American Apparel Inc. was a good reputable incorporation, but then the company suffered from debt, and led the company from reputable company into drowning in debt company

1. American Apparel Inc.
(Drowning in Debt)
Itmamul Akwan (825839)
Nurul Islamiyah (825841)
Lecturer: Dr. Rasidah Mohd Rashid
Advance Corporate Financial Management
(BWFF5053)

2. Presentation
Outline 1. Background of Company
2. The Case synopsis and Issue
3. Study Objective
4. Data and Source of Reference
5. Discussion
6. Conclusion and Recommendation

3. 1. INTRODUCTION
Apparel Inc. was a vertically integrated company that ranked as one of the largest
apparel manufacturers and marketers in North America. Founded by Canadian
businessman Dov Charney in 1989.
The company had 10,000 employees as of February 28, 2014 and operated 245 retail
stores.
In term of the company’s competitiveness, the rapid growth of the brand, the extensive
use of sexually suggestive ads, high quality goods had paid off well
Even instead, from becoming the top trend-setting company in 2008 to being a debt-
ridden business, American Apparel’s path was very though and challenging3

4. 2. Case Synopsis and
issues
American Apparel Inc.
2009 – Immigration
Problem Outbreaks
American Apparel Inc. was forced to discharge the
jobs of 2,000 employees from its factories, leads to
decline of net profit by dramatically from $14 million
(2008) to $1 million (2009)
2010 – Sales Significantly
Declined
the financial situations become worst, but the company was able to
bring the investors for the company and saved it from default
2011 – The Financial
Situations Become Worst
American Apparel’s sales declined (from $558 million in 2009
becomes $532 million in 2010). Then, the operating income fell from
$24 million in 2009 becomes negatives 50 million in 2010
Continue……

5. 2. Case Synopsis and
issues
American Apparel Inc.
……Continued
2012 – Upgraded Tts
production Forecasting and
Allocation System
Enhanced the logistics using the planning solution of demand and also continued building store. During this
year, total net loss was decrease from $39 million (2011) to $37 million (2012). Sales had also started to increase
to $617 million in 2012.
2013 – The Worst Financial
Year In History Of American
Apparel
Company tries to implement two important strategic initiatives in
inventory management area and new distribution center at Los Angeles.
But it takes a lot of operating cost. Thus, The COGS increased become
$313 million and net loss from $617 million (2012) to $633 million (2013).
Meanwhile, company only had $8 million in cash on December. So that, at
the end of the year company had huge debt.
On April 3rd, 2014 – American Apparel had to pay $13.4 million in interest and other debt
repayments.
On June, 2014 – the Board of Directors decided to oust American Apparel founder, chairman and CEO, Dov
Charney, after allegations of misconduct and inappropriate behavior towards employees

6. 3. Examining several aspect of their business with which they are
experiencing difficulties or which may be undergoing change
American Apparel Inc.
Immigration Problem
American Apparel appeared
to ignore the discrepancies
regarding workers
'identification
Discharged of 20,000
Employees
This problem was started
through the recruitment
procedures of employee. The
federal investigation,
anomalies were found in
employees’ identity document
Disorganized Producing
Stock
This caused the company’s
sale declined, operating
income and net profit fell,
COGS inclined and moreover
the global economic condition
is still recession made the
recovery all more terrible.
6
3.1. Human Resource Policy

7. 3. Examining several aspect of their business with which they are
experiencing difficulties or which may be undergoing change
Financial Ratio
Total Liability by Year
7 ADD A FOOTER MM.DD.20XX
American Apparel Inc.
3.2. Financial Performance
2009 2010 2011 2012 2013
Profitability
Return on Assets 0% -26% -12% -11% -32%
Return on Equity 1% -115% -82% -169% 137%
Return on Investment 134% 111% 117% 113% 103%
Liquidity
Current Ratio 2,87 1,01 1,61 1,39 1,33
Quick Ratio 0,69 0,18 0,31 0,31 0,28
Cash Ratio 0,14 0,04 0,07 0,08 0,05
Long-term Solvency
DAR 52% 77% 85% 93% 123%
DER 108% 337% 575% 1386% -531%
Equity Multiplier 2,08 4,37 6,75 14,86 -4,31
Times Interest Earned 1,08 -2,11 -0,70 0,02 -0,75
Degree of Financial Leverage 13,65 0,68 0,41 -0,02 0,43
123.19%
93.27%
85.18%
77.12%
51.97%
59.11%
0%
20%
40%
60%
80%
100%
120%
140%
2013 2012 2011 2010 2009 2008
Total Libilities
Total Libilities

8. 3. Examining several aspect of their business with which they are
experiencing difficulties or which may be undergoing change
Financial Ratio
8
American Apparel Inc.
Common Size of Consolidated of Balance Sheet, 2008-2013 as at December 31
2013 2012 2011 2010 2009 2008
Total Current Assets 64.51% 68.37% 71.05% 66.03% 56.87% 55.71%
Total Non Current Asset 35.49% 31.63% 28.95% 33.97% 43.13% 44.29%
TOTAL ASSETS 100% 100% 100% 100% 100% 100%
TOTAL LIABILITIES 123.19% 93.27% 85.18% 77.12% 51.97% 59.11%
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY -23.19% 6.73% 14.82% 22.88% 48.03% 40.89%
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) EQUITY
100% 100% 100% 100% 100% 100%

9. 3. Examining several aspect of their business with which they are
experiencing difficulties or which may be undergoing change
9 MM.DD.20XX
American Apparel Inc.
3.2. Financial Performance
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
2007 2008 2009 2010 2011 2012 2013 2014
Common Size of Balance Sheet,
2008- 2013
Total Current Assets Total Non Current Asset TOTAL LIABILITIES TOTAL STOCKHOLDERS' (DEFICIT) EQUITY

10. 3. Examining several aspect of their business with which they are
experiencing difficulties or which may be undergoing change
10
American Apparel Inc.
Several indicators from American Apparel’s Balance Sheet from 2008 to 2013
2013 2012 2011 2010 2009 2008
Cash $ 8,676 $ 12,853 $ 10,293 $ 7,656 $ 9,046 $ 11,368
Total current assets 215,296 224,390 230,730 216,537 186,303 185,869
TOTAL ASSETS $ 333,752 $ 328,212 $ 324,721 $ 327,950 $ 327,579 $ 333,609
Accounts payable 38,290 38,160 33,920 31,534 19,705 32,731
Accrued expenses and other current
liabilities
50,018 41,516 43,725 39,028 30,573 22,140
Total current liabilities 161,989 161,609 143,350 214,151 64,880 102,800
LONG-TERM DEBT, net of unamortized
discount of $5,779 and $27,929 at
December 31, 2013 and 2012,
respectively
213,468 110,012 97,142 444
Total Long -Term Liabilities 249,167 144,519 133,241 38,775 105,358 94,397
TOTAL LIABILITIES 411,156 306,128 276,591 252,926 170,238 197,197

11. 3. Examining several aspect of their business with which they are
experiencing difficulties or which may be undergoing change
11
American Apparel Inc.
CASH FLOW STATEMENTS FOR AMERICAN APPAREL, 2009–2013
Net cash (used in) provided by:
(in thousands)
2013 2012 2011 2010 2009
Operating activities ($ 12,723) $ 23,589 $ 2,305 ($32,370) $ 45,203
Investing activities (25,147) (24,853) (10,759) (15,662) (20,889)
Financing activities 34,228 4,214 12,582 48,172 (25,471)
Effect of foreign exchange rate changes on
cash
(535) (390) (1,491) (1,530) (1,165)
Net (decrease) increase in cash ($ 4,177) $ 2,560 $ 2,637 ($ 1,390) ($ 2,322)
The financial performance factor which caused American Apparel Inc. as the growing company to become a debt-ridden
enterprise

12. Recommendation and Reason of Recommendations for American Apparel in
Order Not Falling Into Bankruptcy
o Apparel must continue reducing its expenses dues to American Apparel has been leveraging in
order to open up more stores.
o American Apparel is also advised to foreclose some of its stores. It is because the rents are
getting more expensive but the sales are not performing well by comparing it with the costs.
o The company could try to offer equity publicly or privately to get capital injected instead of
relying on debt. As debt would incur interest that would place more expenses and risk to the
company
o American Apparel could liquidate those assets which are not income generating. The cash
inflow by liquidating them would help to increase the company liquidity which could help to
buffer the damage in case there is any occurrence of contingency
o American Apparel must be very serious in dealing with the leading problem that is the human
resource problem. It is because the very beginning problem which led to the terrible
chronological issue in company was started by the immigration problem, American Apparel
was forced to discharge the jobs of 2,000 employees from its factories, resulting in its failure
to meet all timely orders and demand.12

13. CONCLUSION
American Apparel Inc.
According on the historical record of how the path of
American Apparel was very challenging and yet, it can be
inferred that the immigration problem was the very
beginning problem which led to the terrible situation.
When they were recruited, American Apparel probably
appeared to ignore the discrepancies regarding workers
'identification.
American Apparel was forced to fire its workers, the issue of
manufacturing stock in order to deliver timely to the client of
the company was then poorly organized and chaotic. This then
becomes a spillover effect on the other indicator in the
company activity such as profitability and solvency. The
company’s profitability decreases then lead to the difficulties in
many aspects, especially in dealing with the short-term
obligation which caused American Apparel Inc. as the growing
company to become a debt-ridden enterprise.
13 CONCLUSION

14. THANK YOU!
Itmamul Akwan
Nurul Islamiyah
Universiti Utara Malaysia