American Apparel (APP) Reports Q4 Loss of $0.16/Share; Sees Being Able to Make Apr. 15 Interst Payment

American Apparel (NYSE: APP) reported Q4 EPS of ($0.16), versus ($0.19) reported last year. Revenue for the quarter came in at $153.5 million, versus $169.1 million reported last year.

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.

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.

For earnings history and earnings-related data on American Apparel (APP) click here.

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