10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-32697

American Apparel, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	20-3200601
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
747 Warehouse Street, Los Angeles, California	90021
(Address of Principal Executive Offices)	(Zip Code)

Registrant's Telephone Number, Including area code: (213) 488-0226

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x    No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer” and “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

The number of shares of the registrant's common stock issued and outstanding as of November 1, 2012 was approximately110,035,094 and 106,439,304.

AMERICAN APPAREL, INC.

TABLE OF CONTENTS

Part I-Financial Information		5
Item 1.	Financial Statements (unaudited)	5
	Condensed Consolidated Balance Sheets - September 30, 2012 and December 31, 2011	5
	Condensed Consolidated Statements of Operations and Comprehensive Loss - Three and Nine Months Ended September 30, 2012 and 2011	6
	Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2012 and 2011	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	49
Part II-Other Information		50
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults Under Senior Securities	54
Item 4.	Mine Safety Disclosures	54
Item 5.	Other Information	54
Item 6.	Exhibits	54
Signatures		56

2

Unless the context requires otherwise, all references in this report to the “Company,” “Registrant”, “we,” “our,” and “us” refer to American Apparel, Inc., a Delaware corporation, together with its wholly owned subsidiary, American Apparel (USA), LLC, and its other direct and indirect subsidiaries.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the documents incorporated by reference herein, contains forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements in this Quarterly Report on Form 10-Q other than statements of historical fact are “forward-looking statements” for purposes of these provisions. Statements that include the use of terminology such as “may,” “will,” “expects,” “believes,” “plans,” “estimates,” “potential,” or “continue,” or the negative thereof or other and similar expressions are forward-looking statements. In addition, in some cases, you can identify forward-looking statements by words or phrases such as “trend,” “potential,” “opportunity,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions.

Any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, our goals, strategies, focuses and plans and other characterizations of future events or circumstances, including statements expressing general expectations or beliefs, whether positive or negative about future operating results or the development of our products and any statement of assumptions underlying any of the foregoing are forward-looking statements. Forward-looking statements in this report may include, without limitation, statements about:

• future financial condition and operating results;

• our ability to remain in compliance with financial covenants under our financing arrangements;

• our ability to extend, renew or refinance our existing debt;

• our liquidity, operating results and projected cash flows;

• our plan to make continued investments in advertising and marketing; 

• our growth, expansion and acquisition prospects and strategies, the success of such strategies, and the benefits we believe can be derived from such strategies; 

• the outcome of investigations, enforcement actions and litigation matters, including exposure, which could exceed expectations;

• our intellectual property rights and those of others, including actual or potential competitors, our personnel, consultants, and collaborators; 

• operations outside the United States; 

• trends in raw material costs and other costs both in the industry, and specific to the Company;

• the supply of raw materials and the effects of supply shortages on our financial condition, and results of operations;

• economic and political conditions; 

• overall industry and market performance; 

• the impact of accounting pronouncements; 

• our ability to improve manufacturing efficiency at our production facilities;

• management's goals and plans for future operations; and 

• other assumptions described in this Quarterly Report on Form 10-Q underlying or relating to any forward-looking statements.

The forward-looking statements in this report speak only as of the date of this report and caution should be taken not to place undue reliance on any such forward-looking statements, which are qualified in their entirety by this cautionary statement. Forward-looking statements are subject to numerous assumptions, events, risks, uncertainties and other factors, including those that may be outside of our control and that change over time. As a result, actual results and/or the timing of events could differ materially from those expressed in or implied by the forward-looking statements and future results could differ materially from historical performance. Such assumptions, events, risks, uncertainties and other factors include, among others, those described

3

under Part II, Item IA and elsewhere in this report and in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 (filed with the United States Securities and Exchange Commission (the “SEC”) on March 14, 2012) as well as in other reports and documents we file with the SEC and include, without limitation, the following:

• our ability to generate or obtain from external sources sufficient liquidity for operations and debt service;

• changes in the level of consumer spending or preferences or demand for our products;

• our liquidity, operating results and projected cash flows;

• disruptions in the global financial markets;

• consequences of our significant indebtedness, including our relationship with our lenders, our ability to comply with our debt agreements and generate cash flow to service our debt;

• our ability to maintain compliance with the exchange rules of the NYSE MKT, LLC.;

• the highly competitive and evolving nature of our business in the U.S. and internationally;

• our ability to effectively carry out and manage our strategy, including growth and expansion both in the U.S. and internationally;

• loss of U.S. import protections or changes in duties, tariffs and quotas, and other risks associated with international business;

• intensity of competition, both domestic and foreign;

• technological changes in manufacturing, wholesaling, or retailing;

• risks that our suppliers or distributors may not timely produce or deliver our products;

• loss or reduction in sales to our wholesale or retail customers or financial nonperformance by our wholesale customers;

• the adoption of new accounting standards or changes in interpretations of accounting principles;

• our ability to pass on the added cost of raw materials to our wholesale and retail customers;

• the availability of store locations at appropriate terms and our ability to identify and negotiate new store locations effectively and to open new stores and expand internationally;

• our ability to attract customers to our stores;

• seasonality and fluctuations in comparable store sales and margins;

• our ability to successfully implement our strategic, operating, financial and personnel initiatives;

• our ability to maintain the value and image of our brand and protect our intellectual property rights;

• changes in the cost of materials and labor, including increases in the price of raw materials in the global market;

• our ability to improve manufacturing efficiency at our production facilities;

• location of our facilities in the same geographic area;

• risks associated with our foreign operations and foreign supply sources, such as disruption of markets, changes in import and export laws, currency restrictions, and currency exchange rate fluctuations;

• adverse changes in our credit ratings and any related impact on financial costs and structure;

• continued compliance with U.S. and foreign government regulations, legislation, and regulatory environments, including environmental, immigration, labor, and occupational health and safety laws and regulations;

• the risk that information technology systems changes may disrupt our supply chain or operations and our ability to upgrade our information technology infrastructure, and other risks associated with the systems that operate our online retail operations;

• litigation and other inquiries, and investigations, including the risks that we or our officers will not be successful in defending any proceedings, lawsuits, disputes, claims or audits, and that exposure could exceed expectations or insurance coverages;

• our ability to effectively manage inventory levels;

• changes in key personnel, our ability to hire and retain key personnel, and our relationship with our employees;

• material weaknesses in internal controls;

• costs as a result of operating as a public company;

• general economic conditions, including increases in interest rates, geopolitical events, other regulatory changes and inflation or deflation;

• disruptions due to severe weather or climate change; and

• disruptions due to earthquakes, flooding, tsunamis or other natural disasters.

All forward-looking statements included in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statements.

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PART I-FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

American Apparel, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Amounts and shares in thousands, except per share amounts)

(unaudited)

	September 30, 2012			December 31, 2011*
ASSETS
CURRENT ASSETS
Cash	$	7,186		$	10,293
Trade accounts receivable, net of allowances of $2,143 and $2,195 at September 30, 2012 and December 31, 2011, respectively	25,951			20,939
Prepaid expenses and other current assets	10,800			7,631
Inventories, net	180,879			185,764
Restricted cash	5,928			—
Income taxes receivable and prepaid income taxes	1,475			5,955
Deferred income taxes, net of valuation allowance of $12,003 at both September 30, 2012 and December 31, 2011	639			148
Total current assets	232,858			230,730
PROPERTY AND EQUIPMENT, net	65,959			67,438
DEFERRED INCOME TAXES, net of valuation allowance of $61,770 at both September 30, 2012 and December 31, 2011	1,559			1,529
OTHER ASSETS, net	33,269			25,024
TOTAL ASSETS	$	333,645		$	324,721
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft	$	2,625		$	1,921
Revolving credit facilities and current portion of long-term debt	71,586			50,375
Accounts payable	37,247			33,920
Accrued expenses and other current liabilities	38,750			43,725
Fair value of warrant liability	28,455			9,633
Income taxes payable	389			2,445
Deferred income tax liability, current	697			150
Current portion of capital lease obligations	1,017			1,181
Total current liabilities	180,766			143,350
LONG-TERM DEBT, net of unamortized discount of $29,959 and $20,183 at September 30, 2012 and December 31, 2011, respectively	103,964			97,142
CAPITAL LEASE OBLIGATIONS, net of current portion	1,083			1,726
DEFERRED TAX LIABILITY	108			96
DEFERRED RENT, net of current portion	21,597			22,231
OTHER LONG-TERM LIABILITIES	12,250			12,046
TOTAL LIABILITIES	319,768			276,591
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.0001 par value per share, authorized 1,000 shares; none issued	—			—
Common stock, $0.0001 par value per share, authorized 230,000 shares; 110,020 shares issued and 106,384 shares outstanding at September 30, 2012 and 108,870 shares issued and 105,588 shares outstanding at December 31, 2011	11			11
Additional paid-in capital	173,787			166,486
Accumulated other comprehensive loss	(2,735		)	(3,356		)
Accumulated deficit	(155,029		)	(112,854		)
Less: Treasury stock, 304 shares at cost	(2,157		)	(2,157		)
TOTAL STOCKHOLDERS' EQUITY	13,877			48,130
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	333,645		$	324,721

* Condensed from audited financial statements.

See accompanying notes to condensed consolidated financial statements.

5

American Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Amounts and shares in thousands, except per share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net sales	$	162,160		$	140,889		$	444,282		$	389,760
Cost of sales	76,960			65,898			209,990			178,705
Gross profit	85,200			74,991			234,292			211,055
Selling expenses	58,017			52,283			168,258			152,536
General and administrative expenses (including related party charges of $332 and $177 for the three months ended September 30, 2012 and 2011, respectively, and $883 and $628 for the nine months ended September 30, 2012 and 2011, respectively)	22,566			24,552			71,792			77,025
Retail store impairment	—			784			129			2,436
Income (loss) from operations	4,617			(2,628		)	(5,887		)	(20,942		)
Interest expense	10,454			8,832			30,274			23,715
Foreign currency transaction (gain) loss	(685		)	1,855			141			780
Unrealized loss (gain) on change in fair value of warrants and purchase rights	13,312			(6,101		)	15,340			(21,201		)
(Gain) loss on extinguishment of debt	—			—			(11,588		)	3,114
Other expense (income)	36			(186		)	188			(240		)
Loss before income taxes	(18,500		)	(7,028		)	(40,242		)	(27,110		)
Income tax provision	512			166			1,933			1,042
Net loss	$	(19,012	)	$	(7,194	)	$	(42,175	)	$	(28,152	)
Basic and diluted loss per share	$	(0.18	)	$	(0.07	)	$	(0.40	)	$	(0.32	)
Weighted average basic and diluted shares outstanding	106,248			102,279			105,960			88,614
Net loss (from above)	$	(19,012	)	$	(7,194	)	$	(42,175	)	$	(28,152	)
Other comprehensive income (loss) item:
Foreign currency translation, net of tax	1,073			(1,279		)	622			135
Other comprehensive income (loss), net of tax	1,073			(1,279		)	622			135
Comprehensive loss	$	(17,939	)	$	(8,473	)	$	(41,553	)	$	(28,017	)

See accompanying notes to condensed consolidated financial statements.

6

American Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(unaudited)

	Nine Months Ended September 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers	$	439,634		$	387,780
Cash paid to suppliers, employees and others	(431,915		)	(392,684		)
Income taxes refunded (paid)	646			(1,413		)
Interest paid	(6,635		)	(3,959		)
Other	(160		)	323
Net cash provided by (used in) operating activities	1,570			(9,953		)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(14,257		)	(7,284		)
Proceeds from sale of fixed assets	70			72
Restricted cash	(5,926		)	—
Net cash used in investing activities	(20,113		)	(7,212		)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash overdraft	704			(2,484		)
Repayments of expired revolving credit facilities, net	(48,324		)	(1,309		)
Borrowings under current revolving credit facilities, net	39,337			—
Borrowings (repayments) of term loans and notes payable	30,042			(10		)
Payment of debt issuance costs	(4,965		)	(1,690		)
Net proceeds from issuance of common stock and purchase rights	—			21,710
Proceeds from equipment lease financing	—			3,100
Repayment of capital lease obligations	(810		)	(996		)
Net cash provided by financing activities	15,984			18,321
EFFECT OF FOREIGN EXCHANGE RATE ON CASH	(548		)	(844		)
NET (DECREASE) INCREASE IN CASH	(3,107		)	312
CASH, beginning of period	10,293			7,656
CASH, end of period	$	7,186		$	7,968

See accompanying notes to condensed consolidated financial statements.

7

American Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (continued)

(Amounts in thousands)

(unaudited)

	Nine Months Ended September 30,
	2012			2011
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss	$	(42,175	)	$	(28,152	)
Depreciation and amortization of property and equipment, and other assets	17,040			19,109
Retail store impairment	129			2,436
Loss on disposal of property and equipment	28			83
Share-based compensation expense	7,333			4,538
Unrealized loss (gain) on change in fair value of warrants and purchase rights	15,340			(21,201		)
Amortization of debt discount and deferred financing costs	7,655			6,120
(Gain) loss on extinguishment of debt	(11,588		)	3,114
Accrued interest paid-in-kind	15,984			13,636
Foreign currency transaction loss	141			780
Allowance for inventory shrinkage and obsolescence	(339		)	783
Bad debt expense	73			503
Deferred income taxes	32			793
Deferred rent	(649		)	(1,862		)
Changes in cash due to changes in operating assets and liabilities:
Trade accounts receivables	(4,721		)	(2,483		)
Inventories	6,238			(8,651		)
Prepaid expenses and other current assets	(3,343		)	(174		)
Other assets	(5,756		)	(2,880		)
Accounts payable	2,471			1,492
Accrued expenses and other liabilities	(4,750		)	3,227
Income taxes receivable / payable	2,427			(1,164		)
Net cash provided by (used in) operating activities	$	1,570		$	(9,953	)
NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment acquired, and included in accounts payable	$	98		$	1,488
Reclassification of Lion Warrant from equity to debt	—			11,339
Conversion of debt to equity	—			4,688
Issuance of warrants and purchase rights at fair value	—			6,387
Exercise of purchase rights	—			2,857

See accompanying notes to condensed consolidated financial statements.

8

American Apparel, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2012 and 2011

(Amounts and shares in thousands, except per share amounts)

(unaudited)

Note 1. Organization and Business

American Apparel, Inc. and its subsidiaries (collectively the “Company”) is a vertically-integrated manufacturer, distributor, and retailer of branded fashion basic apparel products and designs, manufactures and sells clothing and accessories for women, men, children and babies. The Company sells its products through the wholesale distribution channel supplying t-shirts and other casual wear to distributors and screen printers, as well as direct to customers through its retail stores located in the United States, and internationally. In addition, the Company operates an online retail e-commerce website. At September 30, 2012, the Company operated a total of 251 retail stores in 20 countries, including the United States, Canada and 18 other countries.

Liquidity and Management's Plan

As of September 30, 2012, the Company had approximately $7,186 in cash and $3,493 of availability for additional borrowings under the Crystal Credit Agreement and Bank of Montreal Credit Agreement (as defined in Note 6). Additionally, the Company had outstanding $35,576 on the $50,000 revolving credit facility under the Crystal Credit Agreement, $30,000 of term loans outstanding under the Crystal Credit Agreement, $5,901 outstanding on a C$11,000 revolving credit facility under the Bank of Montreal Credit Agreement, and $103,614 (including paid-in-kind interest of $12,433 and net of discount $29,959) of term loans outstanding under the Lion Credit Agreement (as defined in Note 7).

On March 13, 2012, the Company replaced its existing revolving credit facility of $75,000 with Bank of America ("BofA") with a $80,000 senior secured credit facility with Crystal Financial LLC ("Crystal") and other lenders. The Crystal Credit Agreement calls for the $80,000 to be allocated between an asset based revolving credit facility of $50,000 and term loan of $30,000 that matures on March 13, 2015. Among other provisions, the Crystal Credit Agreement requires that the Company maintain an arrangement similar to a traditional lockbox and contains certain subjective acceleration clauses. In addition, Crystal may at its discretion, adjust the advance restriction and criteria for eligible inventory and accounts receivable. Proceeds from the Crystal Credit Agreement were used to repay the existing revolving credit facility with BofA, fees and expenses related to the transaction, and for general working capital purposes. See Note 6.

In connection with the Crystal Credit Agreement, the Company entered into a seventh amendment to the Lion Credit Agreement, which among other things: (i) consented to the Crystal Credit Agreement, (ii) extends the maturity date of the term loan with Lion Capital LLP ("Lion") to December 31, 2015, (iii) reduced the minimum Consolidated EBITDA amounts for any twelve consecutive months as determined at the end of each fiscal quarter (Quarterly Minimum Consolidated EBITDA), (iv) modified certain financial covenants and covenants related to capital expenditures and (v) requires a minimum of 5% of each interest payment on the outstanding principal in cash starting on September 1, 2012.

On August 30, 2012, the Company entered into a second amendment to the Crystal Credit Agreement ("Crystal Second Amendment") and an eighth amendment to the Lion Credit Agreement ("Lion Eighth Amendment"). The Crystal Second Amendment extended until December 31, 2012 the period during, which loans under the Crystal Credit Agreement based on the American Apparel brand name may remain outstanding, added a minimum Consolidated EBITDA covenant for the remainder of 2012 and a minimum excess availability covenant for the period of December 17, 2012 through February 1, 2013. In connection with the Crystal Second Amendment, the Lion Eighth Amendment added a second minimum Consolidated EBITDA covenant that conforms to the Crystal minimum Consolidated EBITDA covenant (Monthly Minimum Consolidated EBITDA). See Notes 6 and 7.

The Company entered into a ninth amendment and waiver to the Lion Credit Agreement (the "Lion Ninth Amendment") effective as of September 30, 2012, which among other things, waived the Company's obligation to maintain the minimum Consolidated EBITDA covenants specified in the Lion Credit Agreement, as amended, for the twelve month period ended September 30, 2012. As a result, the Company was in compliance with the required financial covenants of the Lion Credit Agreement on September 30, 2012.

On November 12, 2012, the Company and certain of its subsidiaries entered into amendments to both the Crystal Credit Agreement and the Lion Credit Agreement that, among other things, reduced by $600 the target minimum EBITDA for the twelve months ended October 31, 2012 under the financial covenants of each credit agreement, respectively.

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As a result of these financing transactions described above, the Company believes that it will have sufficient financing commitments to meet funding requirements for the next twelve months.

The C$11,000 Bank of Montreal Credit Agreement matures in December 2012. While the Company intends to negotiate an extension of this credit agreement, it does not believe that this credit agreement represents a material component of the Company's current or future capital requirements.

The Company is in the process of executing a plan, which was commenced in late 2010, to improve its operating performance and financial position. This plan includes optimizing production levels at the Company's manufacturing facilities including raw material purchases and labor; streamlining the logistics operations; Web platform refinement; reducing corporate expenses; merchandise price rationalization in the wholesale and retail channels; store renovations; and improving merchandise distribution and allocation procedures. The Company will continue to develop other initiatives intended to either increase sales, reduce costs or improve liquidity. There can be no assurance that plans to improve operating performance and financial position will be successful.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of American Apparel, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation. Certain reclassifications have been made to the prior year's condensed consolidated financial statements and related footnotes to conform them to the 2012 presentation.

The accompanying unaudited condensed consolidated financial statements of the Company and its wholly owned subsidiaries have been prepared by the Company, in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X, and have not been audited. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2011 included in the Company's Annual Report on Form 10-K. In the opinion of management, the interim unaudited condensed consolidated financial statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the Company's financial position, the results of operations and cash flows for the periods presented.

The operating results and cash flows of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets, and liabilities at the date of the financial statements, and reported amounts of revenues, and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, and liabilities that are not readily apparent from other sources. The most complex and subjective estimates include: inventory valuation and obsolescence; valuation and recoverability of long-lived assets, including the values assigned to goodwill, property and equipment; fair value calculations, including derivative liabilities such as warrants; contingencies, including accruals for the outcome of current litigation and self-insurance liabilities; gift card liabilities; and income taxes, including uncertain tax positions and recoverability of deferred income taxes.

On a regular basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience, and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

Restricted Cash

Restricted cash primarily represents cash collateral on standby letters of credit, the value of which was previously deducted against the availability of the Company's prior revolving credit agreement, and certain other obligations. The standby letters of credit are predominantly used as collateral for the Company's workers' compensation program (see Note 14).

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to credit risk consist primarily of cash (the amounts of which

10

may, at times, exceed Federal Deposit Insurance Corporation limits on insurable amounts) and trade accounts receivable (including credit card receivables), relating substantially to the Company’s U.S. Wholesale segment. The Company mitigates its risk by investing through major financial institutions. The Company had approximately $5,504 and $9,549 held in foreign banks at September 30, 2012 and December 31, 2011, respectively.

The Company mitigates its risks related to trade receivables by performing on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information. The Company also maintains an insurance policy for certain customers based on a customer’s credit rating and established limits. Collections and payments from customers are continuously monitored. One customer in the Company's U.S. Wholesale segment accounted for 22.5% and 16.3% of the Company’s total accounts receivables as of September 30, 2012 and December 31, 2011, respectively. The Company maintains an allowance for doubtful accounts, which is based upon historical experience and specific customer collection issues that have been identified. While bad debt expenses have historically been within expectations and allowances established, the Company cannot guarantee that it will continue to experience the same credit loss rates that it has in the past.

Fair Value Measurements

The Company’s financial instruments are primarily composed of cash, restricted cash, accounts receivable (including credit card receivables), accounts payable, revolving credit borrowings and term loan. The fair value of cash, restricted cash, accounts receivable, accounts payable, and variable rate borrowings closely approximates their carrying value due to their short maturities.

The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related asset or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.

The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible.

For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company's accounting and finance department, who report to the Chief Financial Officer, determine its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company's accounting and finance department and are approved by the Chief Financial Officer.

As of September 30, 2012, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy.

The fair value of the fixed rate term note is estimated using a projected discounted cash flow analysis based on unobservable inputs including interest payments, principal payments and discount rate, and is classified within Level 3 of the valuation hierarchy. An increase or decrease in the discount rate assumption, in isolation, can significantly decrease or increase the fair value of the term note (see Note 8).

The fair value of each warrant is estimated using either a Monte Carlo simulation model or the Binomial Lattice option valuation model. Significant observable and unobservable inputs include stock price, exercise price, annual risk free rate, term, and expected volatility, and are classified within Level 3 of the valuation hierarchy. An increase or decrease in volatility, in isolation, can significantly increase or decrease the fair value of the warrant (see Notes 8 and 11).

The fair value of indefinite-lived assets, which consists exclusively of goodwill, is measured in connection with the Company’s annual goodwill impairment test.  The fair value of the reporting unit to which goodwill has been assigned, is determined using a projected discounted cash flow analysis based on unobservable inputs including gross profit, discount rate, working capital requirements, capital expenditures, depreciation and terminal value assumptions, and are classified within Level 3 of the valuation hierarchy. An increase or decrease in the discount rate assumption and/or the terminal value assumption, in isolation, can have a significant effect on the fair value of the reporting unit.

Retail stores that have indicators of impairment and whose carrying value of assets are greater than their related projected undiscounted future cash flows, are measured for impairment by comparing the fair value of the assets against their carrying value. Fair value of the assets is estimated using a projected discounted cash flow analysis based on unobservable inputs

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including gross profit and discount rate, and is classified within Level 3 of the valuation hierarchy.  An increase or decrease in the discount rate assumption, in isolation, can significantly decrease or increase the fair value of the assets, which would have an effect on the impairment recorded.

Gift Cards

Upon issuance of a gift card a liability is established for its cash value. The liability is relieved and net sales are recorded upon redemption by the customer. Over time, some portion of gift cards is not redeemed ("breakage"). The Company determines breakage income for gift cards based on historical redemption patterns. Breakage income is recorded in selling expenses, which is a component of operating expenses in the condensed consolidated statements of operations and comprehensive loss, when the Company can determine the portion of the selling expense where redemption is remote, which is two years after the gift card is issued. The Company's gift cards do not have expiration dates.

The Company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions the Company uses to calculate its breakage income. However, if the actual rate of redemption of gift cards increases significantly, the Company's operating results could be adversely affected.

Income Taxes

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement, and tax basis of assets, and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined that it is more likely than not that those assets will not be realized. If it becomes more likely than not that a tax asset will be realized, the related valuation allowance of such assets would be reversed.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liabilities. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

The Company’s foreign domiciled subsidiaries are subject to foreign income taxes on earnings in their respective jurisdictions. The Company elected to have their foreign subsidiaries, except for its subsidiaries in Brazil, Canada, Korea, China, Spain, Italy and Ireland, consolidated in the Company’s U.S. federal income tax return. The Company will generally be eligible to receive tax credits on its U.S. federal income tax return for most of the foreign taxes paid.

The Company accounts for uncertain tax positions in accordance with Accounting Standards Codification ("ASC") 740—“Income Taxes”, and gross unrecognized tax benefits at September 30, 2012 and December 31, 2011 are included in other long-term liabilities in the accompanying condensed consolidated balance sheets. The Company accrues interest and penalties, if incurred, on unrecognized tax benefits as components of the income tax provision in the accompanying condensed consolidated statements of operations and comprehensive loss.

Accounting Standards Updates

Beginning in the quarter ended March 31, 2012, the Company enhanced its fair value measurement application and disclosures as a result of adopting new requirements issued by the Financial Accounting Standards Board ("FASB") in May 2011.  The new rules include revisions to the standards for the use of fair value measurements and additional disclosures for: (i) all transfers between Level 1 and Level 2 of the fair value hierarchy; (ii) Level 3 measurements; and (iii) hierarchy classifications used for assets and liabilities whose fair value is disclosed only in the footnotes.  The new rules did not have a material impact on the Company.

Subsequent Events

The Company has evaluated events that occurred subsequent to September 30, 2012 and through the date the financial statements were available to be issued. Management concluded that no additional subsequent events required disclosure in these financial statements other than those disclosed in these notes to these financial statements.

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Note 3. Inventories

The components of inventories are as follows:

	September 30, 2012			December 31, 2011
Raw materials	$	21,695		$	18,326
Work in process	2,383			2,468
Finished goods	160,429			168,902
	184,507			189,696
Less reserve for inventory shrinkage and obsolescence	(3,628		)	(3,932		)
Total, net of reserves	$	180,879		$	185,764

Inventories are stated at the lower of cost or market. Cost is primarily determined on the first-in, first-out (FIFO) method. The cost elements of inventories include materials, labor and overhead. For the three and nine months ended September 30, 2012 and 2011, no one supplier provided more than 10% of the Company’s raw material purchases.

The Company identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels and other factors and provides reserves for such identified excess and slow-moving inventories. At September 30, 2012 and December 31, 2011, the Company had a lower of cost or market reserve for excess and slow-moving inventories of $2,164 and $2,050, respectively.

The Company establishes a reserve for inventory shrinkage for each of its retail locations and its warehouse. The reserve is based on the historical results of physical inventory counts. The Company had a reserve for inventory shrinkage in the amount of $1,464 and $1,882 at September 30, 2012 and December 31, 2011, respectively.

Note 4. Property and Equipment

Depreciation and amortization expense relating to property and equipment (including capitalized leases) is recorded in cost of sales and operating expenses. For the three and nine months ended September 30, 2012, depreciation and amortization expense was $5,538 and $17,040, respectively. For the three and nine months ended September 30, 2011, depreciation and amortization expense was $6,126 and $19,109, respectively.

The Company evaluates its retail stores for indicators of impairment, specifically related to under-performance or operating losses relative to expected historical or projected future operating results. Stores whose carrying value of assets are greater than their related projected undiscounted future cash flows, are measured for impairment by comparing the fair value of the assets against their carrying value. The fair value of the assets is estimated using a projected discounted cash flow analysis (Level 3 in the fair value hierarchy). The key assumptions used in the estimates of projected cash flows were sales, gross margins, and payroll costs. These forecasts were based on historical trends and take into account recent developments, as well as the Company's plans and intentions.

Based upon the results of the analyses above, the Company determined that no impairment charges for the three months ended September 30, 2012 were required. For the nine months ended September 30, 2012, the Company incurred impairment charges of $129 relating to a store closure in Canada. For the three and nine months ended September 30, 2011, the Company incurred impairment charges of $784 and $2,436, respectively, primarily related to certain retail store leasehold improvements and key money in the International and the U.S. Retail segments.

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Note 5. Accrued Expenses and Other Current Liabilities

The components of accrued expenses and other current liabilities are as follows:

	September 30, 2012		December 31, 2011
Compensation, bonuses and related taxes	$	9,682	$	11,339
Workers' compensation and other self-insurance reserves (Note 14)	5,807		5,318
Sales, value and property taxes	3,640		3,721
Gift cards and store credits	4,223		6,939
Loss contingencies	572		1,575
Accrued vacation	898		790
Deferred revenue	830		892
Deferred rent	2,303		2,170
Other	10,795		10,981
Total accrued expenses	$	38,750	$	43,725

Note 6. Revolving Credit Facilities and Current Portion of Long-Term Debt

Revolving credit facilities and current portion of long-term debt consists of the following:

	September 30, 2012		December 31, 2011
Revolving credit facility (Crystal), maturing March 2015	$	35,576	$	—
Term loan (Crystal), maturing March 2015	30,000		—
Revolving credit facility (Bank of America), replaced in March 2012	—		48,324
Revolving credit facility (Bank of Montreal), maturing December 2012	5,901		1,995
Current portion of long-term debt (Note 7)	109		56
Total revolving credit facilities and current portion of long-term debt	$	71,586	$	50,375

The Company incurred interest charges of $10,454 and $30,274 for the three and nine months ended September 30, 2012, respectively, and $8,832 and $23,715 for the three and nine months ended September 30, 2011, respectively, for all outstanding borrowings. The interest charges subject to capitalization for the three and nine months ended September 30, 2012 and 2011 were not significant.

Revolving Credit Facility and Term Loan - Crystal

On March 13, 2012, the Company replaced its existing revolving credit facility of $75,000 with BofA with a $80,000 senior secured credit facility with Crystal Financial LLC ("Crystal" and the credit facility the "Crystal Credit Agreement"), and other lenders. The Crystal Credit Agreement calls for the $80,000 to be allocated between an asset based revolving credit facility of $50,000 and term loan of $30,000. Borrowings under the Crystal Credit Agreement are subject to certain borrowing reserves based on eligible inventory and accounts receivable. In addition, the initial borrowing base under the revolving credit facility was increased by $12,500 for the value associated with the brand name. On August 30, 2012, the Company entered into a second amendment to the Crystal Credit Agreement ("Crystal Second Amendment"), which extended until December 31, 2012 the period during which loans under the Crystal Credit Agreement based on the American Apparel brand name may remain outstanding. This initial increase based on the brand name will be ratably reduced to $0 during the period from April 13, 2012 through January 1, 2013. The Crystal Credit Agreement matures on March 13, 2015 and is collateralized by substantially all of the Company's U.S. and U.K. assets and equity interests in certain of its foreign subsidiaries. The amount available for additional borrowings on September 30, 2012 was $1,443.

Among other provisions, the Crystal Credit Agreement requires that the Company maintain an arrangement similar to a traditional lockbox and contains certain subjective acceleration clauses. In addition, Crystal may at its discretion, adjust the advance restriction and criteria for eligible inventory, and accounts receivable. Consequently, the amounts outstanding under the Crystal Credit Agreement are classified as a current liability.

As of September 30, 2012, the interest rate under the agreement was 9.47% (the 90-day LIBOR at 0.47% plus 9.0%) and also included an unused facility fee ranging from 0.375% to 1.0% on the unused portion of the revolving credit facility, payable

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monthly. Beginning August 30, 2012, as a result of the second amendment, the interest rate with respect to the brand name portion of the outstanding principal amount of the revolving credit facility of $5,000 was 20.22% (the 90-day LIBOR at 0.47% plus 19.75%). The Crystal Credit Agreement also includes an early termination fee if the term loan is prepaid or if the commitments under the revolving credit facility are permanently reduced of (a) 3.0% if such payment or reduction occurs in the first year, (b) 2.0% if such payment or reduction occurs in the second year, and (c) 0.0% thereafter.

In connection with the financing from Crystal, the Company entered into amendments to the Lion Credit Agreement. See Notes 7 and 11.

Significant covenants in the Crystal Credit Agreement include a minimum excess availability covenant that requires us to maintain minimum excess availability of the greater of (1) $8,000, or (2) 10.0% of the borrowing base. If the excess availability falls below this minimum, then we will be required to maintain a fixed charge coverage ratio of not less than 1.00:1.00 to be calculated monthly on a consolidated trailing twelve-month basis and continuing until the excess availability exceeds this minimum for sixty consecutive days. The Crystal Second Amendment adds a new minimum excess availability covenant that requires the Company to maintain minimum excess availability to be no less than $5,000 during the period from December 17, 2012 to February 1, 2012 and also adds a minimum monthly Consolidated EBITDA covenant for the remainder of 2012 to be determined at the end of each month. Furthermore, the Crystal Credit Agreement includes an annual limitation of our capital expenditures at the Company's domestic subsidiaries to no more than $17,000 for the year ending December 31, 2012 and $25,000 for each year thereafter.

The Crystal Credit Agreement contains cross-default provisions with the Lion Credit Agreement and the Bank of Montreal Credit Agreement, whereby an event of default (as defined) occurring under the Lion Credit Agreement or the Bank of Montreal Credit Agreement would cause an event of default under the Crystal Credit Agreement.

During the nine months ended September 30, 2012, the Company's excess availability was below the minimum amount and as a result, it was required to maintain the fixed charge coverage ratio. As of September 30, 2012, the Company was in compliance with the required financial covenants of the Crystal Credit Agreement.

Revolving Credit Facility - Bank of America

The Company had a revolving credit facility of $75,000 with BofA, which was replaced with the Crystal Credit Agreement on March 13, 2012.

Revolving Credit Facility - Bank of Montreal

The Company's wholly-owned subsidiaries, American Apparel Canada Wholesale, Inc. and American Apparel Canada Retail Inc. (collectively, the “CI Companies”), have a line of credit with Bank of Montreal (the "Bank of Montreal Credit Agreement") that provides for borrowings up to C$11,000 with a fixed maturity date of December 30, 2012, bearing interest at 7.0% (the bank's prime rate at 3.0% as of September 30, 2012 plus 4.0% per annum payable monthly). This line of credit is secured by a lien on the CI Companies' accounts receivable, inventory and certain other tangible assets. Available borrowing capacity at September 30, 2012 was $2,050.

The Bank of Montreal Credit Agreement contains a fixed charge coverage ratio, tested at the end of each month which, as defined in the agreement, must not be less than 1.25 to 1.00. The Bank of Montreal Credit Agreement also restricts the Company's Canadian subsidiaries from entering into operating leases that would lead to payments under such leases totaling more than $8,500 in any fiscal year, and imposes a minimum excess availability covenant, which requires the Company's Canadian subsidiaries to maintain at all times minimum excess availability of 5.0% of the revolving credit commitment under the facility.

Additionally, the Bank of Montreal Credit Agreement contains cross-default provisions with the Crystal Credit Agreement and the Lion Credit Agreement, whereby an event of default occurring under the Crystal Credit Agreement, and Lion Credit Agreement would cause an event of default under the Bank of Montreal Credit Agreement.

As of September 30, 2012, the Company was in compliance with all required financial covenants of the Bank of Montreal Credit Agreement.

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Note 7. Long-Term Debt

Long-term debt consists of the following:

	September 30, 2012			December 31, 2011
Long-term debt with Lion (a)	$	103,614		$	96,760
Other	459			438
Total long-term debt	104,073			97,198
Current portion of debt	(109		)	(56		)
Long-term debt, net of current portion	$	103,964		$	97,142

(a)Including accrued interest paid-in-kind of $12,433 and $17,550 and net of unamortized discount of $29,959 and $20,183 at September 30, 2012 and December 31, 2011, respectively.

Lion Credit Agreement

On March 13, 2009, the Company entered into an $80,000 term loan with Lion Capital LLP (the "Lion Credit Agreement"). Pursuant to the Lion Credit Agreement, Lion made term loans to the Company in an aggregate principal amount equal to $80,000. The original term loans under the Lion Credit Agreement were scheduled to mature on December 13, 2013 and bore interest at a rate of 15% per annum, payable quarterly in arrears. Effective June 23, 2010 and on February 18, 2011, the Lion Credit Agreement was amended to increase the interest rate to a range between 15% and 18% per annum depending on certain financial covenants relating to the ratio of Total Debt to Consolidated EBITDA for the trailing four quarters and Consolidated EBITDA for the trailing twelve months. For the three and nine months ended September 30, 2012, the Company did not meet these financial covenants and as a result, the interest rate was 18% per annum. On March 13, 2012, in connection with the Crystal Credit Agreement (see Note 6), the Company entered into a seventh amendment to extend the maturity date of the Lion Credit Agreement to December 31, 2015, as described below. On August 30, 2012, in connection with the Crystal Second Amendment (see Note 6), the Lion Eighth Amendment added a second minimum Consolidated EBITDA covenant that conforms to the Crystal minimum consolidated EBITDA covenant, as described below. The Company entered into the Lion Ninth Amendment effective as of September 30, 2012, which waived the requirement that the Company meet the minimum Consolidated EBITDA covenants for the twelve month period ended September 30, 2012. The Lion Ninth Amendment further provides for an increase of 0.52% in the interest rate under the Lion Credit Agreement for the period from October 1, 2012 to December 31, 2012, payable in-kind.

At the Company's option, except as described below, accrued interest may be paid (i) entirely in cash, (ii) paid half in cash and half in-kind, or (iii) entirely in-kind. In connection with the seventh amendment (described below), beginning on September 1, 2012, the Company is required to pay a portion of its interest in cash. The additional 0.52% interest payable under the Lion Credit Agreement for the period of October 1, 2012 to December 31, 2012 is payable in-kind. The Company's obligations under the Lion Credit Agreement are secured by a second lien on substantially all of the assets of the Company. The Lion Credit Agreement is subordinated to the Crystal Credit Agreement and contains customary representations, and warranties, events of default, affirmative covenants and negative covenants (which impose restrictions and limitations on, among other things, dividends, investments, asset sales, capital expenditures, and the ability of the Company to incur additional debt and liens), and certain financial covenants. The Company is permitted to prepay the loans in whole or in part at any time at its option, with no prepayment penalty.

Significant covenants in the Lion Credit Agreement include an annual limitation of the Company's capital expenditures to $30,000. Other covenants under the Lion Credit Agreement have been modified over time in connection with amendments.

Seventh Amendment - On March 13, 2012, in connection with the new credit agreement with Crystal (see Note 6), the Company entered into a seventh amendment to the Lion Credit Agreement, which among other things: (i) consented to the Crystal Credit Agreement, (ii) extends the maturity date to December 31, 2015, (iii) reduced the minimum Consolidated EBITDA amounts for any twelve consecutive months as determined at the end of each fiscal quarter (Quarterly Minimum Consolidated EBITDA) and, (iv) modifies certain other financial covenants, including covenants related to capital expenditures. The amendment also required that the Lion Warrant be amended (see Note 11). In addition, the seventh amendment modifies the Lion Credit Agreement to provide for interest at a rate of 5% per annum to be paid in cash commencing on the interest accruing from and after September 1, 2012 (with the remainder of the interest under the Lion Credit Agreement payable in-kind or in cash at the option of the Company).

In connection with the March 13, 2012 amendment, the Company evaluated the change in cash flows in connection with the amendment to the Lion Credit Agreement. The Company determined that there was a greater than 10% change between the present values of the existing debt and the amended debt causing an extinguishment of debt. The Company recorded the

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modified debt and related warrant at its fair value and recognized a gain of $11,588 on extinguishment of existing debt. This gain on extinguishment was determined by calculating the difference of the net carrying amount of the Lion debt of $116,507 (which includes the principal, paid-in-kind interest, fair value of the Lion Warrant, unamortized discount and unamortized deferred financing cost immediately prior to the amendment) and the fair value of the modified debt of $104,919 (which includes the fair value of modified debt, fair value of the modified Lion Warrant and amendment related fees). The difference between the carrying net amount of the existing debt of $121,140 and the fair value of the modified debt of $86,898 was recorded as a discount to the modified debt, and will be recognized as interest expense using the effective interest method over the remaining term of the Lion Credit Agreement.

Eighth Amendment - On August 30, 2012, in connection with the second amendment to the Crystal Credit Agreement (see Note 6), the Company entered into an eighth amendment to the Lion Credit Agreement that, among other things, adds a second minimum Consolidated EBITDA covenant for the remainder of 2012 to be determined at the end of each month (Monthly Minimum Consolidated EBITDA) that conforms to the minimum Consolidated EBITDA covenant in the Crystal Credit Agreement.

Ninth Amendment - The Company entered into the Lion Ninth Amendment effective September 30, 2012, which among other things waived the the Company's obligation to maintain the minimum Consolidated EBITDA covenants for the twelve month period ended September 30, 2012. As of result, the Company was in compliance with the required financial covenants of the Lion Credit Agreement on September 30, 2012.

Amortization of debt discount included in interest expense was $1,986 and $6,100 for the three and nine months ended September 30, 2012, respectively, and $2,178 and $5,064 for the three and nine months ended September 30, 2011, respectively.

The Lion Credit Agreement contains certain cross-default provisions by which noncompliance with covenants under the Crystal Credit Agreement, the Bank of Montreal Credit Agreement and certain other existing and potential agreements also constitutes an event of default under the Lion Credit Agreement.

Note 8. Fair Value of Financial Instruments

The fair value of the Company's financial instruments are measured on a recurring basis. The carrying amount reported in the accompanying condensed consolidated balance sheets for cash, accounts receivable (including credit card receivables), accounts payable and accrued expenses approximates fair value because of the short-term maturity of those instruments. The carrying amount for borrowings under the revolving credit facilities with Crystal and the Bank of Montreal and the term loan with Crystal approximates fair value because of the variable market interest rate charged to the Company for these borrowings. The fair value of the term loan with Lion was estimated using a discounted cash flow analysis and a yield rate that was estimated using yield rates for publicly traded debt instruments of comparable companies with similar features. The fair value of each warrant was estimated using either a Monte Carlo simulation model or the Binomial Lattice option valuation model.  

The Company did not have any assets or liabilities categorized as Level 1 as of September 30, 2012.

The carrying amounts and fair values of the Company's financial instruments are presented below as of September 30, 2012:

	Carrying Amount			Fair Value
Liabilities
Long-term debt with Lion, net of discount of $29,959 and including interest paid-in-kind of $12,433 (Level 3)	$	103,614		$	100,646
Lion Warrant (Level 3)	—		(a)	28,243
SOF Warrant (Level 3)	—		(a)	212
	$	103,614		$	129,101

 (a) no cost is associated with these liabilities (see Note 11)

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The following summarizes the activity of Level 3 inputs measured on a recurring basis:

Fair Value Measurements of Common Stock Warrants and Purchase Rights using Significant Unobservable Inputs (Level 3)	Nine Months Ended September 30,
	2012		2011
Balance at January 1,	$	9,633	$	993
Additions	—		38,154
Exercises	—		(2,857		)
Adjustment resulting from change in value recognized in earnings	15,340		(24,391		)
Gain on extinguishment of debt (see Note 7)	3,482		—
Balance at September 30,	$	28,455	$	11,899

Note 9. Income Taxes

Income taxes for the three and nine months ended September 30, 2012 were computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management. In accordance with ASC 740, “Income Taxes”, the Company evaluates whether a valuation allowance should be established against the net deferred tax assets based upon the consideration of all available evidence and using a “more likely than not” standard. Significant weight is given to evidence that can be objectively verified. The determination to record a valuation allowance is based on the recent history of cumulative losses and current operating performance. In conducting the analysis, the Company utilizes an approach, which considers the current year loss, including an assessment of the degree to which any losses are driven by items that are unusual in nature and incurred to improve future profitability. In addition, the Company reviews changes in near-term market conditions and any other factors arising during the period, which may impact its future operating results.

The Company reported income from operations for the three months ended September 30, 2012 and a loss from operations for the nine months ended September 30, 2012. The Company incurred a loss from operations for the three and nine months ended September 30, 2011 and also incurred a loss for the year ended December 31, 2011. Based primarily upon recent history of cumulative losses and the results of operations for the nine months ended September 30, 2012, the Company determined that it is more likely than not it will not realize benefits from the deferred tax assets in certain jurisdictions. The Company will not record income tax benefits in the condensed consolidated financial statements until it is determined that it is more likely than not that the Company will generate sufficient taxable income in the respective jurisdictions to realize the deferred income tax assets. As a result of the analysis, the Company determined that a full valuation allowance against the net deferred tax assets in certain jurisdictions, primarily in the U.S., and partial valuation allowances in certain foreign jurisdictions, is required. At September 30, 2012, the Company recorded valuation allowances against its current and non-current deferred tax assets totaling $73,773. At September 30, 2012 the Company had federal net operating loss carryforwards of approximately $73,271. Section 382 of the Internal Revenue Code in the United States limits the utilization of net operating losses when ownership changes, as defined by that section, occur. The Company has not completed an analysis of its Section 382 ownership changes to determine whether the utilization of certain of its net operating loss carryforwards in the United States is limited.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The Company is currently subject to audit under the statute of limitations by the Internal Revenue Service for the calendar years ended December 31, 2008 through December 31, 2011. The Company and its subsidiaries' state and foreign tax returns are open to audit under similar statute of limitations for the calendar years ended December 31, 2007 through December 31, 2011, depending on the particular jurisdiction. The Company's uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing authorities and there have been no material changes for the three months ended September 30, 2012. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax expense in the accompanying condensed consolidated statement of operations. Accrued interest and penalties are included within the related tax liability line in the accompanying condensed consolidated balance sheets. In management's opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

The Company is being audited by the Canadian Revenue Agency (“CRA”) for the years ended December 31, 2005 through December 31, 2007. In connection with the audit, the CRA issued a proposed adjustment disallowing certain management fees. At this time, the Company does not anticipate this audit to result in a material impact on the Company. The Company

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concluded its audit by the U.S. Internal Revenue Service for the years ended December 31, 2008 through December 31, 2010 with no tax owed due to utilization of federal net operating loss carryback. The state jurisdiction impact of the federal audit adjustments is included in the Company's current liabilities. The Company is also currently being audited by various state jurisdictions. At this time, the Company does not anticipate these audits to result in a material impact on the Company.

Note 10. Related Party Transactions

For a description of loans made by Lion to the Company and a description of the warrants issued by the Company to Lion see Notes 7 and 11.

Personal Guarantees by the Company’s CEO

As of September 30, 2012, the CEO of the Company has personally guaranteed the obligations of American Apparel under four property leases aggregating $8,098 in obligations. Additionally, the CEO of the Company has personally guaranteed the obligations of the Company with two vendors aggregating $900.

Lease Agreement Between the Company and a Related Party

In December 2005, the Company entered into an operating lease, which commenced on November 15, 2006, for its knitting facility with a related company (“American Central Plaza, LLC”), which is partially owned by the CEO and the Chief Manufacturing Officer ("CMO") of the Company. The Company's CEO holds an 18.75% ownership interest in American Central Plaza, LLC, while the CMO holds a 6.25% interest. The remaining members of American Central Plaza, LLC are not affiliated with the Company. The lease expired in November 2011, and was subsequently extended for the next five years on substantially the same terms. Rent expense (including property taxes and insurance payments) for the three and nine months ended September 30, 2012 was $272 and $675, and for the three and nine months ended September 30, 2011 was $155 and $466, respectively.

Payments to Morris Charney

Morris Charney, (“Mr. M. Charney”), is the father of the Company's CEO and serves as a director of American Apparel Canada Wholesale Inc. and a director of American Apparel Canada Retail Inc. Day to day operations of these two Canadian subsidiaries are handled by management and other employees of these subsidiaries, none of whom performs any policy making functions for the Company. Management of American Apparel sets the policies for American Apparel and its subsidiaries as a whole. Mr. M. Charney does not perform any policy making functions for the Company or any of its subsidiaries. Instead, Mr. M. Charney only provides architectural consulting services primarily for stores located in Canada and, in limited cases, in the United States. Mr. M. Charney was paid architectural consulting and director fees amounting to $60 and $208 for the three and nine months ended September 30, 2012, and $22 and $162 for the three and nine months endedSeptember 30, 2011, respectively.

Employment Agreement with the Company's CEO

In March 2012 the Company's Board of Directors approved a three-year employment agreement with Mr. Charney commencing on April 1, 2012 that will automatically extend for successive one-year periods unless earlier terminated by the Company. The agreement provides for, among other things, a minimum annual base compensation of $800 plus performance bonuses and the right to receive 7,500 shares of the Company's common stock, subject to performance hurdles and other terms, and conditions as described in the agreement. See Note 12.

Note 11. Stockholders' Equity

Common Stock Warrants

Lion Warrants

On March 13, 2012, in connection with the new credit agreement with Crystal Financial, LLC, the Company entered into an amendment to the Lion Credit Agreement (see Note 7), which required that the warrants issued to Lion be amended to, among other things, extend the term of the warrants to February 18, 2022 and add a provision pursuant to which, if American Apparel does not meet a certain quarterly EBITDA amount, the exercise price of the warrants would be reduced by $0.25 (a one-time adjustment for the first violation of such covenant; subsequent violations would not result in further adjustment). As of March 31, 2012, the Company did not meet the EBITDA requirement, and, as a result, the exercise price of the existing Lion warrants was reduced by $0.25 to $0.75 per share. The fair value for the warrants at September 30, 2012 was estimated using the Binomial Lattice option valuation model. The fair value of the warrants at September 30, 2011 was estimated using the Monte Carlo simulation valuation model. On a weighted average basis, the calculations assumed a stock price of $1.06, exercise price of $0.81, volatility of 76.05%, annual risk free rate of 2.01%, and a term of 9.78 years.

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As of September 30, 2012, the fair value of the 21,606 Lion Warrants was estimated to be $28,243 and was recorded as a current liability in the accompanying condensed consolidated balance sheets.

SOF Warrants

As a result of the change in exercise price for the Lion Warrants on March 31, 2012, the exercise price of the SOF warrants were changed to $2.148 per share. As of September 30, 2012, the fair value of the SOF warrants, estimated using the Binomial Lattice option valuation model, was $212 and was recorded as a current liability in the accompanying condensed consolidated balance sheets. On a weighted average basis, the calculation as of September 30, 2012 was based on a contractual remaining term of 1.2 years, exercise price of $2.148, interest rate of 0.19%, volatility of 58.99% and no dividends.

The following table summarizes common stock warrants issued, forfeited, expired and outstanding (shares in thousands):

	Number of Shares			Weighted Average Exercise Price		Weighted Average Contractual Life (Years)
Outstanding - January 1, 2012	22,606			$	1.05	6.0
Issued (1)	44,212			0.90		7.3
Forfeited (1)	(44,212		)	1.03		—
Expired	—			—		—
Outstanding - September 30, 2012	22,606			$	0.81	9.0
Fair value - September 30, 2012	$	28,455

⁽¹⁾ Issued and forfeited warrants represents repriced shares.

Earnings Per Share

The Company presents earnings per share (“EPS”) utilizing a dual presentation of basic and diluted EPS. Basic EPS includes no dilution and is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

The Company had common stock under various options, warrants and other agreements at September 30, 2012 and 2011. The weighted average effects of 56,874 and 51,862 shares at September 30, 2012 and 2011, respectively, were excluded from the calculations of net loss per share for the three and nine months ended September 30, 2012 and 2011, because their impact would have been anti-dilutive.

A summary of the potential stock issuances under various options, warrants and other agreements that could have a dilutive effect on the shares outstanding as of September 30, 2012 and 2011 are as follows:

	2012	2011
SOF warrants	1,000	1,000
Lion warrants	21,606	21,606
Shares issuable to Mr. Charney based on market conditions (1)	20,416	20,416
Contingent shares issuable to Mr. Charney based on market conditions (2)	2,112	2,112
Contingent shares issuable to Mr. Charney based on performance factors (3)	7,500	—
Employee options & restricted shares	4,240	6,728
	56,874	51,862

⁽¹⁾ Included Charney Anti-Dilution Rights pursuant to the April 26, 2011 Investor Purchase Agreement

⁽²⁾ Pursuant to the March 24, 2011 conversion of debt to equity

⁽³⁾ Pursuant to his employment agreement commencing April 1, 2012

The table above does not include additional warrants that may be issuable to Lion pursuant to the anti-dilution provisions under the Lion Credit Agreement such as in the event anti-dilutive shares are issued to Mr. Charney pursuant to the Charney Anti-Dilution Rights.

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Note 12. Share-Based Compensation

Plans Description

2007 Plan

On December 12, 2007, the Company's stockholders approved the 2007 Performance Equity Plan (as amended, the “2007 Plan”). The 2007 Plan authorizes the granting of a variety of incentive awards, the exercise or vesting of which would allow up to an aggregate of 11,000 shares of the Company's common stock to be acquired by the holders of such awards. The purpose of the 2007 Plan is to enable the Company to offer its employees, officers, directors and consultants whose past, present and/or potential contributions to the Company has been, are or will be important to the success of the Company, an opportunity to acquire a proprietary interest in the Company. The 2007 Plan provides for various types of incentive awards including, but not limited to: incentive stock options, non-qualifying stock options, reload stock options, restricted stock and stock appreciation rights. The 2007 Plan enables the compensation committee to exercise its discretion to determine virtually all terms of each grant, which allowed the Company to respond to changes in compensation practices, tax laws, accounting regulations and the size and diversity of its business.

2011 Plan

On June 21, 2011 the Company's Board of Directors and stockholders approved the American Apparel, Inc. 2011 Omnibus Stock Incentive Plan (the “2011 Plan”). The 2011 Plan authorizes the granting of a variety of incentive awards, the exercise or vesting, of which would allow up to an aggregate of 10,000 shares of the Company's common stock to be acquired by the holders of such awards. The purpose of the 2011 Plan is to provide an incentive to selected employees, directors, independent contractors, and consultants of the Company or its affiliates, and provides that the Company may grant options, stock appreciation rights, restricted stock, and other stock-based and cash-based awards. The 2011 Plan provides for each of the Company's non-employee directors to automatically receive an annual stock grant, equal to the number of shares of the Company's common stock having an aggregate market value of $80, at the beginning of each year of Board service. As of September 30, 2012, there were approximately 9,295 shares available for future grants under the 2011 Plan.

Restricted Share Awards - The following table summarizes shares of restricted stock that were granted, vested, forfeited and outstanding under the 2007 and 2011 Plans (shares in thousands):

	Number of Restricted Shares		Weighted Average Grant Date Fair Value		Weighted Average Remaining Vesting Period (in years)
Non-vested - January 1, 2012	3,186		$	1.45	2.7
Granted	1,348		0.92
Vested	(796	)	0.88
Forfeited	(198	)	1.25
Non-vested - September 30, 2012	3,540		$	1.38	1.1

Vesting of the restricted share awards to employees may be either immediately upon grant or over a period of four to five years of continued service by the employee in equal annual installments. Share-based compensation is recognized over the vesting period based on the grant-date fair value.

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Stock Option Awards - The following table summarizes stock options granted, forfeited, expired and outstanding (shares in thousands):

	Number of Shares		Weighted Average Exercise Price		Weighted Average Contractual Remaining Life (Years)	Aggregate Intrinsic Value
Outstanding - January 1, 2012	950		$	1.06	9.5
Granted	—		—		—
Forfeited	—		—		—
Expired	(250	)	1.75		—
Outstanding - September 30, 2012	700		$	0.82	9.0
Vested (exercisable) - September 30, 2012	350		$	0.82	9.0	$	—
Non-vested (exercisable) - September 30, 2012	350		$	0.82	9.0	$	—

Share-Based Compensation Expense

During the three months ended September 30, 2012 and 2011, the Company recorded share-based compensation expense of $2,949 and $2,093, respectively, related to its share-based compensation awards that are expected to vest. During the nine months ended September 30, 2012 and 2011, the Company recorded share-based compensation expense of $7,333 and $4,538, respectively, related to its share-based compensation awards that are expected to vest. No amounts have been capitalized. As of September 30, 2012 unrecorded compensation cost related to non-vested awards was $11,024, which is expected to be recognized through 2015.

CEO Anti-Dilution Rights - During the three months ended September 30, 2012 and 2011, the Company recorded share-based compensation expense (included in the above) associated with Mr. Charney's certain anti-dilution rights of $1,105 and $1,197, respectively. During the nine months ended September 30, 2012 and 2011, the Company recorded share-based compensation expense of $3,599 and $1,808, respectively. As of September 30, 2012, unrecorded compensation cost was $3,431, which is expected to be recognized through 2015.

On October 16, 2012, the Company and Mr. Charney entered into an amendment to the anti-dilution provisions contained in the Purchase Agreement with Mr. Charney dated as of April 27, 2011. Subject to receipt of any required shareholder approval under the rules of the NYSE MKT, the amendment extends by one year the measurement periods for Mr. Charney’s anti-dilution protection provisions and reduces the length of the corresponding stock price target periods from 60 days to 30 days. As of October 16, 2012, the fair value of these awards of $13,192 was determined under the Monte Carlo simulation pricing model. The calculation was based on the exercise price of $0, the stock price of $1.3, annual risk free rate of 0.45%, volatility of 90.46% and a term of 3.5 years.

CEO Performance-Based Award - Pursuant to an employment agreement with Mr. Charney commencing on April 1, 2012, the Company provided to the CEO rights to 7,500 shares of the Company's stock (see Note 10). The shares are issuable in three equal installments, one per each measurement period, only upon the achievement of certain EBITDA targets for each of fiscal 2012, 2013 and 2014. The grant date fair value of the award is based on the share price of $0.75 and will be recognized over the related service and amortization period in three probability-weighted terms of 1.2, 2.1 and 3.1 years corresponding to the three measurement periods. During the three and nine months ended September 30, 2012, the Company recorded share-based compensation expense of $859 and $1,718, respectively. As of September 30, 2012, unrecorded compensation cost was $3,906, which is expected to be recognized through 2015.

Non-Employee Directors

On April 1, 2012, July 2, 2012 and October 1, 2012, the Company issued a quarterly stock grant to each non-employee director of approximately 12, 11 and 7 shares of common stock, based upon the closing prices of $0.82, $0.90 and $1.53 per share, respectively. Additionally, Messrs. Danzinger and Igelman each received an additional 23 shares for services performed during the second half of 2011. The share-based compensation is reflected in operating expenses in the accompanying condensed consolidated statements of operations.

Note 13. Commitments and Contingencies

Operating Leases

The Company conducts retail operations under operating leases, which expire at various dates through September 2022. The Company's primary manufacturing facilities and executive offices are currently under a long-term lease, which expires on

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July 31, 2019. Operating lease rent expense (including real estate taxes and common area maintenance costs) was approximately $19,667 and $57,483 for the three and nine months ended September 30, 2012, respectively, and $19,612 and $58,874 for the three and nine months ended September 30, 2011, respectively. The Company did not incur any significant contingent rent during these periods. Rent expense is allocated to cost of sales (for production-related activities), selling expenses (primarily for retail stores) and general and administrative expenses in the accompanying condensed consolidated statements of operations.

Sales Tax

The Company sells its products through its wholesale business, retail stores and the internet. The Company operates these channels separately and accounts for sales and use tax accordingly. The Company is periodically audited by state taxing authorities and it is possible they may disagree with the Company's method of assessing and remitting these taxes. The Company believes that it properly assesses and remits all applicable state sales taxes in the applicable jurisdictions and has accrued approximately $289 as of September 30, 2012 and as of December 31, 2011 for state sales tax contingencies.

Customs and duties

The Company is being audited by the German customs authorities for the years ended December 31, 2009 through December 31, 2011. As the audit is still in its preliminary stages, the Company is unable to predict the financial outcome of the matter at this time and has not recorded a provision for this matter. However, no assurance can be made that this matter will not result in a material financial exposure, which could have a material effect on the Company's financial condition, results of operations or cash flows.

Advertising

At September 30, 2012 and December 31, 2011, the Company had approximately $1,607 and $4,378, respectively, in open advertising commitments, which primarily relate to print advertisements in various newspapers and magazines, as well as outdoor advertising during the remainder of 2012.

Note 14. Workers' Compensation and Other Self-Insurance Reserves

The Company uses a combination of third-party insurance and/or self-insurance for a number of risks including workers’ compensation, medical benefits provided to employees, and general liability claims. General liability costs relate primarily to litigation that arises from store operations. Self-insurance reserves include estimates of both filed claims carried at their expected ultimate settlement value and claims incurred but not yet reported. The Company’s estimated claim amounts are discounted using a rate of 0.62% with a duration that approximates the duration of the Company’s self-insurance reserve portfolio. As of September 30, 2012 the undiscounted liability amount was $14,940. The Company’s liability reflected on the accompanying condensed consolidated balance sheets represents an estimate of the ultimate cost of claims incurred as of the balance sheet dates. In estimating this liability, the Company utilizes loss development factors based on Company specific data to project the future development of incurred losses. Loss estimates are adjusted based upon actual claim settlements and reported claims. These projections are subject to a high degree of variability based upon future inflation rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns. Although the Company does not expect the amounts ultimately paid to differ significantly from its estimates, self-insurance reserves could be affected if future claim experience differs significantly from the historical trends and the assumptions applied.

The workers' compensation liability is based on an estimate of losses for claims incurred, but not paid at the end of the period. Funding is made directly to the providers and/or claimants by the insurance company. To guarantee performance under the workers' compensation program, as of September 30, 2012 and December 31, 2011, the Company had issued standby letters of credit in the amounts of $3,326 and $5,492, respectively, with three insurance companies being the beneficiaries, through a bank. At September 30, 2012, the Company recorded a total reserve of $14,685, of which $3,897 is included in accrued expenses and $10,788 is included in other long-term liabilities on the accompanying condensed consolidated balance sheets. At December 31, 2011, the Company recorded a total reserve of $14,189, of which $3,598 is included in accrued expenses and $10,591 is included in other long-term liabilities on the accompanying condensed consolidated balance sheets. These reserves for potential losses on existing claims are believed to be for potential losses, which are probable and reasonably estimable.

The Company self-insures its health insurance benefit obligations while the claims are administered through a third party administrator. The medical benefit liability is based on estimated losses for claims incurred, but not paid at the end of the period. Funding is made directly to the providers and/or claimants by the insurance company. At September 30, 2012 and December 31, 2011, the Company's total reserve of $1,910 and $1,720, respectively, was included in accrued expenses in the accompanying condensed consolidated balance sheets.

Note 15. Business Segment and Geographic Area Information

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The Company reports the following four operating segments: U.S. Wholesale, U.S. Retail, Canada, and International. The Company believes this method of segment reporting reflects both the way its business segments are managed and the way the performance of each segment is evaluated. The U.S. Wholesale segment consists of the Company's wholesale operations of sales of imprintable apparel products to distributors and third party screen printers in the United States, as well as the Company's online consumer sales to U.S. customers. The U.S. Retail segment consists of the Company's retail operations in the United States, which was comprised of 140 retail stores operating in the United States, as of September 30, 2012. The Canada segment includes retail, wholesale and online consumer operations in Canada. As of September 30, 2012, the retail operations in the Canada segment were comprised of 35 retail stores. The International segment includes retail, wholesale and online consumer operations outside of the United States and Canada. As of September 30, 2012, the retail operations in the International segment were comprised of 76 retail stores operating in 18 countries outside the United States and Canada. All of the Company's retail stores sell the Company's apparel products directly to consumers.

The Company's management evaluates performance based on a number of factors; however, the primary measures of performance are net sales and income or loss from operations of each business segment, as these are the key performance indicators reviewed by management. Operating income or loss for each segment does not include unallocated corporate general and administrative expenses, interest expense and other miscellaneous income/expense items. Corporate general and administrative expenses include, but are not limited to: human resources, legal, finance, information technology, accounting, executive compensation and various other corporate level expenses.

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The following tables represents key financial information of the Company's reportable segments before unallocated corporate expenses:

	Three Months Ended September 30, 2012
	U.S. Wholesale		U.S. Retail			Canada			International			Consolidated
Wholesale net sales	$	39,862	$	—		$	3,215		$	2,113		$	45,190
Retail net sales	—		52,714			13,086			39,256			105,056
Online consumer net sales	6,985		—			416			4,513			11,914
Total net sales to external customers	46,847		52,714			16,717			45,882			162,160
Gross profit	12,873		34,361			10,166			27,800			85,200
Income from segment operations	5,811		3,116			721			4,192			13,840
Depreciation and amortization	1,446		2,747			394			951			5,538
Capital expenditures	3,300		2,136			328			894			6,658
Deferred rent expense (benefit)	297		(349		)	(58		)	(122		)	(232		)
	Three Months Ended September 30, 2011
	U.S. Wholesale		U.S. Retail			Canada			International			Consolidated
Wholesale net sales	$	36,780	$	—		$	2,958		$	2,825		$	42,563
Retail net sales	—		43,104			11,944			33,244			88,292
Online consumer net sales	5,625		—			362			4,047			10,034
Total net sales to external customers	42,405		43,104			15,264			40,116			140,889
Gross profit	8,897		29,607			9,432			27,055			74,991
Income (loss) from segment operations	4,465		(622		)	(527		)	5,339			8,655
Depreciation and amortization	1,833		2,599			404			1,290			6,126
Capital expenditures	838		1,169			77			473			2,557
Retail store impairment	—		119			640			25			784
Deferred rent expense (benefit)	59		(294		)	(30		)	(219		)	(484		)

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	Nine Months Ended September 30, 2012
	U.S. Wholesale		U.S. Retail			Canada			International			Consolidated
Wholesale net sales	$	110,380	$	—		$	9,449		$	7,183		$	127,012
Retail net sales	—		143,444			34,181			102,859			280,484
Online consumer net sales	21,232		—			1,466			14,088			36,786
Total net sales to external customers	131,612		143,444			45,096			124,130			444,282
Gross profit	36,582		93,977			26,627			77,106			234,292
Income (loss) from segment operations	18,324		449			(1,888		)	8,339			25,224
Depreciation and amortization	4,795		8,074			1,107			3,064			17,040
Capital expenditures	6,502		3,990			1,144			2,621			14,257
Retail store impairment	—		—			129			—			129
Deferred rent expense (benefit)	393		(509		)	(156		)	(377		)	(649		)
	Nine Months Ended September 30, 2011
	U.S. Wholesale		U.S. Retail			Canada			International			Consolidated
Wholesale net sales	$	98,840	$	—		$	8,711		$	7,479		$	115,030
Retail net sales	—		120,483			32,246			92,059			244,788
Online consumer net sales	16,353		—			1,299			12,290			29,942
Total net sales to external customers	115,193		120,483			42,256			111,828			389,760
Gross profit	30,518		82,031			25,463			73,043			211,055
Income (loss) from segment operations	16,002		(7,126		)	(1,954		)	7,618			14,540
Depreciation and amortization	6,015		7,887			1,246			3,961			19,109
Capital expenditures	2,179		3,848			209			1,048			7,284
Retail store impairment	—		296			642			1,498			2,436
Deferred rent expense (benefit)	211		(1,341		)	(78		)	(654		)	(1,862		)

Reconciliation of reportable segments combined income from operations for the three and nine months ended September 30, 2012 and 2011 to the consolidated (loss) income before income taxes is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Consolidated income from operations of reportable segments	$	13,840		$	8,655		$	25,224		$	14,540
Unallocated corporate expenses	(9,223		)	(11,283		)	(31,111		)	(35,482		)
Interest expense	(10,454		)	(8,832		)	(30,274		)	(23,715		)
Foreign currency transaction gain (loss)	685			(1,855		)	(141		)	(780		)
Unrealized (loss) gain on change in fair value of warrants and purchase rights	(13,312		)	6,101			(15,340		)	21,201
Gain (loss) on extinguishment of debt	—			—			11,588			(3,114		)
Other (expense) income	(36		)	186			(188		)	240
Consolidated loss before income taxes	$	(18,500	)	$	(7,028	)	$	(40,242	)	$	(27,110	)

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Net sales by geographic location of customer for the three and nine months ended September 30, 2012 and 2011, are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
United States	$	99,562	$	85,509	$	275,056	$	235,676
Canada	16,717		15,264		45,096		42,256
Europe (excluding United Kingdom)	17,311		17,292		48,901		50,194
United Kingdom	12,060		9,888		32,811		27,299
South Korea	3,451		3,098		8,371		7,836
China	1,549		1,118		3,791		2,896
Japan	6,151		4,240		15,190		10,189
Australia	3,629		2,851		10,116		8,572
Other foreign countries	1,730		1,629		4,950		4,842
Total consolidated net sales	$	162,160	$	140,889	$	444,282	$	389,760

Note 16. Litigation

The Company is subject to various claims and contingencies in the ordinary course of business, including those related to litigation, business transactions, employee-related matters and taxes, and others. When the Company is aware of a claim or potential claim, the Company assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss. In addition to the estimated loss, the recorded liability includes probable and estimable legal costs associated with the claim or potential claim. There is no assurance that such matters will not materially and adversely affect the Company's business, financial position, and results of operations or cash flows.

On February 7, 2006, Sylvia Hsu, a former employee of American Apparel, filed a Charge of Discrimination with the Los Angeles District Office of the Equal Employment Opportunity Commission (“EEOC”) (Hsu v. American Apparel: Charge No. 480- 2006-00418), alleging that she was subjected to sexual harassment by a co-worker and constructively discharged as a result of the sexual harassment and a hostile working environment. On March 9, 2007, the EEOC expanded the scope of its investigation to other employees of American Apparel who may have been sexually harassed. On August 9, 2010, the EEOC issued a written determination finding that reasonable cause exists to believe the Company discriminated against Ms. Hsu and women, as a class, on the basis of their female gender, by subjecting them to sexual harassment. No finding was made on the issue of Ms. Hsu's alleged constructive discharge. In its August 19, 2010 written determination, the EEOC has invited the parties to engage in informal conciliation. If the parties are unable to reach a settlement, which is acceptable to the EEOC, the EEOC will advise the parties of the court enforcement alternatives available to Ms. Hsu, aggrieved persons, and the EEOC. The insurance carrier for the Company has asserted that it is not obligated to provide coverage for this proceeding.  The Company has not recorded a provision for this matter and intends to work cooperatively with the EEOC to resolve the claim in a manner acceptable to all parties. Should the matter be decided against the Company, the Company could experience an increase in similar suits and suffer reputational harm. The Company does not at this time believe that any settlement will involve the payment of damages in an amount that would be material to and adversely affect the Company's business, financial position, and results of operations and cash flows.

On November 5, 2009, Guillermo Ruiz, a former employee of American Apparel, filed suit against the Company on behalf of putative classes of all current and former non-exempt California employees (Guillermo Ruiz, on behalf of himself and all others similarly situated v. American Apparel, Inc., Case Number BC425487) in the Superior Court of the State of California for the County of Los Angeles, alleging the Company failed to pay certain wages due for hours worked, to provide meal and rest periods or compensation in lieu thereof and to pay wages due upon termination to certain of the Company's employees. The complaint further alleges that the Company failed to comply with certain itemized employee wage statement provisions and violations of unfair competition law.  The plaintiff is seeking compensatory damages and economic and/or special damages in an unspecified amount, premium pay, wages and penalties, injunctive relief and restitution, and reimbursement for attorneys' fees, interest and the costs of the suit. This matter is now proceeding in arbitration. The Company does not have insurance coverage for this matter. Should the matter be decided against the Company, the Company could not only incur substantial liability but also experience an increase in similar suits and suffer reputational harm. The Company has accrued an estimate for this loss contingency in its accompanying condensed consolidated balance sheet as of September 30, 2012.  The Company may have an exposure to loss in excess of the amounts accrued, however, an estimate of such potential loss cannot be made at this time. Moreover, no assurance can be made that this matter either individually or together with the potential for similar suits and

27

reputational harm, will not result in a material financial exposure, larger than the Company's estimate, which could have a material adverse effect upon its financial condition and results of operations.

On June 21, 2010 Antonio Partida, a former employee of American Apparel, filed suit against the Company on behalf of putative classes of current and former non-exempt California employees (Antonio Partida, on behalf of himself and all others similarly situated v. American Apparel (USA), LLC, Case No. 30-2010-00382719-CU-OE-CXC) in the Superior Court of the State of California for the County of Orange, alleging the Company failed to pay certain wages for hours worked, to provide meal and rest periods or compensation in lieu thereof, and to pay wages due upon separation. The complaint further alleges that the Company failed to timely pay wages, unlawfully deducted wages and failed to comply with certain itemized employee wage statement provisions and violations of unfair competition law. The plaintiff is seeking compensatory damages and economic and/or special damages in an unspecified amount, premium pay, wages and penalties, injunctive relief and restitution, and reimbursement of attorneys' fees, interest and the costs of the suit. This matter is now proceeding in arbitration. There is no known insurance coverage for this matter. Should the matter be decided against the Company, the Company could not only incur substantial liability but also experience an increase in similar suits and suffer reputational harm. The Company has accrued an estimate for this loss contingency in its accompanying condensed consolidated balance sheet as of September 30, 2012.  The Company may have an exposure to loss in excess of the amounts accrued, however, an estimate of such potential loss cannot be made at this time.  Moreover, no assurance can be made that this matter either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, larger than its estimate, which could have a material adverse effect upon the Company's financial condition and results of operations.

On or about December 2, 2010, Emilie Truong, a former employee of American Apparel, filed suit against the Company on behalf of putative classes of current and former non-exempt California employees (Emilie Truong, individually and on behalf of all others similarly situated v. American Apparel, Inc. and American Apparel LLC, Case No. BC450505) in the Superior Court of the State of California for the County of Los Angeles, alleging the Company failed to timely provide final paychecks upon separation.  Plaintiff is seeking unspecified premium wages, attorneys' fees and costs, disgorgement of profits, and an injunction against the alleged unlawful practices. This matter is now proceeding in arbitration. There is no known insurance coverage for this matter. Should the matter be decided against the Company, the Company could not only incur substantial liability, but also experience an increase in similar suits and suffer reputational harm.  The Company is unable to predict the financial outcome of these matters at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matters proceed through their course. However, no assurance can be made that these matters, either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, which could have a material adverse effect upon its financial condition and results of operations.

On or about February 9, 2011, Jessica Heupel, a former retail employee filed suit on behalf of putative classes of current and former non-exempt California employees (Jessica Heupel, individually and on behalf of all others similarly situated v. American Apparel Retail, Inc., Case No. 37-2011-00085578-CU-OE-CTL) in the Superior Court of the State of California for the County of San Diego, alleging the Company failed to pay certain wages for hours worked, to provide meal and rest periods or compensation in lieu thereof, and to pay wages due upon separation.  The plaintiff is seeking monetary damages as follows: (1) for alleged meal and rest period violations; (2) for alleged failure to timely pay final wages, as well as for punitive damages for the same; and (3) unspecified damages for unpaid minimum wage and overtime.  In addition, Plaintiff seeks premium pay, wages and penalties, injunctive relief and restitution, and reimbursement of attorneys' fees, interest and the costs of the suit.   This matter is now proceeding in arbitration. There is no known insurance coverage for this matter. Should the matter be decided against the Company, the Company could not only incur substantial liability, but also experience an increase in similar suits and suffer reputational harm.  The Company is unable to predict the financial outcome of these matters at this time, and any views formed as to the viability of these claims or the financial exposure, which result may change from time to time as the matters proceed through their course. However, no assurance can be made that these matters, either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, which could have a material adverse effect upon its financial condition and results of operations.

On or about September 9, 2011, Anthony Heupel, a former retail employee initiated arbitration proceedings on behalf of putative classes of current and former non-exempt California employees, alleging the Company failed to pay certain wages for hours worked, to provide meal and rest periods or compensation in lieu thereof, and to pay wages due upon separation.  The plaintiff is seeking monetary damages in an amount in excess of $3,600, as follows: (1) for alleged meal and rest period violations; (2) for alleged failure to timely pay final wages, as well as for punitive damages for the same; and (3) unspecified damages for unpaid minimum wage and overtime.  In addition, Plaintiff seeks premium pay, wages and penalties, injunctive relief and restitution, and reimbursement of attorneys' fees, interest and the costs of the suit. There is no known insurance coverage for this matter. Should the matter be decided against the Company, the Company could not only incur a substantial liability, but also experience an increase in similar suits and suffer reputational harm.  The Company is unable to predict the financial outcome of these matters at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matters proceed through their course. However, no assurance

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can be made that these matters, either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, which could have a material adverse effect upon its financial condition and results of operations.

Two shareholder derivative lawsuits, entitled Nikolai Grigoriev v. Dov Charney, et al., Case No. CV106576 GAF (JCx) (the “Grigoriev Action”) and Andrew Smukler v. Dov Charney, et al., Case No. CV107518 RSWL (FFMx) (the “Smukler Action”), were filed in the United States District Court for the Central District of California on September 2, 2010 and October 7, 2010, respectively, and four shareholder derivative lawsuits, entitled John L. Smith v. Dov Charney, et al., Case No. BC 443763 (the "Smith Action"), Lisa Kim v. Dov Charney, et al., Case No. BC 443902 (the "Kim Action"), Teresa Lankford v. Dov Charney, et al., Case No. BC 445094 (the "Lankford Action"), and Wesley Norris v. Dov Charney, et al., Case No. BC 447890 (the "Norris Action") were filed in the Superior Court of the State of California for the County of Los Angeles on August 16, 2010, September 3, 2010, September 7, 2010, and October 21, 2010, respectively, by persons identifying themselves as American Apparel shareholders and purporting to act on behalf of American Apparel, naming American Apparel as a nominal defendant and certain current and former officers, directors, and executives of the Company as defendants.

Plaintiffs in the Smith Action, Kim Action, and Norris Action allege causes of action for breach of fiduciary duty arising out of (i) the Company's alleged failure to maintain adequate accounting and internal control policies and procedures; and (ii) the Company's alleged violation of state and federal immigration laws in connection with the previously disclosed termination of over 1,500 employees following an Immigration and Customs Enforcement inspection.  The Lankford Action alleges seven causes of action for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets also arising out of (i) the Company's alleged failure to maintain adequate accounting and internal control policies and procedures; and (ii) the Company's alleged violation of state and federal immigration laws in connection with the previously disclosed termination of over 1,500 employees following an Immigration and Customs Enforcement inspection.  On November 4, 2010, the four lawsuits filed in the Superior Court of the State of California were consolidated for all purposes into a case entitled In re American Apparel, Inc. Shareholder Derivative Litigation, Lead Case No. BC 443763 (the "State Derivative Action").  On April 12, 2011, the Court issued an order staying the State Derivative Action on the grounds that the case is duplicative of the Federal Derivative Action, as well as the Federal Securities Action currently pending in the United States District Court for the Central District of California (see below).

On November 12, 2010, the Grigoriev Action and Smukler Action were consolidated for all purposes into a case entitled In re American Apparel, Inc. Shareholder Derivative Litigation, Lead Case No. CV106576 (the “Federal Derivative Action”).  Plaintiffs in the Federal Derivative Action filed a Consolidated Amended Shareholder Derivative Complaint on June 13, 2011.  The amended complaint alleges a cause of action for breach of  fiduciary duty arising out of (i) the Company's alleged failure to maintain adequate accounting and internal control policies and procedures; (ii) the Company's alleged violation of state and federal immigration laws in connection with the previously disclosed termination of over 1,500 employees following an Immigration and Customs Enforcement inspection; and (iii) the Company's alleged failure to implement controls sufficient to prevent a sexually hostile and discriminatory work environment. Plaintiffs in each of the derivative cases seek damages on behalf of American Apparel in an unspecified amount, as well as equitable and injunctive relief. The Company does not maintain any exposure to loss in connection with these shareholder derivative lawsuits. The lawsuits do not assert any claims against the Company. The Company's status as a “Nominal Defendant” in the actions reflects the fact that the lawsuits are maintained by the named plaintiffs on behalf of American Apparel and that plaintiffs seek damages on the Company's behalf. On August 29, 2011, defendants filed a motion to dismiss the Federal Derivative Action.  A hearing on the motion was held on December 12, 2011.  On July 31, 2012, the Court dismissed the Federal Derivative Action, with leave to amend. Plaintiffs in the Federal Derivative Action subsequently filed a motion to dismiss each of their claims, with prejudice, for the stated purpose of taking an immediate appeal of the Court's July 31, 2012 order. On October 16, 2012, the Court granted the Plaintiffs' motion to dismiss the consolidated derivative complaint and entered judgment accordingly. On November 12, 2012, Plaintiffs filed a Notice of Appeal to the Ninth Circuit Court of Appeals.

Four putative class action lawsuits, entitled Anthony Andrade v. American Apparel, et al., Case No. CV106352 MMM (RCx), Douglas Ormsby v. American Apparel, et al., Case No. CV106513 MMM (RCx), James Costa v. American Apparel, et al., Case No. CV106516 MMM (RCx), and Wesley Childs v. American Apparel, et al., Case No. CV106680 GW (JCGx), were filed in the United States District Court for the Central District of California on August 25, 2010, August 31, 2010, August 31, 2010, and September 8, 2010, respectively, against American Apparel and certain of the Company's officers and executives on behalf of American Apparel shareholders who purchased the Company's common stock between December 19, 2006 and August 17, 2010. On December 3, 2010, the four lawsuits were consolidated for all purposes into a case entitled In re American Apparel, Inc. Shareholder Litigation, Lead Case No. CV106352 MMM (JCGx) (the “Federal Securities Action”). On March 14, 2011, the Court appointed the firm of Barroway Topaz, LLP (now Kessler Topaz Meltzer & Check, LLP) to serve as lead counsel and Mr. Charles Rendelman to serve as lead plaintiff. On April 29, 2011, Mr. Rendelman filed a Consolidated Class Action Complaint against American Apparel, certain of the Company's officers, and Lion, alleging two causes of action for violations of Section 10(b) and 20(a) of the 1934 Act, and Rules 10b-5 promulgated under Section 10(b), arising out of alleged

29

misrepresentations contained in the Company's press releases, public filings with the SEC, and other public statements relating to (i) the adequacy of the Company's internal and financial control policies and procedures; (ii) the Company's employment practices; and (iii) the effect that the dismissal of over 1,500 employees following an Immigration and Customs Enforcement inspection would have on the Company. Plaintiff seeks damages in an unspecified amount, reasonable attorneys' fees and costs, and equitable relief as the Court may deem proper.  On May 31, 2011, defendants filed a motion to dismiss the Federal Securities Action. On January 13, 2012, the Court dismissed the Federal Securities Action, with leave to amend. Plaintiff filed an amended complaint on February 27, 2012. The Company moved to dismiss the amended complaint on March 30, 2012. A hearing on the motion was heard on May 21, 2012. The Court took the matter under submission. Discovery is stayed in the Federal Securities Action, as well as in the Federal Derivative Action, pending resolution of motions to dismiss the Federal Securities Action.

The Company is unable to predict the financial outcome of these matters at this time, and any views formed as to the viability of these claims or the financial exposure, which could result may change from time to time as the matters proceed through their course. However, no assurance can be made that these matters, either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, which could have a material adverse effect upon the Company's financial condition and results of operations.

On February 17, 2011, the Company filed complaints in arbitration against five former employees seeking: (1) declaratory relief that the arbitration, confidentiality, severance and bonus agreements signed by the former employees are valid and enforceable; (2) damages in the event the former employees or anyone of them breaches their confidentiality agreements, as threatened; (3) attorneys' fees and costs incurred to compel the suit into arbitration; (4) declaratory relief that the former employees' claims of sexual harassment and sexual assault are false and without merit; and (5) declaratory relief that the former employees have attempted to engage in abuse of process for the purpose of extorting from the Company and Dov Charney money solely to avoid public shame and economic loss. On March 4, 2011, one such former employee filed suit against American Apparel, Dov Charney, and certain members of the Board of Directors of American Apparel in the Supreme Court of New York, County of Kings, Case No. 5018-11.  The suit alleges sexual harassment, gender discrimination, retaliation, negligent hiring and supervision, intentional and negligent infliction of emotional distress, fraud and unpaid wages, and seeks, among other things, an award of compensatory damages, exemplary damages, attorneys' fees and costs, all in an amount of at least $250,000 (the "New York Suit"). In March 2012, the court ordered this case into arbitration. On March 23, 2011, three of the other former employees filed a consolidated suit against American Apparel and Dov Charney in the Superior Court of the State of California for the County of Los Angeles, Case No. BC457920 (the "Los Angeles Suit"). Such action alleges sexual harassment, failure to prevent harassment and discrimination, intentional infliction of emotional distress, assault and battery, and a declaratory judgment that the confidentiality and arbitration agreements signed by plaintiffs are unenforceable. Such action seeks monetary damages, various forms of injunctive relief, and attorneys' fees and costs. On July 28, 2011, the court ordered this case into arbitration.  The Company's insurance carrier has acknowledged coverage of the New York Suit and Los Angeles Suit, subject to a deductible and a reservation of rights.

On April 27, 2011, three of the former employees filed suit against the Company, Dov Charney and a Company employee in the Superior Court of the State of California for the County of Los Angeles, Case No. BC460331, asserting claims for Impersonation through Internet or Electronic Means, Intentional Infliction of Emotional Distress, Defamation, Invasion of Privacy/False Light, and Invasion of Privacy/Appropriation of Likeness. Such action seeks monetary damages, injunctive relief and attorneys' fees and costs.  The Court has ordered this case into arbitration.  The Company's insurance carrier has acknowledged coverage of this suit, subject to a deductible and a reservation of rights.

The Company is currently engaged in other employment-related claims and other matters incidental to its business.  The Company believes that all such claims against the Company are without merit or not material, and the Company intends to vigorously dispute the validity of the plaintiffs' claims.  Should these matters be decided against the Company, the Company could not only incur substantial liability but also experience an increase in similar suits and suffer reputational harm. While the ultimate resolution of such claims cannot be determined, based on information at this time, the Company believes the amount, and ultimate liability, if any, with respect to these actions will not materially affect the Company's business, financial position, results of operations, or cash flows.  The Company cannot assure you, however, that such actions will not have a material adverse effect on its consolidated results of operations, financial position or cash flows.

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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a vertically-integrated manufacturer, distributor, and retailer of branded fashion basic apparel. We design, manufacture and sell clothing, accessories and personal care products for women, men, children and babies through retail, wholesale and online distribution channels. As of September 30, 2012, we operated a total of 251 retail stores in the United States, Canada and 18 other countries. Our wholesale business is a leading supplier of T-shirts and other casual wear to screen printers and distributors. In addition, we operate an online retail e-commerce website at www.americanapparel.com where we sell our clothing and accessories directly to consumers.

We conduct our primary manufacturing operations out of an 800,000 square foot facility in the warehouse district of downtown Los Angeles, California. The facility houses our executive offices, as well as cutting, sewing, warehousing, and distribution operations. We conduct knitting operations at our facilities in Los Angeles and Garden Grove, California, which produce a majority of the fabric we use in our products. We also operate dye houses that provide dyeing and finishing services for nearly all of the raw fabric used in production. We operate a dyeing and finishing facility in Hawthorne, California, which provides fabric dyeing and finishing services. We operate a garment dyeing and finishing facility, located in South Gate, California, which is used in cutting, sewing, dyeing and finishing garments. We operate a fabric dyeing and finishing facility, located in Garden Grove, California, which has been expanded to include knitting, cutting and sewing operations. Because we manufacture domestically and are vertically integrated, we believe this enables us to more quickly respond to customer demand and to changing fashion trends and to closely monitor product quality. Our products are recognized for their quality and fit, and together with our distinctive branding these attributes have differentiated our products in the marketplace.

The results of the respective business segments exclude unallocated corporate expenses, which consist of our shared overhead costs. These costs are presented separately and generally include corporate costs such as human resources, legal, finance, information technology, accounting, and executive compensation.

The following sets forth the change in retail store count during the three and nine months ended September 30, 2012 and 2011.

	U.S. Retail		Canada		International		Total
Three Months Ended September 30, 2012
Open at June 30, 2012	140		36		76		252
Opened	—		—		—		—
Closed	—		(1	)	—		(1	)
Open at September 30, 2012	140		35		76		251
Three Months Ended September 30, 2011
Open at June 30, 2011	146		38		70		254
Opened	—		—		—		—
Closed	(3	)	—		(4	)	(7	)
Open at September 30, 2011	143		38		66		247

	U.S. Retail		Canada		International		Total
Nine Months Ended September 30, 2012
Open at January 1, 2012	143		37		69		249
Opened	—		—		8		8
Closed	(3	)	(2	)	(1	)	(6	)
Open at September 30, 2012	140		35		76		251
Nine Months Ended September 30, 2011
Open at January 1, 2011	157		40		76		273
Opened	—		—		—		—
Closed	(14	)	(2	)	(10	)	(26	)
Open at September 30, 2011	143		38		66		247

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Comparable Store Sales

The table below shows the increase in comparable store sales for our retail and online stores, for the three and nine months ended September 30, 2012 and 2011, and the number of retail stores included in the comparison at the end of each period. Comparable store sales are defined as the percentage change in sales for stores that have been open for more than twelve full months. Remodeled and expanded stores are excluded from the determination of comparable stores for the following twelve month period if the remodel or expansion results in a change of greater than 20% of selling square footage. Closed stores are excluded from the base of comparable stores following their last full month of operation.

In calculating constant currency amounts, we convert the results of our foreign operations both in the current period and the prior year comparable period using the weighted-average foreign exchange rate for the prior comparable period to achieve a consistent basis for comparison.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Comparable store sales (1)	20	%	3	%	17	%	—	%
Number of stores in comparison	242		244		242		244

⁽¹⁾ Comparable store sales results include the impact of online store sales.

Executive Summary

Results of Operations

Net sales for the nine months ended September 30, 2012 increased $54.5 million, or 14.0%, to $444.3 million from $389.8 million reported nine months ended September 30, 2011 due to higher sales across all of our segments.

Net sales at our U.S. Wholesale segment increased by $16.4 million, or 14.3%, driven by higher sales order volume from a significant number of new and existing customers. Our ability to service orders reliably helped facilitate new account generation, as well as the maintenance of our existing client roster. The launch of a new wholesale catalog and the addition of new products to our wholesale offering attracted a more diversified customer base. We continue our focus on increasing our customer base by targeting direct sales, particularly sales to third party screen printers. Online consumer net sales increased primarily as a result of functional improvements to our website and fulfillment process, and as well as a targeted online advertising and promotion effort.

Net sales at our U.S. Retail, Canada and International segments increased by $38.1 million, or 13.9%, due to strong performance across categories, particularly women's fashion and accessories, as well as better inventory composition and promotional strategy for key volume drivers.

Gross margin for the nine months ended September 30, 2012 was 52.7% compared to 54.1% for the nine months ended September 30, 2011. The decrease in gross margin was due to the net sales impact of planned promotional activities and the effect of warehouse type clearance sales as part of our overall inventory reduction strategy. This decrease was partially offset by shift towards higher margin retail sales.

Operating expenses include selling, general and administrative costs, and retail store impairment charges, and as a percentage of sales decreased from 59.5% to 54.1%. Operating expenses were $240.2 million as compared to $232.0 million for the nine months ended September 30, 2012 and 2011, respectively. Excluding the effects of depreciation, amortization and impairment charges between the two periods, operating expenses as a percentage of sales decreased from 54.0% to 50.2%. The decrease as a percentage of sales was primarily due to a reduction in corporate overhead expenses and the fixed cost leverage as a result of increased sales.

Loss from operations was $5.9 million for the nine months ended September 30, 2012 as compared to $20.9 million for the nine months ended September 30, 2011.

Net loss for the nine months ended September 30, 2012 was $42.2 million as compared to $28.2 million for the nine months ended September 30, 2011 due primarily to a net increase in non-operating expenses of $28.2 million as well as higher income tax provision expense of $0.9 million.  The increase in non-operating expenses was primarily due to the increase in market value of our outstanding warrants at September 30, 2012 as compared with September 30, 2011, resulting in a net change in unrealized loss of $36.5 million. Additionally, we incurred higher interest expense due to a higher average balance of debt outstanding and higher interest rates related to the Crystal Credit Agreement.  These were offset by a net $14.7 million gain on extinguishment of debt.  See Results of Operations for the nine months ended September 30, 2012 for further details. 

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Liquidity Trends

As of September 30, 2012, we had approximately $7.2 million in cash and $3.5 million of availability for additional borrowings under the Crystal Credit Agreement and Bank of Montreal Credit Agreement. Additionally, we had $35.6 million outstanding on a $50.0 million revolving credit facility under the Crystal Credit Agreement, $30.0 million of term loan outstanding under the Crystal Credit Agreement, $5.9 million outstanding on a C$11.0 million revolving credit facility under the Bank of Montreal Credit Agreement, and $103.6 million of term loans outstanding under the Lion Credit Agreement. See Notes 6 and 7 to our condensed consolidated financial statements under Part I, Item 1.

On March 13, 2012, we replaced our $75.0 million senior secured revolving credit facility with Bank of America ("BofA") with a $80.0 million senior credit facility with Crystal Financial LLC ("Crystal" and "Crystal Credit Agreement"). The Crystal Credit Agreement calls for the $80.0 million to be allocated between an asset-based revolving credit facility of $50.0 million and term loan of $30.0 million. Proceeds from the Crystal Credit Agreement were used to repay our existing credit facility with BofA, fees and expenses related to the transaction and for general working capital purposes. See Note 6 to our condensed consolidated financial statements under Part I, Item 1.

The Crystal Credit Agreement matures on March 13, 2015 and is collateralized by substantially all of our U.S. and U.K. assets and equity interests in certain of our foreign subsidiaries. Interest under the agreement is at the 90-day LIBOR plus 9.0% and also includes an unused facility fee ranging from 0.375% to 1.00% on the unused portion of the revolving credit facility, as well as an early termination fee if prepaid within the first two years.

In connection with the financing from Crystal, we also entered into an amendment to the Lion Credit Agreement to, among other things: (i) consent to the Crystal Credit Agreement, (ii) fix the maturity date at December 31, 2015, and (iii) modify certain financial covenants, including covenants related to minimum quarterly EBITDA and capital expenditures. In addition, the amendment to the Lion Credit Agreement modifies the Lion Credit Agreement to provide for a minimum of 5% of each interest payment on the outstanding principal in cash commencing on September 1, 2012.

On August 30, 2012, we entered into a second amendment to the Crystal Agreement ("Crystal Second Amendment") and an eighth amendment to the Lion Credit Agreement ("Lion Eighth Amendment"). The Crystal Second Amendment extended until December 31, 2012 the period during which loans under the Crystal Credit Agreement based on the American Apparel brand name may remain outstanding, added a minimum Consolidated EBITDA covenant for the remainder of 2012 and a minimum excess availability covenant for the period of December 17, 2012 through February 1, 2013. In connection with the Crystal Second Amendment, the Lion Eighth Amendment added a second minimum Consolidated EBITDA covenant that conforms to the Crystal minimum consolidated EBITDA covenant. See Notes 6 and 7 to our condensed consolidated financial statements under Part I, Item 1.

We entered into a ninth amendment and waiver to the Lion Credit Agreement (the "Lion Ninth Amendment") effective as of September 30, 2012, which among other things, waived our obligation to maintain the minimum Consolidated EBITDA covenants specified in the Lion Credit Agreement, as amended, for the twelve month period ended September 30, 2012. As a result, we were in compliance with the required financial covenants of the Lion Credit Agreement on September 30, 2012.

Our C$11.0 million credit agreement with Bank of Montreal ("Bank of Montreal Credit Agreement") matures in December 2012. There can be no assurances that we will be able to negotiate a renewal or extension of this credit agreement with our existing lender or enter into a replacement credit agreement with new lenders on commercially reasonably terms or at all and we may be required to repay this loan. If we are not able to enter into a renewal, extension or replacement of the Bank of Montreal Credit Agreement prior to its maturity, we would no longer have access to liquidity from such revolving credit facility after its maturity date. While we intend to negotiate an extension of this credit agreement, we do not believe that this credit agreement represents a material component of our current or future capital requirements.

Management Plan

We are in the process of executing a plan, which we commenced in 2010, to improve the operating performance and our financial position. This plan includes optimizing production levels at our manufacturing facilities including raw material purchases and labor; streamlining our logistics operations; web platform refinement; reducing corporate expenses; merchandise price rationalization in the wholesale and retail channels; store renovation; and improving merchandise distribution and allocation procedures.

In September 2012, we implemented a new online store platform for our U.S. online store that resulted in functional improvements to our website and fulfillment processes and will allow us to tailor the look and feel of the online store to enhance the customer online shopping experience. The new store platform will also enable faster deployment of online stores to new international regions. We believe that these improvements will contribute to our continued financial growth as our website has the potential to not only increase online sales but also in-store sales.

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In September 2012 we implemented a new production forecasting and inventory allocation system that integrates our sales forecasts with our retail inventory tracking system and therefore allows us to better manage our production schedule so that inventory is maintained at the right amount for the right season. It also gives us greater visibility into seasonal and new trends, which will enable a faster reaction to changes in demand.

The second and the third quarter of 2012 benefited from an adjustment to the global promotional strategy and improvements to our in-stock position at stores.  We migrated to targeted promotions, which established pricing incentives for customers to buy multiple items in volume driving categories.  Unit sales increased as a result of this change and that increase in selling volume was facilitated by improvements to our allocation and logistics processes.  During this period, we also ran successful markdowns on aged and seasonal merchandises.  We believe this helped decrease inventory levels in slower turning goods, increase foot traffic, and improve sales to both items on markdown, as well as the full price assortment.   

Throughout 2012, we continued to enhance our stores by installing sales conversion tracking device and radio frequency identification (RFID) tracking systems. To date, we have implemented RFID systems at 126 stores worldwide. We believe that these systems will enhance sales and contribute to store productivity through improvements in stock positions and replenishment activities.

In June 2012 we entered into a new operating lease agreement for a new distribution center located in California and expect to fully transition our distribution operations into this new facility in early 2013. We believe that the new distribution center will contribute to processing efficiencies and effectiveness and will reduce operating expenses and cost of sales.

We continue to develop other initiatives intended to either increase sales, reduce costs or improve liquidity.

Although our plan reflects improvements in these trends, there can be no assurance that our plan to improve the operating performance and our financial position will be successful.

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Results of Operations

The results of operations of the interim periods are not necessarily indicative of results for the entire year.

Three Months EndedSeptember 30, 2012 Compared to the Three Months EndedSeptember 30, 2011

The following table sets forth our results of operations from our unaudited condensed consolidated statements of operations by dollar and as a percentage of net sales for the periods indicated (dollars in thousands):

	Three Months Ended September 30,
	2012			% of net sales		2011			% of net sales
U.S. Wholesale	$	46,847		28.9	%	$	42,405		30.1	%
U.S. Retail	52,714			32.5	%	43,104			30.6	%
Canada	16,717			10.3	%	15,264			10.8	%
International	45,882			28.3	%	40,116			28.5	%
Total net sales	162,160			100.0	%	140,889			100.0	%
Cost of sales	76,960			47.5	%	65,898			46.8	%
Gross profit	85,200			52.5	%	74,991			53.2	%
Selling expenses	58,017			35.8	%	52,283			37.1	%
General and administrative expenses	22,566			13.9	%	24,552			17.4	%
Retail store impairment	—			—	%	784			0.6	%
Income (loss) from operations	4,617			2.8	%	(2,628		)	(1.9	)%
Interest expense	10,454					8,832
Foreign currency transaction (gain) loss	(685		)			1,855
Unrealized loss (gain) on change in fair value of warrants and purchase rights	13,312					(6,101		)
Other expense (income)	36					(186		)
Loss before income tax	(18,500		)			(7,028		)
Income tax provision	512					166
Net loss	$	(19,012	)			$	(7,194	)

U.S. Wholesale: Total net sales for the U.S. Wholesale segment increased $4.4 million, or 10.5%, to $46.8 million for the three months ended September 30, 2012 as compared to $42.4 million for the three months ended September 30, 2011. Wholesale net sales, excluding online consumer net sales, increased $3.1 million, or 8.4%, to $39.9 million for the three months ended September 30, 2012 as compared to $36.8 million for the three months ended September 30, 2011 driven by higher sales order volume from a significant number of new and existing customers. Our ability to service orders reliably by keeping appropriate levels of inventory to support any fluctuations in customer demand, helped facilitate new account generation, as well as the maintenance of our existing client roster. The launch of a new wholesale catalog and the addition of new products to our wholesale offering attracted a more diversified customer base. We continue our focus on increasing our customer base by targeting direct sales, particularly sales to third party screen printers.

Online consumer net sales increased $1.4 million, or 24.2%, to $7.0 million for the three months ended September 30, 2012 as compared to $5.6 million for the three months ended September 30, 2011, primarily as a result of improved merchandising, segmented and refined email marketing, extensive email list growth and offering of faster shipping options.

U.S. Retail: Net sales for the U.S. Retail segment increased $9.6 million, or 22.3%, to $52.7 million for the three months ended September 30, 2012 as compared to $43.1 million for the three months ended September 30, 2011. Net sales growth was generated by a stronger inventory position in high volume categories, effectively timed seasonal promotions, success in new women's and unisex fashion and an overall improved presentation of our floor sets. Throughout the period, improvements to logistics and the speed of allocation helped to support a buying strategy that is faster and more proactive.

Comparable store sales for the three months ended September 30, 2012 increased by $8.8 million, or 20.9%, while warehouse

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sales consisting primarily of slower moving merchandise contributed an incremental $1.9 million increase from 2011 to 2012. The sales increase was partially offset by a $1.1 million sales decrease as a result of a reduction in the number of stores in operations from 143 at September 30, 2011 to 140 stores at September 30, 2012.

Canada:Total net sales for the Canada segment increased $1.5 million, or 9.5%, to $16.7 million for the three months ended September 30, 2012 as compared to $15.3 million for the three months ended September 30, 2011 as a result of improved performance across all sales channels. Holding foreign currency exchange rates constant to those prevailing in the comparable period in 2011, total revenue for the current period would have been approximately $17.0 million, or $1.8 million higher when compared to the same period last year.

Retail sales increased by $1.1 million, or 9.6%, to $13.1 million for the three months ended September 30, 2012 as compared to $11.9 million for the three months ended September 30, 2011 due primarily to a $1.5 million, or 13%, increase in comparable store sales. Since September 30, 2011, the number of retail stores in the Canada segment in operation decreased from 38 to 35. Holding foreign currency exchange rates constant to those prevailing in the comparable period in 2011, retail sales for 2012 would have been approximately $13.3 million, or 17.0% higher when compared to the same period last year.

Wholesale net sales increased by $0.2 million, or 8.7%, to $3.2 million for the three months ended September 30, 2012 as compared to $3.0 million for the three months ended September 30, 2011. Holding foreign currency exchange rates constant to those prevailing in the comparable period in 2011, total wholesale net sales for the Canada segment for 2012 would have been approximately $3.5 million, or 7.0% lower when compared to the same period last year.

Online consumer net sales for the three months ended September 30, 2012 and 2011 were $0.4 million. Foreign currency effects were minimal.

International: Total net sales for the International segment increased $5.8 million, or 14.4%, to $45.9 million for the three months ended September 30, 2012 as compared to $40.1 million for the three months ended September 30, 2011. The increase was due to higher sales in the retail sale channel. Holding foreign currency exchange rates constant to those prevailing in the comparable period in 2011, total revenue for the current period would have been approximately $48.9 million, or $8.8 million higher when compared to the same period last year.

Retail net sales increased $6.0 million, or 18.1%, to $39.3 million for the three months ended September 30, 2012 as compared to $33.2 million for the three months ended September 30, 2011. The change is mainly attributed to higher sales in the U.K. of $2.2 million, Japan of $1.8 million and Australia of $0.7 million. Comparable store sales for the three months ended September 30, 2012 increased $6.2 million, or 20% as compared to the three months ended September 30, 2011. Since September 30, 2011, the number of retail stores in the International segment increased from 66 to 76 at September 30, 2012. Holding foreign currency exchange rates constant to those prevailing in the comparable period in 2011, retail sales for 2012 would have been approximately $41.9 million, or 25.9% higher when compared to the same period last year.

Wholesale net sales decreased $0.7 million, or 25.2%, to $2.1 million for the three months ended September 30, 2012 as compared to $2.8 million for the three months ended September 30, 2011. Holding foreign currency exchange rates constant to those prevailing in the comparable period in 2011, sales for the current period would have been approximately $2.3 million, or 18.5% lower when compared to the same period last year.

Online consumer net sales increased $0.5 million, or 11.5%, to $4.5 million for the three months ended September 30, 2012 as compared to $4.0 million for the three months ended September 30, 2011, due primarily to higher sales in the U.K and Australia. Holding foreign currency exchange rates constant to those prevailing in the comparable period in 2011, sales for the current period would have been approximately $4.7 million, or 16.8% higher when compared to the same period last year.

Gross margin: Gross margin as a percentage of net sales was 52.5% and 53.2% for the three months ended September 31, 2012 and 2011, respectively. The decrease in gross margin was due to the net sales impact of planned promotional activities and the effect of warehouse type clearance sales as part of our overall inventory reduction strategy as well as the negative impact of foreign currency exchange rates on the cost of sales at our International segment. This decrease was partially offset by a shift towards higher margin retail sales, lower inventory shrink reserves reflecting the benefits of our RFID implementation and lower costs of production in our manufacturing operations.

Selling expenses: Selling expenses increased $5.7 million, or 11.0%, to $58.0 million for the three months ended September 30, 2012 as compared to $52.3 million for the three months ended September 30, 2011. The increase is consistent with improving sales. Additionally, we increased our spending on print, outdoor and online advertising to $5.5 million for the three months ended September 30, 2012 from $3.9 million for the comparable period in 2011 in order to continue the sales momentum. As a percentage of sales, selling expenses decreased to 35.8% in the three months ended September 30, 2012 from

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37.1% in the three months ended September 30, 2011.

General and administrative expenses: General and administrative expenses decreased $2.0 million to $22.6 million for the three months ended September 30, 2012 as compared to $24.6 million for the three months ended September 30, 2011. As a percentage of sales, general and administrative expenses decreased to 13.9% during the three months ended September 30, 2012 from 17.4% during the three months ended September 30, 2011. The decrease in general and administrative expenses was primarily due to rent and occupancy related expenses of $1.5 million, a decrease of $0.9 million in professional fees (primarily accounting and outside services related fees) and a reduction to our reserves related to a legal contingency of $0.9 million offset by an increase in bonus expense of $1.0 million and share-based compensation expense of $0.7 million.

Retail store impairment: For the three months ended September 30, 2012, we evaluated our retail stores for impairment indicators and determined that no additional impairment charges were required for the three months ended September 30, 2012. For the three months ended September 30, 2011, we recorded impairment charges relating to retail stores leasehold improvements of $0.8 million.

Interest expense: Interest expense increased $1.6 million to $10.5 million for the three months ended September 30, 2012 from $8.8 million for the three months ended September 30, 2011, primarily due to a higher average balance of debt outstanding and higher interest rates related to the Crystal Credit Agreement. Interest rates on our various debt facilities and capital leases ranged from 5.0% to 19.8% for the three months ended September 30, 2012 and 4.7% to 18.0% for the three months ended September 30, 2011. Interest expense for the three months ended September 30, 2012 mainly consisted of interest on the Lion Credit Agreement of $5.6 million, interest on the Crystal Credit Agreement of $1.7 million, and amortization of debt discount and deferred financing cost of $2.4 million. Interest paid in cash was $2.8 million.

Foreign currency transaction gain: For the three months ended September 30, 2012, foreign currency transaction gain totaled $0.7 million as compared to a loss of $1.9 million for the three months ended September 30, 2011. The change related to the weakening of the U.S. Dollar relative to the functional currencies used by our subsidiaries.

Unrealized loss (gain) on change in fair value of warrants and purchase rights: We recorded a $13.3 million loss in the fair value of warrants for the three months ended September 30, 2012 associated with the fair value measurements of the Lion and SOF warrants. We recorded a $6.1 million gain in the fair value of warrants and purchase rights for the three months ended September 30, 2011 associated with the fair value measurement of purchase rights to an investor group and Mr. Charney, and additional warrants to Lion at September 30, 2011.

Income tax provision: The provision for income tax increased to $0.5 million for the three months ended September 30, 2012 as compared to $0.2 million for the three months ended September 30, 2011. Although we incurred a loss before income taxes on a consolidated basis for the three months ended September 30, 2012, some of our foreign domiciled subsidiaries reported income before income taxes and will be taxable on a stand-alone reporting basis in their respective foreign jurisdictions. As a result, we recorded a provision for income tax expense for the three months ended September 30, 2012. There were no charges or benefits recorded to income tax expense for valuation allowances.

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Nine Months EndedSeptember 30, 2012 Compared to the Nine Months EndedSeptember 30, 2011

The following table sets forth our results of operations from our unaudited condensed consolidated statements of operations by dollar and as a percentage of net sales for the periods indicated (dollars in thousands):

	Nine Months Ended September 30,
	2012			% of net sales		2011			% of net sales
U.S. Wholesale	$	131,612		29.6	%	$	115,193		29.6	%
U.S. Retail	143,444			32.3	%	120,483			30.9	%
Canada	45,096			10.2	%	42,256			10.8	%
International	124,130			27.9	%	111,828			28.7	%
Total net sales	444,282			100.0	%	389,760			100.0	%
Cost of sales	209,990			47.3	%	178,705			45.9	%
Gross profit	234,292			52.7	%	211,055			54.1	%
Selling expenses	168,258			37.9	%	152,536			39.1	%
General and administrative expenses	71,792			16.2	%	77,025			19.8	%
Retail store impairment	129			—	%	2,436			0.6	%
Loss from operations	(5,887		)	(1.3	)%	(20,942		)	(5.4	)%
Interest expense	30,274					23,715
Foreign currency transaction loss	141					780
Unrealized loss (gain) on change in fair value of warrants and purchase rights	15,340					(21,201		)
(Gain) loss on extinguishment of debt	(11,588		)			3,114
Other expense (income)	188					(240		)
Loss before income tax	(40,242		)			(27,110		)
Income tax provision	1,933					1,042
Net loss	$	(42,175	)			$	(28,152	)

U.S. Wholesale: Total net sales for the U.S. Wholesale segment increased $16.4 million, or 14.3%, to $131.6 million for the nine months ended September 30, 2012 as compared to $115.2 million for the nine months ended September 30, 2011. Wholesale net sales, excluding online consumer net sales, increased $11.5 million, or 11.7%, to $110.4 million for the nine months ended September 30, 2012 as compared to $98.8 million for the nine months ended September 30, 2012, driven by higher sales order volume from a significant number of new and existing customers. Our ability to service orders reliably by keeping appropriate levels of inventory to support any fluctuations in customer demand, helped facilitate new account generation, as well as the maintenance of our existing client roster. The launch of a new wholesale catalog and the addition of new products to our wholesale offering attracted a more diversified customer base. We continue our focus on increasing our customer base by targeting direct sales, particularly sales to third party screen printers.

Online consumer net sales increased $4.9 million, or 29.8%, to $21.2 million for the nine months ended September 30, 2012 as compared to $16.4 million for the nine months ended September 30, 2011, primarily as a result of functional improvements to our website and fulfillment process, and as well as targeted online advertising, and promotion efforts.

U.S. Retail: Net sales for the U.S. Retail segment increased $23.0 million, or 19.1%, to $143.4 million for the nine months ended September 30, 2012 as compared to $120.5 million for the nine months ended September 30, 2011. Net sales growth was generated by a stronger inventory position in high volume categories, strategic promotions to drive volume in key basics, success in new women's and unisex fashion and improved presentation of our floor sets. Throughout the period, improvements to logistics and the speed of allocation helped to support a buying strategy that is faster and more proactive.

Comparable store sales for the nine months ended September 30, 2012 increased by $20.9 million, or 18%, while warehouse sales consisting primarily of slower moving merchandise contributed an incremental $5.8 million increase from 2011 to 2012, respectively. The sales increase was partially offset by a $3.5 million sales decrease as a result of a reduction in the number of stores in operations from 143 at September 30, 2011 to 140 stores at September 30, 2012.

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Canada:Total net sales for the Canada segment increased $2.8 million, or 6.7%, to $45.1 million for the nine months ended September 30, 2012 as compared to $42.3 million for the nine months ended September 30, 2011 as a result of improved performance across all sales channels. Holding foreign currency exchange rates constant to those prevailing in the comparable period in 2011, total revenue for the current period would have been approximately $46.3 million, or $4.0 million higher when compared to the same period last year.

Retail sales increased by $1.9 million, or 6.0%, to $34.2 million for the nine months ended September 30, 2012 as compared to $32.2 million for the nine months ended September 30, 2011 due primarily to a $2.9 million, or 10%, increase in comparable store sales. Since September 30, 2011, the number of retail stores in the Canada segment in operation decreased from 38 to 35. Holding foreign currency exchange rates constant to those prevailing in the comparable period in 2011, retail sales for 2012 would have been approximately $35.1 million, or 10.6% higher when compared to the same period last year.

Wholesale net sales increased $0.7 million, or 8.5%, to $9.4 million for the nine months ended September 30, 2012 as compared to $8.7 million for the nine months ended September 30, 2011. The increase in net sales is due to better focus on key customers and an improved pricing strategy. Holding foreign currency exchange rates constant to those prevailing in the comparable period in 2011, total wholesale net sales for the Canada segment for 2012 would have been approximately $9.7 million, or 4.5% higher when compared to the same period last year.

Online consumer net sales for the nine months ended September 30, 2012 were $1.5 million as compared to $1.3 million for the nine months ended September 30, 2011. Foreign currency effects were minimal.

International: Total net sales for the International segment increased $12.3 million, or 11.0%, to $124.1 million for the nine months ended September 30, 2012 as compared to $111.8 million for the nine months ended September 30, 2011. The increase is due to higher sales across all sales channels. Holding foreign currency exchange rates constant to those prevailing in the comparable period in 2011, total revenue for the current period would have been approximately $130.2 million, or $18.4 million higher when compared to the same period last year.

Retail net sales increased $10.8 million, or 11.7%, to $102.9 million for the nine months ended September 30, 2012 as compared to $92.1 million for the nine months ended September 30, 2011. The change is mainly attributed to higher sales in Japan of $4.6 million and the U.K. of $3.9 million. Comparable store sales for the nine months ended September 30, 2012 increased by $13.4 million, or 16%, as compared to the nine months ended September 30, 2011. Since September 30, 2011, the number retail stores in the International segment increased from 66 to 76 at September 30, 2012. Holding foreign currency exchange rates constant to those prevailing in the comparable period in 2011, retail sales for 2012 would have been approximately $108.0 million, or 17.3% higher when compared to the same period last year.

Wholesale net sales decreased $0.3 million, or 4.0%, to $7.2 million for the nine months ended September 30, 2012 as compared to $7.5 million for the nine months ended September 30, 2011. The decrease is due to unfavorable exchange rates. Holding foreign currency exchange rates constant to those prevailing in the comparable period in 2011, sales for the current period would have been approximately $7.7 million, or 2.3% higher when compared to the same period last year.

Online consumer net sales increased $1.8 million, or 14.6%, to $14.1 million for the nine months ended September 30, 2012 as compared to $12.3 million for the nine months ended September 30, 2011. Holding foreign currency exchange rates constant to those prevailing in the comparable period in 2011, sales for the current period would have been approximately $14.6 million, or 18.9% higher when compared to the same period last year.

Gross margin: Gross margin as a percentage of net sales was 52.7% and 54.1% for the nine months ended September 30, 2012 and 2011, respectively. The decrease in gross margin was due to the net sales impact of planned promotional activities and the effect of warehouse type clearance sales as part of our overall inventory reduction strategy. This decrease was partially offset by shift towards higher margin retail sales.

Selling expenses: Selling expenses increased $15.7 million, or 10.3%, to $168.3 million for the nine months ended September 30, 2012 as compared to $152.5 million for the nine months ended September 30, 2011. The increase is consistent with improving sales. Additionally, we increased our spending on print, outdoor and online advertising to $16.3 million for the nine months ended September 30, 2012 from $11.2 million for the comparable period in 2011 in order to continue the sales momentum. As a percentage of sales, selling expenses decreased to 37.9% in the nine months ended September 30, 2012 from 39.1% in the nine months ended September 30, 2011.

General and administrative expenses: General and administrative expenses decreased $5.2 million to $71.8 million for the nine months ended September 30, 2012 as compared to $77.0 million for the nine months ended September 30, 2011. As a percentage of sales, general and administrative expenses decreased to 16.2% during the nine months ended September 30, 2012 from 19.8% during the nine months ended September 30, 2011. The decrease in general and administrative expenses was

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primarily due to a $5.6 million reduction in professional fees (primarily consulting, legal and accounting related fees), a decrease of $1.8 million of depreciation and amortization expenses and a reduction to our reserves related to a legal contingency, offset by an increase of $1.9 million of bonus expense and $2.6 million in higher share-based compensation expense.

Retail store impairment: For the nine months ended September 30, 2012, we recorded an impairment charge of $0.1 million primarily as a result of a store closure. For the nine months ended September 30, 2011, we recorded impairment charges relating to retail stores leasehold improvements of $2.4 million.

Interest expense: Interest expense increased $6.6 million to $30.3 million for the nine months ended September 30, 2012 from $23.7 million for the nine months ended September 30, 2011, primarily due to a higher average balance of debt outstanding and higher interest rates related to the Crystal Credit Agreement. Interest rates on our various debt facilities and capital leases ranged from 5.0% to 19.8% for the nine months ended September 30, 2012 and 4.7% to 18.0% for the nine months ended September 30, 2011. Interest expense for the nine months ended September 30, 2012 mainly consisted of interest on the Lion Credit Agreement of $16.3 million, interest on the Crystal Credit Agreement of $3.7 million, interest on the BofA Credit Agreement of $0.5 million, and amortization of debt discount and deferred financing cost of $7.7 million. Interest paid in cash was $6.6 million.

Foreign currency transaction loss: For the nine months ended September 30, 2012, foreign currency transaction loss totaled $0.1 million as compared to a loss of $0.8 million for the nine months ended September 30, 2011. The change related to strengthening of the U.S. Dollar relative to functional currencies used by our subsidiaries.

Unrealized loss (gain) on change in fair value of warrants and purchase rights: We recorded a $15.3 million loss in fair value of warrants for the nine months ended September 30, 2012 associated with the fair value measurements of Lion and SOF warrants. We recorded a $21.2 million gain in the fair value of warrants and purchase rights for the nine months ended September 30, 2011 associated with the fair value measurement of purchase rights to an investor group and Mr. Charney, and additional warrants to Lion at September 30, 2011.

(Gain) loss on extinguishment of debt: During the nine months ended September 30, 2012, we recorded a gain on extinguishment of debt relating to the amendment to the Lion Credit Agreement terms of approximately $11.6 million. During the nine months ended September 30, 2011, we recorded a loss on extinguishment of debt pertaining to the amendment to the Lion Credit Agreement terms of approximately $3.1 million. See Note 7, Long-Term Debt to our condensed consolidated financial statements under Part I, Item 1.

Income tax provision: The provision for income tax increased to $1.9 million for the nine months ended September 30, 2012 as compared to $1.0 million for the nine months ended September 30, 2011. Although we incurred a loss before income taxes on a consolidated basis for the nine months ended September 30, 2012, some of our foreign domiciled subsidiaries reported income before income taxes and will be taxable on a stand-alone reporting basis in their respective foreign jurisdictions. As a result, we recorded a provision for income tax expense for the nine months ended September 30, 2012. There were no charges or benefits recorded to income tax expense for valuation allowances.

Liquidity and Capital Resources

As of September 30, 2012, we had approximately $7.2 million in cash and $3.5 million of availability for additional borrowings under the Crystal Credit Agreement and Bank of Montreal Credit Agreement. Additionally, we had (i) $35.6 million outstanding on a $50.0 million revolving credit facility under the Crystal Credit Agreement, (ii) $30.0 million of term loan outstanding under the Crystal Credit Agreement, (iii) $5.9 million outstanding on a C$11.0 million revolving credit facility under the Bank of Montreal Credit Agreement, and (iv) $103.6 million, net of discount of $30.0 million and including paid-in-kind interest of $12.4 million of term loan outstanding under the Lion Credit Agreement. See Notes 6 and 7 to our condensed consolidated financial statements under Part I, Item 1.

On March 13, 2012, we replaced our $75.0 million senior secured revolving credit facility with BofA with the Crystal Credit Agreement, a $80.0 million senior secured credit facility with Crystal and other lenders. The Crystal Credit Agreement calls for the $80.0 million to be allocated between an asset-based revolving credit facility of $50.0 million and term loan of $30.0 million and matures on March 13, 2015. In addition, the initial borrowing base under the revolving credit facility was increased by $12.5 million for the value associated with the American Apparel brand name. This initial increase will be ratably reduced to $0 during the period from April 13, 2012 through January 1, 2013.

Over the past years, our growth has been funded through a combination of borrowings from related and unrelated parties, bank debt and lease financing, proceeds from the exercise of purchase rights and issuance of common stock. Our principal liquidity requirements are for working capital and capital expenditures and to fund operating losses. We fund our liquidity requirements

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primarily through cash on hand, cash flow from operations, borrowings from revolving credit facilities and term loans under the Crystal and Lion Credit Agreements. Those credit agreements contain covenants requiring us to meet specified targets for minimum consolidated EBITDA and our inability to achieve such targets or to obtain a waiver of compliance would negatively impact the availability of credit under those credit facilities or result in an event of default.

We generate cash primarily through the sale of products manufactured by us at our retail stores and through our wholesale operations. Primary uses of cash are for the purchase of raw materials, payroll payments to our manufacturing employees and retail employees, retail store opening costs and the payment of rent for retail stores.

We are in the process of executing a plan, which we commenced in late 2010, to improve the operating performance and our financial position. This plan includes optimizing production levels at our manufacturing facilities including raw material purchases and labor; streamlining our logistics operations; reducing corporate expenses; merchandise price rationalization in our wholesale and retail channels; improving merchandise distribution and allocation procedures and rationalizing staffing levels. We continue to develop other initiatives intended to either increase sales, reduce costs or improve liquidity.

Although our plan reflects improvements in these trends, there can be no assurance that our plan to improve the operating performance and our financial position will be successful. We continue to evaluate other alternative sources of capital for ongoing cash needs, however, there can be no assurance we will be successful in those efforts.

Cash Flow Overview

	Nine Months Ended September 30,
	2012			2011
Net cash provided by (used in):
Operating activities	$	1,570		$	(9,953	)
Investing activities	(20,113		)	(7,212		)
Financing activities	15,984			18,321
Effect of foreign exchange rate on cash	(548		)	(844		)
Net (decrease) increase in cash	$	(3,107	)	$	312

Nine Months EndedSeptember 30, 2012

Cash provided by operating activities was $1.6 million. This was a result of non-cash expenses of $51.2 million offset by net losses of $42.2 million and a decrease in working capital requirements of $7.4 million. Non-cash expenses include depreciation, amortization, loss on disposal of property and equipment, impairment charges, foreign currency exchange transaction gain, allowance for inventory shrinkage and obsolescence, change in fair value of warrant liability, gain on extinguishment of debt, accrued interest-in-kind, stock based compensation, bad debt expense, deferred income taxes, and deferred rent. Cash was used for working capital primarily due to an increase in other assets of $5.8 million, increase in prepaid and other current assets of $3.3 million and increase in trade receivables of $4.7 million, partially offset by a decrease in inventories of $6.2 million and a decrease in income taxes receivable/payable of $2.4 million and a decrease in accrued expenses and other liabilities of $4.8 million. Improvements in liquidity from new equity financing in 2011 as well as higher sales have allowed us to gradually reduce accrued expenses and other liabilities. The decrease in inventory levels is due to the gradual improvements in our sales as well as the effects of stabilizing raw material costs.

Cash used in investing activities was $20.1 million. This consisted primarily of $14.3 million in capital expenditures and $5.9 million in restricted cash used as collateral to secure our standby letters of credit associated with the worker's compensation self-insurance policy and other liabilities. Net investments in property and equipment in the U.S. Wholesale segment consisted mostly of expenditures for manufacturing equipment and computer hardware and software. We upgraded our production forecasting and allocation systems and significantly enhanced our on-line web store capabilities with a new back office web platform. We also invested in our new distribution center in California. Net investments in the U.S. Retail segment were primarily to upgrade and remodel certain existing stores. Additionally, we continued implementing radio frequency identification (RFID) tracking systems at our stores.

Cash provided by financing activities was $16.0 million. This consisted primarily of proceeds from borrowings of $39.3 million under the new revolving credit facility and $30.0 million for a term loan, both under the Crystal Credit Agreement, partially offset by the repayment of the previous revolving credit facility for $48.3 million with BofA. Borrowings are primarily used to fund our operating and working capital needs.

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Nine Months EndedSeptember 30, 2011

Cash used in operating activities was $10.0 million. This was a result of net losses of $28.2 million, cash used in working capital of $10.6 million, partially offset by non-cash expenses of $28.8 million. Non-cash expenses primarily include depreciation, amortization, gain on disposal of property and equipment, foreign exchange transaction loss, allowance for inventory shrinkage and obsolescence, change in fair value of warrant liability, loss on extinguishment of debt, accrued interest-in-kind, impairment charges, share-based compensation, bad debt expense, deferred income taxes, and deferred rent. Cash was used for working capital primarily due to an increase in inventory of $8.7 million, an increase in income taxes receivable of $1.2 million, an increase in other long-term assets of $2.9 million and an increase in trade receivables of $2.5 million, an increase in prepaid expenses, and other current assets of $0.2 million, partially offset by a net increase in accounts payable, accrued expenses and other liabilities of $4.7 million. Inventory increased in part due to the effect of a historically high cost of yarn and related increase in fabric costs. The increase in accounts payable was as a result of higher inventory and reduced liquidity. The new equity investments in the second and third quarter of 2011 and improving sales have resulted in the reduction of the accounts payable balance in 2012.

Cash used in investing activities was $7.2 million. This consisted of increased net investment in property and equipment of $2.2 million for the U.S. Wholesale segment, $3.8 million for the U.S. Retail segment, $0.2 million for the Canada segment and $1.0 million for the International segment. We did not open any new stores during the nine months ended September 30, 2011. Investments in the U.S. Wholesale segment consisted mostly of expenditures for manufacturing equipment and computer hardware and software. Investments in the U.S. Retail segment, were primarily to make maintenance replacements and other minor upgrades for existing stores.

Cash provided by financing activities was $18.3 million. This consisted primarily of proceeds of $21.7 million from the sale of common stock and purchase rights, and $3.1 million in proceeds from a sale-leaseback financing transaction for manufacturing equipment, partially offset by repayment of $1.3 million under our revolving credit facilities and repayment other net borrowings.

Debt Agreements and Other Capital Resources

Revolving Credit Facilities

Crystal Credit Facility - On March 13, 2012, we replaced our $75.0 million senior secured revolving credit facility with BofA with a $80.0 million senior credit facility with Crystal and other lenders. On August 30, 2012, we entered into the Crystal Second Amendment. The Crystal Credit Agreement calls for the $80.0 million to be allocated between an asset-based revolving credit facility of $50.0 million and term loan of $30.0 million. The Crystal Credit Agreement matures on March 13, 2015. Borrowings under the Crystal Credit Agreement are subject to certain borrowing reserves based on eligible inventory and accounts receivable as established by Crystal and are collateralized by substantially all of our U.S. and U.K. assets and equity interests in certain of our foreign subsidiaries. In addition, the initial borrowing base under the revolving credit facility was increased by $12.5 million for the value associated with the American Apparel brand name. This initial increase will be ratably reduced to $0 during the period April 13, 2012 through January 1, 2013. Interest under the agreement was at the 90-day LIBOR plus 9.0%, and also included an unused facility fee ranging from 0.375% to 1.00% on the unused portion of the revolving credit facility. Beginning August 30, 2012, based on the Crystal Second Amendment, the interest rate relating to the brand name portion of the outstanding principal amount of the revolving credit facility of $5.0 million as September 30, 2012 was the 90-day LIBOR plus 19.75% and the interest rate of the residual portion of outstanding principal of the revolving credit facility in excess of the brand name was the 90-day LIBOR plus 9.0%. The Crystal Credit Agreement also includes an early termination fee if the term loan is prepaid or if the commitments under the revolving credit facility is permanently reduced of (a) 3.00% if such payment or reduction occurs in the first year, (b) 2.00% if such payment or reduction occurs in the second year, and (c) 0.00% thereafter. Our available borrowing capacity at September 30, 2012 was $1.4 million.

In connection with the financing from Crystal, we also entered into an amendment to the Lion Credit Agreement to, among other things: (i) consent to the Crystal Credit Agreement, (ii) fix the maturity date at December 31, 2015, and (iii) modify certain financial covenants, including covenants related to minimum quarterly EBITDA and capital expenditures. In addition, the amendment to the Lion Credit Agreement modifies the Lion Credit Agreement to provide for a minimum of 5% of each interest payment on the outstanding principal in cash starting on September 1, 2012.

Additionally, the Crystal Second Amendment includes, among other things, a minimum EBITDA covenant for the remainder of 2012, and a $5.0 million minimum excess availability for the period of December 17, 2012 through February 1, 2013.

Proceeds from the Crystal Credit Agreement were used to repay our existing BofA Credit Facility, fees and expenses related to the transaction, and for general working capital purposes. See Financial Covenants below and Note 6, Revolving Credit

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Facilities and Current Portion of Long-Term Debt to our condensed consolidated financial statements under Part I, Item 1.

Bank of Montreal Credit Facility - We also have a revolving credit facility (the “Bank of Montreal Credit Agreement”) of

C$11.0 million from Bank of Montreal (BofM). The revolving credit facility is secured by liens on personal property on all present and future movable property of our Canadian operations. Borrowings under the Bank of Montreal Credit Agreement are subject to certain advance provisions established by BofM. Interest under the agreement is at the bank’s prime rate (3.0% at September 30, 2012) plus 4.0%. Our available borrowing capacity at September 30, 2012 was $2.1 million. See Financial Covenants below and Note 6, Revolving Credit Facilities and Current Portion of Long-Term Debt to our condensed consolidated financial statements under Part I, Item 1.

The Bank of Montreal Credit Agreement matures in December 2012. There can be no assurances that we will be able to negotiate a renewal or extension of this credit agreement with our existing lender or enter into a replacement credit agreement with new lenders on commercially reasonably terms or at all and we may be required to repay this loan. While we intend to negotiate an extension of this credit agreement, we do not believe that this credit agreement represents a material component of our current or future capital requirements.

Lion Credit Agreement

Term Loan - We have a loan agreement with Lion Capital, LLC (“Lion” and the “Lion Credit Agreement”, respectively) that provided us with term loans in an aggregate principal amount equal to $80.0 million. The term loan under the Lion Credit Agreement matures on December 31, 2015 and bears interest at a range between 15% and 18% per annum depending on certain financial covenants relating to the ratio of Total Debt to Consolidated EBITDA for the trailing four quarters and Consolidated EBITDA for the trailing twelve months, payable quarterly in arrears. As of September 30, 2012, we had outstanding approximately $103.6 million of second lien debt, net of discount and including accrued paid-in-kind interest, payable to Lion.

On March 13, 2012, in connection with the new credit agreement with Crystal Financial, we entered into a seventh amendment to the Lion Credit Agreement, which among other things: (i) consented to the Crystal Credit Agreement, (ii) extends the maturity date to December 31, 2015, (iii) reduced the minimum Consolidated EBITDA amounts for any twelve consecutive months as determined at the end of each fiscal quarter and, (iv) modifies certain other financial covenants, including covenants related to capital expenditures. The amendment also required that the Lion Warrant be amended. In addition, the amendment to the Lion Credit Agreement modifies the Lion Credit Agreement to provide for interest at a rate of 5.0% per annum to be paid in cash commencing on the interest accruing from and after September 1, 2012 (with the remainder of the interest under the Lion Credit Agreement payable in-kind or in cash at our option).

On August 30, 2012, in connection with the Crystal Second Amendment, we entered into an eighth amendment to the Lion Credit Agreement that adds, among other things, a second minimum Consolidated EBITDA covenant for the remainder of 2012 conforming to Crystal's EBITDA covenant.

The Lion Credit Agreement is subordinated to the Crystal Credit Agreement and contains customary representations, and warranties, events of default, affirmative covenants, negative covenants (which impose restrictions and limitations on, among other things, dividends, investments, asset sales, capital expenditures, and the ability of us to incur additional debt and liens), and other financial covenants. We are permitted to prepay the loans in whole or in part at any time at our option, with no prepayment penalty. See Financial Covenants below and Note 7, Long-Term Debt to our condensed consolidated financial statements under Part I, Item 1.

We entered into a ninth amendment and waiver to the Lion Credit Agreement (the "Lion Ninth Amendment") effective as of September 30, 2012, which among other things, waived our obligation to maintain the minimum Consolidated EBITDA covenants specified in the Lion Credit Agreement, as amended, for the twelve month period ended September 30, 2012. As a result, we were in compliance with the required financial covenants of the Lion Credit Agreement on September 30, 2012. See Note 7, Long-Term Debt to our condensed consolidated financial statements in Part I, Item 1.

Lion Warrants - In connection with the Lion Credit Agreement, we issued warrants ("Lion Warrants") to Lion, which may be exercised by Lion by (1) paying the exercise price in cash, (2) pursuant to a “cashless exercise” of the warrant, or (3) by a combination of the two methods. On March 13, 2012, in connection with the new credit agreement with Crystal Financial, LLC, we entered into an amendment to the Lion Credit Agreement, which required that the warrants issued to Lion be amended to, among other things, extend the term of the warrants to February 18, 2022 and add a provision pursuant to which, if American Apparel does not meet a certain quarterly EBITDA ratio, the exercise price of the warrants would be reduced by $0.25 (a one-time adjustment for the first violation of such covenant; subsequent violations would not result in further adjustment). The amendments to the Lion Warrant were approved by the Company's shareholders at the 2012 Annual Meeting. On March 31, 2012, we did not meet the EBITDA requirement and, as a result, the exercise price of the existing Lion warrants

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was reduced by $0.25 to $0.75 per share.

As of September 30, 2012, Lion held warrants to purchase 21,606 shares of our common stock, with an exercise price of $0.75 per share. The estimated fair value of $28.2 million at September 30, 2012 is recorded as a current liability in our condensed consolidated balance sheets under Part I, Item 1.

The Lion Warrants also contain certain anti-dilution protections in favor of Lion providing for proportional adjustment of the warrant price and, under certain circumstances, the number of shares of our common stock issuable upon exercise of the Lion Warrant, in connection with, among other things, stock dividends, subdivisions and combinations and the issuance of additional equity securities at less than fair market value, as well as providing for the issuance of additional warrants to Lion in the event of certain equity sales or debt for equity exchanges. See Note 11, Stockholders' Equity to our condensed consolidated financial statements under Part I, Item 1.

SOF Warrants - In connection with the Ninth Amendment with SOF Investments, L.P. ("SOF") to extend the maturity date of our credit agreement with SOF from January 18, 2009 to April 20, 2009, we issued warrants ("SOF Warrants") to SOF, to purchase 1,000 shares of our common stock. These warrants expire on December 19, 2013. The exercise price of the SOF Warrants at the time of issuance was $3.00 per share and is subject to adjustment under certain circumstances. As a result of the issuance of warrants to Lion in February and April 2011, and the sale of common stock to the Investors in April and July 2011, the exercise price of the SOF Warrant was reduced to $2.139 per share. As a result of the change in exercise price for the Lion Warrants on September 30, 2012, the exercise price of the SOF Warrant was changed to $2.148 per share. As of September 30, 2012, the estimated fair value of $0.2 million is recorded as a current liability in our condensed consolidated balance sheets. See Note 11, Stockholders' Equity to our consolidated financial statements under Part I, Item 1.

Summary of Debt

The following is an overview of our total debt as of September 30, 2012 (dollars in thousands):

Description of Debt	Lender Name	Interest Rate	September 30, 2012		Covenant Violations
Revolving credit facility	Crystal Financial LLC	(a) 90-day LIBOR of 0.47% plus 9.0% plus unused facility fee ranging (0.375% -1.00%) and for the brand name: (b) 90-day LIBOR of 0.47% plus 19.75%	$	35,576	No
Term loan from private investment firm	Crystal Financial LLC	90-day LIBOR of 0.47% plus 9.0% plus unused facility fee ranging (0.375% -1.00%)	30,000		No
Revolving credit facility (Canada)	Bank of Montreal	Bank's prime rate of 3% plus 4%	5,901		No
Term loan from private investment firm, net of discount and including interest paid-in-kind	Lion Capital LLP	From 15.0% to 18.0%	103,614		Yes
Other			459		N/A
Capital lease obligations	23 individual leases ranging between $1-$511	From 5.0% to 18.0%	2,100		N/A
Cash overdraft			2,625		N/A
Total debt including cash overdraft			$	180,275

Financial Covenants

Our credit agreements impose certain restrictions regarding capital expenditures and limit our ability to: incur additional indebtedness, dispose of assets, make repayment of indebtedness or amendments of debt instruments, pay distributions, create liens on assets, and enter into sale and leaseback transactions, investments, loans or advances and acquisitions. Significant covenants are summarized below.

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Lion Credit Agreement - Significant covenants in the Lion Credit Agreement include an annual limitation of our capital expenditures to $30.0 million for fiscal 2012. Our total actual capital expenditures for the nine months ended September 30, 2012 were $14,257.

Additionally, the Lion Credit Agreement requires a minimum Consolidated EBITDA amount (as specified in the credit agreement) for any twelve consecutive months as determined at the end of each fiscal quarter (Quarterly Minimum Consolidated EBITDA). In addition, the Lion Eighth Amendment includes a second minimum Consolidated EBITDA covenant for the remainder of 2012 to be determined at the end of each month (Monthly Minimum Consolidated EBITDA) that conforms to the Crystal's minimum Consolidated EBITDA covenant.

We entered into a ninth amendment and waiver to the Lion Credit Agreement (the "Lion Ninth Amendment") effective as of September 30, 2012, which among other things, waived our obligation to maintain the minimum Consolidated EBITDA covenants specified in the Lion Credit Agreement, as amended, for the twelve month period ended September 30, 2012. As a result, we were in compliance with the required financial covenants of the Lion Credit Agreement on September 30, 2012. See Note 7, Long-Term Debt to our condensed consolidated financial statements in Part I, Item 1.

Crystal Credit Agreement - Significant covenants in the Crystal Credit Agreement include a minimum excess availability covenant that requires us to maintain minimum excess availability of the greater of (1) $8.0 million, or (2) 10% of the borrowing base. If the excess availability falls below this minimum, then we will be required to maintain a fixed charge coverage ratio of not less than 1.00:1.00 to be calculated monthly on a consolidated trailing twelve-month basis and continuing until the excess availability exceeds this minimum for sixty consecutive days. The second amendment adds (1) a new minimum excess availability covenant that requires us to maintain minimum excess availability to be no less than $5.0 million during the period from December 17, 2012 to February 1, 2012, and, (2) adds a minimum Consolidated EBITDA covenant for the remainder of 2012 to be determined at the end of each month. Furthermore, the Crystal Credit Agreement includes an annual limitation of our capital expenditures at our domestic subsidiaries to no more than $17.0 million for the year ending December 31, 2012 and $25.0 million for each year thereafter.

During the nine months ended September 30, 2012, our excess availability was below the minimum amount and, as a result, we were required to maintain the fixed charge coverage ratio. As of September 30, 2012, we were in compliance with the required financial covenants of the Crystal Credit Agreement.

On November 12, 2012, we and certain of our subsidiaries entered into amendments to both the Crystal Credit Agreement and the Lion Credit Agreement that, among other things, reduced by $600 the target minimum EBITDA for the twelve months ended October 31, 2012 under the financial covenants of each credit agreement, respectively.

As of September 30, 2012, we were in compliance with the required financial covenants of the Crystal Credit Agreement and the Lion Credit Agreement, as amended.  The Company has obtained a waiver of the minimum Consolidated EBITDA requirements for the twelve months ended October 31, 2012 under the financial covenants of the Crystal Credit Agreement and the Lion Credit Agreement.

Bank of Montreal Credit Agreement - Significant covenants in the Bank of Montreal Credit Agreement include a restriction on our Canadian subsidiaries from entering into operating leases that would lead to payments under such leases totaling more than C$8.5 million in any fiscal year. The credit agreement also requires our Canadian subsidiaries to maintain minimum excess availability of 5% of the revolving credit commitment under the facility.

As of September 30, 2012, we were in compliance with the required financial covenants of the Bank of Montreal Credit Agreement. Each of the credit agreements with Lion Capital, Crystal and Bank of Montreal contain cross-default provisions, whereby an event of default occurring under any of the other credit agreements would cause an event of default.

Future Capital Requirements

On March 13, 2012, we refinanced our senior credit facility, which extended the maturity of the loan from July 2012 to March 2015. In addition, we entered into an amendment to extend the maturity of the Lion Credit Agreement from December 2013 to December 2015. As a result of these financing transactions, we believe that we have sufficient financing commitments to meet our funding requirements for the next twelve months.

Our C$11.0 million credit agreement with Bank of Montreal matures in December 2012. While we intend to attempt to negotiate an extension of this credit agreement, we do not believe that this credit agreement represents a material component of our current or future capital requirements.

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Off-Balance Sheet Arrangements and Contractual Obligations

Our material off-balance sheet contractual commitments are operating lease obligations and letters of credit.

Operating lease commitments consist principally of leases for our retail stores, manufacturing facilities, distribution centers and corporate office. These leases frequently include options, which permit us to extend the terms beyond the initial fixed lease term. As appropriate, we intend to negotiate lease renewals as the leases approach expiration.

Issued and outstanding letters of credit were $4.6 million at September 30, 2012 and related primarily to workers’ compensation insurance and rent deposits. We also have capital lease obligations, which consist principally of leases for our manufacturing equipment.

Seasonality

We experience seasonality in our operations. Historically, sales during the third and fourth fiscal quarters have generally been the highest, with sales during the first fiscal quarter the lowest. This reflects the combined impact of the seasonality of the wholesale and retail channels. Generally, our retail segment has not experienced the same pronounced sales seasonality as other retailers.

Critical Accounting Estimates and Policies

As discussed in Part II, Item 8. Management Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2011, we consider our most critical accounting estimates and policies to include:

• revenue recognition;

• inventory valuation, obsolescence;

• fair value calculations, including derivative liabilities such as the Lion warrants;

• valuation and recoverability of long-lived assets including the values assigned to acquired intangible assets, goodwill, and property and equipment;

• income taxes;

• accruals for the outcome of current litigation; and

• self-insurance liabilities.

In general, estimates are based on historical experience, on information from third party professionals and on various other sources, and assumptions that are believed to be reasonable under the facts, and circumstances at the time such estimates are made. On a continual basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience, and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results may vary from these estimates and assumptions under different and/or future circumstances. Our management considers an accounting estimate to be critical if:

• it requires assumptions to be made that were uncertain at the time the estimate was made; and

• changes in the estimate, or the use of different estimating methods that could have been selected, could have a material impact on our consolidated results of operations or financial condition.

Inflation

Inflation affects the cost of raw materials, goods and services used in our operations. In 2010, the price of yarn and the cost of certain related fabrics began to increase as a result of the compounding effect of added demand, supply shortages primarily from the effect of severe weather conditions in certain cotton producing countries, and a ban on cotton exports imposed by the government of India. Prices continued to increase through the first quarter of 2011. During the first half of 2012, we experienced lower quoted cost of yarn as opposed to sharply rising cost that took place during the first half of 2011. We cannot predict if this decline in the cost of cotton is sustainable. In addition, high oil costs can affect the cost of all raw materials and components. The competitive environment can limit the ability of American Apparel to recover higher costs resulting from inflation by raising prices. Although we cannot precisely determine the effects of inflation on our business, we believe that the

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effects on revenues and operating results have not been significant. We seek to mitigate the adverse effects of inflation primarily through improved productivity and strategic buying initiatives. We do not believe that inflation has had a material impact on our results of operations for the periods presented. Further, in response to increases in our raw material costs we have implemented price increases of certain products across all Business Segments. We are unable to predict if we will be able to successfully pass on the added cost of any future raw material cost increases by further increasing the price of our products to our wholesale and retail customers.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk (amounts in thousands)

Our exposure to market risk is limited to interest rate risk associated with our credit facilities and foreign currency exchange risk associated with our foreign operations.

Interest Rate Risk

Based on the interest rate exposure on variable rate borrowings at September 30, 2012, a 1% increase in average interest rates on our borrowings would increase future interest expense by approximately$60 per month. We determined these amounts based on approximately $71,477 of variable rate borrowings at September 30, 2012. We are currently not using any interest rate collars or hedges to manage or reduce interest rate risk. As a result, any increase in interest rates on our variable rate borrowings would increase interest expense and reduce net income.

Foreign Currency Risk

The majority of our operating activities are conducted in U.S. dollars. Approximately 38.1% of our net sales for the nine months ended September 30, 2012 were denominated in other currencies such as Euros, British Pounds Sterling or Canadian Dollars, among others. Nearly all of our production costs and material costs are denominated in U.S. dollars although the majority of the yarn is sourced from outside the United States. If the U.S. dollar were to appreciate by 10% against other currencies it could have a significant adverse impact on our earnings. Since an appreciated U.S. dollar makes goods produced in the United States relatively more expensive to overseas customers, other things being equal, we would have to lower our retail margin in order to maintain sales volume overseas. A lower retail margin overseas would adversely affect net income assuming sales volume remains the same. The functional currencies of our foreign operations consist of the Canadian dollar for Canadian subsidiaries, the pound Sterling for U.K. subsidiaries, the Euro for subsidiaries in Continental Europe, the Yen for the Japanese subsidiary, the Won for the South Korea subsidiary, and local currencies for any of the foreign subsidiaries not mentioned.

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Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures

Under the supervision and participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that as of September 30, 2012, our disclosure controls and procedures were ineffective due to a material weakness existing in our internal controls over financial reporting as of December 31, 2011 (described below), which has not been fully remediated as of September 30, 2012.  

A material weakness is a deficiency, or a combination of deficiencies, in Internal Control over Financial Reporting (“ICFR”), such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness would permit information required to be disclosed by the Company in the reports that it files or submits to not be recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms. As of September 30, 2012, the following material weakness existed:  

Material weakness related to financial closing and reporting process.

We concluded that we did not have a sufficient number of trained accounting personnel with expertise in GAAP to ensure that complex material and/or non-routine transactions are properly reflected in our consolidated financial statements. We also noted that we did not perform adequate independent reviews and maintain effective controls related to the preparation of consolidated financial statements, related notes thereto, account analyses, account summaries and account reconciliations prepared in the areas of inventory and related inventory reserves, cost of sales and certain other accounts.

(b) Remediation Activities

During 2012, the Company continued to take measures to remediate the remaining material weakness, described as follows:

Material weakness related to financial close and reporting process.

We identified and implemented additional internal controls to strengthen account analyses related to inventory costing. We transitioned the responsibility for maintaining standard costs from our production planning department to our accounting department and have enhanced production reporting in order to separately record and analyze production variances. In 2011 we fully updated our standard costing systems to reflect the recent trends in raw material costs, labor rates, and manufacturing overhead absorption rates. We enhanced our workforce management system which will enable us to more accurately track direct labor to specific production runs and analyze labor variances specific to our styles. That workforce management system was fully deployed to production process at the end of the first quarter of 2012. During the fourth quarter of 2012 we are completing another assessment of standard cost accuracy for sewing, cutting, overhead and dye/knitting/finishing service. We are continuing the process of reviewing all internal controls related to cost accounting and established procedures for cost data validation and enhanced historical cost reporting. During the third quarter of 2012 we established new procedures to review and validate all information that is pertinent to inventory accounting. These procedures include steps to validate data used in the inventory analysis, formal preparer and reviewer steps, roll-forward and reconciliation of general ledger balances. Such procedures will provide a more robust control environment for all inventory accounts and assure accountability for the analysis and balances being reported. We substantially improved the procedures related to analysis of inventory reserve accounts. We continue to enhance our international cost accounting procedures for intercompany inventory transfers and inventory costing. As we continue to solidify our staffing levels, we expect our internal controls over the financial closing and reporting process to strengthen and continue to work toward remediating this material weakness.

(c) Changes in ICFR

As noted in section (b) above, at the end of the quarter ended September 30, 2012, we fully deployed a new workforce management system to cover substantially all of the sewing direct labor data capture at our main manufacturing facility in Los Angeles. Other than that noted change, there have been no other changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the most recent fiscal quarter ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

During 2012, the Company's management continued to implement the steps outlined above under “Remediation Activities” to improve the quality of its ICFR.

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PART II-OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to various claims and contingencies in the ordinary course of business, including those related to litigation, business transactions, employee-related matters and taxes, and others. When we are aware of a claim or potential claim, we assess the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we will record a liability for the loss. In addition to the estimated loss, the recorded liability includes probable and estimable legal costs associated with the claim or potential claim. There is no assurance that such matters will not materially and adversely affect our business, financial position, and results of operations or cash flows.

On February 7, 2006, Sylvia Hsu, a former employee of American Apparel, filed a Charge of Discrimination with the Los Angeles District Office of the Equal Employment Opportunity Commission (“EEOC”) (Hsu v. American Apparel: Charge No. 480- 2006-00418), alleging that she was subjected to sexual harassment by a co-worker and constructively discharged as a result of the sexual harassment and a hostile working environment. On March 9, 2007, the EEOC expanded the scope of its investigation to other employees of American Apparel who may have been sexually harassed. On August 9, 2010, the EEOC issued a written determination finding that reasonable cause exists to believe we discriminated against Ms. Hsu and women, as a class, on the basis of their female gender, by subjecting them to sexual harassment. No finding was made on the issue of Ms. Hsu's alleged constructive discharge. In its August 19, 2010 written determination, the EEOC has invited the parties to engage in informal conciliation. If the parties are unable to reach a settlement which is acceptable to the EEOC, the EEOC will advise the parties of the court enforcement alternatives available to Ms. Hsu, aggrieved persons, and the EEOC. The insurance carrier for us has asserted that it is not obligated to provide coverage for this proceeding.  We have not recorded a provision for this matter and intend to work cooperatively with the EEOC to resolve the claim in a manner acceptable to all parties. Should the matter be decided against us, we could experience an increase in similar suits and suffer reputational harm. We do not at this time believe that any settlement will involve the payment of damages in an amount that would be material to and adversely affect our business, financial position, and results of operations and cash flows.

On November 5, 2009, Guillermo Ruiz, a former employee of American Apparel, filed suit against us on behalf of putative classes of all current and former non-exempt California employees (Guillermo Ruiz, on behalf of himself and all others similarly situated v. American Apparel, Inc., Case Number BC425487) in the Superior Court of the State of California for the County of Los Angeles, alleging we failed to pay certain wages due for hours worked, to provide meal and rest periods or compensation in lieu thereof and to pay wages due upon termination to certain of our employees. The complaint further alleges that we failed to comply with certain itemized employee wage statement provisions and violations of unfair competition law.  The plaintiff is seeking compensatory damages and economic and/or special damages in an unspecified amount, premium pay, wages and penalties, injunctive relief and restitution, and reimbursement for attorneys' fees, interest and the costs of the suit. This matter is now proceeding in arbitration. We do not have insurance coverage for this matter. Should the matter be decided against us, we could not only incur substantial liability but also experience an increase in similar suits and suffer reputational harm. We have accrued an estimate for this loss contingency in our accompanying condensed consolidated balance sheet as of September 30, 2012.  We may have an exposure to loss in excess of the amounts accrued, however, an estimate of such potential loss cannot be made at this time. Moreover, no assurance can be made that this matter either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, larger than our estimate, which could have a material adverse effect upon our financial condition and results of operations.

On June 21, 2010, Antonio Partida, a former employee of American Apparel, filed suit against us on behalf of putative classes of current and former non-exempt California employees (Antonio Partida, on behalf of himself and all others similarly situated v. American Apparel (USA), LLC, Case No. 30-2010-00382719-CU-OE-CXC) in the Superior Court of the State of California for the County of Orange, alleging we failed to pay certain wages for hours worked, to provide meal and rest periods or compensation in lieu thereof, and to pay wages due upon separation. The complaint further alleges that we failed to timely pay wages, unlawfully deducted wages and failed to comply with certain itemized employee wage statement provisions and violations of unfair competition law. The plaintiff is seeking compensatory damages and economic and/or special damages in an unspecified amount, premium pay, wages and penalties, injunctive relief and restitution, and reimbursement of attorneys' fees, interest and the costs of the suit. This matter is now proceeding in arbitration. There is no known insurance coverage for this matter. Should the matter be decided against us, we could not only incur substantial liability but also experience an increase in similar suits and suffer reputational harm. We have accrued an estimate for this loss contingency in our accompanying condensed consolidated balance sheet as of September 30, 2012. We may have an exposure to loss in excess of the amounts accrued, however, an estimate of such potential loss cannot be made at this time.  Moreover, no assurance can be made that this matter either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, larger than our estimate, which could have a material adverse effect upon our financial condition and results of operations.

On or about December 2, 2010, Emilie Truong, a former employee of American Apparel, filed suit against us on behalf of

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putative classes of current and former non-exempt California employees (Emilie Truong, individually and on behalf of all others similarly situated v. American Apparel, Inc. and American Apparel LLC, Case No. BC450505) in the Superior Court of the State of California for the County of Los Angeles, alleging we failed to timely provide final paychecks upon separation.  Plaintiff is seeking unspecified premium wages, attorneys' fees and costs, disgorgement of profits, and an injunction against the alleged unlawful practices. This matter is now proceeding in arbitration. There is no known insurance coverage for this matter. Should the matter be decided against us, we could not only incur substantial liability, but also experience an increase in similar suits and suffer reputational harm.  We are unable to predict the financial outcome of these matters at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matters proceed through their course. However, no assurance can be made that these matters, either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, which could have a material adverse effect upon our financial condition and results of operations.

On or about February 9, 2011, Jessica Heupel, a former retail employee filed suit on behalf of putative classes of current and former non-exempt California employees (Jessica Heupel, individually and on behalf of all others similarly situated v. American Apparel Retail, Inc., Case No. 37-2011-00085578-CU-OE-CTL) in the Superior Court of the State of California for the County of San Diego, alleging we failed to pay certain wages for hours worked, to provide meal and rest periods or compensation in lieu thereof, and to pay wages due upon separation.  The plaintiff is seeking monetary damages as follows: (1) for alleged meal and rest period violations; (2) for alleged failure to timely pay final wages, as well as for punitive damages for the same; and (3) unspecified damages for unpaid minimum wage and overtime.  In addition, Plaintiff seeks premium pay, wages and penalties, injunctive relief and restitution, and reimbursement of attorneys' fees, interest and the costs of the suit. This matter is now proceeding in arbitration. There is no known insurance coverage for this matter. Should the matter be decided against us, we could not only incur substantial liability, but also experience an increase in similar suits and suffer reputational harm.  We are unable to predict the financial outcome of these matters at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matters proceed through their course. However, no assurance can be made that these matters, either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, which could have a material adverse effect upon our financial condition and results of operations.

On or about September 9, 2011, Anthony Heupel, a former retail employee initiated arbitration proceedings on behalf of putative classes of current and former non-exempt California employees, alleging we failed to pay certain wages for hours worked, to provide meal and rest periods or compensation in lieu thereof, and to pay wages due upon separation.  The plaintiff is seeking monetary damages in an amount in excess of $3,600, as follows: (1) for alleged meal and rest period violations; (2) for alleged failure to timely pay final wages, as well as for punitive damages for the same; and (3) unspecified damages for unpaid minimum wage and overtime.  In addition, Plaintiff seeks premium pay, wages and penalties, injunctive relief and restitution, and reimbursement of attorneys' fees, interest and the costs of the suit. This matter is now proceeding in arbitration. There is no known insurance coverage for this matter. Should the matter be decided against us, we could not only incur a substantial liability, but also experience an increase in similar suits and suffer reputational harm.  We are unable to predict the financial outcome of these matters at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matters proceed through their course. However, no assurance can be made that these matters, either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, which could have a material adverse effect upon our financial condition and results of operations.

Two shareholder derivative lawsuits, entitled Nikolai Grigoriev v. Dov Charney, et al., Case No. CV106576 GAF (JCx) (the “Grigoriev Action”) and Andrew Smukler v. Dov Charney, et al., Case No. CV107518 RSWL (FFMx) (the “Smukler Action”), were filed in the United States District Court for the Central District of California on September 2, 2010 and October 7, 2010, respectively, and four shareholder derivative lawsuits, entitled John L. Smith v. Dov Charney, et al., Case No. BC 443763 (the "Smith Action"), Lisa Kim v. Dov Charney, et al., Case No. BC 443902 (the "Kim Action"), Teresa Lankford v. Dov Charney, et al., Case No. BC 445094 (the "Lankford Action"), and Wesley Norris v. Dov Charney, et al., Case No. BC 447890 (the "Norris Action") were filed in the Superior Court of the State of California for the County of Los Angeles on August 16, 2010, September 3, 2010, September 7, 2010, and October 21, 2010, respectively, by persons identifying themselves as American Apparel shareholders and purporting to act on behalf of American Apparel, naming American Apparel as a nominal defendant and certain current and former officers, directors, and executives of the Company as defendants.

Plaintiffs in the Smith Action, Kim Action, and Norris Action allege causes of action for breach of fiduciary duty arising out of (i) our alleged failure to maintain adequate accounting and internal control policies and procedures; and (ii) our alleged violation of state and federal immigration laws in connection with the previously disclosed termination of over 1,500 employees following an Immigration and Customs Enforcement inspection.  The Lankford Action alleges seven causes of action for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets

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also arising out of (i) our alleged failure to maintain adequate accounting and internal control policies and procedures; and (ii) our alleged violation of state and federal immigration laws in connection with the previously disclosed termination of over 1,500 employees following an Immigration and Customs Enforcement inspection.  On November 4, 2010, the four lawsuits filed in the Superior Court of the State of California were consolidated for all purposes into a case entitled In re American Apparel, Inc. Shareholder Derivative Litigation, Lead Case No. BC 443763 (the "State Derivative Action").  On April 12, 2011, the Court issued an order staying the State Derivative Action on the grounds that the case is duplicative of the Federal Derivative Action, as well as the Federal Securities Action currently pending in the United States District Court for the Central District of California (see below).

On November 12, 2010, the Grigoriev Action and Smukler Action were consolidated for all purposes into a case entitled In re American Apparel, Inc. Shareholder Derivative Litigation, Lead Case No. CV106576 (the “Federal Derivative Action”).  Plaintiffs in the Federal Derivative Action filed a Consolidated Amended Shareholder Derivative Complaint on June 13, 2011.  The amended complaint alleges a cause of action for breach of fiduciary duty arising out of (i) our alleged failure to maintain adequate accounting and internal control policies and procedures; (ii) our alleged violation of state and federal immigration laws in connection with the previously disclosed termination of over  1,500 employees following an Immigration and Customs Enforcement inspection; and (iii) our alleged failure to implement controls sufficient to prevent a sexually hostile and discriminatory work environment.  Plaintiffs in each of the derivative cases seek damages on behalf of American Apparel in an unspecified amount, as well as equitable and injunctive relief. We do not maintain any exposure to loss in connection with these shareholder derivative lawsuits. The lawsuits do not assert any claims against us. Our status as a “Nominal Defendant” in the actions reflects the fact that the lawsuits are maintained by the named plaintiffs on behalf of American Apparel and that plaintiffs seek damages on our behalf. On August 29, 2011, we filed a motion to dismiss the Federal Derivative Action.  A hearing on the motion was held on December 12, 2011.  On July 31, 2012, the Court dismissed the Federal Derivative Action, with leave to amend. Plaintiffs in the Federal Derivative Action subsequently filed a motion to dismiss each of their claims, with prejudice, for the stated purpose of taking an immediate appeal of the Court's July 31, 2012 order. On October 16, 2012, the Court granted the Plaintiffs' motion to dismiss the consolidated derivative complaint and entered judgment accordingly. On November 12, 2012, Plaintiffs filed a Notice of Appeal to the Ninth Circuit Court of Appeals.

Four putative class action lawsuits, entitled Anthony Andrade v. American Apparel, et al., Case No. CV106352 MMM (RCx), Douglas Ormsby v. American Apparel, et al., Case No. CV106513 MMM (RCx), James Costa v. American Apparel, et al., Case No. CV106516 MMM (RCx), and Wesley Childs v. American Apparel, et al., Case No. CV106680 GW (JCGx), were filed in the United States District Court for the Central District of California on August 25, 2010, August 31, 2010, August 31, 2010, and September 8, 2010, respectively, against American Apparel and certain of our officers and executives on behalf of American Apparel shareholders who purchased the our common stock between December 19, 2006 and August 17, 2010. On December 3, 2010, the four lawsuits were consolidated for all purposes into a case entitled In re American Apparel, Inc. Shareholder Litigation, Lead Case No. CV106352 MMM (JCGx) (the “Federal Securities Action”). On March 14, 2011, the Court appointed the firm of Barroway Topaz, LLP (now Kessler Topaz Meltzer & Check, LLP) to serve as lead counsel and Mr. Charles Rendelman to serve as lead plaintiff. On April 29, 2011, Mr. Rendelman filed a Consolidated Class Action Complaint against American Apparel, certain of our officers, and Lion, alleging two causes of action for violations of Section 10(b) and 20(a) of the 1934 Act, and Rules 10b-5 promulgated under Section 10(b), arising out of alleged misrepresentations contained in our press releases, public filings with the SEC, and other public statements relating to (i) the adequacy of our internal and financial control policies and procedures; (ii) our employment practices; and (iii) the effect that the dismissal of over 1,500 employees following an Immigration and Customs Enforcement inspection would have on us. Plaintiff seeks damages in an unspecified amount, reasonable attorneys' fees and costs, and equitable relief as the Court may deem proper.  On May 31, 2011, we filed a motion to dismiss the Federal Securities Action. On January 13, 2012, the Court dismissed the Federal Securities Action, with leave to amend. Plaintiff filed an amended complaint on February 27, 2012. We moved to dismiss the amended complaint on March 30, 2012. A hearing on the motion was heard on May 21, 2012. The Court took this matter under submission. Discovery is stayed in the Federal Securities Action, as well as in the Federal Derivative Action, pending resolution of motions to dismiss the Federal Securities Action.

We are unable to predict the financial outcome of these matters at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matters proceed through their course. However, no assurance can be made that these matters, either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, which could have a material adverse effect upon our financial condition and results of operations.

On February 17, 2011, the Company filed complaints in arbitration against five former employees seeking: (1) declaratory relief that the arbitration, confidentiality, severance and bonus agreements signed by the former employees are valid and enforceable; (2) damages in the event the former employees or anyone of them breaches their confidentiality agreements, as threatened; (3) attorneys' fees and costs incurred to compel the suit into arbitration; (4) declaratory relief that the former

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employees' claims of sexual harassment and sexual assault are false and without merit; and (5) declaratory relief that the former employees have attempted to engage in abuse of process for the purpose of extorting from the Company and Dov Charney money solely to avoid public shame and economic loss. On March 4, 2011, one such former employee filed suit against American Apparel, Dov Charney, and certain members of the Board of Directors of American Apparel in the Supreme Court of New York, County of Kings, Case No. 5018-11.  The suit alleges sexual harassment, gender discrimination, retaliation, negligent hiring and supervision, intentional and negligent infliction of emotional distress, fraud and unpaid wages, and seeks, among other things, an award of compensatory damages, exemplary damages, attorneys' fees and costs, all in an amount of at least $250,000 (the "New York Suit"). In March 2012, the court ordered this case into arbitration. On March 23, 2011, three of the other former employees filed a consolidated suit against American Apparel and Dov Charney in the Superior Court of the State of California for the County of Los Angeles, Case No. BC457920 (the "Los Angeles Suit"). Such action alleges sexual harassment, failure to prevent harassment and discrimination, intentional infliction of emotional distress, assault and battery, and a declaratory judgment that the confidentiality and arbitration agreements signed by plaintiffs are unenforceable. Such action seeks monetary damages, various forms of injunctive relief, and attorneys' fees and costs. On July 28, 2011, the court ordered this case into arbitration.  The Company's insurance carrier has acknowledged coverage of the New York Suit and Los Angeles Suit, subject to a deductible and a reservation of rights.

On April 27, 2011, three of the former employees filed suit against the Company, Dov Charney and a Company employee in the Superior Court of the State of California for the County of Los Angeles, Case No. BC460331, asserting claims for Impersonation through Internet or Electronic Means, Intentional Infliction of Emotional Distress, Defamation, Invasion of Privacy/False Light, and Invasion of Privacy/Appropriation of Likeness. Such action seeks monetary damages, injunctive relief and attorneys' fees and costs.  The Court has ordered this case into arbitration.  The Company's insurance carrier has acknowledged coverage of this suit, subject to a deductible and a reservation of rights.

We are currently engaged in other employment-related claims and other matters incidental to our business.  We believe that all such claims against us are without merit or not material, and we intend to vigorously dispute the validity of the plaintiffs' claims. Should these matters be decided against us, we could not only incur substantial liability but also experience an increase in similar suits and suffer reputational harm. While the ultimate resolution of such claims cannot be determined, based on information at this time, we believe the amount, and ultimate liability, if any, with respect to these actions will not materially affect our business, financial position, results of operations, or cash flows.  We cannot assure you, however, that such actions will not have a material adverse effect on our consolidated results of operations, financial position or cash flows.

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Item 1A. Risk Factors

Before deciding to invest in us or to maintain or increase your investment, you should carefully consider the risks and uncertainties described in the "Special Note Regarding Forward-Looking Statements" under Part I of this report and our other filings with the SEC. The risks and uncertainties described in this report are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect us. If any of these risks actually materialize, our business, financial position, results of operations and cash flows could be adversely impacted. In that event, the market price of our common stock could decline and you may lose all or part of your investment.

During the three and nine months ended September 30, 2012, there have been no material changes in our risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011. Please refer to the Company's Annual Report on Form 10-K (filed with the SEC on March 14, 2012) for the year ended December 31, 2011 for a list of our risk factors.

Item  2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item  3. Defaults Upon Senior Securities

None.

Item  4. Mine Safety Disclosures

Not applicable.

Item  5. Other Information

Item 1.01 Entry into a Material Definitive Agreement.

Lion Ninth Amendment

The Company entered into the Lion Ninth Amendment, effective as of September 30, 2012, which among other things waived the Company's obligation to maintain the minimum Consolidated EBITDA covenants for the twelve month period ended September 30, 2012. As a result, the Company was in compliance with the required financial covenants of the Lion Credit Agreement on September 30, 2012.

The foregoing description of the amendment and waiver is not intended to be complete and is qualified in its entirety by reference to the Exhibit 10.3 filed herewith, which is incorporated herein by reference.

Crystal Third Amendment and Lion Tenth Amendment

On November 12, 2012, the Company and certain of its subsidiaries entered into amendments to both the Crystal Credit Agreement and the Lion Credit Agreement that, among other things, reduced by $600,000 the target minimum EBITDA for the twelve months ended October 31, 2012 under the financial covenants of each credit agreement, respectively.

La Mirada Lease

The Company determined during the third quarter of 2012 that a lease agreement entered into between the Company and PAC Finance 1 LLC, dated June 15, 2012, relating to a distribution center located in La Mirada, CA, was material to the Company.  A copy thereof is filed herewith as Exhibit 10.4.

Item  6. Exhibits

In reviewing the agreements included as exhibits to this Quarterly Report on Form 10-Q, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. Some agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

• should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

• have been qualified by disclosures that were made to the other party in connection with the negotiation of the

54

applicable agreement, which disclosures are not necessarily reflected in the agreement;

• may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

• were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Quarterly Report on Form 10-Q and in the Company's other public filings, which are available without charge through the SEC's website at http://www.sec.gov.

Exhibit No.	Description
10.1	Amendment No. 2, dated August 30, 2012, among American Apparel, Inc., American Apparel (USA), LLC, the other Borrowers and Credit Parties party thereto, Crystal Financial LLC and other signatories thereto (included as Exhibit 10.1 of the Current Report on Form 8-K (File No. 001-32697) filed September 11, 2012 and incorporated by reference herein).
10.2	Eighth Amendment to Credit Agreement, dated August 30, 2012, among American Apparel, Inc. and the other Credit Parties as the facility guarantors from time to time party thereto, Wilmington Trust N.A., as the administrative agent and the collateral agent, Lion Capital (Americas) Inc., as a lender, Lion/Hollywood L.L.C., as a lender, and other lenders from time to time party thereto (included as Exhibit 10.3 of the Current Report on Form 8-K (File No. 001-32697) filed September 11, 2012 and incorporated by reference herein).
10.3*	Ninth Amendment and Waiver to Credit Agreement, dated September 28, 2012, among American Apparel, Inc. and the other Credit Parties as the facility guarantors from time to time party thereto, Wilmington Trust N.A., as the administrative agent and the collateral agent, Lion Capital (Americas) Inc., as a lender, Lion/Hollywood L.L.C., as a lender, and other lenders from time to time party thereto.
10.4*	Lease agreement, dated June 15, 2012, between American Apparel, Inc., as the tenant and PAC Finance 1 L.L.C. as the landlord.
10.5*	Tenth Amendment to Credit Agreement, dated November 12, 2012, among American Apparel, Inc. and the other Credit Parties as the facility guarantors from time to time party thereto, Wilmington Trust N.A., as the administrative agent and the collateral agent, Lion Capital (Americas) Inc., as a lender, Lion/Hollywood L.L.C., as a lender, and other lenders from time to time party thereto.
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 13, 2012

AMERICAN APPAREL, INC.
Signature	Title	Date
/s/ DOV CHARNEY	Chief Executive Officer and Director (Principal Executive Officer)	November 13, 2012
Dov Charney
/s/ JOHN LUTTRELL	Chief Financial Officer (Principal Financial and Accounting Officer)	November 13, 2012
John Luttrell

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EX-10.3

Exhibit 10.3

EXECUTION VERSION

NINTH AMENDMENT AND WAIVER TO CREDIT AGREEMENT

NINTH AMENDMENT AND WAIVER, dated as of September 28, 2012 (this “Amendment”), under and to the Credit Agreement dated as of March 13, 2009 (as heretofore amended, supplemented or otherwise modified, the “Credit Agreement”), among American Apparel, Inc., a corporation organized under the laws of the State of Delaware (the “Borrower”), the Facility Guarantors from time to time party thereto, Wilmington Trust, National Association (successor by merger to Wilmington Trust FSB), in its capacity as Administrative Agent thereunder and in its capacity as Collateral Agent thereunder, and the Lenders from time to time party thereto.

WITNESSETH:

WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make, and have made, certain loans and other extensions of credit to the Borrower;

WHEREAS, the Borrower and the Required Lenders have agreed to waive and to amend certain provisions of the Credit Agreement on the terms and subject to the conditions set forth in this Amendment; and

NOW THEREFORE, in consideration of the premises and mutual covenants contained in this Amendment, the undersigned hereby agree as follows:

I.Defined Terms; Interpretation; Etc. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Credit Agreement (as amended hereby).

II.Amendment to Credit Agreement.

(a)Section 1.01 of the Credit Agreement is hereby amended by:

(i) adding the following definitions in proper alphabetical order:

“Ninth Amendment Temporary Interest Rate Increase” has the meaning assigned to such term in the definition of Interest Rate.

“Ninth Amendment Temporary Interest Rate Increase Period” has the meaning assigned to such term in the definition of Interest Rate.

(ii) amending and restating the first sentence of the definition of “Interest Rate” as follows:

“Interest Rate” means a per annum rate equal to 15% (plus, for the period from and including October 1, 2012 to but excluding December 31, 2012 (the “Ninth Amendment Temporary Interest Rate Increase Period”), a per annum rate equal to 0.517830% (the “Ninth Amendment Temporary Interest Rate Increase”)); provided, however, that if Total Debt to Consolidated EBITDA as of the last day of any four consecutive Fiscal Quarters is greater than the ratio set forth below opposite the last day of such period (a “Pricing Increase Event”), then “Interest Rate” shall mean a per annum rate equal to 17% (the “Interim Interest Rate”) (plus, for the Ninth Amendment Temporary Interest Rate Increase Period, the Ninth Amendment Temporary Interest Rate Increase); provided, further, however, that if (a) Total Debt to Consolidated EBITDA as of the last day of any four consecutive Fiscal Quarters is greater than 4.00 to 1.00 or (b) Consolidated EBITDA for any twelve consecutive Fiscal Month period is negative (either, a “Pricing Cap Event”), then “Interest Rate” shall mean a per annum rate equal to 18% (the “Highest Interest Rate”) (plus, for the Ninth Amendment Temporary Interest Rate Increase Period, the Ninth Amendment Temporary Interest Rate Increase).

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(b)Clause (iii)(C) of the first paragraph of Section 2.04 of the Credit Agreement is hereby amended and restated in its entirety as follows:

“(C) that occurs after September 30, 2012, when the Interest Rate is (1) 15% (excluding the Ninth Amendment Temporary Interest Rate Increase), 33.33% in Cash Interest and 66.67% in PIK Interest (and interest accruing as a result of the Ninth Amendment Temporary Interest Rate Increase shall be paid in PIK Interest), (2) 17% (excluding the Ninth Amendment Temporary Interest Rate Increase), 29.41% in Cash Interest and 70.59% in PIK Interest (and interest accruing as a result of the Ninth Amendment Temporary Interest Rate Increase shall be paid in PIK Interest) and (3) 18% (excluding the Ninth Amendment Temporary Interest Rate Increase), 27.78% in Cash Interest and 72.22% PIK Interest (and interest accruing as a result of the Ninth Amendment Temporary Interest Rate Increase shall be paid in PIK Interest),”

(c)Section 9.01(b) of the Credit Agreement is hereby amended and restated in its entirety as follows:

“(b)if to the Administrative Agent or the Collateral Agent to it at the following address (or such other address as notified to the other parties hereto in writing by the Administrative Agent or the Collateral Agent from time to time):

Wilmington Trust, National Association

50 South Sixth Street, Suite 1290

Minneapolis, MN 55402

Attention: Meghan McCauley

Telecopy no: 612-217-5651

E-Mail Address: MMcCauley@WilmingtonTrust.com

III.Waiver. The Required Lenders hereby agree to waive the application of Section 6.11 of the Credit Agreement for the twelve consecutive Fiscal Month period ending on September 30, 2012.

IV.Conditions Precedent to the Effectiveness of this Amendment. This Amendment shall become effective as of, and with effect from, September 30, 2012 (the “Ninth Amendment Effective Date”), subject to satisfaction of the following conditions precedent (the date such conditions precedent are satisfied being the “CP Date”):

(a)The Borrower, the Facility Guarantors and each Lender shall have duly executed and delivered to the Administrative Agent this Amendment.

(b)The Borrower shall have paid in cash to each Lender, on a pro rata basis, an amendment fee equal to $166,418.35.

(c)All corporate and other proceedings required in connection with this Amendment, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Amendment, shall be satisfactory in all respects to the Lenders, and the Lenders shall have received such documents and certificates as the Lenders or their counsel may reasonably request relating to the authorization of the transactions contemplated by this Amendment, all in form and substance satisfactory to the Lenders and their counsel.

(d)Each of the representations and warranties contained in Section V (Representations and Warranties) of this Amendment shall be true and correct.

(e)After giving effect to this Amendment, no Default or Event of Default shall have occurred and be continuing as of the date hereof.

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(f)No litigation shall have been commenced against any Loan Party or any of its Subsidiaries, either on the date hereof or the CP Date, seeking to restrain or enjoin (whether temporarily, preliminarily or permanently) the performance of any action by any Loan Party required or contemplated by this Amendment or the Credit Agreement as amended by this Amendment or any Loan Document.

V.Representations and Warranties. On and as of the date hereof and as of the CP Date, the Borrower hereby represents and warrants to the Administrative Agent, the Collateral Agent and the Lenders as follows:

(a)this Amendment has been duly authorized, executed and delivered by the Borrower and each Facility Guarantor and constitutes a legal, valid and binding obligation of the Borrower and each Facility Guarantor, enforceable against the Borrower and each Facility Guarantor in accordance with its terms and the Credit Agreementas amended by this Amendment and the other Loan Documents and constitutes the legal, valid and binding obligation of the Borrower and each Facility Guarantor, enforceable against the Borrower and each Facility Guarantor in accordance with its terms;

(b)the transactions to be entered into and contemplated by this Amendment (i) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except for such as have been obtained or made and are in full force and effect, (ii) will not violate any material Applicable Law or the Charter Documents of any Loan Party, (iii) will not violate or result in a default under any indenture or any other agreement, instrument or other evidence of Material Indebtedness, or any other Material Agreement or other material instrument binding upon any Loan Party or its assets, or give rise to a right thereunder to require any payment to be made by any Loan Party, and (iv) will not result in the creation or imposition of any Lien on any asset of any Loan Party, except Liens created under the Loan Documents and the First Lien Loan Documents;

(c)each of the representations and warranties contained in Article III (Representations and Warranties) of the Credit Agreement, the other Loan Documents or otherwise made in writing in connection therewith are true and correct in all material respects on and as of the date hereof and the CP Date, in each case as if made on and as of such date, except (x) to the extent that such representations and warranties specifically relate to a specific date, in which case such representations and warranties shall be true and correct in all material respects as of such specific date and (y) with respect to the representations contained in Sections 3.04(b), 3.06 and 3.17 of the Credit Agreement, as disclosed in filings by the Borrower with the SEC prior to the CP Date with respect to the Borrower and its consolidated Subsidiaries;

(d)after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing; and

(e)no litigation has been commenced against any Loan Party or any of its Subsidiaries seeking to restrain or enjoin (whether temporarily, preliminarily or permanently) the performance of any action by any Loan Party required or contemplated by this Amendment, the Credit Agreement as amended hereby or any Loan Document.

VI.Amount of Obligations. Each Loan Party acknowledges and agrees that (a) as of the close of business on September 30, 2012, the Obligations include, without limitation, the amounts set forth on Schedule 1 attached hereto on account of the outstanding unpaid amount of principal of the Loans (including PIK Interest and PIK Fees that have been added to the principal amount of the Loans) and (b) such Loan Party is truly and justly indebted to the Lenders and the Administrative Agent for the Obligations without defense, counterclaim or offset of any kind, and such Loan Party ratifies and reaffirms the validity, enforceability and binding nature of such Obligations.

VII.Collateral. Each Loan Party ratifies and reaffirms the validity and enforceability (without defense, counterclaim or offset of any kind) of the liens and security interests granted to secure any of the

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Obligations by such Loan Party to the Administrative Agent, for the benefit of the Lenders, pursuant to the Security Documents to which such Loan Party is a party. Each Loan Party acknowledges and agrees that all such liens and security interests granted by such Loan Party shall continue to secure the Obligations from and after the Ninth Amendment Effective Date. Each Loan Party hereby represents and warrants to the Administrative Agent and the Lenders that, pursuant to the Security Documents to which such Loan Party is a party, the Obligations are secured by liens on and security interests in all of such Loan Party's assets to the extent required by the Security Documents.

VIII.Loan Party Release. Although each Lender, the Administrative Agent and the Collateral Agent regards its conduct as proper and does not believe that any Loan Party has any claim, right, cause of action, offset or defense against any Lender, the Administrative Agent, the Collateral Agent or any of such Lender's, the Administrative Agent's or the Collateral Agent's present or former subsidiaries, Affiliates, officers, directors, employees, attorneys or other representatives or agents (collectively with their respective successors and assigns, the “Lender Parties”) in connection with the execution, delivery, performance and administration of, or the transactions contemplated by this Amendment, the Credit Agreement and the other Loan Documents, each Lender, the Administrative Agent, the Collateral Agent and each Loan Party agree to eliminate any possibility that any past conduct, conditions, acts, omissions, events, circumstances or matters of any kind whatsoever could impair or otherwise affect any rights, interests, contracts or remedies of the Lenders, the Administrative Agent or the Collateral Agent. Therefore, each Loan Party unconditionally, freely, voluntarily and, after consultation with counsel and becoming fully and adequately informed as to the relevant facts, circumstances and consequences, releases, waives and forever discharges (and further agrees not to allege, claim or pursue) (a) any and all liabilities, indebtedness and obligations, whether known or unknown, of any kind whatsoever of any Lender Party to any Loan Party, (b) any legal, equitable or other obligations of any kind whatsoever, whether known or unknown, of any Lender Party to any Loan Party (and any rights of any Loan Party against any Lender Party), (c) any and all claims, whether known or unknown, under any oral or implied agreement with (or obligation or undertaking of any kind whatsoever of) any Lender Party which is different from or in addition to the express terms of this Agreement, the Credit Agreement and the other Loan Documents and (d) all other claims, rights, causes of action, counterclaims or defenses of any kind whatsoever, in contract or in tort, in law or in equity, whether known or unknown, direct or derivative, which such Loan Party or any predecessor, successor or assign might otherwise have or may have against any Lender Party on account of any conduct, condition, act, omission, event, contract, liability, obligation, demand, covenant, promise, indebtedness, claim, right, cause of action, suit, damage, defense, circumstance or matter of any kind whatsoever which, in the case of each of the foregoing clauses (a), (b), (c) and (d), existed, arose or occurred at any time prior to the CP Date and in connection with the execution, delivery, performance and administration of, or the transactions contemplated by, this Amendment, the Credit Agreement and the other Loan Documents.

IX.No Other Amendments or Waivers; Confirmation. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Lenders, the Agents, the Borrower or any other Loan Party under the Credit Agreement or any other Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle the Borrower to any future consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document in similar or different circumstances. This Amendment shall apply and be effective only with respect to the provisions of the Credit Agreement specifically referred to herein. After the Ninth Amendment Effective Date, any reference in any Loan Document to the Credit Agreement shall mean the Credit Agreement as modified hereby. As of the Ninth Amendment Effective Date, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein,” or words of like import, and each reference in the other Loan Documents to the Credit Agreement (including, without limitation, by means of words like “thereunder”, “thereof” and words of like import), shall mean and be a reference to the Credit Agreement as amended hereby, and this Amendment and the Credit Agreement shall be read together and construed as a single instrument. Each of the table of contents and lists of Exhibits and Schedules of the Credit Agreement shall be amended to reflect the changes made in this Amendment as of the Ninth Amendment Effective Date. This Amendment is a Loan Document.

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X.Consent of Facility Guarantors. Each Facility Guarantor hereby consents to this Amendment and agrees that the terms hereof shall not affect in any way its obligations and liabilities under the Loan Documents (as amended and otherwise expressly modified hereby), all of which obligations and liabilities shall remain in full force and effect and each of which is hereby reaffirmed (as amended and otherwise expressly modified hereby).

XI.Expenses. The Borrower agrees to reimburse each of the Administrative Agent, Collateral Agent, the Lenders and the Lion Parties for their respective outstanding reasonable out-of-pocket expenses (whether or not yet invoiced to the Borrower) incurred in connection with the Credit Agreement, this Amendment, the other Loan Documents, the Warrants and the monitoring and oversight of the Lion Parties' investment (including without limitation, the reasonable fees, disbursements and other charges of Simpson Thacher & Bartlett LLP). This Amendment constitutes a Loan Document.

XII.Governing Law. This Amendment and the rights and obligations of the parties hereto shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York.

XIII.Counterparts. This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Amendment may be delivered by facsimile or other electronic transmission of the relevant signature pages hereof.

XIV.Headings. The Section headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Amendment.

XV.Notices. All communications and notices hereunder shall be given as provided in the Credit Agreement or, as the case may be, the Facility Guaranty.

XVI.Severability. The fact that any term or provision of this Amendment is held invalid, illegal or unenforceable as to any person in any situation in any jurisdiction shall not affect the validity, enforceability or legality of the remaining terms or provisions hereof or the validity, enforceability or legality of such offending term or provision in any other situation, or jurisdiction or as applied to any person.

XVII.Successors. The terms of this Amendment shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns.

XVIII.Waiver of Jury Trial. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AMENDMENT OR ANY OTHER LOAN DOCUMENT.

XIX.Submission to Jurisdiction. Each Loan Party agrees that any suit for the enforcement of this Amendment may be brought in the federal or state courts of the State of New York as the Lenders may elect in their sole discretion and consents to the non-exclusive jurisdiction of such courts. Each party to this Amendment hereby waives any objection which it may now or hereafter have to the venue of any such suit or any such court or that such suit is brought in an inconvenient forum and agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Amendment shall affect any right that any Credit Party may otherwise have to bring any action or proceeding relating to this Amendment against a Loan Party or its properties in the courts of any jurisdiction.

[Remainder of Page Intentionally Left Blank]

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EX-10.4

Exhibit 10.4

EXECUTION VERSION

LEASE AGREEMENT

THIS LEASE AGREEMENT is made this 15th day of June, 2012, between PAC FINANCE 1 LLC ("Landlord"), and the Tenant named below.

Tenant:	American Apparel, Inc., a Delaware corporation
Tenant's Representative,	Drew Evans
Address, and Telephone:	747 Warehouse Street Los Angeles, CA 90021
	213-488-0226
Premises:	That portion of the Building, containing approximately 220,000 rentable square feet, as determined by Landlord, as shown on Exhibit A.
Project:	The project commonly known as Prologis Mid Counties Industrial Center
Building:	Prologis Mid Counties Industrial Center
	16322-16400 Trojan Way
	La Mirada, CA 90638
Tenant's Proportionate Share of Project:	100%
Tenant's Proportionate Share of Building:	100%
Lease Term:	Beginning on the Commencement Date and ending on the last day of the 60th full month following the Commencement Date.
Commencement Date:	June 30, 2012
Initial Monthly Base Rent:	See Addendum 1
Initial Estimated Monthly Operating Expense Payments: (estimates only and subject to adjustment to actual costs and expenses according to the provisions of this Lease)	1. Utilities: $0.00 2. Common Area Charges: $5,060.00 3. Taxes: $17,600.00 4. Insurance: $3,520.00 5. Others: Prop Mgmt $3,887.40
Initial Estimated Monthly Operating Expense Payments:	$30,067.40
Initial Monthly Base Rent, and Estimated Operating Expense	$133,467.40
Security Deposit:	$120,000.00
Brokers:	Landlord: Colliers International Tenant: Colliers International
Addenda:	1. Base Rent Adjustments 2. HVAC Maintenance Contract 3. Move Out Conditions 4. One Renewal at Market 5. Construction (Allowance)

Exhibits: A. Site Plan B. Project Rules and Regulations C. Commencement Date Certificate D. Form of Landlord's Waiver and Consent

1.Granting Clause. In consideration of the obligation of Tenant to pay rent as herein provided and in consideration of the other terms, covenants, and conditions hereof, Landlord leases to Tenant, and Tenant takes from

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Landlord, the Premises, to have and to hold for the Lease Term, subject to the terms, covenants and conditions of this Lease.

2.Acceptance of Premises.  Tenant shall accept the Premises in its condition as of the Commencement Date, subject to all applicable laws, ordinances, regulations, covenants and restrictions. Landlord has made no representation or warranty as to the suitability of the Premises for the conduct of Tenant's business, and Tenant waives any implied warranty that the Premises are suitable for Tenant's intended purposes. In no event shall Landlord have any obligation for any defects in the Premises or any limitation on its use. The taking of possession of the Premises shall be conclusive evidence that Tenant accepts the Premises and that the Premises were in good condition at the time possession was taken except for items that are Landlord's responsibility under Paragraph 10 and any punchlist items agreed to in writing by Landlord and Tenant. No later than 10 days after written demand is made therefor by Landlord of Tenant, Tenant shall execute and deliver to Landlord a Commencement Date Certificate in the form of Exhibit C attached to and hereby made a part of this Lease.

Pursuant to the terms of this Paragraph 2, Landlord agrees to furnish or perform at Landlord's sole cost prior to the Commencement Date, but in no event shall delay in the completion of the following items alter or extend the Commencement Date, those items of construction and Premises improvements specified below (the “Base Building Work”):

• Paint walls throughout office area and replace flooring throughout the office area.

• Repair and slurry parking lot.

• Remove the demising wall in the warehouse.

• Landlord shall insure roof is in water tight condition.

Landlord shall allow Tenant access to the Premises upon mutual execution of this Lease for purposes of preparing the Premises for the commencement of Tenant's normal business operations, subject to applicable ordinances and building codes governing Tenant's right to occupy or perform in the Premises (“Early Occupancy”). During such Early Occupancy period prior to the Commencement Date, Tenant shall be bound by its obligations under the Lease, including the obligation to provide evidence of insurance, but shall not be obligated to pay the Monthly Base Rent or Operating Expenses payable by Tenant to Landlord as set forth in the Lease.

3.Use. The Premises shall be used only for the purpose of receiving, storing, shipping and selling (but specifically excluding retail selling) products, materials and merchandise made and/or distributed by Tenant and for such other lawful purposes as may be incidental thereto; provided, however, with Landlord's prior written consent, Tenant may also use the Premises for light manufacturing. Tenant shall not conduct or give notice of any auction, liquidation, or going out of business sale on the Premises provided, however, Tenant may conduct “tent sales” to Tenant's employees and/or customers on or about the Premises, subject to applicable Legal Requirements, but in no event shall such “tent sales” occur more than two (2) times in any given calendar year upon delivery of written notice to Landlord along with a traffic control plan at least sixty (60) days prior to such tent sale, provided Tenant shall be responsible for any cost associated with such “tent sales” including, but not limited to, any related insurance or property tax increases to Landlord, compliance with Legal Requirements, and/or property maintenance resulting from such operation. Landlord shall have no liability whatsoever in connection with such “tent sales”, and Tenant shall indemnify Landlord for any and all claims arising from such “tent sales”. Notwithstanding anything to the contrary set forth elsewhere in this Lease, Tenant shall have the right to place and maintain at all times, patio furniture in an outside location mutually agreeable to Landlord and Tenant, at Tenant's sole cost and expense, during the Lease Term which shall be utilized by Tenant and its employees in connection with its business operations. Landlord shall have no liability whatsoever in connection with such outside patio furniture and Tenant shall indemnify Landlord for any and all claims arising from the presence and maintenance of such outdoor area. Tenant will use the Premises in a careful, safe and proper manner and will not commit waste, overload the floor or structure of the Premises or subject the Premises to use that would damage the Premises. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise, or vibrations to emanate from the Premises, or take any other action that would constitute a nuisance or would disturb, unreasonably interfere with, or endanger Landlord or any tenants of the Project. Outside storage, including without limitation, storage of trucks and other vehicles, is prohibited without Landlord's prior written consent; provided, however, Tenant shall have the right to park operable vehicles and trailers overnight at the truck loading docks and designated truck and trailer parking areas for the Premises and operable automobiles in the designated automobile parking areas, and further provided there is no interference with the access of other tenants to the Building and Project parking lots and truck courts. Tenant, at its sole expense, shall use and occupy the Premises in compliance with all laws, including, without limitation, the Americans With Disabilities Act, orders, judgments, ordinances, regulations, codes, directives, permits, licenses, covenants and restrictions now or hereafter applicable to the Premises (collectively, "Legal Requirements"). The Premises shall not be used as a place of

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public accommodation under the Americans With Disabilities Act or similar state statutes or local ordinances or any regulations promulgated thereunder, all as may be amended from time to time. Landlord represents and warrants that, as of the Commencement Date, no written notice has been received by Landlord of non-compliance with any Legal Requirements in connection with the Premises. In the event that Landlord receives notice that the Premises is not in compliance with applicable Legal Requirements existing as of the Commencement Date and such non-compliance is not related to Tenant's specific use of the Premises or Tenant-Made Alterations to the Premises performed by Tenant, Landlord shall make such modifications as may be required by order or directive of applicable governmental authority in order to bring the Premises into compliance with applicable Legal Requirements as of the Commencement Date without cost or expense to Tenant and without including such cost or expense as an Operating Expense. Furthermore, in the event Landlord receives notice that the Premises is not in compliance with applicable Legal Requirements which come into effect after the Commencement Date and such non-compliance is not related to Tenant's specific use of the Premises or Tenant-Made Alterations to the Premises performed by Tenant, Landlord shall make such modifications as may be required by order or directive of applicable governmental authority in order to bring the Premises into compliance with applicable Legal Requirements which shall be chargeable to Tenant as an Operating Expense. Tenant shall, at its expense, make any alterations or modifications, within or without the Premises, that are required by Legal Requirements related to Tenant's use or occupation of the Premises. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenant's or Landlord's insurance, increase the insurance risk, or cause the disallowance of any sprinkler credits. If any increase in the cost of any insurance on the Premises or the Project is caused by Tenant's use or occupation of the Premises, or because Tenant vacates the Premises, then Tenant shall pay the amount of such increase to Landlord. Any occupation of the Premises by Tenant prior to the Commencement Date shall be subject to all obligations of Tenant under this Lease.

4.Base Rent. Tenant shall pay Base Rent in the amount set forth on Page 1 of this Lease. The first month's Base Rent, the Security Deposit, and the first monthly installment of estimated Operating Expenses (as hereafter defined) shall be due and payable on the date hereof, and Tenant promises to pay to Landlord in advance, without demand, deduction or set-off, monthly installments of Base Rent on or before the first day of each calendar month succeeding the Commencement Date. Payments of Base Rent for any fractional calendar month shall be prorated. All payments required to be made by Tenant to Landlord hereunder (or to such other party as Landlord may from time to time specify in writing) shall be made by check or by Electronic Fund Transfer (“EFT”) of immediately available federal funds before 11:00 a.m., Eastern Time at such place, within the continental United States, as Landlord may from time to time designate to Tenant in writing. The obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. Tenant shall have no right at any time to abate, reduce, or set-off any rent due hereunder except as may be expressly provided in this Lease. If Tenant is delinquent in any monthly installment of Base Rent or of estimated Operating Expenses for more than 5 days, Tenant shall pay to Landlord on demand a late charge equal to 8 percent of such delinquent sum. The provision for such late charge shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as a penalty.

5.Security Deposit. The Security Deposit shall be held by Landlord as security for the performance of Tenant's obligations under this Lease. The Security Deposit is not an advance rental deposit or a measure of Landlord's damages in case of Tenant's default. Upon each occurrence of an Event of Default (hereinafter defined), Landlord may use all or part of the Security Deposit to pay delinquent payments due under this Lease, and the cost of any damage, injury, expense or liability caused by such Event of Default, without prejudice to any other remedy provided herein or provided by law. Tenant shall pay Landlord on demand the amount that will restore the Security Deposit to its original amount. Landlord's obligation respecting the Security Deposit is that of a debtor, not a trustee; no interest shall accrue thereon. The Security Deposit shall be the property of Landlord, but shall be paid to Tenant when Tenant's obligations under this Lease have been completely fulfilled. Landlord shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Tenant waives any limitations set forth in California Civil Code Section 1950.7 limiting the use to which a security deposit may be applied. Landlord shall be released from any obligation with respect to the Security Deposit upon transfer of this Lease and the Premises to a person or entity assuming Landlord's obligations under this Paragraph 5.

6.Operating Expense Payments. During each month of the Lease Term, on the same date that Base Rent is due, Tenant shall pay Landlord an amount equal to 1/12 of the annual cost, as estimated by Landlord from time to time, of Tenant's Proportionate Share (hereinafter defined) of Operating Expenses for the Project. Payments thereof for any fractional calendar month shall be prorated. The term "Operating Expenses" means all costs and expenses incurred by Landlord with respect to the ownership, maintenance, and operation of the Project including, but not limited to costs of: Taxes (hereinafter defined) and fees payable to tax consultants and attorneys for consultation and contesting taxes; insurance; utilities; maintenance, repair and replacement of all portions of the Project, including without limitation, paving and parking areas, roads, non-structural components of the roofs (including the roof membrane), alleys, and driveways,

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mowing, landscaping, snow removal, exterior painting, utility lines, heating, ventilation and air conditioning systems, lighting, electrical systems and other mechanical and building systems; amounts paid to contractors and subcontractors for work or services performed in connection with any of the foregoing; charges or assessments of any association to which the Project is subject; property management fees payable to a property manager, including any affiliate of Landlord, or if there is no property manager, an administration fee of 15 percent of Operating Expenses payable to Landlord; security services, if any; trash collection, sweeping and removal; and additions or alterations made by Landlord to the Project or the Building in order to comply with Legal Requirements (other than those expressly required herein to be made by Tenant) or that are appropriate to the continued operation of the Project or the Building as a bulk warehouse facility in the market area, provided that the cost of additions or alterations that are required to be capitalized for federal income tax purposes shall be amortized on a straight line basis over a period equal to the lesser of the useful life thereof for federal income tax purposes or 10 years. Operating Expenses do not include costs, expenses, depreciation or amortization for capital repairs and capital replacements required to be made by Landlord under Paragraph 10 of this Lease, debt service under mortgages or ground rent under ground leases, costs of restoration to the extent of net insurance proceeds received by Landlord with respect thereto, leasing commissions, or the costs of renovating space for tenants.

No later than 90 days following the first day of each calendar year during the Lease Term, Landlord shall deliver to Tenant an Operating Expense Reconciliation Invoice (“Invoice”) and an Operating Expense Summary Report listing the Operating Expenses for the prior year of the Lease Term (“Report”). Provided (x) no Event of Default exists under this Lease, (y) no payments of Base Rent, Operating Expenses, or other amounts due under the Lease are outstanding, and (z) Tenant has a reasonable belief that the Invoice and Report contain an error to the detriment of Tenant, Tenant, at its sole cost and expense, shall have the right to examine property invoices evidencing such costs and expenses as provided in the Invoice and Report which Tenant believes to be in error as more specifically provided herein. Such review of Landlord's property invoices may occur not more than once per year at Landlord's local market office during reasonable business hours. Landlord agrees to make the property invoices pertaining to those items which Tenant reasonably believes to be in error, a copier and conference room available to Tenant for a period not to exceed one week to examine such property invoices. In the event Tenant desires to exercise the foregoing right, Tenant shall deliver written notice of Tenant's intent to review the property invoices, and shall identify the item(s) contained in the Invoice and Report which Tenant believes to be in error, no later than thirty (30) days following Tenant's receipt of the Invoice and Report. Time is of the essence with regards to the delivery of such notice. Upon Landlord's receipt of Tenant's notice, Landlord and Tenant shall work in good faith to schedule a time and date for such property invoice examination which shall be acceptable to both parties. In the event that Tenant accurately determines that the Invoice and Report contain an error to the detriment of Tenant, Landlord shall immediately provide a revised Invoice and Report to Tenant. If Tenant has already paid the Invoice, Landlord will provide a credit against Tenant's obligations to pay Base Rent the amount overpaid by Tenant. Tenant shall keep any information gained from such examination confidential and shall not disclose it to any other party, except as required by law. If requested by Landlord, Tenant shall be required to sign a confidentiality agreement as a condition of Landlord making Landlord's invoices available for inspection. Notwithstanding anything contained herein to the contrary, in no event shall Tenant retain any person paid on a contingency fee basis to act on behalf of Tenant with regards to the forgoing rights to review the property invoices and Landlord shall have no obligation to allow any such representative paid on a contingency fee basis access to Landlord's records. Notwithstanding anything contained in this Lease to the contrary, Tenant hereby agrees that Tenant's sole remedy pertaining to an error in the Invoice or Report shall be for the recovery from Landlord an amount equal to the amount overpaid by Tenant, and Tenant hereby waives any right to terminate this Lease as a result of any such error in the Invoice or Report which Tenant may have under law or equity.

If Tenant's total payments of Operating Expenses for any year are less than Tenant's Proportionate Share of actual Operating Expenses for such year, then Tenant shall pay the difference to Landlord within 30 days after demand, and if more, then Landlord shall retain such excess and credit it against Tenant's next payments except that during the last calendar year of the Lease Term or any extension terms thereof, Landlord shall refund any such excess within 60 days following the termination of the Lease Term or any extension terms thereof, provided that Tenant is not in default of its obligations under this Lease. For purposes of calculating Tenant's Proportionate Share of Operating Expenses, a year shall mean a calendar year except the first year, which shall begin on the Commencement Date, and the last year, which shall end on the expiration of this Lease. With respect to Operating Expenses which Landlord allocates to the entire Project, Tenant's "Proportionate Share" shall be the percentage set forth on the first page of this Lease as Tenant's Proportionate Share of the Project as reasonably adjusted by Landlord in the future for changes in the physical size of the Premises or the Project; and, with respect to Operating Expenses which Landlord allocates only to the Building, Tenant's "Proportionate Share" shall be the percentage set forth on the first page of this Lease as Tenant's Proportionate Share of the Building as reasonably adjusted by Landlord in the future for changes in the physical size of the Premises or the Building. Landlord may equitably increase Tenant's Proportionate Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement, or service that benefits only the Premises or only a portion of the Project

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or Building that includes the Premises or that varies with occupancy or use. The estimated Operating Expenses for the Premises set forth on the first page of this Lease are only estimates, and Landlord makes no guaranty or warranty that such estimates will be accurate.

7.Utilities. Tenant shall pay for all water, gas, electricity, heat, light, power, telephone, sewer, sprinkler services, refuse and trash collection, and other utilities and services used on the Premises, all maintenance charges for utilities, and any storm sewer charges or other similar charges for utilities imposed by any governmental entity or utility provider, together with any taxes, penalties, surcharges or the like pertaining to Tenant's use of the Premises. Landlord may cause at Tenant's expense any utilities to be separately metered or charged directly to Tenant by the provider in the event Landlord reasonably determines that Tenant's use of such jointly metered utility materially exceeds the use of such jointly metered utility by other tenants in the Building. Tenant shall pay its share of all charges for jointly metered utilities based upon consumption, as reasonably determined by Landlord. No interruption or failure of utilities shall result in the termination of this Lease or the abatement of rent. Tenant agrees to limit use of water and sewer for normal restroom use.

8.Taxes. Landlord shall pay all taxes, assessments and governmental charges (collectively referred to as "Taxes") that accrue against the Project during the Lease Term, which shall be included as part of the Operating Expenses charged to Tenant. Landlord may contest by appropriate legal proceedings the amount, validity, or application of any Taxes or liens thereof. All capital levies or other taxes assessed or imposed on Landlord upon the rents payable to Landlord under this Lease and any franchise tax, any excise, use, margin, transaction, sales or privilege tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents from the Premises and/or the Project or any portion thereof shall be paid by Tenant to Landlord monthly in estimated installments or upon demand, at the option of Landlord, as additional rent; provided, however, in no event shall Tenant be liable for any net income taxes imposed on Landlord unless such net income taxes are in substitution for any Taxes payable hereunder. If any such tax or excise is levied or assessed directly against Tenant or results from any Tenant-Made Alterations (defined below), then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall require. Tenant shall be liable for all taxes levied or assessed against any personal property or fixtures placed in the Premises, whether levied or assessed against Landlord or Tenant.

9.Insurance. Landlord shall maintain all risk or special form property insurance covering the full replacement cost of the Building and commercial general liability insurance on the Project in forms and amounts customary for properties substantially similar to the Project, subject to customary deductibles. Landlord may, but is not obligated to, maintain such other insurance and additional coverages as it may deem necessary, including but not limited to, rent loss insurance. All such insurance shall be included as part of the Operating Expenses charged to Tenant. The Project or Building may be included in a blanket policy (in which case the cost of such insurance allocable to the Project or Building will be determined by Landlord based upon the total insurance cost calculations). Tenant shall also reimburse Landlord for any increased premiums or additional insurance which Landlord reasonably deems necessary as a result of Tenant's use of the Premises.

Tenant, at its expense, shall maintain during the Lease Term the following insurance, at Tenant's sole cost and expense: (1) commercial general liability insurance applicable to the Premises and its appurtenances providing, on an occurrence basis, a minimum combined single limit of $2,000,000; and in the event property of Tenant's invitees or customers are kept in, or about the, Premises, Tenant shall maintain warehouser's legal liability or bailee customers insurance for the full value of the property of such invitees or customers as determined by the warehouse contract between Tenant and its customer; (2) all risk or special form property insurance covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant; (3) workers' compensation insurance as required by the state in which the Premises is located and in amounts as may be required by applicable statute and shall include a waiver of subrogation in favor of Landlord; (4) employers liability insurance of at least $1,000,000, (5) business automobile liability insurance having a combined single limit of not less than $2,000,000 per occurrence insuring Tenant against liability arising out of the ownership maintenance or use of any owned, hired or nonowned automobiles, and (6) business interruption insurance with a limit of liability representing loss of at least approximately 6 months of income. Any company writing any of Tenant's insurance shall have an A.M. Best rating of not less than A-VIII and provide primary coverage to Landlord (any policy issued to Landlord providing duplicate or similar coverage shall be deemed excess over Tenant's policies). All commercial general liability and, if applicable, warehouser's legal liability or bailee customers insurance policies shall name Tenant as a named insured and Landlord, its property manager, and other designees of Landlord as the interest of such designees shall appear, as additional insureds. The limits and types of insurance maintained by Tenant shall not limit Tenant's liability under this Lease. Tenant shall provide Landlord with certificates of such insurance as required under this Lease prior to the earlier to occur of the Commencement Date or the date Tenant is provided with possession of the Premises, and thereafter upon renewals at least 15 days prior to the expiration of the insurance coverage. Acceptance by Landlord of delivery of any certificates of insurance does not constitute approval or

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agreement by Landlord that the insurance requirements of this section have been met, and failure of Landlord to identify a deficiency from evidence provided will not be construed as a waiver of Tenant's obligation to maintain such insurance. In the event any of the insurance policies required to be carried by Tenant under this Lease shall be cancelled prior to the expiration date of such policy, or if Tenant receives notice of any cancellation of such insurance policies from the insurer prior to the expiration date of such policy, Tenant shall: (a) immediately deliver notice to Landlord that such insurance has been, or is to be, cancelled, (b) shall promptly replace such insurance policy in order to assure no lapse of coverage shall occur, and (c) shall deliver to Landlord a certificate of insurance for such policy. The insurance required to be maintained by Tenant hereunder are only Landlord's minimum insurance requirements and Tenant agrees and understands that such insurance requirements may not be sufficient to fully meet Tenant's insurance needs

The all risk or special form property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based upon an assignment from its insured, against Landlord or Tenant, their officers, directors , employees, managers, agents, invitees and contractors, in connection with any loss or damage thereby insured against. Neither party nor its officers, directors, employees, managers, agents, invitees or contractors shall be liable to the other for loss or damage caused by any risk coverable by all risk or special form property insurance, and each party waives any claims against the other party, and its officers, directors, employees, managers, agents, invitees and contractors for such loss or damage. The failure of a party to insure its property shall not void this waiver. Tenant and its agents, employees and contractors shall not be liable for, and Landlord hereby waives all claims against such parties for losses resulting from an interruption of Landlord's business, or any person claiming through Landlord, resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever, including without limitation, damage caused in whole or in part, directly or indirectly, by the negligence of Tenant or its agents, employees or contractors. Landlord and its agents, employees and contractors shall not be liable for, and Tenant hereby waives all claims against such parties for losses resulting from an interruption of Tenant's business, or any person claiming through Tenant, resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever, including without limitation, damage caused in whole or in part, directly or indirectly, by the negligence of Landlord or its agents, employees or contractors.

10.Landlord's Repairs. Landlord shall repair, at its expense and without pass through as an Operating Expense, the structural soundness of the roof (which does not include the roof membrane), the structural soundness of the foundation, and the structural soundness of the exterior walls of the Building in good repair, reasonable wear and tear and uninsured losses and damages caused by Tenant, its agents and contractors excluded. The term "walls" as used in this Paragraph 10 shall not include windows, glass or plate glass, doors or overhead doors, special store fronts, dock bumpers, dock plates or levelers, or office entries. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Paragraph 10, after which Landlord shall have a reasonable opportunity to repair.

11.Tenant's Repairs. Landlord, at Tenant's expense as provided in Paragraph 6, shall maintain in good repair and condition the parking areas and other common areas of the Building, including, but not limited to driveways, alleys, landscape and grounds surrounding the Premises. Subject to Landlord's obligation in Paragraph 10 and subject to Paragraphs 9 and 15, Tenant, at its expense, shall repair, replace and maintain in good condition all portions of the Premises and all areas, improvements and systems exclusively serving the Premises including, without limitation, dock and loading areas, truck doors, plumbing, water and sewer lines up to points of common connection, fire sprinklers and fire protection systems, entries, doors, ceilings, windows, interior walls, and the interior side of demising walls, and heating, ventilation and air conditioning systems. Such repair and replacements include capital expenditures and repairs whose benefit may extend beyond the Term;provided in all events Landlord shall complete such capital repairs and such capital expenditures shall be fully amortized in accordance with the Formula (defined hereafter) and reimbursed to Landlord over the remainder of the Lease Term, without regard to any extension or renewal option not then exercised. The "Formula" shall mean that number, the numerator of which shall be the number of months of the Lease Term remaining after such capital expenditures, and the denominator of which shall be the amortization period (in months) equal to the useful life of such repair or replacement multiplied by the cost of such capital expenditure or repair. Landlord shall pay for such capital expenditures and repairs and Tenant shall reimburse Landlord for its amortized share of same (determined as hereinabove set forth) in equal monthly installments in the same manner as the payment by Tenant to Landlord of the Operating Expenses. In the event Tenant extends the Lease Term either by way of an option or negotiated extension, such reimbursement by Tenant shall continue as provided above until such amortization period has expired. Heating, ventilation and air conditioning systems and other mechanical and building systems exclusively serving the Premises shall be maintained at Tenant's expense pursuant to maintenance service contracts entered into by Tenant or, at Landlord's election, by Landlord, in which case the costs of such contracts entered into by Landlord shall be included as an Operating Expense. The scope of services and contractors under such maintenance contracts shall be reasonably approved by Landlord. Tenant shall not utilize the rail service to the Building. If Tenant fails to perform any repair or replacement for which it is responsible, Landlord may perform such work and be reimbursed by Tenant within 10 days after demand

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therefor. Subject to Paragraphs 9 and 15, Tenant shall bear the full cost of any repair or replacement to any part of the Building or Project that results from damage caused by Tenant, its agents, contractors, or invitees and any repair that benefits only the Premises.

12.Tenant-Made Alterations and Trade Fixtures. Any alterations, additions, or improvements made by or on behalf of Tenant to the Premises ("Tenant-Made Alterations") shall be subject to Landlord's prior written consent. Tenant shall cause, at its expense, all Tenant-Made Alterations to comply with insurance requirements and with Legal Requirements and shall construct at its expense any alteration or modification required by Legal Requirements as a result of any Tenant-Made Alterations. All Tenant-Made Alterations shall be constructed in a good and workmanlike manner by contractors reasonably acceptable to Landlord and only good grades of materials shall be used. All plans and specifications for any Tenant-Made Alterations shall be submitted to Landlord for its approval. Landlord may monitor construction of the Tenant-Made Alterations. Tenant shall reimburse Landlord for its costs in reviewing plans and specifications and in monitoring construction. Landlord's right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to see that such plans and specifications or construction comply with applicable laws, codes, rules and regulations. Tenant shall provide Landlord with the identities and mailing addresses of all persons performing work or supplying materials, prior to beginning such construction, and Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law. Tenant shall furnish security or make other arrangements satisfactory to Landlord to assure payment for the completion of all work free and clear of liens and shall provide certificates of insurance for worker's compensation and other coverage in amounts and from an insurance company satisfactory to Landlord protecting Landlord against liability for personal injury or property damage during construction. Upon completion of any Tenant-Made Alterations, Tenant shall deliver to Landlord sworn statements setting forth the names of all contractors and subcontractors who did work on the Tenant-Made Alterations and final lien waivers from all such contractors and subcontractors. Upon surrender of the Premises, all Tenant-Made Alterations and any leasehold improvements constructed by Landlord or Tenant shall remain on the Premises as Landlord's property, except to the extent Landlord requires removal at Tenant's expense of any such items or Landlord and Tenant have otherwise agreed in writing in connection with Landlord's consent to any Tenant-Made Alterations. Upon Tenant's written request, Landlord shall provide Tenant, at the time of Tenant's request for approval of Tenant-Made Alterations, a list of which Tenant-Made Alterations Landlord will require Tenant to remove upon surrender of the Premises. Tenant shall repair any damage caused by the removal of such Tenant-Made Alterations upon surrender of the Premises.

Tenant, at its own cost and expense and without Landlord's prior approval, may erect such shelves, racking, bins, machinery and trade fixtures (collectively "Trade Fixtures") in the ordinary course of its business provided that such items do not alter the basic character of the Premises, do not overload or damage the Premises, and may be removed without injury to the Premises, and the construction, erection, and installation thereof complies with all Legal Requirements and with Landlord's requirements set forth above. Tenant shall remove its Trade Fixtures and shall repair any damage caused by such removal upon surrender of the Premises.

13.Signs. Tenant shall not make any changes to the exterior of the Premises, install any exterior lights, decorations, balloons, flags, pennants, banners, or painting, or erect or install any signs, windows or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Premises, without Landlord's prior written consent, which consent may be withheld in Landlord's sole discretion. Upon surrender or vacation of the Premises, Tenant shall have removed all signs and repair, paint, and/or replace the building facia surface to which its signs are attached. Tenant shall obtain all applicable governmental permits and approvals for sign and exterior treatments. All signs, decorations, advertising media, blinds, draperies and other window treatment or bars or other security installations visible from outside the Premises shall be subject to Landlord's approval and conform in all respects to Landlord's requirements.

14.Parking. Tenant shall be entitled to park in common with other tenants of the Project in those areas designated for nonreserved parking. Landlord may allocate parking spaces among Tenant and other tenants in the Project if Landlord reasonably determines that such parking facilities are becoming crowded. Landlord shall not be responsible for enforcing Tenant's parking rights against any third parties. Notwithstanding anything to the contrary in the Paragraph, as long as Tenant occupies the entire Building, Tenant shall have the right to use the entire parking areas of the Building. Notwithstanding anything to the contrary herein, Tenant shall be permitted to allow third party food trucks and food vendors to serve Tenant.

15.Restoration. If at any time during the Lease Term the Premises are damaged by a fire or other casualty, Landlord shall notify Tenant within 45 days (provided Landlord shall use good faith efforts to provide notice earlier if reasonably practical under the circumstances) after such damage as to the amount of time Landlord reasonably estimates

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it will take to restore the Premises. If the restoration time is estimated to exceed 6 months, either Landlord or Tenant may elect to terminate this Lease upon notice to the other party given no later than 30 days after Landlord's notice. If neither party elects to terminate this Lease or if Landlord estimates that restoration will take 6 months or less, then, subject to receipt of sufficient insurance proceeds, Landlord shall promptly restore the Premises excluding the improvements installed by Tenant or by Landlord and paid by Tenant, subject to delays arising from the collection of insurance proceeds or from Force Majeure events. Tenant at Tenant's expense shall promptly perform, subject to delays arising from the collection of insurance proceeds, or from Force Majeure events (as defined in Paragraph 33), all repairs or restoration not required to be done by Landlord and shall promptly re-enter the Premises and commence doing business in accordance with this Lease. Notwithstanding the foregoing, either party may terminate this Lease if the Premises are damaged during the last year of the Lease Term and Landlord reasonably estimates that it will take more than one month to repair such damage. Base Rent and Operating Expenses shall be abated for the period of repair and restoration commencing on the date of such casualty event in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises. Such abatement shall be the sole remedy of Tenant, and except as provided herein, Tenant waives any right to terminate the Lease by reason of damage or casualty loss.

Notwithstanding anything contained in the Lease to the contrary, to the extent the damage to the Project is attributable to Tenant, Tenant shall pay to Landlord with respect to any damage to the Project an amount of the commercially reasonable deductible under Landlord's insurance policy, not to exceed $10,000.00, within 30 days after presentment of Landlord's invoice.

16.Condemnation. If any part of the Premises or the Project should be taken for any public or quasi‑public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a "Taking" or "Taken"), and the Taking would materially interfere with or impair Landlord's ownership or operation of the Project, then upon written notice by Landlord this Lease shall terminate and Base Rent shall be apportioned as of said date. If part of the Premises shall be Taken, and this Lease is not terminated as provided above, the Base Rent payable hereunder during the unexpired Lease Term shall be reduced to such extent as may be fair and reasonable under the circumstances. In the event of any such Taking, Landlord shall be entitled to receive the entire price or award from any such Taking without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant's interest, if any, in such award. Tenant shall have the right, to the extent that same shall not diminish Landlord's award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant for moving expenses and damage to Tenant's Trade Fixtures, if a separate award for such items is made to Tenant.

17.Assignment and Subletting. Without Landlord's prior written consent, which shall not be unreasonably withheld conditioned or delayed, Tenant shall not assign this Lease or sublease the Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises and any attempt to do any of the foregoing shall be void and of no effect. It shall be reasonable for the Landlord to withhold, delay or condition its consent, where required, to any assignment or sublease in any of the following instances: (i) the assignee or sublessee does not have a net worth calculated according to generally accepted accounting principles at least equal to the greater of the net worth of Tenant immediately prior to such assignment or sublease or the net worth of the Tenant at the time it executed the Lease; (ii) occupancy of the Premises by the assignee or sublessee would, in Landlord's opinion, violate any agreement binding upon Landlord or the Project with regard to the identity of tenants, usage in the Project, or similar matters; (iii) the identity or business reputation of the assignee or sublessee will, in the good faith judgment of Landlord, tend to damage the goodwill or reputation of the Project; (iv) the assignment or sublease is to another tenant in the Project and is at rates which are below those charged by Landlord for comparable space in the Project; or (v) in the case of a sublease, the subtenant has not acknowledged that the Lease controls over any inconsistent provision in the sublease. The foregoing criteria shall not exclude any other reasonable basis for Landlord to refuse its consent to such assignment or sublease. Any approved assignment or sublease shall be expressly subject to the terms and conditions of this Lease. Tenant shall provide to Landlord all information concerning the assignee or sublessee as Landlord may reasonably request. Landlord may revoke its consent immediately and without notice if, as of the effective date of the assignment or sublease, there has occurred and is continuing any default under the Lease. For purposes of this paragraph, a transfer of the ownership interests controlling Tenant shall be deemed an assignment of this Lease unless such ownership interests are publicly traded. Notwithstanding the above, Tenant may assign or sublet the Premises, or any part thereof, to any entity controlling Tenant, controlled by Tenant or under common control with Tenant (a "Tenant Affiliate"), without the prior written consent of Landlord. Tenant shall reimburse Landlord for all of Landlord's reasonable expenses in connection with any assignment or sublease not to exceed $3,000.00. This Lease shall be binding upon Tenant and its successors and permitted assigns. Upon Landlord's receipt of Tenant's written notice of a desire to assign or sublet the Premises, or any part thereof (other than to a Tenant Affiliate), Landlord may, by giving written notice to

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Tenant within 30 days after receipt of Tenant's notice, terminate this Lease with respect to the space described in Tenant's notice, as of the date specified in Tenant's notice for the commencement of the proposed assignment or sublease.

Notwithstanding any assignment or subletting, Tenant and any guarantor or surety of Tenant's obligations under this Lease shall at all times remain fully responsible and liable for the payment of the rent and for compliance with all of Tenant's other obligations under this Lease (regardless of whether Landlord's approval has been obtained for any such assignments or sublettings). In the event that the rent due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment plus any bonus or other consideration therefor or incident thereto) exceeds the rental payable under this Lease, then Tenant shall be bound and obligated to pay Landlord as additional rent hereunder all such excess rental and other excess consideration within 10 days following receipt thereof by Tenant; provided in the event of a sublease which is less than 100% of the Premises such excess rental and other consideration shall be applied on a square foot basis.

If this Lease be assigned or if the Premises be subleased (whether in whole or in part) or in the event of the mortgage, pledge, or hypothecation of Tenant's leasehold interest or grant of any concession or license within the Premises or if the Premises be occupied in whole or in part by anyone other than Tenant, then upon a default by Tenant hereunder Landlord may collect rent from the assignee, sublessee, mortgagee, pledgee, party to whom the leasehold interest was hypothecated, concessionee or licensee or other occupant and, except to the extent set forth in the preceding paragraph, apply the amount collected to the next rent payable hereunder; and all such rentals collected by Tenant shall be held in trust for Landlord and immediately forwarded to Landlord. No such transaction or collection of rent or application thereof by Landlord, however, shall be deemed a waiver of these provisions or a release of Tenant from the further performance by Tenant of its covenants, duties, or obligations hereunder.

18.Indemnification.Except for the negligence of Landlord, its agents, employees or contractors, and to the extent permitted by law, Tenant agrees to indemnify, defend and hold harmless Landlord, and Landlord's agents, employees and contractors, from and against any and all losses, liabilities, damages, costs and expenses (including reasonable attorneys' fees) resulting from claims by third parties for injuries to any person and damage to or theft or misappropriation or loss of property occurring in or about the Project and arising from the use and occupancy of the Premises or from any activity, work, or thing done, permitted or suffered by Tenant in or about the Premises or due to any other act or omission of Tenant, its subtenants, assignees, invitees, employees, contractors and agents. The furnishing of insurance required hereunder shall not be deemed to limit Tenant's obligations under this Paragraph 18.

19.Inspection and Access. Landlord and its agents, representatives, and contractors may enter the Premises at any reasonable time to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease and for any other business purpose. Landlord and Landlord's representatives may enter the Premises during business hours for the purpose of showing the Premises to prospective purchasers and, during the last year of the Lease Term, to prospective tenants. Landlord may erect a suitable sign on the Premises stating the Premises are available to let or that the Project is available for sale. Landlord may grant easements, make public dedications, designate and modify common areas and create restrictions on or about the Premises, provided that no such easement, dedication, designation, modification or restriction materially interferes with Tenant's use or occupancy of the Premises. At Landlord's request, Tenant shall execute such instruments as may be necessary for such easements, dedications or restrictions.

20.Quiet Enjoyment. If Tenant shall perform its covenants and agreements herein required to be performed by Tenant, Tenant shall, subject to the terms of this Lease, at all times during the Lease Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord.

21.Surrender. Upon termination of the Lease Term or earlier termination of Tenant's right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received ordinary wear and tear, casualty loss and condemnation covered by Paragraphs 15 and 16 excepted and otherwise in accordance with the Move Out Conditions Addendum attached hereto. Without limiting the foregoing, Tenant shall remove any odor which may exist in the Premises resulting from Tenant's occupancy of the Premises upon the termination of the Lease Term or earlier termination of Tenant's right of possession. Any Trade Fixtures, Tenant-Made Alterations and property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenant's expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord's retention and disposition of such property. All obligations of Tenant hereunder not fully performed as of the termination of the Lease Term shall survive the termination of the Lease Term, including without limitation, indemnity obligations, payment obligations with respect to Operating Expenses and obligations concerning the condition and repair of the Premises.

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22.Holding Over. If Tenant retains possession of the Premises after the termination of the Lease Term, unless otherwise agreed in writing, such possession shall be subject to immediate termination by Landlord at any time, and all of the other terms and provisions of this Lease (excluding any expansion or renewal option or other similar right or option) shall be applicable during such holdover period, except that Tenant shall pay Landlord from time to time, upon demand, as Base Rent for the holdover period, an amount equal to 150% of the Base Rent in effect on the termination date, computed on a monthly basis for each month or part thereof during such holding over. All other payments shall continue under the terms of this Lease. In addition, Tenant shall be liable for all damages incurred by Landlord as a result of such holding over. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Paragraph 22 shall not be construed as consent for Tenant to retain possession of the Premises. For purposes of this Paragraph 22, “possession of the Premises” shall continue until, among other things, Tenant has delivered all keys to the Premises to Landlord, Landlord has complete and total dominion and control over the Premises, and Tenant has completely fulfilled all obligations required of it upon termination of the Lease as set forth in this Lease, including, without limitation, those concerning the condition and repair of the Premises.

23.Events of Default. Each of the following events shall be an event of default ("Event of Default") by Tenant under this Lease:

(i)Tenant shall fail to pay any installment of Base Rent or any other payment required herein when due, and such failure shall continue for a period of 10 days from the date such payment was due.

(ii)Tenant or any guarantor or surety of Tenant's obligations hereunder shall (A) make a general assignment for the benefit of creditors; (B) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a "proceeding for relief"); (C) become the subject of any proceeding for relief which is not dismissed within 60 days of its filing or entry; or (D) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity).

(iii)Any insurance required to be maintained by Tenant pursuant to this Lease shall be cancelled or terminated or shall expire or shall be reduced or materially changed, except, in each case, as permitted in this Lease.

(iv)Tenant shall not occupy or shall vacate the Premises whether or not Tenant is in monetary or other default under this Lease. Tenant's vacating of the Premises shall not constitute an Event of Default if, prior to vacating the Premises, Tenant has made arrangements reasonably acceptable to Landlord to (a) ensure that Tenant's insurance for the Premises will not be voided or cancelled with respect to the Premises as a result of such vacancy, (b) ensure that the Premises are secured and not subject to vandalism, and (c) ensure that the Premises will be properly maintained after such vacation, including, but not limited to, keeping the heating, ventilation and cooling systems maintenance contracts required by this Lease in full force and effect and maintaining the utility services. Tenant shall inspect the Premises at least once each month and report monthly in writing to Landlord on the condition of the Premises.

(v)Tenant assigns, subleases or transfers Tenant's interest in or with respect to this Lease except as otherwise permitted in this Lease.

(vi)Tenant shall fail to discharge any lien placed upon the Premises in violation of this Lease within 20 days after any such lien or encumbrance is filed against the Premises.

(vii)Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this Paragraph 23, and except as otherwise expressly provided herein, such default shall continue for more than 30 days after Landlord shall have given Tenant written notice of such default (said notice being in lieu of, and not in addition to, any notice required as a prerequisite to a forcible entry and detainer or similar action for possession of the Premises).

(viii)Tenant agrees that any notice given by Landlord pursuant to this Paragraph of the Lease shall satisfy the requirements for notice under California Code of Civil Procedure Section 1161, and Landlord shall not be required to give any additional notice in order to be entitled to commence an unlawful detainer proceeding.

24.Landlord's Remedies. Upon each occurrence of an Event of Default which continues beyond any applicable notice and cure period, and so long as such Event of Default shall be continuing, Landlord may at any time thereafter at its election: terminate this Lease or Tenant's right of possession, (but Tenant shall remain liable as hereinafter

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provided) and/or pursue any other remedies at law or in equity. Upon the termination of this Lease or termination of Tenant's right of possession, Landlord, subject to applicable laws shall have the right, without formal demand or notice of any kind, to re-enter the Premises by summary dispossession proceedings or any other lawful action or proceeding authorized by law and to remove Tenant and all persons and property therefrom. If Landlord re-enters the Premises, Landlord shall have the right to keep in place and use, or remove and store, all of the furniture, fixtures and equipment at the Premises.

Except as otherwise provided in the next paragraph, if Tenant breaches this Lease and abandoned the Premises prior to the end of the term hereof, or if Tenant's right to possession is terminated by Landlord because of an Event of Default by Tenant under this Lease, this Lease shall terminate. Upon such termination, Landlord may recover from Tenant the following, as provided in Section 1951.2 of the Civil Code of California: (i) the worth at the time of award of the unpaid Base Rent and other charges under this Lease that had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the reasonable value of the unpaid Base Rent and other charges under this Lease which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonable avoided; (iii) the worth at the time of award by which the reasonable value of the unpaid Base Rent and other charges under this Lease for the balance of the term of this Lease after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or that in the ordinary course of things would be likely to result therefrom. As used herein, the following terms are defined: (a) The "worth at the time of award" of the amounts referred to in Sections (i) and (ii) is computed by allowing interest at the lesser of 18 percent per annum or the maximum lawful rate. The "worth at the time of award" of the amount referred to in Section (iii) is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent; (b) The "time of award" as used in clauses (i), (ii), and (iii) above is the date on which judgment is entered by a court of competent jurisdiction; (c) The "reasonable value" of the amount referred to in clause (ii) above is computed by determining the mathematical product of (1) the "reasonable annual rental value" (as defined herein) and (2) the number of years, including fractional parts thereof, between the date of termination and the time of award. The "reasonable value" of the amount referred to in clause (iii) is computed by determining the mathematical product of (1) the annual Base Rent and other charges under this Lease and (2) the number of years including fractional parts thereof remaining in the balance of the term of this Lease after the time of award. Tenant acknowledges and agrees that the term “detriment proximately caused by Tenant's failure to perform its obligations under this Lease” includes, without limitation, the value of any abated or free rent given to Tenant.

Even though Tenant has breached this Lease and abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession, and Landlord may enforce all its rights and remedies under this Lease, including the right to recover rent as it becomes due. This remedy is intended to be the remedy described in California Civil Code Section 1951.4, and the following provision from such Civil Code Section is hereby repeated: "The Lessor has the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has right to sublet or assign subject only to reasonable limitations)." Any such payments due Landlord shall be made upon demand therefor from time to time and Tenant agrees that Landlord may file suit to recover any sums falling due from time to time. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect in writing to terminate this Lease for such previous breach.

Exercise by Landlord of any one or more remedies hereunder granted or otherwise available shall not be deemed to be an acceptance of surrender of the Premises and/or a termination of this Lease by Landlord, whether by agreement or by operation of law, it being understood that such surrender and/or termination can be effected only by the written agreement of Landlord and Tenant. Any law, usage, or custom to the contrary notwithstanding, Landlord shall have the right at all times to enforce the provisions of this Lease in strict accordance with the terms hereof; and the failure of Landlord at any time to enforce its rights under this Lease strictly in accordance with same shall not be construed as having created a custom in any way or manner contrary to the specific terms, provisions, and covenants of this Lease or as having modified the same. Tenant and Landlord further agree that forbearance or waiver by Landlord to enforce its rights pursuant to this Lease or at law or in equity, shall not be a waiver of Landlord's right to enforce one or more of its rights in connection with any subsequent default. A receipt by Landlord of rent or other payment with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by Landlord. To the greatest extent permitted by law, Tenant waives the service of notice of Landlord's intention to re-enter as provided for in any statute, or to institute legal proceedings to that end, and also waives all right of redemption in case Tenant shall be dispossessed by a judgment or by warrant of any court or judge. The terms "enter," "re-enter," "entry" or "re-entry," as

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used in this Lease, are not restricted to their technical legal meanings. Any reletting of the Premises shall be on such terms and conditions as Landlord in its sole discretion may determine (including without limitation a term different than the remaining Lease Term, rental concessions, alterations and repair of the Premises, lease of less than the entire Premises to any tenant and leasing any or all other portions of the Project before reletting the Premises). Landlord shall not be liable, nor shall Tenant's obligations hereunder be diminished because of, Landlord's failure to relet the Premises or collect rent due in respect of such reletting.

25.Tenant's Remedies/Limitation of Liability. Landlord shall not be in default hereunder unless Landlord fails to perform any of its obligations hereunder within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation, require a period of time in excess of 30 days, then after such period of time as is reasonably necessary). All obligations of Landlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise expressly provided in this Lease, Tenant may not terminate this Lease for breach of Landlord's obligations hereunder. All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter. The term "Landlord" in this Lease shall mean only the owner, for the time being of the Premises, and in the event of the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Lease Term upon each new owner for the duration of such owner's ownership. Any liability of Landlord under this Lease shall be limited solely to its interest in the Project, and in no event shall any personal liability be asserted against Landlord in connection with this Lease nor shall any recourse be had to any other property or assets of Landlord.

26.Landlord's Lien/Security Interest. Landlord hereby waives any right of distraint or statutory lien for rent against Tenant's property on the Premises that would permit Landlord to possess or sell Tenant's property before obtaining a judgment. Landlord does not waive any right to obtain and enforce any judgment lien or any pre-judgment rights and remedies other than those described above. Provided there is no Event of Default at the time of the request, Landlord agrees to execute the Landlord's Waiver and Consent attached hereto as Exhibit D upon request by Tenant.

27.Subordination. This Lease and Tenant's interest and rights hereunder are and shall be subject and subordinate at all times to the lien of any first mortgage, now existing or hereafter created on or against the Project or the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant. Tenant agrees, at the election of the holder of any such mortgage, to attorn to any such holder. Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such subordination and such instruments of attornment as shall be requested by any such holder. Notwithstanding the foregoing, any such holder may at any time subordinate its mortgage to this Lease, without Tenant's consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such mortgage without regard to their respective dates of execution, delivery or recording and in that event such holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such mortgage and had been assigned to such holder. The term "mortgage" whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the "holder" of a mortgage shall be deemed to include the beneficiary under a deed of trust.

28.Mechanic's Liens. Tenant has no express or implied authority to create or place any lien or encumbrance of any kind upon, or in any manner to bind the interest of Landlord or Tenant in, the Premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises and that it will save and hold Landlord harmless from all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the interest of Landlord in the Premises or under this Lease. Tenant shall give Landlord immediate written notice of the placing of any lien or encumbrance against the Premises and cause such lien or encumbrance to be discharged, or bonded over, within 30 days of the filing or recording thereof; provided, however, Tenant may contest such liens or encumbrances as long as such contest prevents foreclosure of the lien or encumbrance and Tenant causes such lien or encumbrance to be bonded or insured over in a manner satisfactory to Landlord within such 30 day period.

29.Estoppel Certificates and Landlord Waivers. Tenant agrees, from time to time, within 15 days after request of Landlord, to execute and deliver to Landlord, or Landlord's designee, any estoppel certificate requested by Landlord, stating that this Lease is in full force and effect, the date to which rent has been paid, that Landlord is not in default hereunder (or specifying in detail the nature of Landlord's default), the termination date of this Lease and such other matters pertaining to this Lease as may be requested by Landlord. Tenant's obligation to furnish each estoppel

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certificate in a timely fashion is a material inducement for Landlord's execution of this Lease. No cure or grace period provided in this Lease shall apply to Tenant's obligations to timely deliver an estoppel certificate.

30.Environmental Requirements. Except for Hazardous Material contained in products used by Tenant in de minimis quantities for ordinary cleaning and office purposes, and except for propane used in Tenant's forklifts in the normal course of its business, and except for Hazardous Materials contained in products stored and/or distributed during Tenant's normal course of business in their original, sealed, and unopened containers, Tenant shall not permit or cause any party to bring any Hazardous Material upon the Premises or transport, store, use, generate, manufacture or release any Hazardous Material in or about the Premises without Landlord's prior written consent. Tenant, at its sole cost and expense, shall operate its business in the Premises in strict compliance with all Environmental Requirements and shall remediate in a manner satisfactory to Landlord any Hazardous Materials released on or from the Project by Tenant, its agents, employees, contractors, subtenants or invitees. Tenant shall complete and certify to disclosure statements as requested by Landlord from time to time relating to Tenant's transportation, storage, use, generation, manufacture or release of Hazardous Materials on the Premises. The term "Environmental Requirements" means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders or other similar enactments of any governmental authority or agency regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the environment, including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies promulgated or issued thereunder. The term "Hazardous Materials" means and includes any substance, material, waste, pollutant, or contaminant listed or defined as hazardous or toxic, under any Environmental Requirements, asbestos and petroleum, including crude oil or any fraction thereof, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). As defined in Environmental Requirements, Tenant is and shall be deemed to be the "operator" of Tenant's "facility" and the "owner" of all Hazardous Materials brought on the Premises by Tenant, its agents, employees, contractors or invitees, and the wastes, by-products, or residues generated, resulting, or produced therefrom. No cure or grace period provided in this Lease shall apply to Tenant's obligations to comply with the terms and conditions of this Paragraph 30.

Notwithstanding anything to the contrary in this Paragraph 30, Tenant shall have no liability of any kind to Landlord as to Hazardous Materials on the Premises caused or permitted by (i) Landlord, its agents, employees, contractors or invitees; or (ii) any other tenants in the Project or their agents, employees, contractors, subtenants, assignees or invitees.

Tenant shall indemnify, defend, and hold Landlord harmless from and against any and all losses (including, without limitation, diminution in value of the Premises or the Project and loss of rental income from the Project), claims, demands, actions, suits, damages (including, without limitation, punitive damages), expenses (including, without limitation, remediation, removal, repair, corrective action, or cleanup expenses), and costs (including, without limitation, actual attorneys' fees, consultant fees or expert fees and including, without limitation, removal or management of any asbestos brought into the property or disturbed in breach of the requirements of this Paragraph 30, regardless of whether such removal or management is required by law) which are brought or recoverable against, or suffered or incurred by Landlord as a result of any release of Hazardous Materials for which Tenant is obligated to remediate as provided above or any other breach of the requirements under this Paragraph 30 by Tenant, its agents, employees, contractors, subtenants, assignees or invitees, regardless of whether Tenant had knowledge of such noncompliance. The obligations of Tenant under this Paragraph 30 shall survive any termination of this Lease.

Landlord shall have access to, and a right to perform inspections and tests of, the Premises to determine Tenant's compliance with Environmental Requirements, its obligations under this Paragraph 30, or the environmental condition of the Premises. Access shall be granted to Landlord upon Landlord's prior notice to Tenant and at such times so as to minimize, so far as may be reasonable under the circumstances, any disturbance to Tenant's operations. Such inspections and tests shall be conducted at Landlord's expense, unless such inspections or tests reveal that Tenant has not complied with any Environmental Requirement, in which case Tenant shall reimburse Landlord for the reasonable cost of such inspection and tests. Landlord's receipt of or satisfaction with any environmental assessment in no way waives any rights that Landlord holds against Tenant.

31.Rules and Regulations. Tenant shall, at all times during the Lease Term and any extension thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering use of the Premises and the Project. The current Project rules and regulations are attached hereto as Exhibit B. In the event of any conflict between said rules and regulations and other provisions of this Lease, the other terms and provisions of this Lease shall control. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project.

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32.Security Service. Tenant acknowledges and agrees that, while Landlord may patrol the Project, Landlord is not providing any security services with respect to the Premises and that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises.

33.Force Majeure. Landlord shall not be held responsible for delays in the performance of its obligations hereunder when caused by strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes therefor, governmental restrictions, governmental regulations, governmental controls, delay in issuance of permits, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes beyond the reasonable control of Landlord ("Force Majeure").

34.Entire Agreement. This Lease constitutes the complete agreement of Landlord and Tenant with respect to the subject matter hereof. No representations, inducements, promises or agreements, oral or written, have been made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant, which are not contained herein, and any prior agreements, promises, negotiations, or representations are superseded by this Lease. This Lease may not be amended except by an instrument in writing signed by both parties hereto.

35.Severability. If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby. It is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable.

36.Brokers. Tenant represents and warrants that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, other than the broker, if any, set forth on the first page of this Lease, and Tenant agrees to indemnify and hold Landlord harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with Tenant with regard to this leasing transaction.

37.Miscellaneous.    (a)    Any payments or charges due from Tenant to Landlord hereunder shall be considered rent for all purposes of this Lease.

(a)If and when included within the term "Tenant," as used in this instrument, there is more than one person, firm or corporation, each shall be jointly and severally liable for the obligations of Tenant.

(b)All notices required or permitted to be given under this Lease shall be in writing and shall be sent by registered or certified mail, return receipt requested, or by a reputable national overnight courier service, postage prepaid, or by hand delivery addressed to Landlord at 17777 Center Court Drive North, Suite 100, Cerritos, CA 90703, with a copy sent to Landlord at 4545 Airport Way, Denver, CO 80239, Attention: General Counsel, and to Tenant at 747 Warehouse Street, Los Angeles, CA 90021, Attention: Lease Administration and to Crystal Financial LLC, Two International Place, 17^th floor, Boston, Massachusetts 02110, Attention: Rebecca E. Tarby. Either party may by notice given aforesaid change its address for all subsequent notices or add an additional party to be copied on all subsequent notices. Except where otherwise expressly provided to the contrary, notice shall be deemed given upon delivery.

(c)Except as otherwise expressly provided in this Lease or as otherwise required by law, Landlord retains the absolute right to withhold any consent or approval.

(d)At Landlord's request from time to time Tenant shall furnish Landlord with true and complete copies of its most recent annual and quarterly financial statements prepared by Tenant or Tenant's accountants and any other financial information or summaries that Tenant typically provides to its lenders or shareholders.

(e)Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public record. Landlord may prepare and file, and upon request by Landlord Tenant will execute, a memorandum of lease.

(f)The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto.

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(g)The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties.

(h)Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.

(i)Any amount not paid by Tenant within 5 days after notice from Landlord to Tenant that such payment was due (provided, however, that Landlord shall not be obligated to provide written notice of such failure more than 2 times in any consecutive 12-month period) shall bear interest from such due date until paid in full at the lesser of the highest rate permitted by applicable law or 11 percent per year. It is expressly the intent of Landlord and Tenant at all times to comply with applicable law governing the maximum rate or amount of any interest payable on or in connection with this Lease. If applicable law is ever judicially interpreted so as to render usurious any interest called for under this Lease, or contracted for, charged, taken, reserved, or received with respect to this Lease, then it is Landlord's and Tenant's express intent that all excess amounts theretofore collected by Landlord be credited on the applicable obligation (or, if the obligation has been or would thereby be paid in full, refunded to Tenant), and the provisions of this Lease immediately shall be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder.

(j)Construction and interpretation of this Lease shall be governed by the laws of the state in which the Project is located, excluding any principles of conflicts of laws.

(k)Time is of the essence as to the performance of Tenant's and Landlord's obligations under this Lease.

(l)All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof. In the event of any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control.

(n)    In the event either party hereto initiates litigation to enforce the terms and provisions of this Lease, the non-prevailing party in such action shall reimburse the prevailing party for its reasonable attorney's fees, filing fees, and court costs.

(o)    Tenant agrees and understands that Landlord shall have the right (provided that the exercise of Landlord's rights does not adversely affect Tenant's use and occupancy of the Premises or subject Tenant to additional costs), without Tenant's consent, to place a solar electric generating system on the roof of the Building or enter into a lease for the roof of the Building whereby such roof tenant shall have the right to install a solar electric generating system on the roof of the Building.

(p)    This Lease may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of such counterparts shall constitute one Lease. Execution copies of this Lease may be delivered by facsimile or email, and the parties hereto agree to accept and be bound by facsimile signatures or scanned signatures transmitted via email hereto, which signatures shall be considered as original signatures with the transmitted Lease having the same binding effect as an original signature on an original Lease. At the request of either party, any facsimile document or scanned document transmitted via email is to be re-executed in original form by the party who executed the original facsimile document or scanned document. Neither party may raise the use of a facsimile machine or scanned document or the fact that any signature was transmitted through the use of a facsimile machine or email as a defense to the enforcement of this Lease.

(q)    Within fifteen (15) days of Landlord's written request, Tenant agrees to deliver to Landlord such information and/or documents as Landlord requires for Landlord to comply with California Public Resources Code Section 25402.10, or successor statute(s), and related California Code of Regulation, relating to commercial building energy ratings.

38.Limitation of Liability of Trustees, Shareholders, and Officers of Landlord. Any obligation or liability whatsoever of Landlord which may arise at any time under this Lease or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction, or undertaking contemplated hereby shall not be personally

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binding upon, nor shall resort for the enforcement thereof be had to the property of, its trustees, directors, shareholders, officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort, or otherwise.

39.Intentionally Omitted.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.

TENANT:	LANDLORD:
American Apparel, Inc.	PAC FINANCE 1 LLC a Delaware limited liability company By:Authorized Person ____________________________ Douglas P. McGregor Senior Vice President, ProLogis Logistics Services Incorporated, a Delaware corporation
a Delaware corporation By:______________________________ Name: Title:

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ADDENDUM 1

BASE RENT ADJUSTMENTS

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED 06/15, 2012 BETWEEN

PAC FINANCE 1 LLC

and

American Apparel, Inc., a Delaware corporation

Base Rent shall equal the following amounts for the respective periods set forth below:

Period			Monthly Base Rent
June 30, 2012	through	July 31, 2012	$51,700.00
August 1, 2012	through	September 30, 2012	$0.00*
October 1, 2012	through	October 31, 2012	$51,700.00
November 1, 2012	through	June 30, 2013	$103,400.00
July 1, 2013	through	June 30, 2014	$106,502.00
July 1, 2014	through	June 30, 2015	$109,697.06
July 1, 2015	through	June 30, 2016	$112,987.97
July 1, 2016	through	June 30, 2017	$116,377.61

*During this period of abated Monthly Base Rent, Tenant shall be responsible for Operating Expenses and utility costs.

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ADDENDUM 2

HVAC MAINTENANCE CONTRACT

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED 06/15, 2012 BETWEEN

PAC FINANCE 1 LLC

and

American Apparel, Inc., a Delaware corporation

Paragraph 11, captioned "TENANT REPAIRS," is revised to include the following:

Tenant agrees to enter into and maintain through the term of the Lease, a regularly scheduled preventative maintenance/service contract for servicing all hot water, heating and air conditioning systems and equipment within the Premises. Landlord requires a qualified HVAC contractor perform this work. A certificate must be provided to the Landlord upon occupancy of the leased Premises.

The service contract must become effective within thirty (30) days of occupancy, and service visits shall be performed on a quarterly basis. Landlord suggests that Tenant send the following list to a qualified HVAC contractor to be assured that these items are included in the maintenance contract:

1.    Adjust belt tension;

2.    Lubricate all moving parts, as necessary;

3.    Inspect and adjust all temperature and safety controls;

4.    Check refrigeration system for leaks and operation;

5.     Check refrigeration system for moisture;

6.    Inspect compressor oil level and crank case heaters;

7.    Check head pressure, suction pressure and oil pressure;

8.    Inspect air filters and replace when necessary;

9.    Check space conditions;

10. Check condensate drains and drain pans and clean, if necessary;

11. Inspect and adjust all valves;

12. Check and adjust dampers;

13. Run machine through complete cycle.

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ADDENDUM 3

MOVE-OUT CONDITIONS

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED 6/15, 2012 BETWEEN

PAC FINANCE 1 LLC

and

American Apparel, Inc., a Delaware corporation

With respect to Paragraph 21 of the Lease, Tenant shall surrender the Premises in the same condition as received, ordinary wear and tear, casualty loss, and condemnation covered by Paragraphs 15 and 16 excepted. Upon Tenant's move-in to the Premises, Landlord and Tenant shall conduct a move-in walk-through, and Tenant shall have the opportunity to identify any conditions that are not consistent with the move-out conditions set forth below. Such conditions shall be noted in a written move-in inspection report (the “Move-In Inspection Report”). Notwithstanding anything herein to the contrary, in no event shall Tenant be required to surrender the Premises in better condition that the condition contained in the Move-In Inspection Report.

Before surrendering the Premises, Tenant shall remove all of its personal property and trade fixtures and such alterations or additions to the Premises made by Tenant as may be specified for removal thereof. If Tenant fails to remove its personal property and fixtures upon the expiration or earlier termination of this Lease, the same shall be deemed abandoned and shall become the property of the Landlord. The following list is designed to assist Tenant in the move-out procedures but is not intended to be all inclusive:

1. Lights: Office, warehouse, emergency and exit lights will be fully operational with all bulbs and ballasts functioning.

2. Dock Levelers, Service Doors

and Roll Up Doors: All truck doors, service doors, roll up doors and dock levelers shall be serviced and placed in good operating order. This would include the necessary replacement of any dented truck door panels and adjustment of door tension to insure property operation. All door panels which are replaced need to be painted to match the building standard.

3. Dock Seals/Dock Bumpers: Free of tears and broken backboards repaired. All dock bumpers must be left in place and well secured.

4. Structural Columns All structural steel columns in the warehouse and office shall be inspected for damage. Repairs of this nature should be pre-approved by Landlord prior to implementation.

5. Warehouse Floor: Free of stains and swept with no racking bolts and other protrusions left in floor. Cracks should be repaired with an epoxy or polymer to match concrete color. All floor striping in the Premises shall be removed with no residual staining or other indication that such striping existed.

6. Tenant-Installed

Equipment and Wiring: Removed and space turned to original condition when originally leased. (Remove air lines, junction boxes, conduit, etc.)

7. Walls: Sheetrock (drywall) damage should be patched and fire-taped so that there are no holes in either office or warehouse.

8. Carpet and Tile The carpet and vinyl tiles should be in a clean condition and should not have any holes or chips in them. Landlord will accept normal wear on these items provided they appear to be in a maintained condition.

9. Roof: Any Tenant-installed equipment must be removed and roof penetrations properly repaired by licensed roofing contractor. Active leaks must be fixed and latest Landlord maintenance and repairs recommendation must have

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been followed. Tenant must check with Landlord's property manager to determine if specific roofing contractor is required to perform work.

10. Signs: All exterior signs must be removed and holes patched and paint touched-up as necessary. All window signs should likewise be removed.

11. Heating and Air

Conditioning System: Heating/air conditioning systems should be placed in good working order, including the necessary replacement of any parts to return the unit to a well maintained condition. This includes warehouse heaters and exhaust fans. Upon move out, Landlord will have an exit inspection performed by a certified mechanical contractor to determine the condition.

12. Electrical & Plumbing: All electrical and plumbing equipment to be returned in good condition and repair and conforming to code.

14. Overall Cleanliness: Clean windows, sanitize bathroom(s), vacuum carpet, and remove any and all debris from office and warehouse. Remove all pallets and debris from exterior of Premises. All trade fixtures, dumpsters, racking, trash, vending machines and other personal property to be removed.

15. Upon Completion: Contact Landlord's property manager to coordinate turning in of keys, utility changeover and obtaining of final Landlord inspection of Premises which, in turn, will facilitate refund of Security Deposit.

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ADDENDUM 4

ONE RENEWAL OPTION AT MARKET

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED 6/15, 2012 BETWEEN

PAC FINANCE 1 LLC

and

American Apparel, Inc., a Delaware corporation

(a)    Provided that as of the time of the giving of the Extension Notice and the Commencement Date of the Extension Term, (x) Tenant is the Tenant originally named herein, (y) Tenant actually occupies all of the Premises initially demised under this Lease and any space added to the Premises, and (z) no Event of Default exists or would exist but for the passage of time or the giving of notice, or both; then Tenant shall have the right to extend the Lease Term for an additional term of 60 months (such additional term is hereinafter called the "Extension Term") commencing on the day following the expiration of the Lease Term (hereinafter referred to as the "Commencement Date of the Extension Term"). Tenant shall give Landlord notice (hereinafter called the "Extension Notice") of its election to extend the term of the Lease Term at least 9 months, but not more than 12 months, prior to the scheduled expiration date of the Lease Term.

(b)    The Base Rent payable by Tenant to Landlord during the Extension Term shall be the greater of (i) the Base Rent applicable to the last year of the initial Lease Term and (ii) the then prevailing market rate for comparable space in the Project and comparable buildings in the vicinity of the Project, taking into account the size of the Lease, the length of the renewal term, market escalations and the credit of Tenant. The Base Rent shall not be reduced by reason of any costs or expenses saved by Landlord by reason of Landlord's not having to find a new tenant for such premises (including, without limitation, brokerage commissions, costs of improvements, rent concessions or lost rental income during any vacancy period). In the event Landlord and Tenant fail to reach an agreement on such rental rate and execute the Amendment (defined below) at least 6 month(s) prior to the expiration of the Lease, then Tenant's exercise of the renewal option shall be deemed withdrawn and the Lease shall terminate on its original expiration date.

(c)    The determination of Base Rent does not reduce the Tenant's obligation to pay or reimburse Landlord for Operating Expenses and other reimbursable items as set forth in the Lease, and Tenant shall reimburse and pay Landlord as set forth in the Lease with respect to such Operating Expenses and other items with respect to the Premises during the Extension Term without regard to any cap on such expenses set forth in the Lease.

(d)    Except for the Base Rent as determined above, Tenant's occupancy of the Premises during the Extension Term shall be on the same terms and conditions as are in effect immediately prior to the expiration of the initial Lease Term; provided, however, Tenant shall have no further right to any allowances, credits or abatements or any options to expand, contract, renew or extend the Lease.

(e)    If Tenant does not give the Extension Notice within the period set forth in paragraph (a) above, Tenant's right to extend the Lease Term shall automatically terminate. Time is of the essence as to the giving of the Extension Notice.

(f)    Landlord shall have no obligation to refurbish or otherwise improve the Premises for the Extension Term. The Premises shall be tendered on the Commencement Date of the Extension Term in "as-is" condition.

(g)    If the Lease is extended for the Extension Term, then Landlord shall prepare and Tenant shall execute an amendment to the Lease confirming the extension of the Lease Term and the other provisions applicable thereto (the "Amendment").

(h)    If Tenant exercises its right to extend the term of the Lease for the Extension Term pursuant to this Addendum, the term "Lease Term" as used in the Lease, shall be construed to include, when practicable, the Extension Term except as provided in (d) above.

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ADDENDUM 5

CONSTRUCTION (ALLOWANCE)

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED 6/15, 2012 BETWEEN

PAC FINANCE 1 LLC

and

American Apparel, Inc., a Delaware corporation

(a)    Landlord agrees to furnish or perform those items of construction and those improvements (the "Initial Improvements") specified below:

• Install an electrical subpanel for Tenant's equipment. Tenant shall provide information for Landlord's approval regarding exact specifications and location.

• Expand and add to the existing restrooms. Tenant to provide additional details for Landlord's approval regarding the exact fixture count and location.

• Expand and renovate the lunch room. Tenant shall provide information for Landlord's approval regarding exact specifications and location.

Landlord shall pay for the Initial Improvements up to a maximum amount of $100,000.00 and Tenant shall pay for the cost of the Initial Improvements in excess of such amount. If the cost of the Initial Improvements is estimated to exceed such amount, such estimated overage shall be paid by Tenant before Landlord begins construction and a final adjusting payment based upon the actual costs of the Initial Improvements shall be made when the Initial Improvements are complete.

(b)    If Tenant shall desire any changes, Tenant shall so advise Landlord in writing and Landlord shall determine whether such changes can be made in a reasonable and feasible manner. Any and all costs of reviewing any requested changes, and any and all costs of making any changes to the Initial Improvements which Tenant may request and which Landlord may agree to shall be at Tenant's sole cost and expense and shall be paid to Landlord upon demand and before execution of the change order.

(c)    Landlord shall proceed with and complete the construction of the Initial Improvements. As soon as such improvements have been Substantially Completed, Landlord shall notify Tenant in writing of the date that the Initial Improvements were Substantially Completed. In no event shall delay in the completion of the Initial Improvements alter or extend the Commencement Date The Initial Improvements shall be deemed substantially completed ("Substantially Completed") when, in the opinion of the construction manager (whether an employee or agent of Landlord or a third party construction manager) ("Construction Manager"), the Initial Improvements are substantially completed except for punch list items which do not prevent in any material way the use of the Initial Improvements for the purposes for which they were intended. In the event Tenant, its employees, agents, or contractors cause construction of such improvements to be delayed, the date of Substantial Completion shall be deemed to be the date that, in the opinion of the Construction Manager, Substantial Completion would have occurred if such delays had not taken place. Without limiting the foregoing, Tenant shall be solely responsible for delays caused by Tenant's request for any changes in the plans, Tenant's request for long lead items or Tenant's interference with the construction of the Initial Improvements, and such delays shall not cause a deferral of the Commencement Date beyond what it otherwise would have been. After the date the Initial Improvements are Substantially Complete Tenant shall, upon demand, execute and deliver to Landlord a letter of acceptance of delivery of the Initial Improvements. In the event of any dispute as to the Initial Improvements the certificate of the Construction Manager shall be conclusive absent manifest error.

(d)    The failure of Tenant to take possession of or to occupy the Premises shall not serve to relieve Tenant of obligations arising on the Commencement Date or delay the payment of rent by Tenant. Subject to applicable ordinances and building codes governing Tenant's right to occupy or perform in the Premises, Tenant shall be allowed to install its tenant improvements, machinery, equipment, fixtures, or other property on the Premises during the final stages of completion of construction provided that Tenant does not thereby interfere with the completion of construction or cause any labor dispute as a result of such installations, and provided further that Tenant does hereby agree to indemnify, defend, and hold Landlord harmless from any loss or damage to such property, and all liability, loss, or damage arising from any injury to the Project or the property of Landlord, its contractors, subcontractors, or materialmen, and any death or personal injury to any person or persons arising out of such installations, unless any such loss, damage, liability, death, or personal injury was caused by Landlord's negligence. Any such occupancy or performance in the Premises shall be in accordance with the provisions governing Tenant‑Made Alterations

22

and Trade Fixtures in the Lease, and shall be subject to Tenant providing to Landlord satisfactory evidence of insurance for personal injury and property damage related to such installations and satisfactory payment arrangements with respect to installations permitted hereunder. Delay in putting Tenant in possession of the Premises shall not serve to extend the term of this Lease or to make Landlord liable for any damages arising therefrom.

23

EXHIBIT A

SITE PLAN

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED 6/15, 2012 BETWEEN

PAC FINANCE 1 LLC

and

American Apparel, Inc., a Delaware corporation

24

EXHIBIT B

PROJECT RULES AND REGULATIONS

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED 6/15, 2012 BETWEEN

PAC FINANCE 1 LLC

and

American Apparel, Inc., a Delaware corporation

Rules and Regulations

1. The sidewalk, entries, and driveways of the Project shall not be obstructed by Tenant, or its agents, or used by them for any purpose other than ingress and egress to and from the Premises.

2. Except as provided in the Lease, Tenant shall not place any objects, including antennas, outdoor furniture, etc., in the parking areas, landscaped areas or other areas outside of its Premises, or on the roof of the Project.

3. Except for seeing-eye dogs, no animals shall be allowed in the offices, halls, or corridors in the Project.

4. Tenant shall not disturb the occupants of the Project or adjoining buildings by the use of any radio or musical instrument or by the making of loud or improper noises.

5. If Tenant desires telegraphic, telephonic or other electric connections in the Premises, Landlord or its agent will direct the electrician as to where and how the wires may be introduced; and, without such direction, no boring or cutting of wires will be permitted. Any such installation or connection shall be made at Tenant's expense.

6. Tenant shall not install or operate any steam or gas engine or boiler, or other mechanical apparatus in the Premises, except as specifically approved in the Lease. The use of oil, gas or inflammable liquids for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Project.

7. Parking any type of recreational vehicles is specifically prohibited on or about the Project. Further, parking any type of trucks, trailers or other vehicles in the Building is specifically prohibited. In the event that a vehicle is disabled, it shall be removed within 48 hours. There shall be no "For Sale" or other advertising signs on or about any parked vehicle. All vehicles shall be parked in the designated parking areas in conformity with all signs and other markings. All parking will be open parking, and no reserved parking, numbering or lettering of individual spaces will be permitted except as specified by Landlord or in the Lease.

8. Tenant shall maintain the Premises free from rodents, insects and other pests.

9. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Project.

10. Tenant shall not cause any unnecessary labor by reason of Tenant's carelessness or indifference in the preservation of good order and cleanliness. Landlord shall not be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to the effects of Tenant by the janitors or any other employee or person.

11. Tenant shall give Landlord prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any other service equipment affecting the Premises.

12. Tenant shall not permit storage outside the Premises, or dumping of waste or refuse or permit any harmful materials to be placed in any drainage system or sanitary system in or about the Premises.

13. All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose.

25

14. No auction, public or private, will be permitted on the Premises or the Project.

15. No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord.

16. The Premises shall not be used for lodging, sleeping or cooking or for any immoral or illegal purposes or for any purpose other than that specified in the Lease. No gaming devices shall be operated in the Premises.

17. Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the capacity of the electrical wiring in the Project and the Premises and the needs of other tenants, and shall not use more than such safe capacity. Landlord's consent to the installation of electric equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity.

18. Tenant assumes full responsibility for protecting the Premises from theft, robbery and pilferage.

19. Tenant shall not install or operate on the Premises any machinery or mechanical devices of a nature not directly related to Tenant's ordinary use of the Premises and shall keep all such machinery free of vibration, noise and air waves which may be transmitted beyond the Premises.

20. Tenant shall not permit smoking in the office areas of the Premises.

21. Notwithstanding anything to the contrary herein, Tenant shall be permitted to allow third party food trucks and food vendors to serve Tenant.

26

EXHIBIT C

FORM OF COMMENCEMENT DATE CERTIFICATE

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED _________________, 2012 BETWEEN

PAC FINANCE 1 LLC

and

American Apparel, Inc., a Delaware corporation

27

COMMENCEMENT DATE CERTIFICATE

____________, 201__

American Apparel, Inc.

14585-89 Industry Circle

La Mirada, CA

RE:    Lease dated ____ between American Apparel, Inc. and __________________ for ___________ ,

Dear ____________:

Welcome to your new facility.We would like to confirm the terms of the above referenced lease agreement:

Lease Commencement Date:

Lease Expiration Date:

Rental Commencement Date:

We are pleased to welcome you as a customer of Prologis and look forward to working with you. Please indicate your agreement with the above changes to your lease by signing and returning the enclosed copy of this letter to me. If I can be of service, please do not hesitate to contact me.

Sincerely,

Accepted by: American Apparel, Inc. By: ________________________ Printed: _____________________ Title: _______________________ Date:

28

EXHIBIT D

FORM OF LANDLORD'S WAIVER AND CONSENT

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED 6/15, 2012 BETWEEN

PAC FINANCE 1 LLC

and

American Apparel, Inc., a Delaware corporation

LANDLORD'S WAIVER AND CONSENT

THIS LANDLORD'S WAIVER AND CONSENT (“Waiver and Consent”) is made and entered into as of this 15th day of June, 2012 by and among PAC FINANCE 1 LLC, a Delaware limited liability company (“Landlord”), CRYSTAL FINANCIAL LLC, a Delaware limited liability company, as administrative agent (“Agent”) for the lenders (collectively, “Lenders”) from time to time party to the Credit Agreement described below, and AMERICAN APPAREL, INC., a Delaware corporation (the “Company”).

A.Landlord is the owner of the real property commonly known as Prologis Mid Counties Industrial Center, 16322-16400 Trojan Way, La Mirada, California 90638 (the “Premises”).

B.Landlord has entered into that certain lease dated 6/15, 2012 (together with all amendments and modifications thereto and waivers thereof, the “Lease”) with the Company, with respect to the Premises.

C.Agent and Lenders have previously entered into a Credit Agreement with Company (the “Credit Agreement”), and to secure the obligations arising under such Credit Agreement, Company has granted to Agent, for its own benefit and the ratable benefit of Lenders and certain other secured parties, a security interest in and lien upon all of the assets of Company, including, without limitation, all of Company's cash, cash equivalents, goods, inventory, machinery, equipment, and furniture and trade fixtures (such as equipment bolted to floors), together with all additions, substitutions, replacements and improvements to, and proceeds of, the foregoing, (collectively, other than building fixtures (such as plumbing, lighting and HVAC systems), the “Collateral”).

NOW, THEREFORE, in consideration of any financial accommodations extended by Lenders to Company at any time, and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1.Landlord acknowledges that (a) the Lease is in full force and effect and (b) Landlord is not aware of any existing default under the Lease.

2.The Lease shall provide that Agent shall receive written notice of any default by Company under the Lease resulting in termination of the Lease (a “Default Notice”) concurrently with any notice of default provided to the Company pursuant to the Lease. Agent shall have the same period granted to Company under the Lease following receipt of such Default Notice to cure such default, but neither Agent nor any Lender shall be under any obligation to cure any default by Company under the Lease. Any of the foregoing done by Agent shall be effective to cure a default as if the same had been done by Company and no action by Agent or any Lender pursuant to this Waiver and Consent shall be deemed to be an assumption by Agent or Lenders of any obligation under the Lease, and, except as provided in paragraphs 6, 7 and 8 below, Agent shall not have any obligation to Landlord.

3.Landlord acknowledges the validity of Agent's lien on the Collateral and, until such time as the obligations of Company to Lenders are indefeasibly paid in full, Landlord waives any interest in the Collateral and agrees not to distrain or levy upon any Collateral or to assert any landlord lien, right of distraint or other claim against the Collateral for any reason.

4.Landlord agrees that the Collateral consisting of trade fixtures owned by the Company such as equipment bolted to the floor shall not be deemed a fixture or part of the real estate but shall at all times be considered the Company's personal property.

5.Agent or its representatives may enter upon the Premises at any time without any interference by Landlord to inspect or remove any or all of the Collateral, including, without limitation, by public auction or private sale pursuant to the provisions of paragraph 7 below (the “Permitted Actions”). Company acknowledges and agrees that the foregoing rights

29

are not contingent on there being a default under the Lease or a termination of the Lease and further acknowledges and agrees to the rights and actions of Agent set forth in this paragraph.

6.Landlord will, upon reasonable prior written notice, permit Agent and its representatives to occupy and remain on the Premises, for the purposes described above; provided, that (a) such period of occupation (the “Disposition Period”) shall not exceed up to 90 days following receipt by Agent of a Default Notice or, if the Lease has expired by its own terms (absent a default thereunder), up to 20 days following Agent's receipt of written notice of such expiration, (b) for the actual period of occupancy by Agent, Agent will pay to Landlord the basic rent and reasonable operating expenses due under the Lease (the “Disposition Period Rent”) pro‑rated on a per diem basis determined on a 30‑day month, and shall provide and retain liability and property insurance coverage, electricity and heat to the extent required by the Lease, and (c) such amounts paid by Agent to Landlord shall exclude any rent adjustments, indemnity payments or similar amounts for which the Company remains liable under the Lease for default, holdover status or other similar charges. If any injunction or stay is issued that prohibits Agent from removing the Collateral, the commencement of the Disposition Period will be deferred until such injunction or stay is lifted or removed (the pendency of such stay or injunction is referred to as the “Injunction Period”), in which case the Company shall pay to Landlord the Disposition Period Rent due under the Lease until the date such injunction or stay is actually lifted or removed (the “Injunction Period Rent”); provided that if the Company fails to pay such Injunction Period Rent, Landlord shall notify Agent of such failure to pay and within ten (10) days of receipt of such notice, Agent shall either (x) provide written notice to Landlord of Agent's desire to preserve the Disposition Period (the “Disposition Period Survival Notice”), in which case Agent shall pay Injunction Period Rent from the date of such Disposition Period Survival Notice until the earlier of the termination of Agent's actual period of occupancy or Agent's prior written notice that it no longer elects to pay Injunction Period Rent during the Injunction Period or (y) provide written notice to Landlord of Agent's decision to decline the right to occupy the premises which shall result in the termination of the Disposition Period (and for the avoidance of doubt, neither Agent or Lenders shall be under any obligation to cure such nonpayment of Injunction Period Rent under this clause (y)). Notwithstanding the foregoing, the Disposition Period shall terminate if Landlord receives written notice by Agent of Agent's decision to decline or waive its rights to occupy and/or possess the Premises under this Waiver and Consent.

7.During any Disposition Period, (a) Agent and its representatives may inspect, repossess, remove and otherwise deal with the Collateral, and Agent may advertise and conduct public auctions or private sales of the Collateral at the Premises, in each case without interference by Landlord or liability of Agent or any Lender to Landlord, and (b) Agent shall make the Premises available for inspection by Landlord and prospective tenants and shall cooperate in Landlord's reasonable efforts to re‑lease the Premises. If Agent conducts a public auction or private sale of the Collateral at the Premises, Agent shall (i) provide Landlord with two (2) days notice prior to the date of such auction or sale and (ii) use reasonable efforts to hold such auction or sale in a manner which would not unduly disrupt Landlord's or any other tenant's use of the Premises or building in which the Premises is located.

8.Agent shall promptly repair, at Agent's expense, or reimburse Landlord for any physical damage to the Premises actually caused by the conduct of such auction or sale and any removal of Collateral by or through Agent (ordinary wear and tear excluded). Neither Agent nor any Lender shall be liable for any diminution in value of the Premises caused by the absence of Collateral removed, and neither Agent nor any Lender shall have any duty or obligation to remove or dispose of any Collateral or any other property left on the Premises by Company. Except for the matters arising from the gross negligence or willful misconduct of Landlord, Agent shall indemnify and hold Landlord harmless from any claim, action, loss or expense (including reasonable attorneys' fees) to the extent arising directly from Agent's removal of the Collateral from the Premises.

9.All notices hereunder shall be in writing, sent by certified mail, return receipt requested or by telecopy, to the respective parties and the addresses set forth on the signature page or at such other address as the receiving party shall designate in writing.

10.This Waiver and Consent shall continue until such time as the obligations of Company to Lenders are paid in full in cash and the commitments under the Credit Agreement have been terminated. This Waiver and Consent may be executed in any number of several counterparts, shall be governed and controlled by, and interpreted under, the laws of the State of California, and shall inure to the benefit of Agent and its successors and assigns and shall be binding upon Landlord and its successors and assigns (including any transferees of the Premises). Delivery of any executed counterpart of a signature page of this Waiver and Consent by facsimile or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Waiver and Consent.

11.The Credit Parties (as defined in the Credit Agreement) hereby acknowledge, confirm and agree that to the extent Agent elects to pay to Landlord on behalf of Company any obligations of Company owed to Landlord such payments shall constitute “Obligations” under the Credit Agreement and related loan documents and the Credit Parties (as defined in the

30

Credit Agreement) hereby acknowledge, confirm and agree that the Collateral shall continue to secure all applicable obligations including, without limitation, Agent's reimbursement rights with respect to any payments made under this Waiver and Consent.

[Signature Page Follows.]

31

IN WITNESS WHEREOF, this Landlord's Waiver and Consent is entered into as of the date first set forth above.

17777 Center Court Drive North, Suite 100 Cerritos, California 90703 Attention: Telephone: Facsimile: With a copy to: Prologis 4545 Airport Way Denver, Colorado 80239 Attention: General Counsel	“LANDLORD” PAC FINANCE 1 LLC a Delaware limited liability company By:Authorized Person ____________________________ Douglas P. McGregor Senior Vice President, ProLogis Logistics Services Incorporated, a Delaware corporation
CRYSTAL FINANCIAL LLC Two International Place, 17th Floor Boston, Massachusetts 02110 Attention: Rebecca E. Tarby Telephone: (617) 428-8709 Facsimile: (617) 428-8701	“AGENT” CRYSTAL FINANCIAL LLC, a Delaware limited liability company By: Title: Its: Duly Authorized Signatory
AMERICAN APPAREL, INC. Attention: Telephone: Facsimile:	“COMPANY” AMERICAN APPAREL, INC., a Delaware corporation By: Title: Its: _______________________________

32

ACKNOWLEDGED AND AGREED TO

as of the date first written above:

AMERICAN APPAREL (USA) LLC Attention: Telephone: Facsimile:	AMERICAN APPAREL (USA) LLC By: Title: Its: _______________________________
AMERICAN APPAREL DYEING & FINISHING, INC. Attention: Telephone: Facsimile:	AMERICAN APPAREL DYEING & FINISHING, INC. By: Title: Its: _______________________________
KCL KNITTING, LLC Attention: Telephone: Facsimile:	KCL KNITTING, LLC By: Title: Its: _______________________________
AMERICAN APPAREL RETAIL, INC. Attention: Telephone: Facsimile:	AMERICAN APPAREL RETAIL, INC. By: Title: Its: _______________________________
FRESH AIR FREIGHT, INC. Attention: Telephone: Facsimile:	FRESH AIR FREIGHT, INC. By: Title: Its: _______________________________

33

EX-10.5

Exhibit 10.5

EXECUTION VERSION

TENTH AMENDMENT TO CREDIT AGREEMENT

TENTH AMENDMENT, dated as of November 12, 2012 (this “Amendment”), under and to the Credit Agreement dated as of March 13, 2009 (as heretofore amended, supplemented or otherwise modified, the “Credit Agreement”), among American Apparel, Inc., a corporation organized under the laws of the State of Delaware (the “Borrower”), the Facility Guarantors from time to time party thereto, Wilmington Trust, National Association (successor by merger to Wilmington Trust FSB), in its capacity as Administrative Agent thereunder and in its capacity as Collateral Agent thereunder, and the Lenders from time to time party thereto.

WITNESSETH:

WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make, and have made, certain loans and other extensions of credit to the Borrower;

WHEREAS, the Borrower and the Required Lenders have agreed to amend certain provisions of the Credit Agreement on the terms and subject to the conditions set forth in this Amendment; and

NOW THEREFORE, in consideration of the premises and mutual covenants contained in this Amendment, the undersigned hereby agree as follows:

I.Defined Terms; Interpretation; Etc. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Credit Agreement (as amended hereby).

II.Amendment to Credit Agreement. Section 6.18 of the Credit Agreement is hereby amended by amending the minimum Consolidated EBITDA for the Reference Period ending October 31, 2012 from $32, 216, 000 to $31, 616, 000.

III.Consent. The Lenders hereby consent to the execution and delivery of, and performance under, the Third Amendment to the First Lien Credit Agreement (attached as Annex I hereto) (the “First Lien Amendment”) by the Borrower and the other Loan Parties thereto.

IV.Conditions Precedent to the Effectiveness of this Amendment. This Amendment shall become effective as of, and with effect from, the date (the “ Tenth Amendment Effective Date”) on which:

(a)The Borrower, the Facility Guarantors and each Lender shall have duly executed and delivered to the Administrative Agent this Amendment.

(b)All corporate and other proceedings required in connection with this Amendment, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Amendment, shall be satisfactory in all respects to the Lenders, and the Lenders shall have received such documents and certificates as the Lenders or their counsel may reasonably request relating to the authorization of the transactions contemplated by this Amendment, all in form and substance satisfactory to the Lenders and their counsel.

(c)Each of the representations and warranties contained in Section V (Representations and Warranties) of this Amendment shall be true and correct.

(d)After giving effect to this Amendment, no Default or Event of Default shall have occurred and be continuing as of the date hereof.

(e)No litigation shall have been commenced against any Loan Party or any of its Subsidiaries, either on the date hereof or the Tenth Amendment Effective Date, seeking to restrain or enjoin (whether temporarily, preliminarily or permanently) the performance of any action by any Loan Party required or contemplated by this Amendment or the Credit Agreement as amended by this Amendment or any Loan Document.

(f)The Administrative Agent shall have received a true, correct and complete copy, certified as such by the Borrower, of the First Lien Amendment, which shall be in effect as of the Tenth Amendment Effective Date and certified as such by the Borrower.

V.Representations and Warranties. On and as of the date hereof and as of the Tenth Amendment Effective Date, the Borrower hereby represents and warrants to the Administrative Agent, the Collateral Agent and the Lenders as follows:

(a)this Amendment has been duly authorized, executed and delivered by the Borrower and each Facility Guarantor and constitutes a legal, valid and binding obligation of the Borrower and each Facility Guarantor, enforceable against the Borrower and each Facility Guarantor in accordance with its terms and the Credit Agreementas amended by this Amendment and the other Loan Documents and constitutes the legal, valid and binding obligation of the Borrower and each Facility Guarantor, enforceable against the Borrower and each Facility Guarantor in accordance with its terms;

(b)the transactions to be entered into and contemplated by this Amendment (i) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except for such as have been obtained or made and are in full force and effect, (ii) will not violate any material Applicable Law or the Charter Documents of any Loan Party, (iii) will not violate or result in a default under any indenture or any other agreement, instrument or other evidence of Material Indebtedness, or any other Material Agreement or other material instrument binding upon any Loan Party or its assets, or give rise to a right thereunder to require any payment to be made by any Loan Party, and (iv) will not result in the creation or imposition of any Lien on any asset of any Loan Party, except Liens created under the Loan Documents and the First Lien Loan Documents;

(c)each of the representations and warranties contained in Article III (Representations and Warranties) of the Credit Agreement, the other Loan Documents or otherwise made in writing in connection therewith are true and correct in all material respects on and as of the date hereof and the Tenth Amendment Effective Date, in each case as if made on and as of such date, except (x) to the extent that such representations and warranties specifically relate to a specific date, in which case such representations and warranties shall be true and correct in all material respects as of such specific date and (y) with respect to the representations contained in Sections 3.04(b), 3.06 and 3.17 of the Credit Agreement, as disclosed in filings by the Borrower with the SEC prior to the Tenth Amendment Effective Date with respect to the Borrower and its consolidated Subsidiaries;

(d)after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing;

(e)no litigation has been commenced against any Loan Party or any of its Subsidiaries seeking to restrain or enjoin (whether temporarily, preliminarily or permanently) the performance of any action by any Loan Party required or contemplated by this Amendment, the Credit Agreement as amended hereby or any Loan Document; and

(f)attached as Annex I hereto is a true, correct and complete copy of the First Lien Amendment, and the First Lien Amendment shall be in effect as of the Tenth Amendment Effective Date.

VI.Amount of Obligations. Each Loan Party acknowledges and agrees that (a) as of the close of business on September 30, 2012, the Obligations include, without limitation, the amounts set forth on Schedule 1 attached hereto on account of the outstanding unpaid amount of principal of the Loans (including PIK Interest and PIK Fees that have been added to the principal amount of the Loans) and (b) such Loan Party is truly and justly indebted to the Lenders and the Administrative Agent for the Obligations without defense, counterclaim or offset of any kind, and such Loan Party ratifies and reaffirms the validity, enforceability and binding nature of such Obligations.

VII.Collateral. Each Loan Party ratifies and reaffirms the validity and enforceability (without defense, counterclaim or offset of any kind) of the liens and security interests granted to secure any of the Obligations by such Loan Party to the Administrative Agent, for the benefit of the Lenders, pursuant to the Security Documents to which such Loan Party is a party. Each Loan Party acknowledges and agrees that all such liens and security interests granted by such Loan Party shall continue to secure the Obligations from and after the Tenth Amendment Effective Date. Each Loan Party hereby represents and warrants to the Administrative Agent and the Lenders that, pursuant to the Security Documents to which such Loan Party is a party, the Obligations are secured by liens on and security interests in all of such Loan Party's assets to the extent required by the Security Documents.

VIII.Loan Party Release. Although each Lender, the Administrative Agent and the Collateral Agent regards its conduct as proper and does not believe that any Loan Party has any claim, right, cause of action, offset or defense against any Lender, the Administrative Agent, the Collateral Agent or any of such Lender's, the Administrative Agent's or the Collateral Agent's present or former subsidiaries, Affiliates, officers, directors, employees, attorneys or other representatives or agents (collectively with their respective successors and assigns, the “Lender Parties”) in connection with the execution, delivery, performance and administration of, or the transactions contemplated by this Amendment, the Credit Agreement and the other Loan Documents, each Lender, the Administrative Agent, the Collateral Agent and each Loan Party agree to eliminate any possibility that any past conduct, conditions, acts, omissions, events, circumstances or matters of any kind whatsoever could impair or otherwise affect any rights, interests, contracts or remedies of the Lenders, the Administrative Agent or the Collateral Agent. Therefore, each Loan Party unconditionally, freely, voluntarily and, after consultation with counsel and becoming fully and adequately informed as to the relevant facts, circumstances and consequences, releases, waives and forever discharges (and further agrees not to allege, claim or pursue) (a) any and all liabilities, indebtedness and obligations, whether known or unknown, of any kind whatsoever of any Lender Party to any Loan Party, (b) any legal, equitable or other obligations of any kind whatsoever, whether known or unknown, of any Lender Party to any Loan Party (and any rights of any Loan Party against any Lender Party), (c) any and all claims, whether known or unknown, under any oral or implied agreement with (or obligation or undertaking of any kind whatsoever of) any Lender Party which is different from or in addition to the express terms of this Agreement, the Credit Agreement and the other Loan Documents and (d) all other claims, rights, causes of action, counterclaims or defenses of any kind whatsoever, in contract or in tort, in law or in equity, whether known or unknown, direct or derivative, which such Loan Party or any predecessor, successor or assign might otherwise have or may have against any Lender Party on account of any conduct, condition, act, omission, event, contract, liability, obligation, demand, covenant, promise, indebtedness, claim, right, cause of action, suit, damage, defense, circumstance or matter of any kind whatsoever which, in the case of each of the foregoing clauses (a), (b), (c) and (d), existed, arose or occurred at any time prior to the Tenth Amendment Effective Date and in connection with the execution, delivery, performance and administration of, or the transactions contemplated by, this Amendment, the Credit Agreement and the other Loan Documents.

IX.No Other Amendments or Waivers; Confirmation. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Lenders, the Agents, the Borrower or any other Loan Party under the Credit Agreement or any other Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle the Borrower to any future consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan

Document in similar or different circumstances. This Amendment shall apply and be effective only with respect to the provisions of the Credit Agreement specifically referred to herein. After the Tenth Amendment Effective Date, any reference in any Loan Document to the Credit Agreement shall mean the Credit Agreement as modified hereby. As of the Tenth Amendment Effective Date, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein,” or words of like import, and each reference in the other Loan Documents to the Credit Agreement (including, without limitation, by means of words like “thereunder”, “thereof” and words of like import), shall mean and be a reference to the Credit Agreement as amended hereby, and this Amendment and the Credit Agreement shall be read together and construed as a single instrument. Each of the table of contents and lists of Exhibits and Schedules of the Credit Agreement shall be amended to reflect the changes made in this Amendment as of the Tenth Amendment Effective Date. This Amendment is a Loan Document.

X.Consent of Facility Guarantors. Each Facility Guarantor hereby consents to this Amendment and agrees that the terms hereof shall not affect in any way its obligations and liabilities under the Loan Documents (as amended and otherwise expressly modified hereby), all of which obligations and liabilities shall remain in full force and effect and each of which is hereby reaffirmed (as amended and otherwise expressly modified hereby).

XI.Expenses. The Borrower agrees to reimburse each of the Administrative Agent, Collateral Agent, the Lenders and the Lion Parties for their respective outstanding reasonable out-of-pocket expenses (whether or not yet invoiced to the Borrower) incurred in connection with the Credit Agreement, this Amendment, the other Loan Documents, the Warrants and the monitoring and oversight of the Lion Parties' investment (including without limitation, the reasonable fees, disbursements and other charges of Simpson Thacher & Bartlett LLP as counsel to the Lenders, and Ropes & Gray LLP, as counsel to the Agents). This Amendment constitutes a Loan Document.

XII.Governing Law. This Amendment and the rights and obligations of the parties hereto shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York.

XIII.Counterparts. This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Amendment may be delivered by facsimile or other electronic transmission of the relevant signature pages hereof.

XIV.Headings. The Section headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Amendment.

XV.Notices. All communications and notices hereunder shall be given as provided in the Credit Agreement or, as the case may be, the Facility Guaranty.

XVI.Severability. The fact that any term or provision of this Amendment is held invalid, illegal or unenforceable as to any person in any situation in any jurisdiction shall not affect the validity, enforceability or legality of the remaining terms or provisions hereof or the validity, enforceability or legality of such offending term or provision in any other situation, or jurisdiction or as applied to any person.

XVII.Successors. The terms of this Amendment shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns.

XVIII.Waiver of Jury Trial. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AMENDMENT OR ANY OTHER LOAN DOCUMENT.

XIX.Submission to Jurisdiction. Each Loan Party agrees that any suit for the enforcement of this Amendment may be brought in the federal or state courts of the State of New York as the Lenders may elect in

their sole discretion and consents to the non-exclusive jurisdiction of such courts. Each party to this Amendment hereby waives any objection which it may now or hereafter have to the venue of any such suit or any such court or that such suit is brought in an inconvenient forum and agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Amendment shall affect any right that any Credit Party may otherwise have to bring any action or proceeding relating to this Amendment against a Loan Party or its properties in the courts of any jurisdiction.

XX.Direction from Required Lenders. Each undersigned Lender hereby authorizes and directs the Administrative Agent and Collateral Agent to take any and all actions set forth herein, including, without limitation, to execute and deliver, on behalf of itself as Administrative Agent or Collateral Agent (as applicable) and on behalf of such Lender, (i) this Amendment, and (ii) any other amendments, agreements, consents, approvals and other documents, in form and substance reasonably satisfactory to the Agents and the Required Lenders, that are to be entered into or executed in connection with the transactions contemplated herein. Further, each undersigned Lender acknowledges and agrees that (x) the foregoing instruction constitutes instructions of the Required Lenders pursuant to Article VIII of the Credit Agreement, and (y) Sections 8.05 and 8.08 of the Credit Agreement shall apply to any and all actions taken by the Administrative Agent and/or Collateral Agent in accordance with such instructions.

[Remainder of Page Intentionally Left Blank]

[Signature Page to Tenth Amendment]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written.

AMERICAN APPAREL, INC.,

as Borrower

By:

Name:

Title:

AMERICAN APPAREL (USA), LLC, as Facility Guarantor

By:

Name: Dov Charney

Title: Chief Executive Officer

FRESH AIR FREIGHT, INC., as Facility Guarantor

By:

Name: Dov Charney

Title: Chief Executive Officer

KCL Knitting, LLC, as Facility Guarantor

By: American Apparel (USA), LLC, its sole member

By:

Name: Dov Charney

Title: Chief Executive Officer

American Apparel Retail, Inc., as Facility Guarantor

By:

Name: Dov Charney

Title: Chief Executive Officer

American Apparel Dyeing & Finishing, Inc., as Facility Guarantor

By:

Name: Dov Charney

Title: Chief Executive Officer

American Apparel (CaRnaby) Limited, as Facility Guarantor

By:

Name: Dov Charney

Title: Director

American Apparel (UK) Limited, as Facility Guarantor

By:

Name: Dov Charney

Title: Director

WILMINGTON TRUST, NATIONAL ASSOCIATION (SUCCESSOR BY MERGER TO WILMINGTON TRUST FSB), as Administrative Agent and Collateral Agent

By:

Name:

Title: LION CAPITAL (AMERICAS) INC., as Lender

By:

Name: Jacob Capps                     

Title: President                    

LION/HOLLYWOOD L.L.C., as Lender

By:

Name: Jacob Capps                     

Title: President                       

Annex I

Third Amendment to First Lien Credit Agreement

Schedule I

Amount of Obligations as of September 30, 2012

Obligations Including PIK Interest and PIK Fees that have been added to the principal amount of the Loans

$133,134,682.68

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dov Charney, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Apparel, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	November 13, 2012	By:	/s/ DOV CHARNEY
			Dov Charney
			Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John Luttrell, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Apparel, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	November 13, 2012	By:	/s/ JOHN LUTTRELL
			John Luttrell
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

Certification of the Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of American Apparel, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dov Charney, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

Date:	November 13, 2012	By:	/s/ DOV CHARNEY
			Dov Charney
			Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.2

Certification of the Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of American Apparel, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Luttrell, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

Date:	November 13, 2012	By:	/s/ JOHN LUTTRELL
			John Luttrell
			Chief Financial Officer (Principal Financial and Accounting Officer)

XML

Property and Equipment (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Property, Plant and Equipment [Line Items]
Depreciation and amortization	$ 5,538	$ 6,126	$ 17,040	$ 19,109
Asset Impairment Charges	$ 0	$ 784	$ 129	$ 2,436

XML

Shared-Based Compensation (Details) (USD $)	3 Months Ended		9 Months Ended		12 Months Ended	9 Months Ended		3 Months Ended			9 Months Ended			3 Months Ended		9 Months Ended	12 Months Ended			3 Months Ended			6 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Sep. 30, 2012 Minimum [Member]	Sep. 30, 2012 Maximum [Member]	Dec. 31, 2012 CEO AntiDilution Rights [Member] Rate	Sep. 30, 2012 CEO AntiDilution Rights [Member]	Sep. 30, 2011 CEO AntiDilution Rights [Member]	Sep. 30, 2012 CEO AntiDilution Rights [Member] Rate	Sep. 30, 2011 CEO AntiDilution Rights [Member]	Oct. 16, 2012 CEO AntiDilution Rights [Member]	Sep. 30, 2012 Employment Agreement 2012 [Member]	Jun. 30, 2012 Employment Agreement 2012 [Member]	Sep. 30, 2012 Employment Agreement 2012 [Member]	Mar. 31, 2015 Employment Agreement 2012 [Member]	Mar. 31, 2014 Employment Agreement 2012 [Member]	Apr. 02, 2012 Employment Agreement 2012 [Member]	Sep. 30, 2012 Non-Employee Directors [Member]	Jun. 30, 2012 Non-Employee Directors [Member]	Mar. 31, 2012 Non-Employee Directors [Member]	Jun. 30, 2011 Non-Employee Directors [Member]	Sep. 30, 2012 2007 Plan [Member]	Dec. 31, 2012 2011 Plan [Member]	Sep. 30, 2012 2011 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number	3,540,000		3,540,000		3,186,000
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted			1,348,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period			(796,000)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period			(198,000)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value	$ 1.38		$ 1.38		$ 1.45														$ 0.75
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value			$ 0.92
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value			$ 0.88
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeitures, Weighted Average Grant Date Fair Value			$ 1.25
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period						4 years	5 years								1 year 2 months		3 years 1 month	2 years 1 month
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Outstanding, Weighted Average Remaining Contractual Terms			1 year 1 month 3 days		2 years 8 months
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	700,000		700,000		950,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period			0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period			(250,000)
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price	$ 0.82		$ 0.82		$ 1.06
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price			$ 0
Share-based Compensation Arrangements by Share-based Payment Award, Options, Forfeitures in Period, Weighted Average Exercise Price			$ 0
Share-based Compensation Arrangements by Share-based Payment Award, Options, Expirations in Period, Weighted Average Exercise Price			$ 1.75
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term			9 years		9 years 6 months
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Number	350,000		350,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Weighted Average Exercise Price	$ 0.82		$ 0.82
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Weighted Average Remaining Contractual Term			9 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Aggregate Intrinsic Value	$ 0		$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Number	350,000		350,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Weighted Average Exercise Price	$ 0.82		$ 0.82
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Weighted Average Remaining Contractual Term			9 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Aggregate Intrinsic Value	0		0
Share-based Compensation Arrangement by Share-based Payment Award, Additional General Disclosures [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized																								11,000,000		10,000,000
Share-based Goods and Nonemployee Services Transaction, Expense																									80
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant																										9,295,000
Share-based Compensation	2,949,000	2,093,000	7,333,000	4,538,000					1,105,000	1,197,000	3,599,000	1,808,000		859,000		1,718,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized	11,024,000		11,024,000						3,431,000		3,431,000			3,906,000		3,906,000
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period																				7	11	12,000	23,000
Share Price													$ 1.3							$ 1.53	$ 0.90	$ 0.82
Fair Value Assumptions, Risk Free Interest Rate								0.45%
Fair Value Assumptions, Expected Volatility Rate											90.46%
Fair Value Assumptions, Expected Term								3 years 6 months
Warrants and Rights Outstanding													$ 13,192,000
Fair Value Assumptions, Exercise Price													$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures															7,500,000

XML

Income Taxes Income Tax Examination (Details) (Internal Revenue Service (IRS) [Member], USD $)	Sep. 30, 2012
Internal Revenue Service (IRS) [Member]
Income Tax Examination [Line Items]
Income Tax Examination, Liability Recorded	$ 0

XML

Shared-Based Compensation Share-Based Compensation - Non-printing section (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation	$ 2,949	$ 2,093	$ 7,333	$ 4,538
Employment Agreement 2012 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation	$ 859		$ 1,718

XML

Fair Value of Financial Instruments FV Measurements of Liabilities Using Significant Unobservable Inputs on a Recurring Basis (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended		6 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Jun. 30, 2011 Warrant [Member]	Sep. 30, 2012 Warrant [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Liabilities, Fair Value Disclosure, Recurring							$ 129,101
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Fair Value, Measurement with Unobservable Inputs Reconciliations, Recurring Basis, Liability Value, end of period					993	9,633
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Gain (Loss) Included in Earnings					(24,391)	15,340
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Issues,					38,154	0
Proceeds from Warrant Exercises					(2,857)	0
Gains (Losses) on Extinguishment of Debt	0	0	11,588	(3,114)	0	3,482
Fair Value, Measurement with Unobservable Inputs Reconciliations, Recurring Basis, Liability Value					$ 11,899	$ 28,455

XML

Organization and Business (Details)	Sep. 30, 2012 USD ($)	Dec. 31, 2011 USD ($)	Sep. 30, 2011 USD ($)	Dec. 31, 2010 USD ($)	Sep. 30, 2012 Revolving Credit Facility [Member] USD ($)	Dec. 31, 2011 Revolving Credit Facility [Member] USD ($)	Sep. 30, 2012 Lion Credit Agreement [Member] USD ($)	Dec. 31, 2011 Lion Credit Agreement [Member] USD ($)	Sep. 30, 2012 Bank of America [Member] USD ($)	Dec. 31, 2011 Bank of America [Member] USD ($)	Sep. 30, 2012 Bank of Montreal Credit Agreement [Member] USD ($)	Sep. 30, 2012 Bank of Montreal Credit Agreement [Member] CAD	Dec. 31, 2011 Bank of Montreal Credit Agreement [Member] USD ($)	Sep. 30, 2012 Crystal Credit Agreement [Member] USD ($)	Sep. 30, 2012 Lion Credit Agreement [Member] USD ($)	Mar. 31, 2012 Lion Credit Agreement [Member] USD ($)	Dec. 31, 2011 Lion Credit Agreement [Member] USD ($)	Mar. 14, 2012 September 1, 2012 (from and after) [Member] Rate	Sep. 30, 2012 Term Loan [Member] Crystal Credit Agreement [Member] USD ($)	Dec. 31, 2011 Term Loan [Member] Crystal Credit Agreement [Member] USD ($)
Line of Credit Facility [Line Items]
Accrued Interest Paid In Kind							$ 12,433,000	$ 17,550,000
Cash	7,186,000	10,293,000	7,968,000	7,656,000
Line of Credit Facility, Remaining Borrowing Capacity	3,493,000													1,443,000
Line of Credit Facility, Maximum Borrowing Capacity					50,000,000				75,000,000			11,000,000		80,000,000
Long-term debt, net carrying amount															103,614,000	116,507,000	96,760,000
Line of Credit Facility, Amount Outstanding					35,576,000	0			0	48,324,000	5,901,000		1,995,000	30,000,000					30,000,000	0
Debt Instrument, Periodic Payment, Interest																		5.00%
Debt Instrument, Unamortized Discount	$ 29,959,000	$ 20,183,000					$ 29,959,000	$ 20,183,000

XML

Commitments and Contingencies Commitments and Contingencies - Non-printing section (Details) (State and Local Jurisdiction [Member], USD $) In Thousands, unless otherwise specified	Sep. 30, 2012
State and Local Jurisdiction [Member]
Commitments and contingencies [Line Items]
State sales tax contingencies	$ 289

XML

Inventories (Tables)

9 Months Ended

Sep. 30, 2012

Inventories [Abstract]

Schedule of Inventory, Current [Table Text Block]

The components of inventories are as follows:

	September 30, 2012			December 31, 2011
Raw materials	$	21,695		$	18,326
Work in process	2,383			2,468
Finished goods	160,429			168,902
	184,507			189,696
Less reserve for inventory shrinkage and obsolescence	(3,628		)	(3,932		)
Total, net of reserves	$	180,879		$	185,764

XML

Stockholders' Equity Common Stock Warrants (Narrative) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified			9 Months Ended			9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Lion Warrants [Member] Rate	Mar. 31, 2012 Lion Warrants [Member]	Mar. 14, 2012 Lion Warrants [Member]	Sep. 30, 2012 SOF Warrants [Member] Rate	Mar. 31, 2012 SOF Warrants [Member]
Class of Warrant or Right [Line Items]
Share Price			$ 1.06
Fair Value Assumptions, Exercise Price			$ 0.81			$ 2.148	$ 2.148
Fair Value Assumptions, Weighted Average Volatility Rate			76.05%			58.99%
Fair Value Assumptions, Risk Free Interest Rate			2.01%			0.19%
Fair Value Assumptions, Expected Term			9 years 9 months 10 days			1 year 2 months 19 days
Fair Value Assumptions, Expected Dividend Rate						0.00%
Exercise Price, Adjustment					$ 0.25
Class of warrant or right, exercise price of warrant or right				$ 0.75
Class of Warrant or Right, Outstanding			21,606
Warrants and Rights Outstanding	$ 28,455	$ 9,633	$ 28,243			$ 212

XML

Revolving Credit Facilities and Current Portion of Long-Term Debt (Details)	3 Months Ended		9 Months Ended					5 Months Ended	9 Months Ended								3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended	36 Months Ended					3 Months Ended		9 Months Ended
	Sep. 30, 2012 USD ($)	Sep. 30, 2011 USD ($)	Sep. 30, 2012 USD ($)	Sep. 30, 2011 USD ($)	Mar. 31, 2012 December 31, 2013 [Member] USD ($)	Sep. 30, 2012 Revolving Credit Facility [Member] USD ($)	Dec. 31, 2011 Revolving Credit Facility [Member] USD ($)	Sep. 01, 2012 Crystal Credit Agreement [Member] USD ($)	Sep. 30, 2012 Crystal Credit Agreement [Member] USD ($)	Mar. 14, 2014 Crystal Credit Agreement [Member] USD ($)	Mar. 14, 2013 Crystal Credit Agreement [Member] USD ($)	Sep. 30, 2012 Bank of America [Member] USD ($)	Dec. 31, 2011 Bank of America [Member] USD ($)	Sep. 30, 2012 Bank of Montreal Credit Agreement [Member] USD ($)	Sep. 30, 2012 Bank of Montreal Credit Agreement [Member] CAD	Dec. 31, 2011 Bank of Montreal Credit Agreement [Member] USD ($)	Sep. 30, 2012 Bank of Montreal Credit Agreement [Member] USD ($) Rate	Sep. 30, 2012 Bank of Montreal Credit Agreement [Member] USD ($) Rate	Sep. 30, 2012 Crystal Credit Agreement [Member] USD ($) Rate	Sep. 30, 2012 Crystal Credit Agreement [Member] USD ($) Rate	Mar. 12, 2015 Crystal Credit Agreement [Member] USD ($) Rate	Mar. 14, 2014 Crystal Credit Agreement [Member] USD ($)	Mar. 14, 2012 Crystal Credit Agreement [Member] USD ($)	Sep. 30, 2012 Term Loan [Member] Crystal Credit Agreement [Member] USD ($)	Dec. 31, 2011 Term Loan [Member] Crystal Credit Agreement [Member] USD ($)	Sep. 30, 2012 Interest Expense [Member] USD ($)	Sep. 30, 2011 Interest Expense [Member] USD ($)	Sep. 30, 2012 Interest Expense [Member] USD ($)	Sep. 30, 2011 Interest Expense [Member] USD ($)	Sep. 30, 2012 Short-term Debt [Member] USD ($)	Dec. 31, 2011 Short-term Debt [Member] USD ($)
Line of Credit Facility [Line Items]
Carrying net amount of the existing Lion debt as of 3/13/12					$ 121,140,000
Interest Expense, Debt	10,454,000	8,832,000	30,274,000	23,715,000																						10,454,000	8,832,000	30,274,000	23,715,000
Credit facility - Outstanding						35,576,000	0		30,000,000			0	48,324,000	5,901,000		1,995,000								30,000,000	0
Line of Credit Facility, Increase, Additional Borrowings									12,500,000
Line of Credit Facility, Increase (Decrease) for Period, Net								0
Debt Instrument, Unused Borrowing Capacity, Amount	3,493,000		3,493,000						1,443,000								2,050,000	2,050,000
Debt Instrument, Interest Rate, Stated Percentage																	7.00%	7.00%	9.50%	9.50%
Line of credit facility, Variable interest rate, Percent																	3.00%			0.00%
Line of credit facility, Fixed interest rate, Percent																	4.00%			9.00%
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage																				0.40%
line of credit facility unused capacity, commitment fee percentage rate range, maximum																				0.00%
Line of credit facility, brand name																			5,000,000	5,000,000
Line of credit facility, brand name interest rate, stated percent																			20.22%
Line of credit facility, brand name fixed interest rate, percent																			19.75%
Liabilities Subject to Compromise, Early Contract Termination Fees										0.0	0.0											0.0200
Line of credit facility, minimum excess availability covenant																					8,000,000
line of credit facility, covenant, minimum excess availability																		5.00%			10.00%
Line of credit facility, covenants, fixed charge coverage ratio																	1.25	1.25					1.00
Line of credit covenant, Capital expenditures																	8,500,000	8,500,000	17,000,000	17,000,000			25,000,000
Current portion of long-term debt (Note 7)																														109,000	56,000
Total revolving credit facilities and current portion of long-term debt																														71,586,000	50,375,000
Line of Credit Facility, Maximum Borrowing Capacity						$ 50,000,000			$ 80,000,000			$ 75,000,000			11,000,000

XML

Inventories (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Inventory [Line Items]
Inventory, Net	$ 180,879	$ 185,764
Inventory [Member]
Inventory [Line Items]
Inventory, Raw Materials, Gross	21,695	18,326
Inventory, Work in Process, Gross	2,383	2,468
Inventory, Finished Goods, Gross	160,429	168,902
Inventory, Gross	184,507	189,696
Inventory Valuation Reserves	(3,628)	(3,932)
Inventory, Net	$ 180,879	$ 185,764

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Stockholders' Equity Stockholders' Equity Earnings Per Share dilutive effect on the shares outstanding (Details) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	56,874		51,862
Lion Warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	21,606		21,606
SOF Warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,000		1,000
CEO AntiDilution Rights [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	20,416	[1]	20,416	[1]
Debt to Equity Conversion [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	2,112	[2]	2,112	[2]
Employment Agreement 2012 [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	7,500	[3]	0	[3]
Outstanding Stock Awards [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	4,240		6,728

[1] Included Charney Anti-Dilution Rights pursuant to the April 26, 2011 Investor Purchase Agreement

[2] Pursuant to the March 24, 2011 conversion of debt to equity

[3] Pursuant to his employment agreement commencing April 1, 2012

XML

Business Segment and Geographic Area Information Net sales by geographic location of customer (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012 countries	Sep. 30, 2011	Sep. 30, 2012 countries	Sep. 30, 2011
Entity Location [Line Items]
Number of Countries in which Entity Operates	20		20
Sales Revenue, Goods, Net	$ 162,160	$ 140,889	$ 444,282	$ 389,760
United States [Member]
Entity Location [Line Items]
Sales Revenue, Goods, Net	99,562	85,509	275,056	235,676
Canada [Member]
Entity Location [Line Items]
Sales Revenue, Goods, Net	16,717	15,264	45,096	42,256
Europe [Member]
Entity Location [Line Items]
Sales Revenue, Goods, Net	17,311	17,292	48,901	50,194
United Kingdom [Member]
Entity Location [Line Items]
Sales Revenue, Goods, Net	12,060	9,888	32,811	27,299
South Korea [Member]
Entity Location [Line Items]
Sales Revenue, Goods, Net	3,451	3,098	8,371	7,836
China [Member]
Entity Location [Line Items]
Sales Revenue, Goods, Net	1,549	1,118	3,791	2,896
Japan [Member]
Entity Location [Line Items]
Sales Revenue, Goods, Net	6,151	4,240	15,190	10,189
Australia [Member]
Entity Location [Line Items]
Sales Revenue, Goods, Net	3,629	2,851	10,116	8,572
Other Foreign Countries [Member]
Entity Location [Line Items]
Number of Countries in which Entity Operates	18		18
Sales Revenue, Goods, Net	1,730	1,629	4,950	4,842
Consolidated Entities [Member]
Entity Location [Line Items]
Sales Revenue, Goods, Net	$ 162,160	$ 140,889	$ 444,282	$ 389,760

XML

Income Taxes (Details) (USD $)	Sep. 30, 2012
Valuation Allowance [Line Items]
Deferred Tax Assets, Valuation Allowance	$ 73,773
Operating Loss Carryforwards	$ 73,271

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

Summary of Significant Accounting Policies and Other Disclosures [Abstract]

Significant Accounting Policies [Text Block]

Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of American Apparel, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation. Certain reclassifications have been made to the prior year's condensed consolidated financial statements and related footnotes to conform them to the 2012 presentation.

The accompanying unaudited condensed consolidated financial statements of the Company and its wholly owned subsidiaries have been prepared by the Company, in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X, and have not been audited. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2011 included in the Company's Annual Report on Form 10-K. In the opinion of management, the interim unaudited condensed consolidated financial statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the Company's financial position, the results of operations and cash flows for the periods presented.

The operating results and cash flows of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets, and liabilities at the date of the financial statements, and reported amounts of revenues, and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, and liabilities that are not readily apparent from other sources. The most complex and subjective estimates include: inventory valuation and obsolescence; valuation and recoverability of long-lived assets, including the values assigned to goodwill, property and equipment; fair value calculations, including derivative liabilities such as warrants; contingencies, including accruals for the outcome of current litigation and self-insurance liabilities; gift card liabilities; and income taxes, including uncertain tax positions and recoverability of deferred income taxes.

On a regular basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience, and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

Restricted Cash

Restricted cash primarily represents cash collateral on standby letters of credit, the value of which was previously deducted against the availability of the Company's prior revolving credit agreement, and certain other obligations. The standby letters of credit are predominantly used as collateral for the Company's workers' compensation program (see Note 14).

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to credit risk consist primarily of cash (the amounts of which may, at times, exceed Federal Deposit Insurance Corporation limits on insurable amounts) and trade accounts receivable (including credit card receivables), relating substantially to the Company’s U.S. Wholesale segment. The Company mitigates its risk by investing through major financial institutions. The Company had approximately $5,504 and $9,549 held in foreign banks at September 30, 2012 and December 31, 2011, respectively.

The Company mitigates its risks related to trade receivables by performing on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information. The Company also maintains an insurance policy for certain customers based on a customer’s credit rating and established limits. Collections and payments from customers are continuously monitored. One customer in the Company's U.S. Wholesale segment accounted for 22.5% and 16.3% of the Company’s total accounts receivables as of September 30, 2012 and December 31, 2011, respectively. The Company maintains an allowance for doubtful accounts, which is based upon historical experience and specific customer collection issues that have been identified. While bad debt expenses have historically been within expectations and allowances established, the Company cannot guarantee that it will continue to experience the same credit loss rates that it has in the past.

Fair Value Measurements

The Company’s financial instruments are primarily composed of cash, restricted cash, accounts receivable (including credit card receivables), accounts payable, revolving credit borrowings and term loan. The fair value of cash, restricted cash, accounts receivable, accounts payable, and variable rate borrowings closely approximates their carrying value due to their short maturities.

The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related asset or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.

The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible.

For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company's accounting and finance department, who report to the Chief Financial Officer, determine its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company's accounting and finance department and are approved by the Chief Financial Officer.

As of September 30, 2012, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy.

The fair value of the fixed rate term note is estimated using a projected discounted cash flow analysis based on unobservable inputs including interest payments, principal payments and discount rate, and is classified within Level 3 of the valuation hierarchy. An increase or decrease in the discount rate assumption, in isolation, can significantly decrease or increase the fair value of the term note (see Note 8).

The fair value of each warrant is estimated using either a Monte Carlo simulation model or the Binomial Lattice option valuation model. Significant observable and unobservable inputs include stock price, exercise price, annual risk free rate, term, and expected volatility, and are classified within Level 3 of the valuation hierarchy. An increase or decrease in volatility, in isolation, can significantly increase or decrease the fair value of the warrant (see Notes 8 and 11).

The fair value of indefinite-lived assets, which consists exclusively of goodwill, is measured in connection with the Company’s annual goodwill impairment test.  The fair value of the reporting unit to which goodwill has been assigned, is determined using a projected discounted cash flow analysis based on unobservable inputs including gross profit, discount rate, working capital requirements, capital expenditures, depreciation and terminal value assumptions, and are classified within Level 3 of the valuation hierarchy. An increase or decrease in the discount rate assumption and/or the terminal value assumption, in isolation, can have a significant effect on the fair value of the reporting unit.

Retail stores that have indicators of impairment and whose carrying value of assets are greater than their related projected undiscounted future cash flows, are measured for impairment by comparing the fair value of the assets against their carrying value. Fair value of the assets is estimated using a projected discounted cash flow analysis based on unobservable inputs including gross profit and discount rate, and is classified within Level 3 of the valuation hierarchy.  An increase or decrease in the discount rate assumption, in isolation, can significantly decrease or increase the fair value of the assets, which would have an effect on the impairment recorded.

Gift Cards

Upon issuance of a gift card a liability is established for its cash value. The liability is relieved and net sales are recorded upon redemption by the customer. Over time, some portion of gift cards is not redeemed ("breakage"). The Company determines breakage income for gift cards based on historical redemption patterns. Breakage income is recorded in selling expenses, which is a component of operating expenses in the condensed consolidated statements of operations and comprehensive loss, when the Company can determine the portion of the selling expense where redemption is remote, which is two years after the gift card is issued. The Company's gift cards do not have expiration dates.

The Company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions the Company uses to calculate its breakage income. However, if the actual rate of redemption of gift cards increases significantly, the Company's operating results could be adversely affected.

Income Taxes

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement, and tax basis of assets, and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined that it is more likely than not that those assets will not be realized. If it becomes more likely than not that a tax asset will be realized, the related valuation allowance of such assets would be reversed.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liabilities. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

The Company’s foreign domiciled subsidiaries are subject to foreign income taxes on earnings in their respective jurisdictions. The Company elected to have their foreign subsidiaries, except for its subsidiaries in Brazil, Canada, Korea, China, Spain, Italy and Ireland, consolidated in the Company’s U.S. federal income tax return. The Company will generally be eligible to receive tax credits on its U.S. federal income tax return for most of the foreign taxes paid.

The Company accounts for uncertain tax positions in accordance with Accounting Standards Codification ("ASC") 740—“Income Taxes”, and gross unrecognized tax benefits at September 30, 2012 and December 31, 2011 are included in other long-term liabilities in the accompanying condensed consolidated balance sheets. The Company accrues interest and penalties, if incurred, on unrecognized tax benefits as components of the income tax provision in the accompanying condensed consolidated statements of operations and comprehensive loss.

Accounting Standards Updates

Beginning in the quarter ended March 31, 2012, the Company enhanced its fair value measurement application and disclosures as a result of adopting new requirements issued by the Financial Accounting Standards Board ("FASB") in May 2011.  The new rules include revisions to the standards for the use of fair value measurements and additional disclosures for: (i) all transfers between Level 1 and Level 2 of the fair value hierarchy; (ii) Level 3 measurements; and (iii) hierarchy classifications used for assets and liabilities whose fair value is disclosed only in the footnotes.  The new rules did not have a material impact on the Company.

Subsequent Events

The Company has evaluated events that occurred subsequent to September 30, 2012 and through the date the financial statements were available to be issued. Management concluded that no additional subsequent events required disclosure in these financial statements other than those disclosed in these notes to these financial statements.

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Long-Term Debt (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended													3 Months Ended		9 Months Ended				9 Months Ended					3 Months Ended	42 Months Ended	58 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Sep. 30, 2012 Lion Warrants [Member]	Mar. 31, 2012 Lion Warrants [Member]	Mar. 14, 2012 Lion Warrants [Member]	Mar. 31, 2012 December 31, 2013 [Member]	Sep. 30, 2012 Lion Credit Agreement [Member]	Mar. 31, 2012 Lion Credit Agreement [Member]	Dec. 31, 2011 Lion Credit Agreement [Member]	Mar. 14, 2009 Lion Credit Agreement [Member]	Sep. 30, 2012 Short-term Debt [Member]	Dec. 31, 2011 Short-term Debt [Member]	Sep. 30, 2012 Long-term Debt [Member]	Sep. 30, 2011 Long-term Debt [Member]	Sep. 30, 2011 Long-term Debt [Member]	Dec. 31, 2011 Long-term Debt [Member]	Sep. 30, 2012 Other Debt Obligations [Member]	Dec. 31, 2011 Other Debt Obligations [Member]	Sep. 30, 2012 Lion Credit Agreement [Member]	Mar. 31, 2012 Lion Credit Agreement [Member]	Dec. 31, 2011 Lion Credit Agreement [Member]	Mar. 14, 2009 Lion Credit Agreement [Member]	Mar. 14, 2012 September 1, 2012 (from and after) [Member] Rate	Dec. 31, 2012 December 31, 2013 [Member] Rate	Dec. 31, 2013 December 31, 2013 [Member] Rate	Dec. 31, 2013 December 31, 2013 [Member] Rate	Jun. 24, 2010 December 31, 2013 [Member] Rate	Mar. 14, 2009 December 31, 2013 [Member] Rate
Debt Instrument [Line Items]
Accrued Interest Paid In Kind										$ 12,433		$ 17,550
Debt Instrument, net of unamortized Discount	29,959		29,959		20,183					29,959		20,183
Long-term Debt, Gross																									80,000
Debt Instrument, Interest Rate, Stated Percentage Rate Range, Minimum																														18.00%	15.00%
Long term debt, additional paid-in kind interest, percent																											0.52%
Debt Instrument, Interest Rate, Stated Percentage Rate Range, Minimum																													15.00%
Debt Instrument, Interest Rate, Stated Percentage Rate Range, Maximum																												18.00%
Line of credit covenant, Capital expenditures, Maximum													30,000
Long-term Debt, Percentage Bearing Variable Interest, Percentage Rate																										5.00%
Exercise Price, Adjustment								$ 0.25
Class of warrant or right, exercise price of warrant or right							$ 0.75
Long-Term Debt																104,073			97,198
Long-term Debt, Current Maturities														(109)	(56)
Long-term Debt, Excluding Current Maturities	103,964		103,964		97,142											103,964			97,142
Fair Value Assumptions, Exercise Price						$ 0.81
Gains (Losses) on Extinguishment of Debt	0	0	11,588	(3,114)																		(11,588)
Long-term debt, net carrying amount																						103,614	116,507	96,760
Other Long-term Debt																				459	438
Long-term debt, modified, fair value											104,919
Carrying net amount of the existing Lion debt as of 3/13/12									121,140
Long-term Debt, Fair Value																							86,898
Amortization of Debt Discount (Premium)			$ 6,100													$ 1,986	$ 2,178	$ 5,064

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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Fair value measurements - Non Print [Abstract]

Fair Value, Liabilities Measured on Recurring and Nonrecurring Basis [Table Text Block]

The carrying amounts and fair values of the Company's financial instruments are presented below as of September 30, 2012:

	Carrying Amount			Fair Value
Liabilities
Long-term debt with Lion, net of discount of $29,959 and including interest paid-in-kind of $12,433 (Level 3)	$	103,614		$	100,646
Lion Warrant (Level 3)	—		(a)	28,243
SOF Warrant (Level 3)	—		(a)	212
	$	103,614		$	129,101

 (a) no cost is associated with these liabilities (see Note 11)

Fair Value Inputs, Liabilities, Quantitative Information [Table Text Block]

The following summarizes the activity of Level 3 inputs measured on a recurring basis:

Fair Value Measurements of Common Stock Warrants and Purchase Rights using Significant Unobservable Inputs (Level 3)	Nine Months Ended September 30,
	2012		2011
Balance at January 1,	$	9,633	$	993
Additions	—		38,154
Exercises	—		(2,857		)
Adjustment resulting from change in value recognized in earnings	15,340		(24,391		)
Gain on extinguishment of debt (see Note 7)	3,482		—
Balance at September 30,	$	28,455	$	11,899

XML

Long-Term Debt (Tables)

9 Months Ended

Sep. 30, 2012

Long-term Debt, Unclassified [Abstract]

Schedule of Long-term Debt Instruments [Table Text Block]

Long-term debt consists of the following:

	September 30, 2012			December 31, 2011
Long-term debt with Lion (a)	$	103,614		$	96,760
Other	459			438
Total long-term debt	104,073			97,198
Current portion of debt	(109		)	(56		)
Long-term debt, net of current portion	$	103,964		$	97,142

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Commitments and Contingencies (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2012	Dec. 31, 2011
Commitments and contingencies [Line Items]
Advertising commitments					$ 1,607	$ 4,378
Operating Leases, Rent Expense	19,667	19,612	57,483	58,874
State and Local Jurisdiction [Member]
Commitments and contingencies [Line Items]
State sales tax contingencies	$ 289		$ 289

XML

Fair Value of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Debt Instrument, Unamortized Discount	$ 29,959	$ 20,183
Lion Credit Agreement [Member]
Debt Instrument, Unamortized Discount	29,959	20,183
Accrued Interest Paid In Kind	$ 12,433	$ 17,550

XML

Stockholders' Equity Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2012

Stockholders' Equity Attributable to Parent [Abstract]

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

The following table summarizes common stock warrants issued, forfeited, expired and outstanding (shares in thousands):

	Number of Shares			Weighted Average Exercise Price		Weighted Average Contractual Life (Years)
Outstanding - January 1, 2012	22,606			$	1.05	6.0
Issued (1)	44,212			0.90		7.3
Forfeited (1)	(44,212		)	1.03		—
Expired	—			—		—
Outstanding - September 30, 2012	22,606			$	0.81	9.0
Fair value - September 30, 2012	$	28,455

⁽¹⁾ Issued and forfeited warrants represents repriced shares.

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

A summary of the potential stock issuances under various options, warrants and other agreements that could have a dilutive effect on the shares outstanding as of September 30, 2012 and 2011 are as follows:

	2012	2011
SOF warrants	1,000	1,000
Lion warrants	21,606	21,606
Shares issuable to Mr. Charney based on market conditions (1)	20,416	20,416
Contingent shares issuable to Mr. Charney based on market conditions (2)	2,112	2,112
Contingent shares issuable to Mr. Charney based on performance factors (3)	7,500	—
Employee options & restricted shares	4,240	6,728
	56,874	51,862

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Shared-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2012

Share-based Compensation [Abstract]

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block]

The following table summarizes shares of restricted stock that were granted, vested, forfeited and outstanding under the 2007 and 2011 Plans (shares in thousands):

	Number of Restricted Shares		Weighted Average Grant Date Fair Value		Weighted Average Remaining Vesting Period (in years)
Non-vested - January 1, 2012	3,186		$	1.45	2.7
Granted	1,348		0.92
Vested	(796	)	0.88
Forfeited	(198	)	1.25
Non-vested - September 30, 2012	3,540		$	1.38	1.1

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

The following table summarizes stock options granted, forfeited, expired and outstanding (shares in thousands):

	Number of Shares		Weighted Average Exercise Price		Weighted Average Contractual Remaining Life (Years)	Aggregate Intrinsic Value
Outstanding - January 1, 2012	950		$	1.06	9.5
Granted	—		—		—
Forfeited	—		—		—
Expired	(250	)	1.75		—
Outstanding - September 30, 2012	700		$	0.82	9.0
Vested (exercisable) - September 30, 2012	350		$	0.82	9.0	$	—
Non-vested (exercisable) - September 30, 2012	350		$	0.82	9.0	$	—

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Organization and Business

9 Months Ended

Sep. 30, 2012

Organization and Business [Abstract]

Nature of Operations [Text Block]

Organization and Business

American Apparel, Inc. and its subsidiaries (collectively the “Company”) is a vertically-integrated manufacturer, distributor, and retailer of branded fashion basic apparel products and designs, manufactures and sells clothing and accessories for women, men, children and babies. The Company sells its products through the wholesale distribution channel supplying t-shirts and other casual wear to distributors and screen printers, as well as direct to customers through its retail stores located in the United States, and internationally. In addition, the Company operates an online retail e-commerce website. At September 30, 2012, the Company operated a total of 251 retail stores in 20 countries, including the United States, Canada and 18 other countries.

Liquidity and Management's Plan

As of September 30, 2012, the Company had approximately $7,186 in cash and $3,493 of availability for additional borrowings under the Crystal Credit Agreement and Bank of Montreal Credit Agreement (as defined in Note 6). Additionally, the Company had outstanding $35,576 on the $50,000 revolving credit facility under the Crystal Credit Agreement, $30,000 of term loans outstanding under the Crystal Credit Agreement, $5,901 outstanding on a C$11,000 revolving credit facility under the Bank of Montreal Credit Agreement, and $103,614 (including paid-in-kind interest of $12,433 and net of discount $29,959) of term loans outstanding under the Lion Credit Agreement (as defined in Note 7).

On March 13, 2012, the Company replaced its existing revolving credit facility of $75,000 with Bank of America ("BofA") with a $80,000 senior secured credit facility with Crystal Financial LLC ("Crystal") and other lenders. The Crystal Credit Agreement calls for the $80,000 to be allocated between an asset based revolving credit facility of $50,000 and term loan of $30,000 that matures on March 13, 2015. Among other provisions, the Crystal Credit Agreement requires that the Company maintain an arrangement similar to a traditional lockbox and contains certain subjective acceleration clauses. In addition, Crystal may at its discretion, adjust the advance restriction and criteria for eligible inventory and accounts receivable. Proceeds from the Crystal Credit Agreement were used to repay the existing revolving credit facility with BofA, fees and expenses related to the transaction, and for general working capital purposes. See Note 6.

In connection with the Crystal Credit Agreement, the Company entered into a seventh amendment to the Lion Credit Agreement, which among other things: (i) consented to the Crystal Credit Agreement, (ii) extends the maturity date of the term loan with Lion Capital LLP ("Lion") to December 31, 2015, (iii) reduced the minimum Consolidated EBITDA amounts for any twelve consecutive months as determined at the end of each fiscal quarter (Quarterly Minimum Consolidated EBITDA), (iv) modified certain financial covenants and covenants related to capital expenditures and (v) requires a minimum of 5% of each interest payment on the outstanding principal in cash starting on September 1, 2012.

On August 30, 2012, the Company entered into a second amendment to the Crystal Credit Agreement ("Crystal Second Amendment") and an eighth amendment to the Lion Credit Agreement ("Lion Eighth Amendment"). The Crystal Second Amendment extended until December 31, 2012 the period during, which loans under the Crystal Credit Agreement based on the American Apparel brand name may remain outstanding, added a minimum Consolidated EBITDA covenant for the remainder of 2012 and a minimum excess availability covenant for the period of December 17, 2012 through February 1, 2013. In connection with the Crystal Second Amendment, the Lion Eighth Amendment added a second minimum Consolidated EBITDA covenant that conforms to the Crystal minimum Consolidated EBITDA covenant (Monthly Minimum Consolidated EBITDA). See Notes 6 and 7.

The Company entered into a ninth amendment and waiver to the Lion Credit Agreement (the "Lion Ninth Amendment") effective as of September 30, 2012, which among other things, waived the Company's obligation to maintain the minimum Consolidated EBITDA covenants specified in the Lion Credit Agreement, as amended, for the twelve month period ended September 30, 2012. As a result, the Company was in compliance with the required financial covenants of the Lion Credit Agreement on September 30, 2012.

On November 12, 2012, the Company and certain of its subsidiaries entered into amendments to both the Crystal Credit Agreement and the Lion Credit Agreement that, among other things, reduced by $600 the target minimum EBITDA for the twelve months ended October 31, 2012 under the financial covenants of each credit agreement, respectively.

As a result of these financing transactions described above, the Company believes that it will have sufficient financing commitments to meet funding requirements for the next twelve months.

The C$11,000 Bank of Montreal Credit Agreement matures in December 2012. While the Company intends to negotiate an extension of this credit agreement, it does not believe that this credit agreement represents a material component of the Company's current or future capital requirements.

The Company is in the process of executing a plan, which was commenced in late 2010, to improve its operating performance and financial position. This plan includes optimizing production levels at the Company's manufacturing facilities including raw material purchases and labor; streamlining the logistics operations; Web platform refinement; reducing corporate expenses; merchandise price rationalization in the wholesale and retail channels; store renovations; and improving merchandise distribution and allocation procedures. The Company will continue to develop other initiatives intended to either increase sales, reduce costs or improve liquidity. There can be no assurance that plans to improve operating performance and financial position will be successful.

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Business Segment and Geographic Area Information (Tables)

9 Months Ended

Sep. 30, 2012

Business Segment and Geographic Area Information [Abstract]

Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Table Text Block]

Reconciliation of reportable segments combined income from operations for the three and nine months ended September 30, 2012 and 2011 to the consolidated (loss) income before income taxes is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Consolidated income from operations of reportable segments	$	13,840		$	8,655		$	25,224		$	14,540
Unallocated corporate expenses	(9,223		)	(11,283		)	(31,111		)	(35,482		)
Interest expense	(10,454		)	(8,832		)	(30,274		)	(23,715		)
Foreign currency transaction gain (loss)	685			(1,855		)	(141		)	(780		)
Unrealized (loss) gain on change in fair value of warrants and purchase rights	(13,312		)	6,101			(15,340		)	21,201
Gain (loss) on extinguishment of debt	—			—			11,588			(3,114		)
Other (expense) income	(36		)	186			(188		)	240
Consolidated loss before income taxes	$	(18,500	)	$	(7,028	)	$	(40,242	)	$	(27,110	)

Schedule of Segment Reporting Information, by Segment [Table Text Block]

The following tables represents key financial information of the Company's reportable segments before unallocated corporate expenses:

	Three Months Ended September 30, 2012
	U.S. Wholesale		U.S. Retail			Canada			International			Consolidated
Wholesale net sales	$	39,862	$	—		$	3,215		$	2,113		$	45,190
Retail net sales	—		52,714			13,086			39,256			105,056
Online consumer net sales	6,985		—			416			4,513			11,914
Total net sales to external customers	46,847		52,714			16,717			45,882			162,160
Gross profit	12,873		34,361			10,166			27,800			85,200
Income from segment operations	5,811		3,116			721			4,192			13,840
Depreciation and amortization	1,446		2,747			394			951			5,538
Capital expenditures	3,300		2,136			328			894			6,658
Deferred rent expense (benefit)	297		(349		)	(58		)	(122		)	(232		)
	Three Months Ended September 30, 2011
	U.S. Wholesale		U.S. Retail			Canada			International			Consolidated
Wholesale net sales	$	36,780	$	—		$	2,958		$	2,825		$	42,563
Retail net sales	—		43,104			11,944			33,244			88,292
Online consumer net sales	5,625		—			362			4,047			10,034
Total net sales to external customers	42,405		43,104			15,264			40,116			140,889
Gross profit	8,897		29,607			9,432			27,055			74,991
Income (loss) from segment operations	4,465		(622		)	(527		)	5,339			8,655
Depreciation and amortization	1,833		2,599			404			1,290			6,126
Capital expenditures	838		1,169			77			473			2,557
Retail store impairment	—		119			640			25			784
Deferred rent expense (benefit)	59		(294		)	(30		)	(219		)	(484		)

	Nine Months Ended September 30, 2012
	U.S. Wholesale		U.S. Retail			Canada			International			Consolidated
Wholesale net sales	$	110,380	$	—		$	9,449		$	7,183		$	127,012
Retail net sales	—		143,444			34,181			102,859			280,484
Online consumer net sales	21,232		—			1,466			14,088			36,786
Total net sales to external customers	131,612		143,444			45,096			124,130			444,282
Gross profit	36,582		93,977			26,627			77,106			234,292
Income (loss) from segment operations	18,324		449			(1,888		)	8,339			25,224
Depreciation and amortization	4,795		8,074			1,107			3,064			17,040
Capital expenditures	6,502		3,990			1,144			2,621			14,257
Retail store impairment	—		—			129			—			129
Deferred rent expense (benefit)	393		(509		)	(156		)	(377		)	(649		)
	Nine Months Ended September 30, 2011
	U.S. Wholesale		U.S. Retail			Canada			International			Consolidated
Wholesale net sales	$	98,840	$	—		$	8,711		$	7,479		$	115,030
Retail net sales	—		120,483			32,246			92,059			244,788
Online consumer net sales	16,353		—			1,299			12,290			29,942
Total net sales to external customers	115,193		120,483			42,256			111,828			389,760
Gross profit	30,518		82,031			25,463			73,043			211,055
Income (loss) from segment operations	16,002		(7,126		)	(1,954		)	7,618			14,540
Depreciation and amortization	6,015		7,887			1,246			3,961			19,109
Capital expenditures	2,179		3,848			209			1,048			7,284
Retail store impairment	—		296			642			1,498			2,436
Deferred rent expense (benefit)	211		(1,341		)	(78		)	(654		)	(1,862		)

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

Net sales by geographic location of customer for the three and nine months ended September 30, 2012 and 2011, are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
United States	$	99,562	$	85,509	$	275,056	$	235,676
Canada	16,717		15,264		45,096		42,256
Europe (excluding United Kingdom)	17,311		17,292		48,901		50,194
United Kingdom	12,060		9,888		32,811		27,299
South Korea	3,451		3,098		8,371		7,836
China	1,549		1,118		3,791		2,896
Japan	6,151		4,240		15,190		10,189
Australia	3,629		2,851		10,116		8,572
Other foreign countries	1,730		1,629		4,950		4,842
Total consolidated net sales	$	162,160	$	140,889	$	444,282	$	389,760

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Property and Equipment Property and Equipment - Non-printing section (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Property, Plant and Equipment [Line Items]
Asset Impairment Charges	$ 0	$ 784	$ 129	$ 2,436

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Stockholders' Equity Earnings per share (Narrative)(Details) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	56,874	51,862

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Condensed Consolidated Balance Sheets (unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
CURRENT ASSETS
Cash	$ 7,186	$ 10,293
Trade accounts receivable, net of allowances of $2,143 and $2,195 at September 30, 2012 and December 31, 2011, respectively	25,951	20,939
Prepaid expenses and other current assets	10,800	7,631
Inventories, net	180,879	185,764
Restricted cash	5,928	0
Income taxes receivable and prepaid income taxes	1,475	5,955
Deferred income taxes, net of valuation allowance of $12,003 at both September 30, 2012 and December 31, 2011	639	148
Total current assets	232,858	230,730
PROPERTY AND EQUIPMENT, net	65,959	67,438
DEFERRED INCOME TAXES, net of valuation allowance of $61,770 at both September 30, 2012 and December 31, 2011	1,559	1,529
OTHER ASSETS, net	33,269	25,024
TOTAL ASSETS	333,645	324,721
CURRENT LIABILITIES
Cash overdraft	2,625	1,921
Revolving credit facilities and current portion of long-term debt	71,586	50,375
Accounts payable	37,247	33,920
Accrued expenses and other current liabilities	38,750	43,725
Fair value of warrants and purchase rights liabilities	28,455	9,633
Income taxes payable	389	2,445
Deferred income tax liability, current	697	150
Current portion of capital lease obligations	1,017	1,181
Total current liabilities	180,766	143,350
LONG-TERM DEBT, net of unamortized discount of $29,959 and $20,183 at September 30, 2012 and December 31, 2011, respectively	103,964	97,142
CAPITAL LEASE OBLIGATIONS, net of current portion	1,083	1,726
DEFERRED TAX LIABILITY	108	96
DEFERRED RENT, net of current portion	21,597	22,231
OTHER LONG-TERM LIABILITIES	12,250	12,046
TOTAL LIABILITIES	319,768	276,591
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.0001 par value per share, authorized 1,000 shares; none issued	0	0
Common stock, $0.0001 par value per share, authorized 230,000 shares; 110,020 shares issued and 106,384 shares outstanding at September 30, 2012 and 108,870 shares issued and 105,588 shares outstanding at December 31, 2011	11	11
Additional paid-in capital	173,787	166,486
Accumulated other comprehensive loss	(2,735)	(3,356)
Accumulated deficit	(155,029)	(112,854)
Less: Treasury stock, 304 shares at cost	(2,157)	(2,157)
TOTAL STOCKHOLDERS' EQUITY	13,877	48,130
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 333,645	$ 324,721

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Fair Value of Financial Instruments Fair Value of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Fair Value Disclosure, Liabilities[Line Items]
Gains (Losses) on Extinguishment of Debt	$ 0	$ 0	$ 11,588	$ (3,114)
Warrant (Lion), fair value	28,455		28,455		9,633
Lion Credit Agreement [Member]
Fair Value Disclosure, Liabilities[Line Items]
Long-term debt, net carrying amount	103,614		103,614
Long-term Debt, Fair Value	100,646		100,646
Lion Warrants [Member]
Fair Value Disclosure, Liabilities[Line Items]
Warrant (Lion), fair value	28,243		28,243
SOF Warrants [Member]
Fair Value Disclosure, Liabilities[Line Items]
Warrant (Lion), fair value	212		212
Fair Value, Inputs, Level 3 [Member]
Fair Value Disclosure, Liabilities[Line Items]
Liability (level 3), carrying amount	103,614		103,614
Liabilities, Fair Value Disclosure	$ 129,101		$ 129,101

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Condensed Consolidated Statements of Cash Flows Statements (unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers	$ 439,634	$ 387,780
Cash paid to suppliers, employees and others	(431,915)	(392,684)
Income taxes refunded (paid)	646	(1,413)
Interest paid	(6,635)	(3,959)
Other	(160)	323
Net cash provided by (used in) operating activities	1,570	(9,953)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(14,257)	(7,284)
Proceeds from sale of fixed assets	70	72
Restricted cash	(5,926)	0
Net cash used in investing activities	(20,113)	(7,212)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash overdraft	704	(2,484)
Repayments of expired revolving credit facilities, net	(48,324)	(1,309)
Borrowings under current revolving credit facilities, net	39,337	0
Borrowings (repayments) of term loans and notes payable	30,042	(10)
Payment of debt issuance costs	(4,965)	(1,690)
Net proceeds from issuance of common stock and purchase rights	0	21,710
Proceeds from equipment lease financing	0	3,100
Repayment of capital lease obligations	(810)	(996)
Net cash provided by financing activities	15,984	18,321
EFFECT OF FOREIGN EXCHANGE RATE ON CASH	(548)	(844)
NET (DECREASE) INCREASE IN CASH	(3,107)	312
Cash, beginning of period	10,293	7,656
Cash, end of period	$ 7,186	$ 7,968

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Business Segment and Geographic Area Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012 countries stores	Sep. 30, 2011	Sep. 30, 2012 number_of_operating_segments countries stores	Sep. 30, 2011
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	$ 162,160	$ 140,889	$ 444,282	$ 389,760
Gross Profit	85,200	74,991	234,292	211,055
Operating Income (Loss)	4,617	(2,628)	(5,887)	(20,942)
Depreciation and amortization	5,538	6,126	17,040	19,109
Payments to Acquire Property, Plant, and Equipment	6,658	2,557	14,257	7,284
Asset Impairment Charges	0	784	129	2,436
Increase (Decrease) in Deferred Rent	(232)	(484)	(649)	(1,862)
Number of Operating Segments			4
Number of Stores	251		251
Number of Countries in which Entity Operates	20		20
Other Foreign Countries [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	1,730	1,629	4,950	4,842
Number of Countries in which Entity Operates	18		18
U.S. Wholesale [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	46,847	42,405	131,612	115,193
Gross Profit	12,873	8,897	36,582	30,518
Operating Income (Loss)	5,811	4,465	18,324	16,002
Depreciation and amortization	1,446	1,833	4,795	6,015
Payments to Acquire Property, Plant, and Equipment	3,300	838	6,502	2,179
Asset Impairment Charges		0	0	0
Increase (Decrease) in Deferred Rent	297	59	393	211
U.S Retail [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	52,714	43,104	143,444	120,483
Gross Profit	34,361	29,607	93,977	82,031
Operating Income (Loss)	3,116	(622)	449	(7,126)
Depreciation and amortization	2,747	2,599	8,074	7,887
Payments to Acquire Property, Plant, and Equipment	2,136	1,169	3,990	3,848
Asset Impairment Charges		119	0	296
Increase (Decrease) in Deferred Rent	(349)	(294)	(509)	(1,341)
Number of Stores	140		140
Canada [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	16,717	15,264	45,096	42,256
Gross Profit	10,166	9,432	26,627	25,463
Operating Income (Loss)	721	(527)	(1,888)	(1,954)
Depreciation and amortization	394	404	1,107	1,246
Payments to Acquire Property, Plant, and Equipment	328	77	1,144	209
Asset Impairment Charges		640	129	642
Increase (Decrease) in Deferred Rent	(58)	(30)	(156)	(78)
Number of Stores	35		35
International [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	45,882	40,116	124,130	111,828
Gross Profit	27,800	27,055	77,106	73,043
Operating Income (Loss)	4,192	5,339	8,339	7,618
Depreciation and amortization	951	1,290	3,064	3,961
Payments to Acquire Property, Plant, and Equipment	894	473	2,621	1,048
Asset Impairment Charges		25	0	1,498
Increase (Decrease) in Deferred Rent	(122)	(219)	(377)	(654)
Number of Stores	76		76
Operating Segments [Member]
Segment Reporting Information [Line Items]
Operating Income (Loss)	13,840	8,655	25,224	14,540
Wholesale Sales Channel [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	45,190	42,563	127,012	115,030
Wholesale Sales Channel [Member] | U.S. Wholesale [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	39,862	36,780	110,380	98,840
Wholesale Sales Channel [Member] | U.S Retail [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	0	0	0	0
Wholesale Sales Channel [Member] | Canada [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	3,215	2,958	9,449	8,711
Wholesale Sales Channel [Member] | International [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	2,113	2,825	7,183	7,479
Retail Sales Channel [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	105,056	88,292	280,484	244,788
Retail Sales Channel [Member] | U.S. Wholesale [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	0	0	0	0
Retail Sales Channel [Member] | U.S Retail [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	52,714	43,104	143,444	120,483
Retail Sales Channel [Member] | Canada [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	13,086	11,944	34,181	32,246
Retail Sales Channel [Member] | International [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	39,256	33,244	102,859	92,059
Online Sales Channel [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	11,914	10,034	36,786	29,942
Online Sales Channel [Member] | U.S. Wholesale [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	6,985	5,625	21,232	16,353
Online Sales Channel [Member] | U.S Retail [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	0	0	0	0
Online Sales Channel [Member] | Canada [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	416	362	1,466	1,299
Online Sales Channel [Member] | International [Member]
Segment Reporting Information [Line Items]
Sales Revenue, Goods, Net	$ 4,513	$ 4,047	$ 14,088	$ 12,290

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Organization and Business Debt Instruments (Details) (Debt [Member], USD $)	12 Months Ended
	Dec. 31, 2012
Debt [Member]
Debt Instruments [Line Items]
Debt Instrument, Covenant Description	$ 600,000.000

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Business Segment and Geographic Area Information

9 Months Ended

Sep. 30, 2012

Business Segment and Geographic Area Information [Abstract]

Segment Reporting Disclosure [Text Block]

Business Segment and Geographic Area Information

The Company reports the following four operating segments: U.S. Wholesale, U.S. Retail, Canada, and International. The Company believes this method of segment reporting reflects both the way its business segments are managed and the way the performance of each segment is evaluated. The U.S. Wholesale segment consists of the Company's wholesale operations of sales of imprintable apparel products to distributors and third party screen printers in the United States, as well as the Company's online consumer sales to U.S. customers. The U.S. Retail segment consists of the Company's retail operations in the United States, which was comprised of 140 retail stores operating in the United States, as of September 30, 2012. The Canada segment includes retail, wholesale and online consumer operations in Canada. As of September 30, 2012, the retail operations in the Canada segment were comprised of 35 retail stores. The International segment includes retail, wholesale and online consumer operations outside of the United States and Canada. As of September 30, 2012, the retail operations in the International segment were comprised of 76 retail stores operating in 18 countries outside the United States and Canada. All of the Company's retail stores sell the Company's apparel products directly to consumers.

The Company's management evaluates performance based on a number of factors; however, the primary measures of performance are net sales and income or loss from operations of each business segment, as these are the key performance indicators reviewed by management. Operating income or loss for each segment does not include unallocated corporate general and administrative expenses, interest expense and other miscellaneous income/expense items. Corporate general and administrative expenses include, but are not limited to: human resources, legal, finance, information technology, accounting, executive compensation and various other corporate level expenses.

The following tables represents key financial information of the Company's reportable segments before unallocated corporate expenses:

	Three Months Ended September 30, 2012
	U.S. Wholesale		U.S. Retail			Canada			International			Consolidated
Wholesale net sales	$	39,862	$	—		$	3,215		$	2,113		$	45,190
Retail net sales	—		52,714			13,086			39,256			105,056
Online consumer net sales	6,985		—			416			4,513			11,914
Total net sales to external customers	46,847		52,714			16,717			45,882			162,160
Gross profit	12,873		34,361			10,166			27,800			85,200
Income from segment operations	5,811		3,116			721			4,192			13,840
Depreciation and amortization	1,446		2,747			394			951			5,538
Capital expenditures	3,300		2,136			328			894			6,658
Deferred rent expense (benefit)	297		(349		)	(58		)	(122		)	(232		)
	Three Months Ended September 30, 2011
	U.S. Wholesale		U.S. Retail			Canada			International			Consolidated
Wholesale net sales	$	36,780	$	—		$	2,958		$	2,825		$	42,563
Retail net sales	—		43,104			11,944			33,244			88,292
Online consumer net sales	5,625		—			362			4,047			10,034
Total net sales to external customers	42,405		43,104			15,264			40,116			140,889
Gross profit	8,897		29,607			9,432			27,055			74,991
Income (loss) from segment operations	4,465		(622		)	(527		)	5,339			8,655
Depreciation and amortization	1,833		2,599			404			1,290			6,126
Capital expenditures	838		1,169			77			473			2,557
Retail store impairment	—		119			640			25			784
Deferred rent expense (benefit)	59		(294		)	(30		)	(219		)	(484		)

	Nine Months Ended September 30, 2012
	U.S. Wholesale		U.S. Retail			Canada			International			Consolidated
Wholesale net sales	$	110,380	$	—		$	9,449		$	7,183		$	127,012
Retail net sales	—		143,444			34,181			102,859			280,484
Online consumer net sales	21,232		—			1,466			14,088			36,786
Total net sales to external customers	131,612		143,444			45,096			124,130			444,282
Gross profit	36,582		93,977			26,627			77,106			234,292
Income (loss) from segment operations	18,324		449			(1,888		)	8,339			25,224
Depreciation and amortization	4,795		8,074			1,107			3,064			17,040
Capital expenditures	6,502		3,990			1,144			2,621			14,257
Retail store impairment	—		—			129			—			129
Deferred rent expense (benefit)	393		(509		)	(156		)	(377		)	(649		)
	Nine Months Ended September 30, 2011
	U.S. Wholesale		U.S. Retail			Canada			International			Consolidated
Wholesale net sales	$	98,840	$	—		$	8,711		$	7,479		$	115,030
Retail net sales	—		120,483			32,246			92,059			244,788
Online consumer net sales	16,353		—			1,299			12,290			29,942
Total net sales to external customers	115,193		120,483			42,256			111,828			389,760
Gross profit	30,518		82,031			25,463			73,043			211,055
Income (loss) from segment operations	16,002		(7,126		)	(1,954		)	7,618			14,540
Depreciation and amortization	6,015		7,887			1,246			3,961			19,109
Capital expenditures	2,179		3,848			209			1,048			7,284
Retail store impairment	—		296			642			1,498			2,436
Deferred rent expense (benefit)	211		(1,341		)	(78		)	(654		)	(1,862		)

Reconciliation of reportable segments combined income from operations for the three and nine months ended September 30, 2012 and 2011 to the consolidated (loss) income before income taxes is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Consolidated income from operations of reportable segments	$	13,840		$	8,655		$	25,224		$	14,540
Unallocated corporate expenses	(9,223		)	(11,283		)	(31,111		)	(35,482		)
Interest expense	(10,454		)	(8,832		)	(30,274		)	(23,715		)
Foreign currency transaction gain (loss)	685			(1,855		)	(141		)	(780		)
Unrealized (loss) gain on change in fair value of warrants and purchase rights	(13,312		)	6,101			(15,340		)	21,201
Gain (loss) on extinguishment of debt	—			—			11,588			(3,114		)
Other (expense) income	(36		)	186			(188		)	240
Consolidated loss before income taxes	$	(18,500	)	$	(7,028	)	$	(40,242	)	$	(27,110	)

Net sales by geographic location of customer for the three and nine months ended September 30, 2012 and 2011, are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
United States	$	99,562	$	85,509	$	275,056	$	235,676
Canada	16,717		15,264		45,096		42,256
Europe (excluding United Kingdom)	17,311		17,292		48,901		50,194
United Kingdom	12,060		9,888		32,811		27,299
South Korea	3,451		3,098		8,371		7,836
China	1,549		1,118		3,791		2,896
Japan	6,151		4,240		15,190		10,189
Australia	3,629		2,851		10,116		8,572
Other foreign countries	1,730		1,629		4,950		4,842
Total consolidated net sales	$	162,160	$	140,889	$	444,282	$	389,760

XML

Summary of Significant Accounting Policies (Details) (USD $)	9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Summary of Significant Accounting Policies [Abstract]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Liability, Transfers Into Level 3	$ 0
Fair Value, Concentration of Risk, Accounts Receivable	0.225	0.163
Deposits, Foreign	$ 5,504,000	$ 9,549,000

XML

Summary of Significant Accounting Policies Level 2 (Policies)

9 Months Ended

Sep. 30, 2012

Summary of Significant Accounting Policies [Abstract]

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted Cash

Restricted cash primarily represents cash collateral on standby letters of credit, the value of which was previously deducted against the availability of the Company's prior revolving credit agreement, and certain other obligations. The standby letters of credit are predominantly used as collateral for the Company's workers' compensation program (see Note 14).

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to credit risk consist primarily of cash (the amounts of which may, at times, exceed Federal Deposit Insurance Corporation limits on insurable amounts) and trade accounts receivable (including credit card receivables), relating substantially to the Company’s U.S. Wholesale segment. The Company mitigates its risk by investing through major financial institutions. The Company had approximately $5,504 and $9,549 held in foreign banks at September 30, 2012 and December 31, 2011, respectively.

The Company mitigates its risks related to trade receivables by performing on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information. The Company also maintains an insurance policy for certain customers based on a customer’s credit rating and established limits. Collections and payments from customers are continuously monitored. One customer in the Company's U.S. Wholesale segment accounted for 22.5% and 16.3% of the Company’s total accounts receivables as of September 30, 2012 and December 31, 2011, respectively. The Company maintains an allowance for doubtful accounts, which is based upon historical experience and specific customer collection issues that have been identified. While bad debt expenses have historically been within expectations and allowances established, the Company cannot guarantee that it will continue to experience the same credit loss rates that it has in the past.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurements

The Company’s financial instruments are primarily composed of cash, restricted cash, accounts receivable (including credit card receivables), accounts payable, revolving credit borrowings and term loan. The fair value of cash, restricted cash, accounts receivable, accounts payable, and variable rate borrowings closely approximates their carrying value due to their short maturities.

The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related asset or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.

The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible.

For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company's accounting and finance department, who report to the Chief Financial Officer, determine its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company's accounting and finance department and are approved by the Chief Financial Officer.

As of September 30, 2012, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy.

The fair value of the fixed rate term note is estimated using a projected discounted cash flow analysis based on unobservable inputs including interest payments, principal payments and discount rate, and is classified within Level 3 of the valuation hierarchy. An increase or decrease in the discount rate assumption, in isolation, can significantly decrease or increase the fair value of the term note (see Note 8).

The fair value of each warrant is estimated using either a Monte Carlo simulation model or the Binomial Lattice option valuation model. Significant observable and unobservable inputs include stock price, exercise price, annual risk free rate, term, and expected volatility, and are classified within Level 3 of the valuation hierarchy. An increase or decrease in volatility, in isolation, can significantly increase or decrease the fair value of the warrant (see Notes 8 and 11).

The fair value of indefinite-lived assets, which consists exclusively of goodwill, is measured in connection with the Company’s annual goodwill impairment test.  The fair value of the reporting unit to which goodwill has been assigned, is determined using a projected discounted cash flow analysis based on unobservable inputs including gross profit, discount rate, working capital requirements, capital expenditures, depreciation and terminal value assumptions, and are classified within Level 3 of the valuation hierarchy. An increase or decrease in the discount rate assumption and/or the terminal value assumption, in isolation, can have a significant effect on the fair value of the reporting unit.

Retail stores that have indicators of impairment and whose carrying value of assets are greater than their related projected undiscounted future cash flows, are measured for impairment by comparing the fair value of the assets against their carrying value. Fair value of the assets is estimated using a projected discounted cash flow analysis based on unobservable inputs including gross profit and discount rate, and is classified within Level 3 of the valuation hierarchy.  An increase or decrease in the discount rate assumption, in isolation, can significantly decrease or increase the fair value of the assets, which would have an effect on the impairment recorded.

Fair Value of Financial Instruments

The fair value of the Company's financial instruments are measured on a recurring basis. The carrying amount reported in the accompanying condensed consolidated balance sheets for cash, accounts receivable (including credit card receivables), accounts payable and accrued expenses approximates fair value because of the short-term maturity of those instruments. The carrying amount for borrowings under the revolving credit facilities with Crystal and the Bank of Montreal and the term loan with Crystal approximates fair value because of the variable market interest rate charged to the Company for these borrowings. The fair value of the term loan with Lion was estimated using a discounted cash flow analysis and a yield rate that was estimated using yield rates for publicly traded debt instruments of comparable companies with similar features. The fair value of each warrant was estimated using either a Monte Carlo simulation model or the Binomial Lattice option valuation model.  

Earnings Per Share, Policy [Policy Text Block]

Earnings Per Share

The Company presents earnings per share (“EPS”) utilizing a dual presentation of basic and diluted EPS. Basic EPS includes no dilution and is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

The Company had common stock under various options, warrants and other agreements at September 30, 2012 and 2011. The weighted average effects of 56,874 and 51,862 shares at September 30, 2012 and 2011, respectively, were excluded from the calculations of net loss per share for the three and nine months ended September 30, 2012 and 2011, because their impact would have been anti-dilutive.

Lease, Policy [Policy Text Block]

Operating Leases

The Company conducts retail operations under operating leases, which expire at various dates through September 2022. The Company's primary manufacturing facilities and executive offices are currently under a long-term lease, which expires on July 31, 2019. Operating lease rent expense (including real estate taxes and common area maintenance costs) was approximately $19,667 and $57,483 for the three and nine months ended September 30, 2012, respectively, and $19,612 and $58,874 for the three and nine months ended September 30, 2011, respectively. The Company did not incur any significant contingent rent during these periods. Rent expense is allocated to cost of sales (for production-related activities), selling expenses (primarily for retail stores) and general and administrative expenses in the accompanying condensed consolidated statements of operations.

Segment Reporting, Policy [Policy Text Block]

Business Segment and Geographic Area Information

The Company reports the following four operating segments: U.S. Wholesale, U.S. Retail, Canada, and International. The Company believes this method of segment reporting reflects both the way its business segments are managed and the way the performance of each segment is evaluated. The U.S. Wholesale segment consists of the Company's wholesale operations of sales of imprintable apparel products to distributors and third party screen printers in the United States, as well as the Company's online consumer sales to U.S. customers. The U.S. Retail segment consists of the Company's retail operations in the United States, which was comprised of 140 retail stores operating in the United States, as of September 30, 2012. The Canada segment includes retail, wholesale and online consumer operations in Canada. As of September 30, 2012, the retail operations in the Canada segment were comprised of 35 retail stores. The International segment includes retail, wholesale and online consumer operations outside of the United States and Canada. As of September 30, 2012, the retail operations in the International segment were comprised of 76 retail stores operating in 18 countries outside the United States and Canada. All of the Company's retail stores sell the Company's apparel products directly to consumers.

The Company's management evaluates performance based on a number of factors; however, the primary measures of performance are net sales and income or loss from operations of each business segment, as these are the key performance indicators reviewed by management. Operating income or loss for each segment does not include unallocated corporate general and administrative expenses, interest expense and other miscellaneous income/expense items. Corporate general and administrative expenses include, but are not limited to: human resources, legal, finance, information technology, accounting, executive compensation and various other corporate level expenses.

Contingent Liability Reserve Estimate, Policy [Policy Text Block]

Workers' Compensation and Other Self-Insurance Reserves

The Company uses a combination of third-party insurance and/or self-insurance for a number of risks including workers’ compensation, medical benefits provided to employees, and general liability claims. General liability costs relate primarily to litigation that arises from store operations. Self-insurance reserves include estimates of both filed claims carried at their expected ultimate settlement value and claims incurred but not yet reported. The Company’s estimated claim amounts are discounted using a rate of 0.62% with a duration that approximates the duration of the Company’s self-insurance reserve portfolio. As of September 30, 2012 the undiscounted liability amount was $14,940. The Company’s liability reflected on the accompanying condensed consolidated balance sheets represents an estimate of the ultimate cost of claims incurred as of the balance sheet dates. In estimating this liability, the Company utilizes loss development factors based on Company specific data to project the future development of incurred losses. Loss estimates are adjusted based upon actual claim settlements and reported claims. These projections are subject to a high degree of variability based upon future inflation rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns. Although the Company does not expect the amounts ultimately paid to differ significantly from its estimates, self-insurance reserves could be affected if future claim experience differs significantly from the historical trends and the assumptions applied.

The workers' compensation liability is based on an estimate of losses for claims incurred, but not paid at the end of the period. Funding is made directly to the providers and/or claimants by the insurance company. To guarantee performance under the workers' compensation program, as of September 30, 2012 and December 31, 2011, the Company had issued standby letters of credit in the amounts of $3,326 and $5,492, respectively, with three insurance companies being the beneficiaries, through a bank. At September 30, 2012, the Company recorded a total reserve of $14,685, of which $3,897 is included in accrued expenses and $10,788 is included in other long-term liabilities on the accompanying condensed consolidated balance sheets. At December 31, 2011, the Company recorded a total reserve of $14,189, of which $3,598 is included in accrued expenses and $10,591 is included in other long-term liabilities on the accompanying condensed consolidated balance sheets. These reserves for potential losses on existing claims are believed to be for potential losses, which are probable and reasonably estimable.

The Company self-insures its health insurance benefit obligations while the claims are administered through a third party administrator. The medical benefit liability is based on estimated losses for claims incurred, but not paid at the end of the period. Funding is made directly to the providers and/or claimants by the insurance company. At September 30, 2012 and December 31, 2011, the Company's total reserve of $1,910 and $1,720, respectively, was included in accrued expenses in the accompanying condensed consolidated balance sheets.

Property, Plant and Equipment, Impairment [Policy Text Block]

The Company evaluates its retail stores for indicators of impairment, specifically related to under-performance or operating losses relative to expected historical or projected future operating results. Stores whose carrying value of assets are greater than their related projected undiscounted future cash flows, are measured for impairment by comparing the fair value of the assets against their carrying value. The fair value of the assets is estimated using a projected discounted cash flow analysis (Level 3 in the fair value hierarchy). The key assumptions used in the estimates of projected cash flows were sales, gross margins, and payroll costs. These forecasts were based on historical trends and take into account recent developments, as well as the Company's plans and intentions.

Inventory, Policy [Policy Text Block]

Inventories are stated at the lower of cost or market. Cost is primarily determined on the first-in, first-out (FIFO) method. The cost elements of inventories include materials, labor and overhead. For the three and nine months ended September 30, 2012 and 2011, no one supplier provided more than 10% of the Company’s raw material purchases.

The Company identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels and other factors and provides reserves for such identified excess and slow-moving inventories. At September 30, 2012 and December 31, 2011, the Company had a lower of cost or market reserve for excess and slow-moving inventories of $2,164 and $2,050, respectively.

The Company establishes a reserve for inventory shrinkage for each of its retail locations and its warehouse. The reserve is based on the historical results of physical inventory counts. The Company had a reserve for inventory shrinkage in the amount of $1,464 and $1,882 at September 30, 2012 and December 31, 2011, respectively.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets, and liabilities at the date of the financial statements, and reported amounts of revenues, and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, and liabilities that are not readily apparent from other sources. The most complex and subjective estimates include: inventory valuation and obsolescence; valuation and recoverability of long-lived assets, including the values assigned to goodwill, property and equipment; fair value calculations, including derivative liabilities such as warrants; contingencies, including accruals for the outcome of current litigation and self-insurance liabilities; gift card liabilities; and income taxes, including uncertain tax positions and recoverability of deferred income taxes.

On a regular basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience, and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

Revenue Recognition, Gift Cards [Policy Text Block]

Gift Cards

Upon issuance of a gift card a liability is established for its cash value. The liability is relieved and net sales are recorded upon redemption by the customer. Over time, some portion of gift cards is not redeemed ("breakage"). The Company determines breakage income for gift cards based on historical redemption patterns. Breakage income is recorded in selling expenses, which is a component of operating expenses in the condensed consolidated statements of operations and comprehensive loss, when the Company can determine the portion of the selling expense where redemption is remote, which is two years after the gift card is issued. The Company's gift cards do not have expiration dates.

The Company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions the Company uses to calculate its breakage income. However, if the actual rate of redemption of gift cards increases significantly, the Company's operating results could be adversely affected.

Income Tax, Policy [Policy Text Block]

Income Taxes

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement, and tax basis of assets, and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined that it is more likely than not that those assets will not be realized. If it becomes more likely than not that a tax asset will be realized, the related valuation allowance of such assets would be reversed.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liabilities. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

The Company’s foreign domiciled subsidiaries are subject to foreign income taxes on earnings in their respective jurisdictions. The Company elected to have their foreign subsidiaries, except for its subsidiaries in Brazil, Canada, Korea, China, Spain, Italy and Ireland, consolidated in the Company’s U.S. federal income tax return. The Company will generally be eligible to receive tax credits on its U.S. federal income tax return for most of the foreign taxes paid.

The Company accounts for uncertain tax positions in accordance with Accounting Standards Codification ("ASC") 740—“Income Taxes”, and gross unrecognized tax benefits at September 30, 2012 and December 31, 2011 are included in other long-term liabilities in the accompanying condensed consolidated balance sheets. The Company accrues interest and penalties, if incurred, on unrecognized tax benefits as components of the income tax provision in the accompanying condensed consolidated statements of operations and comprehensive loss.

Income Taxes

Income taxes for the three and nine months ended September 30, 2012 were computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management. In accordance with ASC 740, “Income Taxes”, the Company evaluates whether a valuation allowance should be established against the net deferred tax assets based upon the consideration of all available evidence and using a “more likely than not” standard. Significant weight is given to evidence that can be objectively verified. The determination to record a valuation allowance is based on the recent history of cumulative losses and current operating performance. In conducting the analysis, the Company utilizes an approach, which considers the current year loss, including an assessment of the degree to which any losses are driven by items that are unusual in nature and incurred to improve future profitability. In addition, the Company reviews changes in near-term market conditions and any other factors arising during the period, which may impact its future operating results.

The Company reported income from operations for the three months ended September 30, 2012 and a loss from operations for the nine months ended September 30, 2012. The Company incurred a loss from operations for the three and nine months ended September 30, 2011 and also incurred a loss for the year ended December 31, 2011. Based primarily upon recent history of cumulative losses and the results of operations for the nine months ended September 30, 2012, the Company determined that it is more likely than not it will not realize benefits from the deferred tax assets in certain jurisdictions. The Company will not record income tax benefits in the condensed consolidated financial statements until it is determined that it is more likely than not that the Company will generate sufficient taxable income in the respective jurisdictions to realize the deferred income tax assets. As a result of the analysis, the Company determined that a full valuation allowance against the net deferred tax assets in certain jurisdictions, primarily in the U.S., and partial valuation allowances in certain foreign jurisdictions, is required. At September 30, 2012, the Company recorded valuation allowances against its current and non-current deferred tax assets totaling $73,773. At September 30, 2012 the Company had federal net operating loss carryforwards of approximately $73,271. Section 382 of the Internal Revenue Code in the United States limits the utilization of net operating losses when ownership changes, as defined by that section, occur. The Company has not completed an analysis of its Section 382 ownership changes to determine whether the utilization of certain of its net operating loss carryforwards in the United States is limited.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The Company is currently subject to audit under the statute of limitations by the Internal Revenue Service for the calendar years ended December 31, 2008 through December 31, 2011. The Company and its subsidiaries' state and foreign tax returns are open to audit under similar statute of limitations for the calendar years ended December 31, 2007 through December 31, 2011, depending on the particular jurisdiction. The Company's uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing authorities and there have been no material changes for the three months ended September 30, 2012. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax expense in the accompanying condensed consolidated statement of operations. Accrued interest and penalties are included within the related tax liability line in the accompanying condensed consolidated balance sheets. In management's opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

Subsequent Events, Policy [Policy Text Block]

Subsequent Events

The Company has evaluated events that occurred subsequent to September 30, 2012 and through the date the financial statements were available to be issued. Management concluded that no additional subsequent events required disclosure in these financial statements other than those disclosed in these notes to these financial statements.

XML

Condensed Consolidated Statements of Cash Flows RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Net loss	$ (42,175)	$ (28,152)
Depreciation and amortization of property and equipment, and other assets	17,040	19,109
Retail store impairment	129	2,436
Loss on disposal of property and equipment	28	83
Share-based compensation expense	7,333	4,538
Unrealized loss (gain) on change in fair value of warrants and purchase rights	15,340	(21,201)
Amortization of debt discount and deferred financing costs	7,655	6,120
(Gain) loss on extinguishment of debt	(11,588)	3,114
Accrued interest paid-in-kind	15,984	13,636
Foreign currency transaction loss	141	780
Allowance for inventory shrinkage and obsolescence	(339)	783
Bad debt expense	73	503
Deferred income taxes	32	793
Deferred rent	(649)	(1,862)
Changes in cash due to changes in operating assets and liabilities:
Trade accounts receivables	(4,721)	(2,483)
Inventories	6,238	(8,651)
Prepaid expenses and other current assets	(3,343)	(174)
Other assets	(5,756)	(2,880)
Accounts payable	2,471	1,492
Accrued expenses and other liabilities	(4,750)	3,227
Income taxes receivable / payable	2,427	(1,164)
Net cash provided by (used in) operating activities	1,570	(9,953)
NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment acquired, and included in accounts payable	98	1,488
Reclassification of Lion Warrant from equity to debt	0	11,339
Conversion of debt to equity	0	4,688
Issuance of warrants and purchase rights at fair value	0	6,387
Exercise of purchase rights	$ 0	$ 2,857

XML

Condensed Consolidated Balance Sheets Parenthetical (USD $) In Thousands, except Per Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Allowance for Doubtful Accounts Receivable, Current	$ 2,143	$ 2,195
Deferred Tax Assets, Valuation Allowance, Current	12,003	12,003
Deferred Tax Assets, Valuation Allowance, Noncurrent	61,770	61,770
Debt Instrument, Unamortized Discount	$ 29,959	$ 20,183
Preferred Stock, Par or Stated Value Per Share	$ 0.0001	$ 0.0001
Preferred Stock, Shares Authorized	1,000	1,000
Preferred Stock, Shares Issued	0	0
Common Stock, Par or Stated Value Per Share	$ 0.0001	$ 0.0001
Common Stock, Shares Authorized	230,000	230,000
Common Stock, Shares, Issued	110,020	108,870
Common Stock, Shares, Outstanding	106,384	105,588
Treasury Stock, Shares	304	304

XML

Related Party Transaction

9 Months Ended

Sep. 30, 2012

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

Related Party Transactions

For a description of loans made by Lion to the Company and a description of the warrants issued by the Company to Lion see Notes 7 and 11.

Personal Guarantees by the Company’s CEO

As of September 30, 2012, the CEO of the Company has personally guaranteed the obligations of American Apparel under four property leases aggregating $8,098 in obligations. Additionally, the CEO of the Company has personally guaranteed the obligations of the Company with two vendors aggregating $900.

Lease Agreement Between the Company and a Related Party

In December 2005, the Company entered into an operating lease, which commenced on November 15, 2006, for its knitting facility with a related company (“American Central Plaza, LLC”), which is partially owned by the CEO and the Chief Manufacturing Officer ("CMO") of the Company. The Company's CEO holds an 18.75% ownership interest in American Central Plaza, LLC, while the CMO holds a 6.25% interest. The remaining members of American Central Plaza, LLC are not affiliated with the Company. The lease expired in November 2011, and was subsequently extended for the next five years on substantially the same terms. Rent expense (including property taxes and insurance payments) for the three and nine months ended September 30, 2012 was $272 and $675, and for the three and nine months ended September 30, 2011 was $155 and $466, respectively.

Payments to Morris Charney

Morris Charney, (“Mr. M. Charney”), is the father of the Company's CEO and serves as a director of American Apparel Canada Wholesale Inc. and a director of American Apparel Canada Retail Inc. Day to day operations of these two Canadian subsidiaries are handled by management and other employees of these subsidiaries, none of whom performs any policy making functions for the Company. Management of American Apparel sets the policies for American Apparel and its subsidiaries as a whole. Mr. M. Charney does not perform any policy making functions for the Company or any of its subsidiaries. Instead, Mr. M. Charney only provides architectural consulting services primarily for stores located in Canada and, in limited cases, in the United States. Mr. M. Charney was paid architectural consulting and director fees amounting to $60 and $208 for the three and nine months ended September 30, 2012, and $22 and $162 for the three and nine months endedSeptember 30, 2011, respectively.

Employment Agreement with the Company's CEO

In March 2012 the Company's Board of Directors approved a three-year employment agreement with Mr. Charney commencing on April 1, 2012 that will automatically extend for successive one-year periods unless earlier terminated by the Company. The agreement provides for, among other things, a minimum annual base compensation of $800 plus performance bonuses and the right to receive 7,500 shares of the Company's common stock, subject to performance hurdles and other terms, and conditions as described in the agreement.

XML

DEI Document	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Nov. 01, 2012
Document Information [Line Items]
Entity Registrant Name		American Apparel, Inc
Entity Central Index Key		0001336545
Current Fiscal Year End Date		--12-31
Entity Filer Category		Smaller Reporting Company
Document Type		10-Q
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus		2012
Document Fiscal Period Focus		Q3
Amendment Flag		false
Entity Common Stock, Shares Outstanding			106,439,304

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Stockholders' Equity

9 Months Ended

Sep. 30, 2012

Stockholders' Equity Attributable to Parent [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

Stockholders' Equity

Common Stock Warrants

Lion Warrants

On March 13, 2012, in connection with the new credit agreement with Crystal Financial, LLC, the Company entered into an amendment to the Lion Credit Agreement (see Note 7), which required that the warrants issued to Lion be amended to, among other things, extend the term of the warrants to February 18, 2022 and add a provision pursuant to which, if American Apparel does not meet a certain quarterly EBITDA amount, the exercise price of the warrants would be reduced by $0.25 (a one-time adjustment for the first violation of such covenant; subsequent violations would not result in further adjustment). As of March 31, 2012, the Company did not meet the EBITDA requirement, and, as a result, the exercise price of the existing Lion warrants was reduced by $0.25 to $0.75 per share. The fair value for the warrants at September 30, 2012 was estimated using the Binomial Lattice option valuation model. The fair value of the warrants at September 30, 2011 was estimated using the Monte Carlo simulation valuation model. On a weighted average basis, the calculations assumed a stock price of $1.06, exercise price of $0.81, volatility of 76.05%, annual risk free rate of 2.01%, and a term of 9.78 years.

As of September 30, 2012, the fair value of the 21,606 Lion Warrants was estimated to be $28,243 and was recorded as a current liability in the accompanying condensed consolidated balance sheets.

SOF Warrants

As a result of the change in exercise price for the Lion Warrants on March 31, 2012, the exercise price of the SOF warrants were changed to $2.148 per share. As of September 30, 2012, the fair value of the SOF warrants, estimated using the Binomial Lattice option valuation model, was $212 and was recorded as a current liability in the accompanying condensed consolidated balance sheets. On a weighted average basis, the calculation as of September 30, 2012 was based on a contractual remaining term of 1.2 years, exercise price of $2.148, interest rate of 0.19%, volatility of 58.99% and no dividends.

The following table summarizes common stock warrants issued, forfeited, expired and outstanding (shares in thousands):

	Number of Shares			Weighted Average Exercise Price		Weighted Average Contractual Life (Years)
Outstanding - January 1, 2012	22,606			$	1.05	6.0
Issued (1)	44,212			0.90		7.3
Forfeited (1)	(44,212		)	1.03		—
Expired	—			—		—
Outstanding - September 30, 2012	22,606			$	0.81	9.0
Fair value - September 30, 2012	$	28,455

⁽¹⁾ Issued and forfeited warrants represents repriced shares.

Earnings Per Share

The Company presents earnings per share (“EPS”) utilizing a dual presentation of basic and diluted EPS. Basic EPS includes no dilution and is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

The Company had common stock under various options, warrants and other agreements at September 30, 2012 and 2011. The weighted average effects of 56,874 and 51,862 shares at September 30, 2012 and 2011, respectively, were excluded from the calculations of net loss per share for the three and nine months ended September 30, 2012 and 2011, because their impact would have been anti-dilutive.

A summary of the potential stock issuances under various options, warrants and other agreements that could have a dilutive effect on the shares outstanding as of September 30, 2012 and 2011 are as follows:

	2012	2011
SOF warrants	1,000	1,000
Lion warrants	21,606	21,606
Shares issuable to Mr. Charney based on market conditions (1)	20,416	20,416
Contingent shares issuable to Mr. Charney based on market conditions (2)	2,112	2,112
Contingent shares issuable to Mr. Charney based on performance factors (3)	7,500	—
Employee options & restricted shares	4,240	6,728
	56,874	51,862

⁽¹⁾ Included Charney Anti-Dilution Rights pursuant to the April 26, 2011 Investor Purchase Agreement

⁽²⁾ Pursuant to the March 24, 2011 conversion of debt to equity

⁽³⁾ Pursuant to his employment agreement commencing April 1, 2012

The table above does not include additional warrants that may be issuable to Lion pursuant to the anti-dilution provisions under the Lion Credit Agreement such as in the event anti-dilutive shares are issued to Mr. Charney pursuant to the Charney Anti-Dilution Rights.

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Condensed Consolidated Statements of Operations and Comprehensive Loss Statements (unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net sales	$ 162,160	$ 140,889	$ 444,282	$ 389,760
Cost of sales	76,960	65,898	209,990	178,705
Gross profit	85,200	74,991	234,292	211,055
Selling expenses	58,017	52,283	168,258	152,536
General and administrative expenses (including related party charges of $332 and $177 for the three months ended September 30, 2012 and 2011, respectively, and $883 and $628 for the nine months ended September 30, 2012 and 2011, respectively)	22,566	24,552	71,792	77,025
Retail store impairment	0	784	129	2,436
Income (loss) from operations	4,617	(2,628)	(5,887)	(20,942)
Interest expense	10,454	8,832	30,274	23,715
Foreign currency transaction (gain) loss	(685)	1,855	141	780
Unrealized loss (gain) on change in fair value of warrants and purchase rights	13,312	(6,101)	15,340	(21,201)
(Gain) loss on extinguishment of debt	0	0	(11,588)	3,114
Other expense (income)	36	(186)	188	(240)
Loss before income taxes	(18,500)	(7,028)	(40,242)	(27,110)
Income tax provision	512	166	1,933	1,042
Net loss	(19,012)	(7,194)	(42,175)	(28,152)
Basic and diluted loss per share	$ (0.18)	$ (0.07)	$ (0.40)	$ (0.32)
Weighted average basic and diluted shares outstanding	106,248	102,279	105,960	88,614
Net loss (from above)	(19,012)	(7,194)	(42,175)	(28,152)
Other comprehensive income (loss) item [Abstract]
Foreign currency translation, net of tax	1,073	(1,279)	622	135
Other comprehensive income (loss), net of tax	1,073	(1,279)	622	135
Comprehensive loss	$ (17,939)	$ (8,473)	$ (41,553)	$ (28,017)

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Accrued Expenses and Other Current Liabilities

9 Months Ended

Sep. 30, 2012

Accrued Expenses [Abstract]

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

Accrued Expenses and Other Current Liabilities

The components of accrued expenses and other current liabilities are as follows:

	September 30, 2012		December 31, 2011
Compensation, bonuses and related taxes	$	9,682	$	11,339
Workers' compensation and other self-insurance reserves (Note 14)	5,807		5,318
Sales, value and property taxes	3,640		3,721
Gift cards and store credits	4,223		6,939
Loss contingencies	572		1,575
Accrued vacation	898		790
Deferred revenue	830		892
Deferred rent	2,303		2,170
Other	10,795		10,981
Total accrued expenses	$	38,750	$	43,725

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Property and Equipment

9 Months Ended

Sep. 30, 2012

Property and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

Property and Equipment

Depreciation and amortization expense relating to property and equipment (including capitalized leases) is recorded in cost of sales and operating expenses. For the three and nine months ended September 30, 2012, depreciation and amortization expense was $5,538 and $17,040, respectively. For the three and nine months ended September 30, 2011, depreciation and amortization expense was $6,126 and $19,109, respectively.

The Company evaluates its retail stores for indicators of impairment, specifically related to under-performance or operating losses relative to expected historical or projected future operating results. Stores whose carrying value of assets are greater than their related projected undiscounted future cash flows, are measured for impairment by comparing the fair value of the assets against their carrying value. The fair value of the assets is estimated using a projected discounted cash flow analysis (Level 3 in the fair value hierarchy). The key assumptions used in the estimates of projected cash flows were sales, gross margins, and payroll costs. These forecasts were based on historical trends and take into account recent developments, as well as the Company's plans and intentions.

Based upon the results of the analyses above, the Company determined that no impairment charges for the three months ended September 30, 2012 were required. For the nine months ended September 30, 2012, the Company incurred impairment charges of $129 relating to a store closure in Canada. For the three and nine months ended September 30, 2011, the Company incurred impairment charges of $784 and $2,436, respectively, primarily related to certain retail store leasehold improvements and key money in the International and the U.S. Retail segments.

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Litigation

9 Months Ended

Sep. 30, 2012

Litigation [Abstract]

Legal Matters and Contingencies [Text Block]

Litigation

The Company is subject to various claims and contingencies in the ordinary course of business, including those related to litigation, business transactions, employee-related matters and taxes, and others. When the Company is aware of a claim or potential claim, the Company assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss. In addition to the estimated loss, the recorded liability includes probable and estimable legal costs associated with the claim or potential claim. There is no assurance that such matters will not materially and adversely affect the Company's business, financial position, and results of operations or cash flows.

On February 7, 2006, Sylvia Hsu, a former employee of American Apparel, filed a Charge of Discrimination with the Los Angeles District Office of the Equal Employment Opportunity Commission (“EEOC”) (Hsu v. American Apparel: Charge No. 480- 2006-00418), alleging that she was subjected to sexual harassment by a co-worker and constructively discharged as a result of the sexual harassment and a hostile working environment. On March 9, 2007, the EEOC expanded the scope of its investigation to other employees of American Apparel who may have been sexually harassed. On August 9, 2010, the EEOC issued a written determination finding that reasonable cause exists to believe the Company discriminated against Ms. Hsu and women, as a class, on the basis of their female gender, by subjecting them to sexual harassment. No finding was made on the issue of Ms. Hsu's alleged constructive discharge. In its August 19, 2010 written determination, the EEOC has invited the parties to engage in informal conciliation. If the parties are unable to reach a settlement, which is acceptable to the EEOC, the EEOC will advise the parties of the court enforcement alternatives available to Ms. Hsu, aggrieved persons, and the EEOC. The insurance carrier for the Company has asserted that it is not obligated to provide coverage for this proceeding.  The Company has not recorded a provision for this matter and intends to work cooperatively with the EEOC to resolve the claim in a manner acceptable to all parties. Should the matter be decided against the Company, the Company could experience an increase in similar suits and suffer reputational harm. The Company does not at this time believe that any settlement will involve the payment of damages in an amount that would be material to and adversely affect the Company's business, financial position, and results of operations and cash flows.

On November 5, 2009, Guillermo Ruiz, a former employee of American Apparel, filed suit against the Company on behalf of putative classes of all current and former non-exempt California employees (Guillermo Ruiz, on behalf of himself and all others similarly situated v. American Apparel, Inc., Case Number BC425487) in the Superior Court of the State of California for the County of Los Angeles, alleging the Company failed to pay certain wages due for hours worked, to provide meal and rest periods or compensation in lieu thereof and to pay wages due upon termination to certain of the Company's employees. The complaint further alleges that the Company failed to comply with certain itemized employee wage statement provisions and violations of unfair competition law.  The plaintiff is seeking compensatory damages and economic and/or special damages in an unspecified amount, premium pay, wages and penalties, injunctive relief and restitution, and reimbursement for attorneys' fees, interest and the costs of the suit. This matter is now proceeding in arbitration. The Company does not have insurance coverage for this matter. Should the matter be decided against the Company, the Company could not only incur substantial liability but also experience an increase in similar suits and suffer reputational harm. The Company has accrued an estimate for this loss contingency in its accompanying condensed consolidated balance sheet as of September 30, 2012.  The Company may have an exposure to loss in excess of the amounts accrued, however, an estimate of such potential loss cannot be made at this time. Moreover, no assurance can be made that this matter either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, larger than the Company's estimate, which could have a material adverse effect upon its financial condition and results of operations.

On June 21, 2010 Antonio Partida, a former employee of American Apparel, filed suit against the Company on behalf of putative classes of current and former non-exempt California employees (Antonio Partida, on behalf of himself and all others similarly situated v. American Apparel (USA), LLC, Case No. 30-2010-00382719-CU-OE-CXC) in the Superior Court of the State of California for the County of Orange, alleging the Company failed to pay certain wages for hours worked, to provide meal and rest periods or compensation in lieu thereof, and to pay wages due upon separation. The complaint further alleges that the Company failed to timely pay wages, unlawfully deducted wages and failed to comply with certain itemized employee wage statement provisions and violations of unfair competition law. The plaintiff is seeking compensatory damages and economic and/or special damages in an unspecified amount, premium pay, wages and penalties, injunctive relief and restitution, and reimbursement of attorneys' fees, interest and the costs of the suit. This matter is now proceeding in arbitration. There is no known insurance coverage for this matter. Should the matter be decided against the Company, the Company could not only incur substantial liability but also experience an increase in similar suits and suffer reputational harm. The Company has accrued an estimate for this loss contingency in its accompanying condensed consolidated balance sheet as of September 30, 2012.  The Company may have an exposure to loss in excess of the amounts accrued, however, an estimate of such potential loss cannot be made at this time.  Moreover, no assurance can be made that this matter either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, larger than its estimate, which could have a material adverse effect upon the Company's financial condition and results of operations.

On or about December 2, 2010, Emilie Truong, a former employee of American Apparel, filed suit against the Company on behalf of putative classes of current and former non-exempt California employees (Emilie Truong, individually and on behalf of all others similarly situated v. American Apparel, Inc. and American Apparel LLC, Case No. BC450505) in the Superior Court of the State of California for the County of Los Angeles, alleging the Company failed to timely provide final paychecks upon separation.  Plaintiff is seeking unspecified premium wages, attorneys' fees and costs, disgorgement of profits, and an injunction against the alleged unlawful practices. This matter is now proceeding in arbitration. There is no known insurance coverage for this matter. Should the matter be decided against the Company, the Company could not only incur substantial liability, but also experience an increase in similar suits and suffer reputational harm.  The Company is unable to predict the financial outcome of these matters at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matters proceed through their course. However, no assurance can be made that these matters, either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, which could have a material adverse effect upon its financial condition and results of operations.

On or about February 9, 2011, Jessica Heupel, a former retail employee filed suit on behalf of putative classes of current and former non-exempt California employees (Jessica Heupel, individually and on behalf of all others similarly situated v. American Apparel Retail, Inc., Case No. 37-2011-00085578-CU-OE-CTL) in the Superior Court of the State of California for the County of San Diego, alleging the Company failed to pay certain wages for hours worked, to provide meal and rest periods or compensation in lieu thereof, and to pay wages due upon separation.  The plaintiff is seeking monetary damages as follows: (1) for alleged meal and rest period violations; (2) for alleged failure to timely pay final wages, as well as for punitive damages for the same; and (3) unspecified damages for unpaid minimum wage and overtime.  In addition, Plaintiff seeks premium pay, wages and penalties, injunctive relief and restitution, and reimbursement of attorneys' fees, interest and the costs of the suit.   This matter is now proceeding in arbitration. There is no known insurance coverage for this matter. Should the matter be decided against the Company, the Company could not only incur substantial liability, but also experience an increase in similar suits and suffer reputational harm.  The Company is unable to predict the financial outcome of these matters at this time, and any views formed as to the viability of these claims or the financial exposure, which result may change from time to time as the matters proceed through their course. However, no assurance can be made that these matters, either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, which could have a material adverse effect upon its financial condition and results of operations.

On or about September 9, 2011, Anthony Heupel, a former retail employee initiated arbitration proceedings on behalf of putative classes of current and former non-exempt California employees, alleging the Company failed to pay certain wages for hours worked, to provide meal and rest periods or compensation in lieu thereof, and to pay wages due upon separation.  The plaintiff is seeking monetary damages in an amount in excess of $3,600, as follows: (1) for alleged meal and rest period violations; (2) for alleged failure to timely pay final wages, as well as for punitive damages for the same; and (3) unspecified damages for unpaid minimum wage and overtime.  In addition, Plaintiff seeks premium pay, wages and penalties, injunctive relief and restitution, and reimbursement of attorneys' fees, interest and the costs of the suit. There is no known insurance coverage for this matter. Should the matter be decided against the Company, the Company could not only incur a substantial liability, but also experience an increase in similar suits and suffer reputational harm.  The Company is unable to predict the financial outcome of these matters at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matters proceed through their course. However, no assurance can be made that these matters, either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, which could have a material adverse effect upon its financial condition and results of operations.

Two shareholder derivative lawsuits, entitled Nikolai Grigoriev v. Dov Charney, et al., Case No. CV106576 GAF (JCx) (the “Grigoriev Action”) and Andrew Smukler v. Dov Charney, et al., Case No. CV107518 RSWL (FFMx) (the “Smukler Action”), were filed in the United States District Court for the Central District of California on September 2, 2010 and October 7, 2010, respectively, and four shareholder derivative lawsuits, entitled John L. Smith v. Dov Charney, et al., Case No. BC 443763 (the "Smith Action"), Lisa Kim v. Dov Charney, et al., Case No. BC 443902 (the "Kim Action"), Teresa Lankford v. Dov Charney, et al., Case No. BC 445094 (the "Lankford Action"), and Wesley Norris v. Dov Charney, et al., Case No. BC 447890 (the "Norris Action") were filed in the Superior Court of the State of California for the County of Los Angeles on August 16, 2010, September 3, 2010, September 7, 2010, and October 21, 2010, respectively, by persons identifying themselves as American Apparel shareholders and purporting to act on behalf of American Apparel, naming American Apparel as a nominal defendant and certain current and former officers, directors, and executives of the Company as defendants.

Plaintiffs in the Smith Action, Kim Action, and Norris Action allege causes of action for breach of fiduciary duty arising out of (i) the Company's alleged failure to maintain adequate accounting and internal control policies and procedures; and (ii) the Company's alleged violation of state and federal immigration laws in connection with the previously disclosed termination of over 1,500 employees following an Immigration and Customs Enforcement inspection.  The Lankford Action alleges seven causes of action for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets also arising out of (i) the Company's alleged failure to maintain adequate accounting and internal control policies and procedures; and (ii) the Company's alleged violation of state and federal immigration laws in connection with the previously disclosed termination of over 1,500 employees following an Immigration and Customs Enforcement inspection.  On November 4, 2010, the four lawsuits filed in the Superior Court of the State of California were consolidated for all purposes into a case entitled In re American Apparel, Inc. Shareholder Derivative Litigation, Lead Case No. BC 443763 (the "State Derivative Action").  On April 12, 2011, the Court issued an order staying the State Derivative Action on the grounds that the case is duplicative of the Federal Derivative Action, as well as the Federal Securities Action currently pending in the United States District Court for the Central District of California (see below).

On November 12, 2010, the Grigoriev Action and Smukler Action were consolidated for all purposes into a case entitled In re American Apparel, Inc. Shareholder Derivative Litigation, Lead Case No. CV106576 (the “Federal Derivative Action”).  Plaintiffs in the Federal Derivative Action filed a Consolidated Amended Shareholder Derivative Complaint on June 13, 2011.  The amended complaint alleges a cause of action for breach of  fiduciary duty arising out of (i) the Company's alleged failure to maintain adequate accounting and internal control policies and procedures; (ii) the Company's alleged violation of state and federal immigration laws in connection with the previously disclosed termination of over 1,500 employees following an Immigration and Customs Enforcement inspection; and (iii) the Company's alleged failure to implement controls sufficient to prevent a sexually hostile and discriminatory work environment. Plaintiffs in each of the derivative cases seek damages on behalf of American Apparel in an unspecified amount, as well as equitable and injunctive relief. The Company does not maintain any exposure to loss in connection with these shareholder derivative lawsuits. The lawsuits do not assert any claims against the Company. The Company's status as a “Nominal Defendant” in the actions reflects the fact that the lawsuits are maintained by the named plaintiffs on behalf of American Apparel and that plaintiffs seek damages on the Company's behalf. On August 29, 2011, defendants filed a motion to dismiss the Federal Derivative Action.  A hearing on the motion was held on December 12, 2011.  On July 31, 2012, the Court dismissed the Federal Derivative Action, with leave to amend. Plaintiffs in the Federal Derivative Action subsequently filed a motion to dismiss each of their claims, with prejudice, for the stated purpose of taking an immediate appeal of the Court's July 31, 2012 order. On October 16, 2012, the Court granted the Plaintiffs' motion to dismiss the consolidated derivative complaint and entered judgment accordingly. On November 12, 2012, Plaintiffs filed a Notice of Appeal to the Ninth Circuit Court of Appeals.

Four putative class action lawsuits, entitled Anthony Andrade v. American Apparel, et al., Case No. CV106352 MMM (RCx), Douglas Ormsby v. American Apparel, et al., Case No. CV106513 MMM (RCx), James Costa v. American Apparel, et al., Case No. CV106516 MMM (RCx), and Wesley Childs v. American Apparel, et al., Case No. CV106680 GW (JCGx), were filed in the United States District Court for the Central District of California on August 25, 2010, August 31, 2010, August 31, 2010, and September 8, 2010, respectively, against American Apparel and certain of the Company's officers and executives on behalf of American Apparel shareholders who purchased the Company's common stock between December 19, 2006 and August 17, 2010. On December 3, 2010, the four lawsuits were consolidated for all purposes into a case entitled In re American Apparel, Inc. Shareholder Litigation, Lead Case No. CV106352 MMM (JCGx) (the “Federal Securities Action”). On March 14, 2011, the Court appointed the firm of Barroway Topaz, LLP (now Kessler Topaz Meltzer & Check, LLP) to serve as lead counsel and Mr. Charles Rendelman to serve as lead plaintiff. On April 29, 2011, Mr. Rendelman filed a Consolidated Class Action Complaint against American Apparel, certain of the Company's officers, and Lion, alleging two causes of action for violations of Section 10(b) and 20(a) of the 1934 Act, and Rules 10b-5 promulgated under Section 10(b), arising out of alleged misrepresentations contained in the Company's press releases, public filings with the SEC, and other public statements relating to (i) the adequacy of the Company's internal and financial control policies and procedures; (ii) the Company's employment practices; and (iii) the effect that the dismissal of over 1,500 employees following an Immigration and Customs Enforcement inspection would have on the Company. Plaintiff seeks damages in an unspecified amount, reasonable attorneys' fees and costs, and equitable relief as the Court may deem proper.  On May 31, 2011, defendants filed a motion to dismiss the Federal Securities Action. On January 13, 2012, the Court dismissed the Federal Securities Action, with leave to amend. Plaintiff filed an amended complaint on February 27, 2012. The Company moved to dismiss the amended complaint on March 30, 2012. A hearing on the motion was heard on May 21, 2012. The Court took the matter under submission. Discovery is stayed in the Federal Securities Action, as well as in the Federal Derivative Action, pending resolution of motions to dismiss the Federal Securities Action.

The Company is unable to predict the financial outcome of these matters at this time, and any views formed as to the viability of these claims or the financial exposure, which could result may change from time to time as the matters proceed through their course. However, no assurance can be made that these matters, either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, which could have a material adverse effect upon the Company's financial condition and results of operations.

On February 17, 2011, the Company filed complaints in arbitration against five former employees seeking: (1) declaratory relief that the arbitration, confidentiality, severance and bonus agreements signed by the former employees are valid and enforceable; (2) damages in the event the former employees or anyone of them breaches their confidentiality agreements, as threatened; (3) attorneys' fees and costs incurred to compel the suit into arbitration; (4) declaratory relief that the former employees' claims of sexual harassment and sexual assault are false and without merit; and (5) declaratory relief that the former employees have attempted to engage in abuse of process for the purpose of extorting from the Company and Dov Charney money solely to avoid public shame and economic loss. On March 4, 2011, one such former employee filed suit against American Apparel, Dov Charney, and certain members of the Board of Directors of American Apparel in the Supreme Court of New York, County of Kings, Case No. 5018-11.  The suit alleges sexual harassment, gender discrimination, retaliation, negligent hiring and supervision, intentional and negligent infliction of emotional distress, fraud and unpaid wages, and seeks, among other things, an award of compensatory damages, exemplary damages, attorneys' fees and costs, all in an amount of at least $250,000 (the "New York Suit"). In March 2012, the court ordered this case into arbitration. On March 23, 2011, three of the other former employees filed a consolidated suit against American Apparel and Dov Charney in the Superior Court of the State of California for the County of Los Angeles, Case No. BC457920 (the "Los Angeles Suit"). Such action alleges sexual harassment, failure to prevent harassment and discrimination, intentional infliction of emotional distress, assault and battery, and a declaratory judgment that the confidentiality and arbitration agreements signed by plaintiffs are unenforceable. Such action seeks monetary damages, various forms of injunctive relief, and attorneys' fees and costs. On July 28, 2011, the court ordered this case into arbitration.  The Company's insurance carrier has acknowledged coverage of the New York Suit and Los Angeles Suit, subject to a deductible and a reservation of rights.

On April 27, 2011, three of the former employees filed suit against the Company, Dov Charney and a Company employee in the Superior Court of the State of California for the County of Los Angeles, Case No. BC460331, asserting claims for Impersonation through Internet or Electronic Means, Intentional Infliction of Emotional Distress, Defamation, Invasion of Privacy/False Light, and Invasion of Privacy/Appropriation of Likeness. Such action seeks monetary damages, injunctive relief and attorneys' fees and costs.  The Court has ordered this case into arbitration.  The Company's insurance carrier has acknowledged coverage of this suit, subject to a deductible and a reservation of rights.

The Company is currently engaged in other employment-related claims and other matters incidental to its business.  The Company believes that all such claims against the Company are without merit or not material, and the Company intends to vigorously dispute the validity of the plaintiffs' claims.  Should these matters be decided against the Company, the Company could not only incur substantial liability but also experience an increase in similar suits and suffer reputational harm. While the ultimate resolution of such claims cannot be determined, based on information at this time, the Company believes the amount, and ultimate liability, if any, with respect to these actions will not materially affect the Company's business, financial position, results of operations, or cash flows.  The Company cannot assure you, however, that such actions will not have a material adverse effect on its consolidated results of operations, financial position or cash flows.

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Shared-Based Compensation

9 Months Ended

Sep. 30, 2012

Share-Based Compensation Plans [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Share-Based Compensation

Plans Description

2007 Plan

On December 12, 2007, the Company's stockholders approved the 2007 Performance Equity Plan (as amended, the “2007 Plan”). The 2007 Plan authorizes the granting of a variety of incentive awards, the exercise or vesting of which would allow up to an aggregate of 11,000 shares of the Company's common stock to be acquired by the holders of such awards. The purpose of the 2007 Plan is to enable the Company to offer its employees, officers, directors and consultants whose past, present and/or potential contributions to the Company has been, are or will be important to the success of the Company, an opportunity to acquire a proprietary interest in the Company. The 2007 Plan provides for various types of incentive awards including, but not limited to: incentive stock options, non-qualifying stock options, reload stock options, restricted stock and stock appreciation rights. The 2007 Plan enables the compensation committee to exercise its discretion to determine virtually all terms of each grant, which allowed the Company to respond to changes in compensation practices, tax laws, accounting regulations and the size and diversity of its business.

2011 Plan

On June 21, 2011 the Company's Board of Directors and stockholders approved the American Apparel, Inc. 2011 Omnibus Stock Incentive Plan (the “2011 Plan”). The 2011 Plan authorizes the granting of a variety of incentive awards, the exercise or vesting, of which would allow up to an aggregate of 10,000 shares of the Company's common stock to be acquired by the holders of such awards. The purpose of the 2011 Plan is to provide an incentive to selected employees, directors, independent contractors, and consultants of the Company or its affiliates, and provides that the Company may grant options, stock appreciation rights, restricted stock, and other stock-based and cash-based awards. The 2011 Plan provides for each of the Company's non-employee directors to automatically receive an annual stock grant, equal to the number of shares of the Company's common stock having an aggregate market value of $80, at the beginning of each year of Board service. As of September 30, 2012, there were approximately 9,295 shares available for future grants under the 2011 Plan.

Restricted Share Awards - The following table summarizes shares of restricted stock that were granted, vested, forfeited and outstanding under the 2007 and 2011 Plans (shares in thousands):

	Number of Restricted Shares		Weighted Average Grant Date Fair Value		Weighted Average Remaining Vesting Period (in years)
Non-vested - January 1, 2012	3,186		$	1.45	2.7
Granted	1,348		0.92
Vested	(796	)	0.88
Forfeited	(198	)	1.25
Non-vested - September 30, 2012	3,540		$	1.38	1.1

Vesting of the restricted share awards to employees may be either immediately upon grant or over a period of four to five years of continued service by the employee in equal annual installments. Share-based compensation is recognized over the vesting period based on the grant-date fair value.

Stock Option Awards - The following table summarizes stock options granted, forfeited, expired and outstanding (shares in thousands):

	Number of Shares		Weighted Average Exercise Price		Weighted Average Contractual Remaining Life (Years)	Aggregate Intrinsic Value
Outstanding - January 1, 2012	950		$	1.06	9.5
Granted	—		—		—
Forfeited	—		—		—
Expired	(250	)	1.75		—
Outstanding - September 30, 2012	700		$	0.82	9.0
Vested (exercisable) - September 30, 2012	350		$	0.82	9.0	$	—
Non-vested (exercisable) - September 30, 2012	350		$	0.82	9.0	$	—

Share-Based Compensation Expense

During the three months ended September 30, 2012 and 2011, the Company recorded share-based compensation expense of $2,949 and $2,093, respectively, related to its share-based compensation awards that are expected to vest. During the nine months ended September 30, 2012 and 2011, the Company recorded share-based compensation expense of $7,333 and $4,538, respectively, related to its share-based compensation awards that are expected to vest. No amounts have been capitalized. As of September 30, 2012 unrecorded compensation cost related to non-vested awards was $11,024, which is expected to be recognized through 2015.

CEO Anti-Dilution Rights - During the three months ended September 30, 2012 and 2011, the Company recorded share-based compensation expense (included in the above) associated with Mr. Charney's certain anti-dilution rights of $1,105 and $1,197, respectively. During the nine months ended September 30, 2012 and 2011, the Company recorded share-based compensation expense of $3,599 and $1,808, respectively. As of September 30, 2012, unrecorded compensation cost was $3,431, which is expected to be recognized through 2015.

On October 16, 2012, the Company and Mr. Charney entered into an amendment to the anti-dilution provisions contained in the Purchase Agreement with Mr. Charney dated as of April 27, 2011. Subject to receipt of any required shareholder approval under the rules of the NYSE MKT, the amendment extends by one year the measurement periods for Mr. Charney’s anti-dilution protection provisions and reduces the length of the corresponding stock price target periods from 60 days to 30 days. As of October 16, 2012, the fair value of these awards of $13,192 was determined under the Monte Carlo simulation pricing model. The calculation was based on the exercise price of $0, the stock price of $1.3, annual risk free rate of 0.45%, volatility of 90.46% and a term of 3.5 years.

CEO Performance-Based Award - Pursuant to an employment agreement with Mr. Charney commencing on April 1, 2012, the Company provided to the CEO rights to 7,500 shares of the Company's stock (see Note 10). The shares are issuable in three equal installments, one per each measurement period, only upon the achievement of certain EBITDA targets for each of fiscal 2012, 2013 and 2014. The grant date fair value of the award is based on the share price of $0.75 and will be recognized over the related service and amortization period in three probability-weighted terms of 1.2, 2.1 and 3.1 years corresponding to the three measurement periods. During the three and nine months ended September 30, 2012, the Company recorded share-based compensation expense of $859 and $1,718, respectively. As of September 30, 2012, unrecorded compensation cost was $3,906, which is expected to be recognized through 2015.

Non-Employee Directors

On April 1, 2012, July 2, 2012 and October 1, 2012, the Company issued a quarterly stock grant to each non-employee director of approximately 12, 11 and 7 shares of common stock, based upon the closing prices of $0.82, $0.90 and $1.53 per share, respectively. Additionally, Messrs. Danzinger and Igelman each received an additional 23 shares for services performed during the second half of 2011. The share-based compensation is reflected in operating expenses in the accompanying condensed consolidated statements of operations.

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Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2012

Fair Value of Financial Instruments [Abstract]

Fair Value, Measurement Inputs, Disclosure [Text Block]

Fair Value of Financial Instruments

The fair value of the Company's financial instruments are measured on a recurring basis. The carrying amount reported in the accompanying condensed consolidated balance sheets for cash, accounts receivable (including credit card receivables), accounts payable and accrued expenses approximates fair value because of the short-term maturity of those instruments. The carrying amount for borrowings under the revolving credit facilities with Crystal and the Bank of Montreal and the term loan with Crystal approximates fair value because of the variable market interest rate charged to the Company for these borrowings. The fair value of the term loan with Lion was estimated using a discounted cash flow analysis and a yield rate that was estimated using yield rates for publicly traded debt instruments of comparable companies with similar features. The fair value of each warrant was estimated using either a Monte Carlo simulation model or the Binomial Lattice option valuation model.  

The Company did not have any assets or liabilities categorized as Level 1 as of September 30, 2012.

The carrying amounts and fair values of the Company's financial instruments are presented below as of September 30, 2012:

	Carrying Amount			Fair Value
Liabilities
Long-term debt with Lion, net of discount of $29,959 and including interest paid-in-kind of $12,433 (Level 3)	$	103,614		$	100,646
Lion Warrant (Level 3)	—		(a)	28,243
SOF Warrant (Level 3)	—		(a)	212
	$	103,614		$	129,101

 (a) no cost is associated with these liabilities (see Note 11)

The following summarizes the activity of Level 3 inputs measured on a recurring basis:

Fair Value Measurements of Common Stock Warrants and Purchase Rights using Significant Unobservable Inputs (Level 3)	Nine Months Ended September 30,
	2012		2011
Balance at January 1,	$	9,633	$	993
Additions	—		38,154
Exercises	—		(2,857		)
Adjustment resulting from change in value recognized in earnings	15,340		(24,391		)
Gain on extinguishment of debt (see Note 7)	3,482		—
Balance at September 30,	$	28,455	$	11,899

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Business Segment and Geographic Area Information Reconciliation of reportable segments combined loss from operations to the consolidated loss before income taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Segment Reporting Information [Line Items]
Foreign currency transaction gain (loss), before Tax	$ 685	$ (1,855)	$ (141)	$ (780)
Unrealized gain (loss) on change in fair value of warrants and purchase rights	(13,312)	6,101	(15,340)	21,201
Gain (loss) on extinguishment of debt	0	0	11,588	(3,114)
Other Income	(36)	186	(188)	240
Consolidated income (loss) before income taxes	(18,500)	(7,028)	(40,242)	(27,110)
Unallocated Amount to Segment [Member]
Segment Reporting Information [Line Items]
Unallocated corporate expenses	(9,223)	(11,283)	(31,111)	(35,482)
Consolidated Entities [Member]
Segment Reporting Information [Line Items]
Interest expense	(10,454)	(8,832)	(30,274)	(23,715)
Foreign currency transaction gain (loss), before Tax	685	(1,855)	(141)	(780)
Unrealized gain (loss) on change in fair value of warrants and purchase rights	(13,312)	6,101	(15,340)	21,201
Gain (loss) on extinguishment of debt	0	0	11,588	(3,114)
Other Income	(36)	186	(188)	240
Consolidated income (loss) before income taxes	$ (18,500)	$ (7,028)	$ (40,242)	$ (27,110)

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Revolving Credit Facilities and Current Portion of Long-Term Debt

9 Months Ended

Sep. 30, 2012

Revolving Credit Facilities and Current Portion of Long-Term Debt [Abstract]

Short-term Debt [Text Block]

Revolving Credit Facilities and Current Portion of Long-Term Debt

Revolving credit facilities and current portion of long-term debt consists of the following:

	September 30, 2012		December 31, 2011
Revolving credit facility (Crystal), maturing March 2015	$	35,576	$	—
Term loan (Crystal), maturing March 2015	30,000		—
Revolving credit facility (Bank of America), replaced in March 2012	—		48,324
Revolving credit facility (Bank of Montreal), maturing December 2012	5,901		1,995
Current portion of long-term debt (Note 7)	109		56
Total revolving credit facilities and current portion of long-term debt	$	71,586	$	50,375

The Company incurred interest charges of $10,454 and $30,274 for the three and nine months ended September 30, 2012, respectively, and $8,832 and $23,715 for the three and nine months ended September 30, 2011, respectively, for all outstanding borrowings. The interest charges subject to capitalization for the three and nine months ended September 30, 2012 and 2011 were not significant.

Revolving Credit Facility and Term Loan - Crystal

On March 13, 2012, the Company replaced its existing revolving credit facility of $75,000 with BofA with a $80,000 senior secured credit facility with Crystal Financial LLC ("Crystal" and the credit facility the "Crystal Credit Agreement"), and other lenders. The Crystal Credit Agreement calls for the $80,000 to be allocated between an asset based revolving credit facility of $50,000 and term loan of $30,000. Borrowings under the Crystal Credit Agreement are subject to certain borrowing reserves based on eligible inventory and accounts receivable. In addition, the initial borrowing base under the revolving credit facility was increased by $12,500 for the value associated with the brand name. On August 30, 2012, the Company entered into a second amendment to the Crystal Credit Agreement ("Crystal Second Amendment"), which extended until December 31, 2012 the period during which loans under the Crystal Credit Agreement based on the American Apparel brand name may remain outstanding. This initial increase based on the brand name will be ratably reduced to $0 during the period from April 13, 2012 through January 1, 2013. The Crystal Credit Agreement matures on March 13, 2015 and is collateralized by substantially all of the Company's U.S. and U.K. assets and equity interests in certain of its foreign subsidiaries. The amount available for additional borrowings on September 30, 2012 was $1,443.

Among other provisions, the Crystal Credit Agreement requires that the Company maintain an arrangement similar to a traditional lockbox and contains certain subjective acceleration clauses. In addition, Crystal may at its discretion, adjust the advance restriction and criteria for eligible inventory, and accounts receivable. Consequently, the amounts outstanding under the Crystal Credit Agreement are classified as a current liability.

As of September 30, 2012, the interest rate under the agreement was 9.47% (the 90-day LIBOR at 0.47% plus 9.0%) and also included an unused facility fee ranging from 0.375% to 1.0% on the unused portion of the revolving credit facility, payable monthly. Beginning August 30, 2012, as a result of the second amendment, the interest rate with respect to the brand name portion of the outstanding principal amount of the revolving credit facility of $5,000 was 20.22% (the 90-day LIBOR at 0.47% plus 19.75%). The Crystal Credit Agreement also includes an early termination fee if the term loan is prepaid or if the commitments under the revolving credit facility are permanently reduced of (a) 3.0% if such payment or reduction occurs in the first year, (b) 2.0% if such payment or reduction occurs in the second year, and (c) 0.0% thereafter.

In connection with the financing from Crystal, the Company entered into amendments to the Lion Credit Agreement. See Notes 7 and 11.

Significant covenants in the Crystal Credit Agreement include a minimum excess availability covenant that requires us to maintain minimum excess availability of the greater of (1) $8,000, or (2) 10.0% of the borrowing base. If the excess availability falls below this minimum, then we will be required to maintain a fixed charge coverage ratio of not less than 1.00:1.00 to be calculated monthly on a consolidated trailing twelve-month basis and continuing until the excess availability exceeds this minimum for sixty consecutive days. The Crystal Second Amendment adds a new minimum excess availability covenant that requires the Company to maintain minimum excess availability to be no less than $5,000 during the period from December 17, 2012 to February 1, 2012 and also adds a minimum monthly Consolidated EBITDA covenant for the remainder of 2012 to be determined at the end of each month. Furthermore, the Crystal Credit Agreement includes an annual limitation of our capital expenditures at the Company's domestic subsidiaries to no more than $17,000 for the year ending December 31, 2012 and $25,000 for each year thereafter.

The Crystal Credit Agreement contains cross-default provisions with the Lion Credit Agreement and the Bank of Montreal Credit Agreement, whereby an event of default (as defined) occurring under the Lion Credit Agreement or the Bank of Montreal Credit Agreement would cause an event of default under the Crystal Credit Agreement.

During the nine months ended September 30, 2012, the Company's excess availability was below the minimum amount and as a result, it was required to maintain the fixed charge coverage ratio. As of September 30, 2012, the Company was in compliance with the required financial covenants of the Crystal Credit Agreement.

Revolving Credit Facility - Bank of America

The Company had a revolving credit facility of $75,000 with BofA, which was replaced with the Crystal Credit Agreement on March 13, 2012.

Revolving Credit Facility - Bank of Montreal

The Company's wholly-owned subsidiaries, American Apparel Canada Wholesale, Inc. and American Apparel Canada Retail Inc. (collectively, the “CI Companies”), have a line of credit with Bank of Montreal (the "Bank of Montreal Credit Agreement") that provides for borrowings up to C$11,000 with a fixed maturity date of December 30, 2012, bearing interest at 7.0% (the bank's prime rate at 3.0% as of September 30, 2012 plus 4.0% per annum payable monthly). This line of credit is secured by a lien on the CI Companies' accounts receivable, inventory and certain other tangible assets. Available borrowing capacity at September 30, 2012 was $2,050.

The Bank of Montreal Credit Agreement contains a fixed charge coverage ratio, tested at the end of each month which, as defined in the agreement, must not be less than 1.25 to 1.00. The Bank of Montreal Credit Agreement also restricts the Company's Canadian subsidiaries from entering into operating leases that would lead to payments under such leases totaling more than $8,500 in any fiscal year, and imposes a minimum excess availability covenant, which requires the Company's Canadian subsidiaries to maintain at all times minimum excess availability of 5.0% of the revolving credit commitment under the facility.

Additionally, the Bank of Montreal Credit Agreement contains cross-default provisions with the Crystal Credit Agreement and the Lion Credit Agreement, whereby an event of default occurring under the Crystal Credit Agreement, and Lion Credit Agreement would cause an event of default under the Bank of Montreal Credit Agreement.

As of September 30, 2012, the Company was in compliance with all required financial covenants of the Bank of Montreal Credit Agreement.

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Long-Term Debt

9 Months Ended

Sep. 30, 2012

Long-term Debt, Unclassified [Abstract]

Long-term Debt [Text Block]

Long-Term Debt

Long-term debt consists of the following:

	September 30, 2012			December 31, 2011
Long-term debt with Lion (a)	$	103,614		$	96,760
Other	459			438
Total long-term debt	104,073			97,198
Current portion of debt	(109		)	(56		)
Long-term debt, net of current portion	$	103,964		$	97,142

(a)Including accrued interest paid-in-kind of $12,433 and $17,550 and net of unamortized discount of $29,959 and $20,183 at September 30, 2012 and December 31, 2011, respectively.

Lion Credit Agreement

On March 13, 2009, the Company entered into an $80,000 term loan with Lion Capital LLP (the "Lion Credit Agreement"). Pursuant to the Lion Credit Agreement, Lion made term loans to the Company in an aggregate principal amount equal to $80,000. The original term loans under the Lion Credit Agreement were scheduled to mature on December 13, 2013 and bore interest at a rate of 15% per annum, payable quarterly in arrears. Effective June 23, 2010 and on February 18, 2011, the Lion Credit Agreement was amended to increase the interest rate to a range between 15% and 18% per annum depending on certain financial covenants relating to the ratio of Total Debt to Consolidated EBITDA for the trailing four quarters and Consolidated EBITDA for the trailing twelve months. For the three and nine months ended September 30, 2012, the Company did not meet these financial covenants and as a result, the interest rate was 18% per annum. On March 13, 2012, in connection with the Crystal Credit Agreement (see Note 6), the Company entered into a seventh amendment to extend the maturity date of the Lion Credit Agreement to December 31, 2015, as described below. On August 30, 2012, in connection with the Crystal Second Amendment (see Note 6), the Lion Eighth Amendment added a second minimum Consolidated EBITDA covenant that conforms to the Crystal minimum consolidated EBITDA covenant, as described below. The Company entered into the Lion Ninth Amendment effective as of September 30, 2012, which waived the requirement that the Company meet the minimum Consolidated EBITDA covenants for the twelve month period ended September 30, 2012. The Lion Ninth Amendment further provides for an increase of 0.52% in the interest rate under the Lion Credit Agreement for the period from October 1, 2012 to December 31, 2012, payable in-kind.

At the Company's option, except as described below, accrued interest may be paid (i) entirely in cash, (ii) paid half in cash and half in-kind, or (iii) entirely in-kind. In connection with the seventh amendment (described below), beginning on September 1, 2012, the Company is required to pay a portion of its interest in cash. The additional 0.52% interest payable under the Lion Credit Agreement for the period of October 1, 2012 to December 31, 2012 is payable in-kind. The Company's obligations under the Lion Credit Agreement are secured by a second lien on substantially all of the assets of the Company. The Lion Credit Agreement is subordinated to the Crystal Credit Agreement and contains customary representations, and warranties, events of default, affirmative covenants and negative covenants (which impose restrictions and limitations on, among other things, dividends, investments, asset sales, capital expenditures, and the ability of the Company to incur additional debt and liens), and certain financial covenants. The Company is permitted to prepay the loans in whole or in part at any time at its option, with no prepayment penalty.

Significant covenants in the Lion Credit Agreement include an annual limitation of the Company's capital expenditures to $30,000. Other covenants under the Lion Credit Agreement have been modified over time in connection with amendments.

Seventh Amendment - On March 13, 2012, in connection with the new credit agreement with Crystal (see Note 6), the Company entered into a seventh amendment to the Lion Credit Agreement, which among other things: (i) consented to the Crystal Credit Agreement, (ii) extends the maturity date to December 31, 2015, (iii) reduced the minimum Consolidated EBITDA amounts for any twelve consecutive months as determined at the end of each fiscal quarter (Quarterly Minimum Consolidated EBITDA) and, (iv) modifies certain other financial covenants, including covenants related to capital expenditures. The amendment also required that the Lion Warrant be amended (see Note 11). In addition, the seventh amendment modifies the Lion Credit Agreement to provide for interest at a rate of 5% per annum to be paid in cash commencing on the interest accruing from and after September 1, 2012 (with the remainder of the interest under the Lion Credit Agreement payable in-kind or in cash at the option of the Company).

In connection with the March 13, 2012 amendment, the Company evaluated the change in cash flows in connection with the amendment to the Lion Credit Agreement. The Company determined that there was a greater than 10% change between the present values of the existing debt and the amended debt causing an extinguishment of debt. The Company recorded the modified debt and related warrant at its fair value and recognized a gain of $11,588 on extinguishment of existing debt. This gain on extinguishment was determined by calculating the difference of the net carrying amount of the Lion debt of $116,507 (which includes the principal, paid-in-kind interest, fair value of the Lion Warrant, unamortized discount and unamortized deferred financing cost immediately prior to the amendment) and the fair value of the modified debt of $104,919 (which includes the fair value of modified debt, fair value of the modified Lion Warrant and amendment related fees). The difference between the carrying net amount of the existing debt of $121,140 and the fair value of the modified debt of $86,898 was recorded as a discount to the modified debt, and will be recognized as interest expense using the effective interest method over the remaining term of the Lion Credit Agreement.

Eighth Amendment - On August 30, 2012, in connection with the second amendment to the Crystal Credit Agreement (see Note 6), the Company entered into an eighth amendment to the Lion Credit Agreement that, among other things, adds a second minimum Consolidated EBITDA covenant for the remainder of 2012 to be determined at the end of each month (Monthly Minimum Consolidated EBITDA) that conforms to the minimum Consolidated EBITDA covenant in the Crystal Credit Agreement.

Ninth Amendment - The Company entered into the Lion Ninth Amendment effective September 30, 2012, which among other things waived the the Company's obligation to maintain the minimum Consolidated EBITDA covenants for the twelve month period ended September 30, 2012. As of result, the Company was in compliance with the required financial covenants of the Lion Credit Agreement on September 30, 2012.

Amortization of debt discount included in interest expense was $1,986 and $6,100 for the three and nine months ended September 30, 2012, respectively, and $2,178 and $5,064 for the three and nine months ended September 30, 2011, respectively.

The Lion Credit Agreement contains certain cross-default provisions by which noncompliance with covenants under the Crystal Credit Agreement, the Bank of Montreal Credit Agreement and certain other existing and potential agreements also constitutes an event of default under the Lion Credit Agreement.

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Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes [Abstract]

Income Tax Disclosure [Text Block]

Income Taxes

Income taxes for the three and nine months ended September 30, 2012 were computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management. In accordance with ASC 740, “Income Taxes”, the Company evaluates whether a valuation allowance should be established against the net deferred tax assets based upon the consideration of all available evidence and using a “more likely than not” standard. Significant weight is given to evidence that can be objectively verified. The determination to record a valuation allowance is based on the recent history of cumulative losses and current operating performance. In conducting the analysis, the Company utilizes an approach, which considers the current year loss, including an assessment of the degree to which any losses are driven by items that are unusual in nature and incurred to improve future profitability. In addition, the Company reviews changes in near-term market conditions and any other factors arising during the period, which may impact its future operating results.

The Company reported income from operations for the three months ended September 30, 2012 and a loss from operations for the nine months ended September 30, 2012. The Company incurred a loss from operations for the three and nine months ended September 30, 2011 and also incurred a loss for the year ended December 31, 2011. Based primarily upon recent history of cumulative losses and the results of operations for the nine months ended September 30, 2012, the Company determined that it is more likely than not it will not realize benefits from the deferred tax assets in certain jurisdictions. The Company will not record income tax benefits in the condensed consolidated financial statements until it is determined that it is more likely than not that the Company will generate sufficient taxable income in the respective jurisdictions to realize the deferred income tax assets. As a result of the analysis, the Company determined that a full valuation allowance against the net deferred tax assets in certain jurisdictions, primarily in the U.S., and partial valuation allowances in certain foreign jurisdictions, is required. At September 30, 2012, the Company recorded valuation allowances against its current and non-current deferred tax assets totaling $73,773. At September 30, 2012 the Company had federal net operating loss carryforwards of approximately $73,271. Section 382 of the Internal Revenue Code in the United States limits the utilization of net operating losses when ownership changes, as defined by that section, occur. The Company has not completed an analysis of its Section 382 ownership changes to determine whether the utilization of certain of its net operating loss carryforwards in the United States is limited.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The Company is currently subject to audit under the statute of limitations by the Internal Revenue Service for the calendar years ended December 31, 2008 through December 31, 2011. The Company and its subsidiaries' state and foreign tax returns are open to audit under similar statute of limitations for the calendar years ended December 31, 2007 through December 31, 2011, depending on the particular jurisdiction. The Company's uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing authorities and there have been no material changes for the three months ended September 30, 2012. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax expense in the accompanying condensed consolidated statement of operations. Accrued interest and penalties are included within the related tax liability line in the accompanying condensed consolidated balance sheets. In management's opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

The Company is being audited by the Canadian Revenue Agency (“CRA”) for the years ended December 31, 2005 through December 31, 2007. In connection with the audit, the CRA issued a proposed adjustment disallowing certain management fees. At this time, the Company does not anticipate this audit to result in a material impact on the Company. The Company concluded its audit by the U.S. Internal Revenue Service for the years ended December 31, 2008 through December 31, 2010 with no tax owed due to utilization of federal net operating loss carryback. The state jurisdiction impact of the federal audit adjustments is included in the Company's current liabilities. The Company is also currently being audited by various state jurisdictions.

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Organization and Business Number of stores (Details)	Sep. 30, 2012 stores countries
Store Number Disclosure [Line Items]
Number of Countries in which Entity Operates	20
Number of Stores	251

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Stockholders' Equity Stockholders' Equity Common Stock Warrants issued, forfeited, expired and outstanding (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Class of Warrant or Right [Line Items]
Warrants and Rights Outstanding	$ 28,455	$ 9,633
Warrant [Member]
Class of Warrant or Right [Line Items]
Warrants and Rights Outstanding	$ 28,455
Class of Warrant or Right, Outstanding, Weighted Average Remaining Contractual Term	9 years 3 days	6 years
Class of Warrant or Right, Issued, Weighted Average Remaining Contractual Term	7 years 3 months 30 days
Class of Warrant or Right, Number of Shares [Roll Forward]
Class of Warrant or Right, Outstanding	22,606	22,606
Class of Warrant or Right, Issued	44,212
Class of Warrant or Right, Forfeitures	(44,212)
Class of Warrant or Right, Expired	0
Class of Warrant or Right, Weighted Average Exercise Price [Roll Forward]
Class of warrant or right, exercise price of warrant or right	$ 0.81	$ 1.05
Class of Warrant or Right, Weighted Average Exercise Price, Issued	$ 0.90
Class of Warrant or Right, Weighted Average Exercise Price, Forfeitures	$ 1.03
Class of Warrant or Right, Weighted Average Exercise Price, Expirations	$ 0.00

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Workers' Compensation and Other Self-Insurance Reserves

9 Months Ended

Sep. 30, 2012

Workers' Compensation and Other Self-Insurance Reserves [Abstract]

Liability for Future Policy Benefits and Unpaid Claims Disclosure [Text Block]

Workers' Compensation and Other Self-Insurance Reserves

The Company uses a combination of third-party insurance and/or self-insurance for a number of risks including workers’ compensation, medical benefits provided to employees, and general liability claims. General liability costs relate primarily to litigation that arises from store operations. Self-insurance reserves include estimates of both filed claims carried at their expected ultimate settlement value and claims incurred but not yet reported. The Company’s estimated claim amounts are discounted using a rate of 0.62% with a duration that approximates the duration of the Company’s self-insurance reserve portfolio. As of September 30, 2012 the undiscounted liability amount was $14,940. The Company’s liability reflected on the accompanying condensed consolidated balance sheets represents an estimate of the ultimate cost of claims incurred as of the balance sheet dates. In estimating this liability, the Company utilizes loss development factors based on Company specific data to project the future development of incurred losses. Loss estimates are adjusted based upon actual claim settlements and reported claims. These projections are subject to a high degree of variability based upon future inflation rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns. Although the Company does not expect the amounts ultimately paid to differ significantly from its estimates, self-insurance reserves could be affected if future claim experience differs significantly from the historical trends and the assumptions applied.

The workers' compensation liability is based on an estimate of losses for claims incurred, but not paid at the end of the period. Funding is made directly to the providers and/or claimants by the insurance company. To guarantee performance under the workers' compensation program, as of September 30, 2012 and December 31, 2011, the Company had issued standby letters of credit in the amounts of $3,326 and $5,492, respectively, with three insurance companies being the beneficiaries, through a bank. At September 30, 2012, the Company recorded a total reserve of $14,685, of which $3,897 is included in accrued expenses and $10,788 is included in other long-term liabilities on the accompanying condensed consolidated balance sheets. At December 31, 2011, the Company recorded a total reserve of $14,189, of which $3,598 is included in accrued expenses and $10,591 is included in other long-term liabilities on the accompanying condensed consolidated balance sheets. These reserves for potential losses on existing claims are believed to be for potential losses, which are probable and reasonably estimable.

The Company self-insures its health insurance benefit obligations while the claims are administered through a third party administrator. The medical benefit liability is based on estimated losses for claims incurred, but not paid at the end of the period. Funding is made directly to the providers and/or claimants by the insurance company. At September 30, 2012 and December 31, 2011, the Company's total reserve of $1,910 and $1,720, respectively, was included in accrued expenses in the accompanying condensed consolidated balance sheets.

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Accrued Expenses and Other Current Liabilities (Tables)

9 Months Ended

Sep. 30, 2012

Accrued Expenses and Other Current Liabilities [Abstract]

Schedule of Accrued Liabilities [Table Text Block]

The components of accrued expenses and other current liabilities are as follows:

	September 30, 2012		December 31, 2011
Compensation, bonuses and related taxes	$	9,682	$	11,339
Workers' compensation and other self-insurance reserves (Note 14)	5,807		5,318
Sales, value and property taxes	3,640		3,721
Gift cards and store credits	4,223		6,939
Loss contingencies	572		1,575
Accrued vacation	898		790
Deferred revenue	830		892
Deferred rent	2,303		2,170
Other	10,795		10,981
Total accrued expenses	$	38,750	$	43,725

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Related Party Transaction (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended	3 Months Ended					3 Months Ended	9 Months Ended	60 Months Ended	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Jun. 30, 2012 Employment Agreement 2012 [Member]	Jun. 30, 2012 Chief Executive Officer [Member]	Sep. 30, 2012 Chief Executive Officer [Member] number_of_property_leases Rate	Sep. 30, 2012 Management [Member] number_of_suppliers	Sep. 30, 2012 Chief Operating Officer [Member] Rate	Sep. 30, 2011 Lease Agreements [Member]	Sep. 30, 2011 Lease Agreements [Member]	Nov. 01, 2016 Lease Agreements [Member]	Sep. 30, 2012 Immediate Family Member of Management or Principal Owner [Member]	Sep. 30, 2011 Immediate Family Member of Management or Principal Owner [Member]	Sep. 30, 2012 Immediate Family Member of Management or Principal Owner [Member]	Sep. 30, 2011 Immediate Family Member of Management or Principal Owner [Member]
Related Party Transaction [Line Items]
Property Subject to or Available for Operating Lease, Number of Units					4
Contractual Obligation, Due after Fifth Year					$ 8,098
Related Party Transactions, years to expiration										5 years
Contractual Obligation					900
number of vendors						2
Investment Owned, Percent of Net Assets					18.75%		6.25%
Related Party Transaction, Expenses from Transactions with Related Party	272	675						155	466
Related Party Transaction, Selling, General and Administrative Expenses from Transactions with Related Party											60	22	208	162
Officers' Compensation				$ 800
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures			7,500

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Accrued Expenses and Other Current Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Accrued expenses and other current liabilitie [Line Items]
Compensation, bonuses and related taxes	$ 9,682	$ 11,339
Workers' compensation and other self-insurance reserves (Note 14)	5,807	5,318
Sales, value and property taxes	3,640	3,721
Gift cards and store credits	4,223	6,939
Loss contingencies	572	1,575
Accrued vacation	898	790
Deferred revenue	830	892
Deferred rent	2,303	2,170
Other	10,795	10,981
Total accrued expenses	$ 38,750	$ 43,725

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Condensed Consolidated Statements of Operations and Comprehensive Loss (Parentheticals) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
General and administrative expenses
Related party charges	$ 332	$ 177	$ 883	$ 628

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Inventories

9 Months Ended

Sep. 30, 2012

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

Inventories

The components of inventories are as follows:

	September 30, 2012			December 31, 2011
Raw materials	$	21,695		$	18,326
Work in process	2,383			2,468
Finished goods	160,429			168,902
	184,507			189,696
Less reserve for inventory shrinkage and obsolescence	(3,628		)	(3,932		)
Total, net of reserves	$	180,879		$	185,764

Inventories are stated at the lower of cost or market. Cost is primarily determined on the first-in, first-out (FIFO) method. The cost elements of inventories include materials, labor and overhead. For the three and nine months ended September 30, 2012 and 2011, no one supplier provided more than 10% of the Company’s raw material purchases.

The Company identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels and other factors and provides reserves for such identified excess and slow-moving inventories. At September 30, 2012 and December 31, 2011, the Company had a lower of cost or market reserve for excess and slow-moving inventories of $2,164 and $2,050, respectively.

The Company establishes a reserve for inventory shrinkage for each of its retail locations and its warehouse. The reserve is based on the historical results of physical inventory counts. The Company had a reserve for inventory shrinkage in the amount of $1,464 and $1,882 at September 30, 2012 and December 31, 2011, respectively.

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Workers' Compensation and Other Self-Insurance Reserves (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
self insurance reserves [Member]
Workers' compensation and other self-insurance reserves [Line Items]
Self Insurance Reserve	$ 1,910	$ 1,720
Workers' Compensation [Member]
Workers' compensation and other self-insurance reserves [Line Items]
Other Accrued Liabilities, Noncurrent	10,788	10,591
Accrued Liabilities	3,897	3,598
Workers' Compensation Liability	14,685	14,189
Letters of Credit Outstanding, Amount	3,326	5,492
Self-insurance reserve, undiscounted liability	$ 14,940
Loss Contingency Accrual, Insurance-related Assessment, Discount Rate	0.62%

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Revolving Credit Facilities and Current Portion of Long-Term Debt (Tables)

9 Months Ended

Sep. 30, 2012

Revolving Credit Facilities and Current Portion of Long-Term Debt [Abstract]

Schedule of Line of Credit Facilities [Table Text Block]

Revolving credit facilities and current portion of long-term debt consists of the following:

	September 30, 2012		December 31, 2011
Revolving credit facility (Crystal), maturing March 2015	$	35,576	$	—
Term loan (Crystal), maturing March 2015	30,000		—
Revolving credit facility (Bank of America), replaced in March 2012	—		48,324
Revolving credit facility (Bank of Montreal), maturing December 2012	5,901		1,995
Current portion of long-term debt (Note 7)	109		56
Total revolving credit facilities and current portion of long-term debt	$	71,586	$	50,375

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Inventories Inventory - Additional Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012 number_of_suppliers	Sep. 30, 2011 number_of_suppliers	Sep. 30, 2012 number_of_suppliers	Sep. 30, 2011 number_of_suppliers	Dec. 31, 2011
Inventory [Member]
Inventory [Line Items]
Concentration Risk Suppliers Number of	0	0	0	0
Lower of cost or market reserve for excess and slow-moving inventory	$ 2,164		$ 2,164		$ 2,050
Reserve for inventory shrinkage	$ 1,464		$ 1,464		$ 1,882
Raw Materials [Member]
Inventory [Line Items]
Concentration Risk Percentage of Raw Material Purchases from Suppliers	10.00%

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies Disclosure [Text Block]

Commitments and Contingencies

Operating Leases

The Company conducts retail operations under operating leases, which expire at various dates through September 2022. The Company's primary manufacturing facilities and executive offices are currently under a long-term lease, which expires on July 31, 2019. Operating lease rent expense (including real estate taxes and common area maintenance costs) was approximately $19,667 and $57,483 for the three and nine months ended September 30, 2012, respectively, and $19,612 and $58,874 for the three and nine months ended September 30, 2011, respectively. The Company did not incur any significant contingent rent during these periods. Rent expense is allocated to cost of sales (for production-related activities), selling expenses (primarily for retail stores) and general and administrative expenses in the accompanying condensed consolidated statements of operations.

Sales Tax

The Company sells its products through its wholesale business, retail stores and the internet. The Company operates these channels separately and accounts for sales and use tax accordingly. The Company is periodically audited by state taxing authorities and it is possible they may disagree with the Company's method of assessing and remitting these taxes. The Company believes that it properly assesses and remits all applicable state sales taxes in the applicable jurisdictions and has accrued approximately $289 as of September 30, 2012 and as of December 31, 2011 for state sales tax contingencies.

Customs and duties

The Company is being audited by the German customs authorities for the years ended December 31, 2009 through December 31, 2011. As the audit is still in its preliminary stages, the Company is unable to predict the financial outcome of the matter at this time and has not recorded a provision for this matter. However, no assurance can be made that this matter will not result in a material financial exposure, which could have a material effect on the Company's financial condition, results of operations or cash flows.

Advertising

At September 30, 2012 and December 31, 2011, the Company had approximately $1,607 and $4,378, respectively, in open advertising commitments, which primarily relate to print advertisements in various newspapers and magazines, as well as outdoor advertising during the remainder of 2012.