American Apparel Inc. Reports Fourth Quarter and Full Year 2012 Financial Results 

As a percent of revenue, operating expenses for the quarter decreased 490 basis points to 49.8 percent from 54.7 percent in the fourth quarter 2011. The decrease was primarily due to control over and leverage of fixed overhead expenses.

Other expense for the fourth quarter of 2012 was $0 versus $8.1 million in the prior year quarter. In 2012, interest expense of $11.3 million was offset by an $11.2 million mark-to-market unrealized gain on our warrant liability. In 2011, interest expense was $9.5 million and was partially offset by a $2.3 million mark-to-market unrealized gain on our warrant liability. 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 and will be classified as equity when the warrants are exercised or if the related debt is paid off. We incurred higher interest expense in 2012 due to a higher average balance of debt outstanding and higher interest rates related to the Crystal Credit Agreement.

Income tax provision in the fourth quarter 2012 was $1.9 million versus $0.7 million in the 2011 fourth quarter. In accordance with U.S. GAAP, we have discontinued recognizing potential tax benefits associated with current operating losses. As of Dec. 31, 2012, we had available federal net operating loss carry forwards of approximately $95.6 million and unused federal and state tax credits of $12.7 million.

Net income for the fourth quarter of 2012 was $4.9 million, or $0.04 per common share on a fully-diluted basis, compared to net loss for the fourth quarter of 2011 of $11.2 million or $0.11 per common share. The 2012 fourth quarter includes an income statement credit of $11.2 million ($0.10 per common share on a fully-diluted basis) associated with a non-cash reduction in the fair value of outstanding warrants. The 2011 fourth quarter includes a similar credit of $2.3 million ($0.02 per common share) for a non-cash reduction in the fair value of such warrants. Fully-diluted weighted average shares outstanding were 115.4 million in the fourth quarter of 2012 versus 104.3 million for the fourth quarter of 2011.