Los Angeles-based American Apparel Inc. provided an update on the status of its accounting evaluation of the classification of its revolving credit facility as a long-term obligation, and certain other balance sheet and cash flow presentation matters in its previously issued consolidated financial statements.
On July 17, 2009, the company’s management and the audit committee of the board of directors determined that the company will need to restate its previously issued consolidated financial statements for the year ended December 31, 2008 in order to reclassify its revolving credit facility as a current liability. As a result, the company determined that because of the pending restatement, the consolidated financial statements for the year ended December 31, 2008 should no longer be relied upon. The company’s management and audit committee discussed these matters with Deloitte & Touche LLP and with Marcum LLP, the Company’s independent registered public accounting firms through April 3, 2009.
The restatement will result in a $33.4 million decrease in long-term debt and a corresponding increase in current liabilities. The restatement amount represents the $49.4 million borrowed under the revolving credit facility at December 31, 2008, net of $16.0 million which was refinanced on a long-term basis in the first quarter of 2009. This restatement will have no impact on the company’s previously reported net cash flows, cash position, revenues, net income or comparable store sales. The company reached its conclusion based on its consideration of EITF 95-22, “Balance Sheet Classification of Borrowings Outstanding Under Revolving Credit Agreements That Include Both a Subjective Acceleration Clause and a Lock-Box Arrangement,” as well as Statement of Financial Accounting Standards No. 6, “Classification of Short-Term Obligations Expected to be Refinanced.”
The company is completing its evaluation of certain other balance sheet and cash flow presentation matters identified since the original filing of the annual report on Form 10-K on March 16, 2009. The Company will complete its evaluation prior to the filing of the amended Form 10-K for the year ended December 31, 2008 and will reflect such adjustments to these presentation matters, if necessary, in the restated financial statements. However, none of these matters are expected to be material either individually or taken in the aggregate.
The company currently expects to file its amended annual report on Form 10-K for the year ended December 31, 2008 to reflect the restatement, along with its quarterly report on Form 10-Q for the quarter ended March 31, 2009, as soon as practicable.
The filing of the company’s quarterly report on Form 10-Q for the quarter ended March 31, 2009, on or before August 19, 2009 will bring the company into compliance with Sections 134 and 1101 of the NYSE Amex LLC company Guide and satisfy the requirements of the Company’s previously disclosed compliance plan.
For more information on American Apparel, visit www.americanapparel.net.
