American Apparel Inc. Reports First Quarter Financial Results
Explanation of Unrealized Gain (loss) of Change in Fair Value of Warrants
Lion Capital currently holds 24.5 million warrants to purchase American Apparel common stock at a price of $0.66 per share and as the share price of American Apparel's stock increases the fair value of the warrant liability recorded on the balance sheet increases and the Company records an expense to recognize the increase in the fair value of the warrant liability. Conversely, when the share price of American Apparel's stock decreases, the Company records a gain to recognize the related reduction in the fair value of the warrant liability on the balance sheet. Although the income statement impacts associated with the warrants are appropriate and required under GAAP, they do not impact the operating performance of the Company nor do the credits and charges have an impact on cash balances since the liability recorded is not an obligation that will be settled with cash. Instead, these warrants will be reclassified to equity when they are exercised.
- Companies:
- American Apparel