MRO Magazine

American Apparel, Inc. Reports Fourth Quarter 2014 Financial Results


March 25, 2015
By Business Wire News

LOS ANGELES

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 fourth quarter and year ended December 31, 2014.

Financial Highlights for the Fourth Quarter of 2014

  • Loss per share was $0.16 compared to $0.19 in the fourth quarter of 2013
  • Adjusted EBITDA was $10.3 million compared to $0.4 million in the fourth quarter of 2013
  • Operating expenses, excluding significant charges, decreased $10.9 million or 12% for the quarter, compared to the same period in 2013
  • Inventories decreased $21.8 million or 13%, compared to the same period in 2013

Paula Schneider, Chief Executive Officer, commented, “Our fourth quarter year-over-year growth in adjusted EBITDA and reduction in operating expenses position us for a solid turnaround of this business. We remain focused on putting the right processes and systems in place-such as a rigorous forecasting process and disciplined bottom-up budgeting-so that we can better leverage American Apparel’s strong brand.”

Operating Results – Fourth Quarter 2014

Net sales for the fourth quarter of 2014 decreased $15.6 million, or 9%, compared to the same period in 2013 due to lower sales in all three sales channels compared to the same period in 2013.

Gross profit for the fourth quarter of 2014 decreased 9% to $72.2 million from $79.5 million for the same period in 2013, primarily due to the lower retail and wholesale sales volume. Gross profit, excluding significant charges, increased to 52.2% of net sales in the fourth quarter of 2014 from 47.5% in the fourth quarter of 2013.

Operating expense for the fourth quarter of 2014 was $84.0 million, compared to $90.7 million for the same period in 2013. Excluding the effects of significant charges related to customs settlement and contingencies, the internal investigation of Dov Charney, and employment settlement and severance costs, operating expenses for the fourth quarter decreased $10.9 million or 12%, compared to the same period in 2013. The decrease in costs was due to lower payroll and lower costs related to our advertising and promotional activities from our ongoing cost reduction initiatives.

Net loss for the fourth quarter of 2014 was $28.0 million or $0.16 per share, compared to net loss of $20.8 million, or $0.19 per share for the fourth quarter of 2013. Results for the fourth quarter of 2014 include $15.4 million, or $0.09 per share, related to significant charges. Results for the fourth quarter of 2013 include $4.2 million, or $0.04 per share, related to significant charges.

Significant Charges

Customs settlements and contingencies – We wrote off $3.3 million of duty receivables for our European subsidiaries based on a recoverability analysis and probability of collection. These duty receivables related to changes in transfer costs for product sold to the European entities.

Internal investigation – On June 18, 2014, the Board of Directors (the “Board”) voted to replace Dov Charney as Chairman of the Board, suspended him, and notified him of its intent to terminate his employment as President and CEO for cause. In connection with the Nomination, Standstill and Support agreement, dated July 9, 2014, with Standard General and Mr. Charney, the Board formed a new special committee for the purpose of overseeing the investigation into alleged misconduct by Mr. Charney. We incurred investigation related legal and consulting fees of $3.8 million in the fourth quarter of 2014.

Employment settlements – In the fourth quarter of 2014, we entered into settlements of certain previously disclosed employment-related claims. The settlements resulted in additional charges totaling $1.1 million during the fourth quarter of 2014.

Additional inventory reserves – In late 2014, we initiated activities to review and improve store merchandising, working capital and liquidity, and, as such, accelerated the sale of slow-moving inventory through our retail and online sales channels. As part of this process, we also identified certain slow-moving, second quality finished goods and raw materials that required additional reserves. Based on our review of the inventory on-hand, we increased our excess and obsolescence reserve by $4.5 million.

Unrealized Gain/Loss on Change in Fair Value of Warrants

As of December 31, 2014, Lion Capital LLP held warrants to purchase 24.5 million shares of our common stock, with an exercise price of $0.66 per share. 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.

Liquidity and Capital Resources

As of December 31, 2014, we had $8.3 million in cash, $34.3 million outstanding on our asset-backed revolving credit facility and $13.1 million of availability for additional borrowing under the facility. As of March 13, 2015, we had $5.8 million of availability for additional borrowings under the facility.

On March 25, 2015, we entered into the Sixth Amendment to the Capital One Credit Facility (“the Sixth Amendment”) which (i) waived any defaults under the Capital One Credit Facility due to failure to meet the obligation to maintain the the obligation to maintain the maximum leverage ratio and minimum adjusted EBITDA for the measurement periods ended December 31, 2014, as defined by the credit agreement, (ii) waived the obligation to maintain the minimum fixed charge coverage ratio, the maximum leverage ratio and minimum adjusted EBITDA required for the twelve months ended March 31, 2015, (iii) included provisions to permit us to enter into the Standard General Credit Agreement (as defined below), (iv) reset financial covenants relating to maintaining minimum fixed charge coverage ratios, maximum leverage ratios, maximum capital expenditures and minimum adjusted EBITDA, and (v) permitted us to borrow $15 million under the Standard General Credit Agreement.

As of December 31, 2014, we were not in compliance with the maximum leverage ratio and the minimum adjusted EBITDA covenants under the Capital One Credit Facility. For the April 1, 2014 through December 31, 2014 covenant reference period, the maximum leverage ratio was 6.70 to 1.00 as compared with the covenant maximum of 5.10 to 1.00 and the minimum adjusted EBITDA was $38.2 million as compared with the covenant minimum of $41.1 million. However, these covenant violations were waived by the Sixth Amendment. For the year ended December 31, 2014, we were required to maintain a minimum fixed charge coverage ratio of not less than 1.00 to 1.00 and a maximum capital expenditure of not more than $8 million. We were in compliance with these covenants at December 31, 2014.

On March 25, 2015, one of our subsidiaries borrowed $15 million under an unsecured credit agreement with Standard General, dated as of March 25, 2015 (the “Standard General Credit Agreement”). The Standard General Credit Agreement is guaranteed by us, bears interest at 14% per annum, and will mature on October 15, 2020. The proceeds of such loan are intended to provide additional liquidity to the Company as contemplated by the Standstill and Support Agreement.

We believe that we have sufficient financing commitments to make the April 15, 2015 interest payment as well as meet other funding requirements for the next twelve months.

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 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 (including changes to the supply chain operations, certain customs settlements and contingencies, additional inventory reserves, internal investigation, and employment settlements and severance), 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 changes to the supply chain operations – our transition to the La Mirada warehouse in 2013, additional inventory reserves, and certain custom settlements and contingencies.

Operating expenses excluding significant charges is calculated as operating expenses less significant charges related to certain customs settlements and contingencies, internal investigation, employment settlements and severance and changes to the supply chain operations.

Loss from operations excluding significant charges is calculated as loss from operations less significant charges related to certain customs settlements and contingencies, additional inventory reserves, internal investigation, employment settlement and severance and changes to the supply chain operations.

About American Apparel

American Apparel, Inc. (the “Company,” “we,” “us,” and “our”) is a vertically-integrated manufacturer, distributor, and retailer of branded fashion basic apparel based in downtown Los Angeles, California. As of December 31, 2014, the Company had approximately 10,000 employees and operated 242 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: consequences of the termination of Dov Charney, our former chief executive officer (or the internal investigation related thereto), including any litigation or regulatory investigations, 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 and Dov Charney; ability to successfully implement our strategic, operating, financial and personnel initiatives; ability to effectively carry out and manage our strategy; 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; ability to generate or obtain from external sources sufficient liquidity for operations and debt service; consequences of our significant indebtedness, including our relationship with lenders, ability to comply with debt agreements, ability to generate cash flow to service our debt, and the risk of acceleration of borrowings thereunder as a result of noncompliance; 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 for the year ended December 31, 2014. 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 December 31,  Twelve Months Ended December 31,
 2014      2013    2014      2013  
Net sales $ 153,529 $ 169,102 $ 608,891 $ 633,941
 
Cost of sales   81,294     89,595     299,756     313,056  
 
Gross profit 72,235 79,507 309,135 320,885
 
Selling and distribution expenses 53,412 64,448 212,557 241,683
General and administrative expenses 30,594 26,241 121,423 106,957
Retail store impairment   817     1,229     2,738     1,540  
 
Loss from operations (12,588 ) (12,411 ) (27,583 ) (29,295 )
 
Interest expense 9,937 9,731 39,853 39,286
Foreign currency transaction loss (gain) 731 (421 ) 1,479 1

Unrealized loss (gain) on change in fair value of warrants

4,535 (1,512 ) (1,715 ) 3,713
(Gain) loss on extinguishment of debt 0 0 (171 ) 32,101
Other (income) expense   (366 )   89     (371 )   131  
 
Loss before income taxes (27,425 ) (20,298 ) (66,658 ) (104,527 )
Income tax provision   537     472     2,159     1,771  
 
Net loss$(27,962)$(20,770)$(68,817)$(106,298)
 
 
Net loss per share, basic and diluted $ (0.16 ) $ (0.19 ) $ (0.43 ) $ (0.96 )
Weighted-average shares outstanding, basic and diluted 175,134 111,330 158,844 110,326
 
AMERICAN APPAREL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 
 December 31, 2014  December 31, 2013
ASSETS
Current assets:
Cash $ 8,343 $ 8,676
Trade accounts receivable, net of allowances 25,298 20,701
Prepaid expenses and other current assets 16,442 15,636
Inventories, net 147,578 169,378
Income taxes receivable and prepaid income taxes 648 306
Deferred income taxes, net of valuation allowance   681     599  
Total current assets198,990215,296
 
Property and equipment, net 49,317 69,303
Deferred income taxes, net of valuation allowance 2,194 2,426
Other assets, net   43,888     46,727  
TOTAL ASSETS$294,389  $333,752  
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Cash overdraft $ 5,714 $ 3,993
Revolving credit facilities and current portion of long-term debt 34,312 44,042
Accounts payable 35,554 38,290
Accrued expenses and other current liabilities 61,369 50,018
Fair value of warrant liability 19,239 20,954
Income taxes payable 2,063 1,742
Deferred income tax liability, current 1,045 1,241
Current portion of capital lease obligations   2,978     1,709  
Total current liabilities162,274161,989
 
Long-term debt, net of unamortized discount 217,388 213,468
Capital lease obligations, net of current portion 1,982 5,453
Deferred tax liability 200 536
Deferred rent, net of current portion 13,346 18,225
Other long-term liabilities   14,715     11,485  
TOTAL LIABILITIES  409,905    411,156  
 
STOCKHOLDERS’ DEFICIT
Common stock 18 11
Additional paid-in capital 218,779 185,472
Accumulated other comprehensive loss (6,915 ) (4,306 )
Accumulated deficit (325,241 ) (256,424 )
Less: Treasury stock   (2,157 )   (2,157 )
TOTAL STOCKHOLDERS’ DEFICIT  (115,516)  (77,404)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT$294,389  $333,752  
 
AMERICAN APPAREL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 
 Twelve Months Ended December 31,
 2014      2013  
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 604,796 $ 636,049
Cash paid to suppliers, employees and others (575,124 ) (627,910 )
Income taxes paid (2,055 ) (2,033 )
Interest paid (33,250 ) (18,948 )
Other   421     119  
Net cash used in operating activities   (5,212 )   (12,723 )
 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (9,818 ) (27,054 )
Proceeds from sale of fixed assets 21 173
Restricted cash   214     1,734  
Net cash used in investing activities   (9,583 )   (25,147 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Cash overdraft 1,720 3,993
Repayments of expired revolving credit facilities, net 0 (28,513 )
(Repayments) borrowings under current revolving credit facilities, net (9,709 ) 39,794
Repayments of term loans and notes payable (60 ) (20,466 )
Repayment of Lion term loan 0 (144,149 )
Issuance of Senior Secured Notes 0 199,820
Payments of debt issuance costs (2,102 ) (11,909 )
Net proceeds from issuance of common stock 28,435 0
Proceeds from stock option exercise 574 0
Payment of payroll statutory tax withholding on share-based compensation associated with issuance of common stock (647 ) (2,623 )
Repayments of capital lease obligations   (2,659 )   (1,719 )
Net cash provided by financing activities   15,552     34,228  
 
EFFECT OF FOREIGN EXCHANGE RATE ON CASH (1,090 ) (535 )
   
NET DECREASE IN CASH (333 ) (4,177 )
Cash, beginning of period   8,676     12,853  
Cash, end of period $ 8,343   $ 8,676  
 
AMERICAN APPAREL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

(unaudited)

 
 Twelve Months Ended December 31,
 2014      2013  
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES
Net loss $ (68,817 ) $ (106,298 )
Depreciation and amortization of property and equipment, and other assets 25,897 26,076
Retail store impairment 2,738 1,540
Loss on disposal of property and equipment 52 241
Share-based compensation expense 4,317 8,451
Unrealized (gain) loss on change in fair value of warrants (1,715 ) 3,713
Amortization of debt discount and deferred financing costs 2,546 4,325
(Gain) loss on extinguishment of debt (171 ) 32,101
Accrued interest paid-in-kind 4,189 9,949
Foreign currency transaction loss 1,479 1
Allowance for inventory shrinkage and obsolescence 6,049 116
Bad debt expense 1,563 1,512
Deferred income taxes (574 ) (168 )
Deferred rent (4,316 ) (2,093 )
Changes in cash due to changes in operating assets and liabilities:
Trade accounts receivables (5,658 ) 596
Inventories 12,682 3,715
Prepaid expenses and other current assets (1,210 ) (6,063 )
Other assets 381 (4,393 )
Accounts payable (1,078 ) 2,287
Accrued expenses and other liabilities 16,344 11,764
Income taxes receivable/payable   90     (95 )
Net cash used in operating activities $ (5,212 ) $ (12,723 )
 
AMERICAN APPAREL, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION

(in thousands)

(unaudited)

 

The following table presents key financial information for our business segments before unallocated corporate expenses:

 
 Three Months Ended December 31, 2014
U.S. Wholesale  U.S. Retail  Canada  International  Consolidated

Total net sales

$ 52,002 $ 49,730 $ 14,853 $ 36,944 $ 153,529
Gross profit 13,060 32,217 8,020 18,938 72,235
Income (loss) from segment operations 5,023 (234 ) 1,926 (3,094 ) 3,621
Depreciation and amortization 2,148 2,642 403 882 6,075
Capital expenditures 291 522 62 268 1,143
Retail store impairment 0 0 64 753 817
Deferred rent benefit (28 ) (389 ) (47 ) (191 ) (655 )
 
Three Months Ended December 31, 2013
U.S. WholesaleU.S. RetailCanadaInternationalConsolidated

Total net sales

$ 53,727 $ 55,200 $ 17,292 $ 42,883 $ 169,102
Gross profit 9,518 34,664 9,476 25,849 79,507
(Loss) income from segment operations (906 ) (492 ) 2,092 (2,375 ) (1,681 )
Depreciation and amortization 2,091 3,189 465 1,176 6,921
Capital expenditures 4,268 1,827 197 1,855 8,147
Retail store impairment 0 564 (1 ) 666 1,229
Deferred rent expense (benefit) 38 (564 ) (96 ) 196 (426 )
 
Twelve Months Ended December 31, 2014
U.S. WholesaleU.S. RetailCanadaInternationalConsolidated

Total net sales

$ 208,969 $ 191,442 $ 51,544 $ 156,936 $ 608,891
Gross profit 60,182 123,738 28,023 97,192 309,135
Income (loss) from segment operations 31,068 (794 ) 3,838 (1,380 ) 32,732
Depreciation and amortization 8,645 11,614 1,672 3,966 25,897
Capital expenditures 2,424 4,018 415 2,961 9,818
Retail store impairment 0 696 178 1,864 2,738
Deferred rent benefit (443 ) (3,025 ) (202 ) (646 ) (4,316 )
 
Twelve Months Ended December 31, 2013
U.S. WholesaleU.S. RetailCanadaInternationalConsolidated

Total net sales

$ 201,251 $ 205,011 $ 60,134 $ 167,545 $ 633,941
Gross profit 49,877 131,912 34,720 104,376 320,885
Income (loss) from segment operations 11,981 (2,731 ) 3,684 3,916 16,850
Depreciation and amortization 7,418 12,420 1,853 4,385 26,076
Capital expenditures 10,115 11,204 1,167 4,568 27,054
Retail store impairment 0 642 144 754 1,540
Deferred rent expense (benefit) 81 (1,678 ) (375 ) (121 ) (2,093 )
 
AMERICAN APPAREL, INC. AND SUBSIDIARIES

BUSINESS SEGMENT INFORMATION (continued)

(in thousands)

(unaudited)

 
 Three Months Ended  Twelve Months Ended
December 31,December 31,
Reconciliation to Loss before Income Taxes  2014      2013    2014      2013  
 

Income (loss) from operations of reportable segments

$ 3,621 $ (1,681 )

$

32,732

$

16,850
Unallocated corporate expenses 16,209 10,730 60,315 46,145
Interest expense 9,937 9,731 39,853 39,286
Foreign currency transaction loss (gain) 731 (421 ) 1,479 1
Unrealized loss (gain) on change in fair value of warrants 4,535 (1,512 ) (1,715 ) 3,713
(Gain) loss on extinguishment of debt 0 0 (171 ) 32,101
Other (income) expense   (366 )   89     (371 )   131  
 
Consolidated loss before income taxes $ (27,425 ) $ (20,298 )

$

(66,658 )

$

(104,527 )
 
Three Months EndedTwelve Months Ended
December 31,December 31,

Total net sales

 2014    2013    2014    2013  
 
U.S. Wholesale
Wholesale $ 39,434 $ 40,523 $ 167,795 $ 159,682
Online consumer   12,568     13,204     41,174     41,569  
Total $ 52,002   $ 53,727   $ 208,969   $ 201,251  
 
U.S. Retail $ 49,730   $ 55,200   $ 191,442   $ 205,011  
 
Canada
Wholesale $ 2,790 $ 2,856 $ 10,224 $ 12,092
Retail 10,950 13,499 38,087 45,163
Online consumer   1,113     937     3,233     2,879  
Total $ 14,853   $ 17,292   $ 51,544   $ 60,134  
 
International
Wholesale $ 1,835 $ 2,596 $ 8,842 $ 8,893
Retail 30,313 35,888 131,113 141,517
Online consumer   4,796     4,399     16,981     17,135  
Total $ 36,944   $ 42,883   $ 156,936   $ 167,545  
 
Consolidated
Wholesale $ 44,059 $ 45,975 $ 186,861 $ 180,667
Retail 90,993 104,587 360,642 391,691
Online consumer   18,477     18,540     61,388     61,583  
Total $ 153,529   $ 169,102   $ 608,891   $ 633,941  
 
Calculation and Reconciliation of Consolidated Adjusted EBITDA

(in thousands)

(unaudited)

 
 Three Months Ended December 31,  Twelve Months Ended December 31,
 2014      2013    2014      2013  
Net Loss $ (27,962 ) $ (20,770 ) $ (68,817 ) $ (106,298 )
Income tax provision 537 472 2,159 1,771
Interest expense 9,937 9,731 39,853 39,286
Depreciation and amortization 6,075 6,921 25,897 26,076
Unrealized loss (gain) on change in fair value of warrants 4,535 (1,512 ) (1,715 ) 3,713
(Gain) loss on extinguishment of debt 0 0 (171 ) 32,101
Share-based compensation expense 553 407 4,317 8,451
Foreign currency transaction loss (gain) and other expense 365 (332 ) 1,108 132
Retail store impairment 817 1,229 2,738 1,540
 
Changes to supply chain operations 0 3,974 0 14,874
Additional inventory reserves 4,525 0 4,525 0
Customs settlements and contingencies 5,948 0 12,495 0
Internal investigation 3,757 0 10,376 0
Employment settlements and severance   1,210     253     7,025     939  
Consolidated Adjusted EBITDA$10,297  $373  $39,790  $22,585  
 

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 an as-adjusted basis, together with the reconciliation to the most directly comparable GAAP measure: (in thousands, except for percentages; unaudited):

 
 Three Months Ended December 31,
 2014    % of Net Sales    2013    % of Net Sales
Gross profit $ 72,235 47.0 % $ 79,507 47.0 %
Changes to supply chain operations 0 827
Additional inventory reserves 4,525 0
Customs settlements and contingencies   3,318       0    
Gross profit – adjusted (non-GAAP) $ 80,078   52.2 % $ 80,334   47.5 %
 
Operating expenses $ 84,006 54.7 % $ 90,689 53.6 %
Changes to supply chain operations 0 (3,147 )
Customs settlements and contingencies (2,630 ) 0
Internal investigation (3,757 ) 0
Employment settlements and severance   (1,210 )     (253 )  
Operating expenses – adjusted (non-GAAP) $ 76,409   49.8 % $ 87,289   51.6 %
 
Loss from operations $ (12,588 ) (8.2 )% $ (12,411 ) (7.3 )%
Changes to supply chain operations 0 3,974
Additional inventory reserves 4,525 0
Customs settlements and contingencies 5,948 0
Internal investigation 3,757 0
Employment settlements and severance   1,210       253    

Income (loss) from operations – adjusted (non-GAAP)

$ 2,852   1.9 % $ (8,184 ) (4.8 )%
 
Twelve Months Ended December 31,
 2014  % of Net Sales  2013  % of Net Sales
Gross profit $ 309,135 50.8 % $ 320,885 50.6 %
Changes to supply chain operations 0 3,027
Additional inventory reserves 4,525 0
Customs settlements and contingencies   4,154       0    
Gross profit – adjusted (non-GAAP) $ 317,814   52.2 % $ 323,912   51.1 %
 
Operating expenses $ 333,980 54.9 % $ 348,640 55.0 %
Changes to supply chain operations 0 (11,847 )
Customs settlements and contingencies (8,341 ) 0
Internal investigation (10,376 ) 0
Employment settlements and severance   (7,025 )     (939 )  
Operating expenses – adjusted (non-GAAP) $ 308,238   50.6 % $ 335,854   53.0 %
 
Loss from operations $ (27,583 ) (4.5 )% $ (29,295 ) (4.6 )%
Changes to supply chain operations 0 14,874
Additional inventory reserves 4,525 0
Customs settlements and contingencies 12,495 0
Internal investigation 10,376 0
Employment settlements and severance   7,025       939    

Income (loss) from operations – adjusted (non-GAAP)

$ 6,838   1.1 % $ (13,482 ) (2.1 )%

Weber Shandwick
John Dillard and Liz Cohen
(212) 445-8044