amortization
Foreign
currency         621          (2,920   )   (686      )   1,679         1,040
(gain) loss
Retail store     644          3,343        8,597         4,267         1,960
impairment
Share-based
compensation     12,625       525          3,719         6,814         9,609
expense
Other            —           —           —            1,696        1,902     
Consolidated
Adjusted         $ 70,177    $ 56,434    $ (9,607  )   $ 14,464     $ 28,144  
EBITDA
                                                                                 

              Trailing twelve months September 30, 2012 is calculated as
    (1)  year-ended December 31, 2011 plus nine months ended September
              30, 2012 minus nine months ended September 30, 2011.
              

The following table reflects the forecasted guidance range for 2012 for
adjusted EBITDA and reconciles such adjusted EBITDA guidance to Net Loss:

                                  
                                     Twelve Months Ended December 31, 2012
                                     Low End Range        High End Range
Net Loss                             $    (43,900    )     $   (39,900  )
Income tax provision                 2,300                 2,300
Interest and other expense, net      44,700                44,700
Depreciation and amortization        22,600                22,600
Foreign currency (gain) loss         200                   200
Retail store impairment              100                   100
Share-based compensation expense     9,600                 9,600
Other                                400                  400          
Consolidated Adjusted EBITDA         $    36,000          $   40,000   
                                                                        

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Contact:

American Apparel, Inc.
John J. Luttrell
Chief Financial Officer
(213) 488-0226
or
ICR, Inc.
John Rouleau
Managing Director
(203) 682-8342
John.Rouleau@icrinc.com
 
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