TRUE RELIGION APPAREL, INC.
(Exact Name of Registrant as Specified in Its Charter)

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

Indicate by check mark 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 ý 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 o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. 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," "accelerated filer," "non-accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

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

The aggregate market value of the voting common equity held by non-affiliates as of June 30, 2009, was approximately $527,026,000, computed by reference to the price of $22.30 per share, the price at which the common equity was last sold on such date as reported on the Nasdaq Global Market. For purposes of this computation, it is assumed that the shares beneficially held by directors and officers of the registrant would be deemed to be stock held by affiliates.

Exhibit 10.14
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

This Annual Report on Form 10-K contains statements that constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. The words "expect," "estimate," "anticipate," "predict," "believe" and similar expressions and variations thereof are intended to identify forward-looking statements. Such statements appear in a number of places in this filing and include statements regarding the intent, belief or current expectations of the Company, our directors or officers with respect to, among other things (a) trends affecting our financial condition and (b) our business and growth strategies. Our stockholders are cautioned not to put undue reliance on such forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected in this Report, for the reasons, among others, discussed in the Sections—"Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Risk Factors." The following discussion should be read in conjunction with our financial statements and related notes, which are part of this Report or incorporated by reference to our reports filed with the Securities Exchange Commission. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.

True Religion Apparel, Inc. (referred to in this Annual Report on Form 10-K as "the Company," "our," "we," or "True Religion") designs, markets, distributes, and sells apparel under the brand name "True Religion Brand Jeans" to fashion-conscious consumers on six continents, including North America, Europe, Asia, Australia, Africa and South America. We seek to be a trend setting leader in the design, marketing, distribution and sale of fashion jeans and related sportswear apparel. Our products can be categorized as denim, knit and non-denim, and most come in 'tops' and 'bottoms'. Knit styles include hoodies, t-shirts and sweats, and non-denim fabrics include corduroy and twill. Tops range from shirts to jackets, and bottoms encompass pants, shorts and skirts. We operate in four distinct but integrated segments: U.S. Wholesale, International, Consumer Direct and Other, which includes licensing activity. Our Consumer Direct segment consists of branded retail stores located in the United States and e-commerce sales. The business segments share product design, manufacturing and marketing resources. During the past seven years we have developed a recognizable brand, expanded vertically into the Consumer Direct segment, expanded our product offerings, and initiated a strategy to leverage our brand by entering into product licensing agreements.

We market our products into the U.S. Wholesale and International segments by attendance at industry trade shows. Our collections are also presented at our Los Angeles, New York and Tokyo wholesale showrooms. Our sales efforts for all full price customers of our U.S. Wholesale segment were conducted by an independent sales agent until December 31, 2009. Beginning in 2010, this segment's sales efforts are directed by a newly-established sales team, headed by our VP of U.S. Wholesale Sales who joined us in November 2009. We also have a sales team serving customers in Japan, and in 2010, we will establish a sales team in Hong Kong to sell collections beginning with the Spring 2011 line. We have international distribution or sales agreements with independent agents, each of whom is granted rights to market and sell our products in a defined market or territory. These agreements with international distributors and sales agents cover more than 50 countries on six continents.

Our products are sold in the United States in leading national premium stores, including Bloomingdale's, Neiman Marcus, Nordstrom, Saks Fifth Avenue, and in approximately 800 boutique and specialty stores. We also sell our products through our 70 branded retail stores and through our True Religion Brand Jeans website, which is operated for us by a third party. Our products are

distributed internationally through our network of international distributors and sales agents and sold internationally at boutiques and specialty stores in major cities throughout Africa, Asia, Australia, Europe, the Middle East and South America.

Our strategy is to build brand recognition by marketing our products to fashion-conscious, affluent consumers who shop in our own branded retail stores, premium nationwide stores, select boutiques and specialty stores, and who want to wear and be seen in the latest and most fashionable premium jeans and related apparel. True Religion Brand Jeans often sell in the range of $172 to $350 per pair at retail; occasionally, we offer specialty items at higher prices. We continually update our product offerings to be seen as a trend setter in the high fashion jeans apparel market.

For our adult denim jeans and other fabrications, we utilize contract manufacturers located in the United States. We brand products as having been "Made in the U.S.A." Local contract manufacturing helps us control our costs, ensures fast turnaround of popular styles, and keeps fixed overhead to a minimum. Approximately 80 percent of our sportswear is made in the USA by contract manufacturers, and the remaining merchandise is made by foreign contract manufacturers.

We maintain and exercise control over advertising and marketing activities from our headquarters, where we set the tone for integrity, consistency and direction of the True Religion Brand Jeans brand image worldwide. Furthermore, we control our brand image by controlling the distribution of our products. We sell our in-season merchandise only through our own branded retail stores, premium nationwide stores, boutiques and specialty stores, and international distributors that display and merchandise our products in a way that supports our brand image and is in synch with the lifestyle and shopping experience expected by our customers. We sell our prior season merchandise and 'seconds' through our own branded retail stores located in outlet malls and through select off-price retailers.

Since 2003, our brand name has become a familiar name in premium denim and apparel. We believe the strength of the True Religion Brand Jeans brand name and image is due mainly to our emphasis on seeking innovative and distinctive product designs that stand for exceptional fit, styling details and quality. We seek to be an innovator in premium lifestyle branding. Our fashion perspective is significantly influenced by our Chief Executive Officer, Jeffrey Lubell.

Our principal products are high fashion denim jeans in a wide variety of styles that we design, market, distribute and sell under the True Religion Brand Jeans trademarks. We currently sell men's, women's and kid's styles. Our products are sold in the United States and abroad through our branded retail stores, upscale retailers, boutiques and specialty stores. In addition to denim jeans, we sell corduroy pants and jackets, cotton, twill, linen and velvet pants and jackets, fleece sweat suits and hooded sweatshirts, skirts, knit shirts, t-shirts, shorts and sportswear for men, women and children. Many of our products can be viewed on our website located at www.truereligionbrandjeans.com. We intend to continue to introduce new styles and styling details in jeans and sportswear.

True Religion Brand Jeans products are made with high quality fabrics primarily from the United States, Italy, and Japan that are gently and naturally aged, hand finished and boldly stitched in multiple thread colors. Although we operate in a highly competitive market, we seek to distinguish True Religion Brand Jeans products by emphasizing superior fit and unique styling details. Many of our products are made to look, feel and fit like they have been owned for years. We believe that we have a competitive advantage in the detailing of the design, the quality of the fabric and the superiority of the fit.

Each year we introduce new collections that we expect will be considered trend setting by fashion-conscious consumers.

Our 2009 net sales categorized by gender were approximately as follows: women—55%; men—41%; and kids—4%. Our largest retail product category in terms of units sold in 2009 was denim bottoms, which accounted for 56% of total units sold in our Consumer Direct segment. Our average sales price for women's products in our full price retail stores was $196 in 2009; for men's products, it was $192; and for kid's products, it was $112.

Information regarding net sales, gross profit and operating income, attributable to each of our segments, is included within Management's Discussion and Analysis of Financial Condition and Results of Operations, and within Note 14, Segment Information, of our Notes to Consolidation Financial Statements, which are incorporated herein by reference.

Our Consumer Direct segment includes our United States branded retail stores and our e-commerce sales. As of December 31, 2009, we operated 70 branded retail stores in the United States. We added 28 branded retail stores in 2009, and in 2010 we expect to add 27 branded retail stores in the U.S. and one store in Toronto, Canada. Our branded retail stores are located across the United States in a variety of upscale shopping areas ("street" locations, regional malls, and a limited number of outlet centers). Our typical branded retail store is approximately 1,700 square feet, while our branded retail store located in an outlet center is approximately 2,500 square feet. Our branded retail stores showcase the full range of our branded merchandise including licensed products, in an environment that emphasizes our unique "Malibu hippy-bohemian chic" image through an extensive use of hand-hewn hickory pecan wood. Our e-commerce sales are made through a third-party who receives sales commissions in exchange for operating the 'True Religion Brand Jeans' website, accepting customer orders and fulfilling customer orders from their distribution center, where they hold our merchandise on consignment. In 2009, our Consumer Direct segment generated net sales of $129.0 million, comprising 41.5% of our total net sales.

Our U.S. Wholesale segment sells our products to leading nationwide premium stores, specialty retailers and boutiques that have the image and merchandising expertise that we demand for the effective presentation of our products. In 2009, our products were sold in Bloomingdale's, Neiman Marcus, Nordstrom and Saks Fifth Avenue, and in approximately 800 specialty retailers and boutiques. Our U.S. Wholesale segment also sells our products, primarily prior season or excess merchandise to off-price retailers. In 2009, our U.S. Wholesale segment generated net sales of $123.2 million, comprising 39.6% of our total net sales.

We distribute our products through our International segment to distributors and sales agents who sell to upscale boutiques in their respective territory and through our wholly-owned subsidiary, True Religion Japan, KK, which was formed in the second quarter of 2008. Through this network of international distributors, sales agents and our subsidiary, our products are found in major cities throughout Africa, Asia, Australia, Europe, the Middle East, North America and South America. In 2009, 71% of our international sales were made to our five largest distributors and via our subsidiary in Japan. In 2009, our International segment generated net sales of $54.5 million, comprising 17.5% of our total net sales. In 2009, we established subsidiaries in the United Kingdom and Hong Kong. We

have established a regional office for Asia/Pacific in Hong Kong. We plan to grow our net sales and net earnings from the International segment by presenting our merchandise at True Religion Brand Jeans stores and at premium retailers' stores in markets where fashion-conscious consumers shop. In 2010, we expect to open full price branded retail stores in London, England and Tokyo, Japan.

We selectively license our brand name and logo to be included on products sold by other companies to enhance and extend the True Religion Brand Jeans brand. Through licensing alliances, we combine our consumer insight, design, and marketing skills with the specific product competencies of our licensing partners to create, build and expand our product offerings to fashion-conscious consumers. We grant our product licensees the right to design, manufacture and sell at wholesale specified categories of products under our trademark. We have the right to approve or disapprove the licensees' designs, products and wholesale customers. Each licensing partner pays us royalties based upon its wholesale sales of products that use our trademark. In addition, licensing partners may be required to allocate a portion of their sales revenues to advertise our products and share in the creative costs associated with these products. Our licenses typically have three year terms and may grant the licensee conditional renewal options. We recognized $4.3 million in royalty revenue through our licensing business in 2009.

At the end of 2009, our licensed merchandise categories were: footwear, fragrances, headwear (including scarves and gloves), legwear, sunglasses and swimwear. In 2009, two merchandise categories that were formerly licensed, handbags and outerwear, were transitioned to in-house development, sourcing, and sales.

Our initial marketing effort, which commenced in 2003 after our acquisition of Guru Denim, was focused on our products and emphasized the fit, styling details and washes of our unique denim products. Beginning in 2004, we expanded our focus from the products to the brand of True Religion Apparel by distributing our products to premier fashion retailers. This provided us with the exposure to build our brand. In 2005 we continued to focus our marketing efforts on building our brand by expanding our distribution, initially to national premium specialty stores and boutiques, and then to our branded retail stores. These settings showcase our products to many of our target customers. Since 2008, we have focused on building our brand image by initiating selected print advertising campaigns to build brand awareness for our women's and men's denim, sportswear and licensed products as well as to generate awareness of our growing number of branded retail stores. As we move into 2010, we intend to continue to build brand awareness and advertise our store locations through print ads in regional and national fashion and lifestyle publications, as well as add more out of home advertising in key markets across the United States.

We have 24 trademarks registered in the United States for "True Religion Brand Jeans" logos and marks. We have also secured international trademark registrations in 32 countries and we continue to seek trademark registrations that we believe are necessary to protect the True Religion brand. Generally, our trademarks remain valid and enforceable so long as we continue to use the marks in commerce and the required registration renewals are filed. We consider our trademarks as valuable assets in the marketing of our products and seek to protect them from infringement worldwide.

We have also been issued a patent in the United States for our Joey style jeans, which is a distinctive design; the patent will expire in 2027.

The fabrics used in our denim products are sourced from fabric manufacturers located in the United States, Italy and Japan. Generally, the fabric used in our products is not purchased directly by us but by our contract manufacturers. The thread and other materials are sourced from various industry suppliers within the United States. Our contract manufacturers use high quality fabric in the manufacturing of our products. Although we do not currently have any long-term agreements in place for the supply of our fabric, thread or other components, such high quality fabric is currently readily available from a number of suppliers, including mills located both in the United States and abroad.

Our design team, which has 29 employees and is led by Jeffrey Lubell, Chief Executive Officer and Chief Merchant, is responsible for the design and development of our products. We do not currently have a formal research and development effort but our design team plans to continue to develop new merchandise for each season. Our design team is diverse in all our product categories and is known for designing leading fashion trends. Our washes are constantly in development to react to the demand for new and exciting product for consumers. The development of our products from concept through manufacturing is engineered to be not only fashionable but durable as well.

We outsource all of our manufacturing to third parties on an order-by-order basis. Currently, we have contract manufacturers in the United States for our women's and men's denim, knits and some fleece products, Mexico for our kid's denim, knits, and some fleece products, and Asia for knit shirts. We believe we can meet our current production needs using these and other available contract manufacturers. These contractors purchase the fabric and materials, and then sew and finish our products to our design specifications. In addition to the contract manufacturers, we utilize various laundry and finishing houses in the Los Angeles area to complete the production of many of our products.

Our production and sourcing staff oversee the manufacturing, quality control and production of our products and researches and develops new sources of supply for the materials used in the manufacturing of our products.

Our quality control program is designed to ensure that products meet our high quality standards. We monitor the quality of the fabrics used by our contract manufacturers prior to the production of garments and inspect prototypes of each product before production runs commence. We also perform random on-site quality control checks during and after production before our products are shipped from our contract manufacturers. Final random inspections of our products occur when our products are received in our distribution center. We believe that our policy of inspecting our products at both our distribution centers and on-site at our contract manufacturers' facilities is integral in maintaining the quality, consistency and reputation of our products.

We are subject to customs, truth-in-advertising and other laws, including consumer protection regulations and zoning and occupancy ordinances that regulate retailers generally and/or govern the promotion and sale of merchandise and the operation of retail stores. Some of our merchandise is manufactured by factories located outside of the United States. These products are imported and are subject to U.S. customs laws, which impose tariffs as well as import quota restrictions for textiles and apparel. While importation of goods from some countries from which we buy our products may be subject to embargo by U.S. customs authorities if shipments exceed quota limits, we currently are not

restricted by quotas in the operation of our business. In addition, custom duties and tariffs do not comprise a material portion of the cost of our products.

We are committed to product quality and safety; we focus our efforts to adhere to all applicable Federal and state laws and regulations including Consumer Product Safety Improvement Act ("CPSIA"), and all Federal Trade Commission ("FTC") rules and regulations for product labeling. Labeling and advertising of our products is subject to regulation by the FTC. We use a government approved third party testing lab to verify all federally mandated testing requirements for wearing apparel as applicable. We believe that we are in material compliance with these regulations.

The retail apparel industry is highly competitive. We compete with numerous designers and manufacturers of apparel and accessories, domestic and foreign, including 7 for All Mankind, AG Adriano Goldschmied, Diesel, G-Star, J Brand, Joe's Jeans, Levi Strauss & Co, Rock & Republic and Citizens of Humanity. Some of our competitors may be significantly larger and have substantially greater resources than us. We compete primarily on the basis of fashion, fit and quality, which depend on our ability to:

As of December 31, 2009, we employed on a full or part-time basis a total of 1,238 employees, consisting of 976 in our retail stores, 138 in design and production, and 124 in general administrative.

Website Availability of Our Reports Filed with the Securities and Exchange Commission

Our Internet Web site address is www.truereligionbrandjeans.com. We make available free of charge on or through our Internet Web site our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file the report with or furnish it to the SEC.

Our business may be negatively impacted by general economic conditions and the current global financial crisis.

Our performance is subject to worldwide economic conditions and their impact on levels of consumer spending that affect not only the ultimate consumer, but also retailers, our largest direct customers. Consumer spending recently has deteriorated significantly and may remain depressed, or be subject to further deterioration for the foreseeable future. The worldwide apparel industry is heavily influenced by general economic cycles. Purchases of high-fashion apparel and accessories tend to decline in periods of recession or uncertainty regarding future economic prospects, as disposable income declines. Many factors affect the level of consumer spending in the apparel industries, including, among others: prevailing economic conditions, levels of employment, salaries and wage rates, energy costs, interest rates, the availability of consumer credit, taxation and consumer confidence in

future economic conditions. During periods of recession or economic uncertainty, we may not be able to maintain or increase our sales to existing customers, make sales to new customers, open and operate new retail stores, maintain sales levels at our existing stores, maintain or increase our international operations on a profitable basis, or maintain our earnings from operations as a percentage of net sales. As a result, our operating results may be adversely and materially affected by downward trends in the United States or global economy. Furthermore, in anticipation of continued increases in net sales, we have significantly expanded our infrastructure and workforce. Because these expenses are fixed in the short term, our operating results and margins will be adversely impacted if we do not continue to grow as anticipated.

Our continued operations depend on current fashion trends. If our designs and products do not continue to be fashionable, our business could be adversely affected.

Our success depends in large part on our ability to develop, market and deliver innovative and stylish products that are consistent with and build on our brand and image at a pace and intensity competitive with our competition. The novelty and the design of our True Religion Brand Jeans apparel is critical to our success and competitive position. The apparel industry is subject to rapidly evolving fashion trends and shifting consumer demands. If we are unable to continue to develop and offer unique products to our customers, our sales and margins will decline and we may be faced with a significant amount of unsold finished goods inventory. We cannot be certain that high-fashion denim and related apparel will continue to be fashionable. Should the trend steer away from high-fashion denim and related apparel, our sales could decrease and our business could be adversely affected. In addition, our future designs and plans to expand our product offerings may not be successful, and any unsuccessful designs or product offerings could adversely affect our business.

Our business and the success of our products could be harmed if we are unable to maintain our brand image.

Our success to date has been due in large part to the growth of our brand image. If we are unable to timely and appropriately respond to changing consumer demand, our brand name and brand image may be impaired. Even if we react appropriately to changes in consumer preferences, consumers may consider our brand image to be outdated or associate our brand with styles that are no longer popular. In the past, many apparel companies have experienced periods of rapid growth in sales and earnings followed by periods of declining sales and losses. Our business may be similarly affected in the future.

We face intense competition, including competition from companies with significantly greater resources than ours, and if we are unable to compete effectively with these companies, our market share may decline and our business could be harmed.

We face intense competition in the apparel industry from other established companies. A number of our competitors may have significantly greater financial, technological, manufacturing, sales, marketing and distribution resources than we do. Their greater capabilities in these areas may enable them to better withstand periodic downturns in the apparel industry, compete more effectively on the basis of price and production and more quickly develop new products. In addition, there are low barriers of entry into this industry and new companies may enter the markets in which we compete, further increasing competition in the industry. Our branded retail stores compete with many other retailers, including department stores, some of whom are our major wholesale customers. We believe that our ability to compete successfully depends on a number of factors, including the style and quality of our products and the strength of our brand name, as well as many factors beyond our control. We may not be able to compete successfully in the future, and increased competition may result in price reductions, reduced profit margins, loss of market share and an inability to generate cash flows that are sufficient to maintain or expand our development and marketing of new products, which would adversely impact the trading price of our common stock.

Increases in the price of raw materials or their reduced availability could increase our cost of goods and decrease our profitability.

The principal fabrics used in our business are cotton, blends, synthetics and wools. The prices we pay our suppliers for our products are dependent in part on the market price for raw materials—primarily cotton—used to produce them. The price and availability of cotton may fluctuate substantially, depending on a variety of factors, including demand, crop yields, weather, supply conditions, transportation costs, work stoppages, government regulation, economic climates and other unpredictable factors. Increases in raw material costs, together with other factors, will make it difficult for us to sustain the wholesale gross margin level we have achieved in recent years and result in a decrease of our profitability unless we are able to pass higher prices on to our wholesale and retail customers. Moreover, any decrease in the availability of cotton could impair our ability to meet our production requirements in a timely manner.

We may be unable to sustain our past growth or manage our future growth, which may have a material adverse effect on our future operating results.

We have experienced rapid growth since our inception, and have increased our net sales from $103.2 million in 2005 to $311.0 million in 2009. We anticipate that our future growth rate will depend upon various factors, including the strength of our brand image, the market success of our current and future products, the success or our growth strategies, competitive conditions and our ability to manage our future growth. Future growth may place a significant strain on our management and operations. As we continue to grow in our operations, our operational, administrative, financial and legal procedures and controls will need to be expanded. As a result, we may need to train and manage an increasing number of employees, which could distract our management team from our business. Our future success will depend substantially on the ability of our management team to manage our anticipated growth. If we are unable to anticipate or manage our growth effectively, our future operating results could be adversely affected.

Our business could be harmed if we fail to maintain proper inventory levels.

We place orders with our manufacturers for some of our products prior to the time we receive all of our customers' orders. We do this to minimize purchasing costs, the time necessary to fill customer orders and the risk of non-delivery. We also maintain an inventory of certain products that we anticipate will be in greater demand. However, we may be unable to sell the products we have ordered in advance from manufacturers or that we have in our inventory. Inventory levels in excess of customer demand may result in inventory write-downs, and the sale of excess inventory at discounted prices could significantly impair our brand image and have a material adverse effect on our operating results and financial condition. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply the quality products that we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, negatively impact retailer and distributor relationships, and diminish brand loyalty.

Increasing the number of branded company-operated stores will require us to develop new capabilities and increase our expenditures.

Our growth strategy is dependent in part on our ability to open and operate new stores and the availability of suitable store locations on acceptable terms. Although we operated 70 branded retail stores as of December 31, 2009, we historically have been primarily a wholesaler. We plan to open approximately 27 company-operated branded retail and outlet stores in 2010 in the United States. The success of this strategy is dependent upon, among other factors, the identification of suitable markets and

sites for store locations, the negotiation of acceptable lease terms, the hiring, training and retention of competent sales personnel, and making capital expenditures for these stores. We must also offer a broad product assortment, appropriately manage retail inventory levels, install and operate effective retail systems, execute effective pricing strategies and integrate our stores into our overall business mix. An increase in the number of branded company-operated stores will place increased demands on our operational, managerial and administrative resources and require us to further develop our retailing skills and capabilities. These increased demands could cause us to operate our business less effectively, which in turn could cause deterioration in the financial performance of our existing stores. The commitments associated with our expansion will increase our operating expenses may be costly to terminate, and these investments may be difficult to recapture if we decide to close a store or change our strategy.

We must successfully maintain and/or upgrade our information technology systems.

We rely on various information technology systems to manage our operations, which subjects us to inherent costs and risks associated with maintaining, upgrading, replacing and changing these systems, including impairment of our ability to fulfill customer orders, potential disruption of our internal control structure, substantial capital expenditures, demands on management time and other risks of delays or difficulties in upgrading, transitioning to new systems or of integrating new systems into our current systems.

We rely on contract manufacturing of our products. Our inability to secure production sources meeting our quality, cost, working conditions and other requirements, or failures by our contractors to perform, could harm our sales, service levels and reputation.

We source our products from independent manufacturers who purchase fabric and other raw materials. As a result, we must locate and secure production capacity. We depend on independent manufacturers to maintain adequate financial resources, secure a sufficient supply of raw materials, and maintain sufficient development and manufacturing capacity in an environment characterized by continuing cost pressure and demands for product innovation and speed-to-market. In addition, we do not have material long-term contracts with any of our independent manufacturers, and these manufacturers generally may unilaterally terminate their relationship with us at any time.

Our dependence on contract manufacturing could subject us to difficulty in obtaining timely delivery of products of acceptable quality. A manufacturer's failure to ship products to us in a timely manner or to meet our quality standards could cause us to miss the delivery date requirements of our wholesale customers. In addition, any interference with our ability to receive shipments from those manufacturers, such as conditions at ports or issues that otherwise affect transportation and warehousing providers, could cause delayed delivery of product. Additionally, if we experience a significant increase in demand, or if we need to replace any of the manufacturers that we currently use, we may have to expand our third party manufacturing capacity. This capacity may not be available to us, or available on terms that are acceptable to us. Failing to make timely deliveries may cause our customers to cancel orders, refuse to accept deliveries, impose non-compliance charges through invoice deductions or other charge-backs, demand reduced prices or reduce future orders, any of which could harm our sales and margins.

Our success depends on the continued protection of our trademark and other proprietary intellectual property rights.

Our trademark and other intellectual property rights are important to our success and competitive position, and the loss of or inability to enforce trademark and other proprietary intellectual property rights could harm our business. We devote substantial resources to the establishment and protection of our trademark and other proprietary intellectual property rights on a worldwide basis. Despite any precautions we may take to protect our intellectual property, policing unauthorized use of our

intellectual property is difficult, expensive and time consuming, and we may be unable to adequately protect our intellectual property or determine the extent of any unauthorized use, particularly in those foreign countries where the laws do not protect proprietary rights as fully as in the United States. Our efforts to establish and protect our trademark and other proprietary intellectual property rights may not be adequate to prevent imitation or counterfeiting of our products by others or to prevent others from seeking to block sales of our products for violating their trademarks and proprietary rights. Unauthorized copying of our products or unauthorized use of our trademarks or other proprietary rights may not only erode sales of our products but may also cause significant damage to our brand names and our ability to effectively represent ourselves to our customers. Also, we cannot assure you that others will not assert rights in, or ownership of, trademarks and other proprietary rights of True Religion, that our proprietary rights would be upheld if challenged or that we would, in that event, not be prevented from using our trademarks, any of which could have a material adverse effect on our financial condition and results of operations. Further, we could incur substantial costs in legal actions relating to our use of intellectual property or the use of our intellectual property by others. Even if we are successful in these actions, the costs we incur could have a material adverse effect on us.

Our business could suffer from the financial instability of our customers.

In the United States, we sell our products to certain retail companies on open account with 30 to 60 day payment terms. We generally request a letter of credit or wire transfer before shipment to our foreign distributors, but these arrangements are not always possible. Customer financial difficulties could result in losses to us.

A significant disruption at our distribution center could have a material adverse impact on our business and operating results.

We primarily rely on a single distribution center located at our corporate offices in Vernon, California to receive, store and distribute merchandise to all of our stores and wholesale customers. Any significant interruption in the operation of our Vernon distribution center due to natural disasters, accidents, system failures or other unforeseen causes could have a material adverse effect on our business and operating results.

Our ability to conduct business in international markets may be affected by legal, regulatory, political and economic risks.

We expect our international operations to increase, and consequently we may face the possibility of greater losses from a number of risks inherent in doing business in international markets and from a number of factors which are beyond our control. These factors include, among other things:

Foreign currency fluctuations could adversely impact our financial condition and results of operations.

We generally purchase our products in U.S. dollars. However, we source some of our products overseas. The cost of these products may be affected by changes in the value of the applicable currencies. Changes in currency exchange rates may also affect the U.S. dollar value of the foreign currency denominated prices at which our international business will sell products. Furthermore, our international sales and some of our licensing revenue are generally derived from sales in foreign currencies. This revenue, when translated into U.S. dollars for consolidated reporting purposes, could be materially affected by fluctuations in the U.S. dollar, negatively impacting our results of operations and our ability to generate revenue growth.

The loss of our Chief Executive Officer or other key management personnel would have an adverse impact on our future development and could impair our ability to succeed.

Our performance is substantially dependent upon the expertise of our Chief Executive Officer, Jeffrey Lubell, and other key management personnel. Mr. Lubell spends all of his working time on our business. It may be difficult to find qualified individuals to replace Mr. Lubell or other key management personnel if we were to lose any one or more of them. The loss of Mr. Lubell or any of our key management personnel could have a material adverse effect on our business, development, financial condition, and operating results. We do not maintain "key man" insurance with respect to Mr. Lubell or any of our other key management personnel, and any of them may leave us at any time, which could severely disrupt our business and future operating results.

Our licensees may not comply with our product quality, manufacturing standards, marketing and other requirements.

We license our trademarks to third parties for manufacturing, marketing and distribution of various products. While we enter into agreements with our licensees covering product design, product quality, sourcing, manufacturing, marketing and other requirements, our licensees may not comply fully with those agreements. Non-compliance could include marketing products under our brand names that do not meet our quality and other requirements or engaging in manufacturing practices that do not meet our standards. These activities could harm our brand equity, our reputation and our business.

Violation of labor laws and practices by our licensees or suppliers could harm our business.

We require our licensing partners and suppliers to operate in compliance with applicable laws and regulations. While our code of conduct promotes ethical business practices, we do not control our licensees or suppliers or their labor practices. The violation of labor or other laws by any of our licensees or suppliers, or divergence of a licensee's or supplier's labor practices from those generally accepted as ethical in the United States, could interrupt or otherwise disrupt the shipment of our products, harm the value of our trademarks, damage our reputation or expose us to potential liability for their wrongdoings.

Our quarterly sales and operating results fluctuate as a result of a variety of factors, including seasonal fluctuations in demand for premium denim and related apparel, and accessories, delivery date delays, timing of new store openings, recognition of stock-based compensation and potential fluctuations in our annualized tax rate, which may result in volatility of our stock price.

Our quarterly sales and operating results have varied significantly in the past and can be expected to fluctuate in the future due to a number of factors, many of which are beyond our control. For example, sales of our products have historically been somewhat seasonal in nature with the largest sales generally occurring in the second half of the year. Delays in scheduling or pickup of products by our wholesale customers could negatively impact our net sales and results of operations for any given

quarter. The timing of new store openings and the amount of sales contributed by new stores could also impact our net sales and results of operations for any given quarter. The compensation expense for the awards that vest immediately caused an increase in our selling, general and administrative expenses and reduced our net income and earnings per share in our quarterly income statements. Also, our annualized tax rate is based on projections of our operating results for the year, which we review and revise as necessary at the end of each quarter. Any quarterly fluctuations in our annualized tax rate that may occur could have a material impact on our quarterly operating results. As a result of these specific and other general factors, our operating results will likely vary from quarter to quarter and the results for any particular quarter may not be necessarily indicative of results for the full year. Any shortfall in sales or net income from levels expected by securities analysts and investors could cause a decrease in the trading price of our common stock.

We lease our corporate headquarters facility, which is a 119,000 square foot industrial building located in Vernon, California, under a non-cancelable agreement. The lease agreement expires on June 30, 2011, and we have the right to renew the lease agreement for five years if we comply with the lease agreement terms. We conduct our design, administrative and distribution operations at this facility.

We lease our retail store locations under non-cancelable operating lease agreements expiring on various dates through 2021. These facilities are located in the United States, the United Kingdom and Japan. Many of the store lease agreements allow us to terminate the agreement, generally in the third or fourth year, if our sales do not meet a pre-determined level. As of December 31, 2009, we had 73 stores open, including three in Japan. In 2010, we expect to open approximately 27 stores in the United States, one in London, England, one in Tokyo, Japan and one in Toronto, Canada. We are considering a few additional new stores for 2010. At the end of 2009, our retail square footage, which includes storage space at all stores, was approximately 171,000. Our retail stores range in size from 600 to 3,300 square feet.

From time to time, in the ordinary course of business, we are involved in various legal proceedings. We do not believe that these matters, either alone or in the aggregate, will have a material impact on our financial condition.

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock trades under the symbol "TRLG" on the Nasdaq Global Market. The high and low sales prices for our common stock, as reported by the Nasdaq Global Market for the periods indicated are as follows.

As of March 4, 2010 there were 63 record holders and approximately 14,500 beneficial holders of our Common Stock.

We have not declared or paid any cash dividends since inception and we do not intend to pay any cash dividends in the foreseeable future. There are no restrictions that limit our ability to pay dividends on our common shares. Any future determination as to the payment of dividends on our common stock will be at the discretion of our Board of Directors and will depend on our results of operations, financial condition capital requirements and other factors deemed relevant by the Board of Directors, including the General Corporation Law of the State of Delaware, which provides that dividends are only payable out of surplus or current net profits.

The following graph compares, for each of the last five fiscal years, commencing on December 31, 2004 and ending December 31, 2009, the cumulative total return of True Religion Apparel, Inc. common stock, Standard & Poor's 500 Index, and Standard & Poor's 1500 Apparel, Accessories & Luxury Goods Index. The Apparel, Accessories & Luxury Goods Index is comprised of 18 companies, also representing a sector of the Standard & Poor's 500 Index. The cumulative total return of True Religion Apparel, Inc. common stock assumes $100 invested on December 31, 2004 in our common stock and in each of the foregoing indices. The stock price performance graph is not necessarily indicative of future stock price performance. The return on $100 invested in the S&P 500 and the S&P 1500 Apparel, Accessories & Luxury Goods Index over the 5 year period from December 2004 to December 2009 was $102 and $117, respectively.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among True Religion Apparel, Inc., The S&P 500 Index
And S&P 1500 Apparel, Accessories & Luxury Goods

For the period covered by this report, we have not engaged in any transactions involving the sale of our unregistered equity securities that were not disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K. We have not engaged in any sales of registered securities for which the use of proceeds is required to be disclosed. This table provides certain information with respect to our purchases of shares of our common stock during the fourth quarter of 2009:

The following selected financial data are derived from the audited Consolidated Financial Statements and should be read in conjunction with Item 1A "Risk Factors," Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our Consolidated Financial Statements and the related notes included in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

	For the Years Ended December 31,

	2009		2008		2007		2006		2005
Statement of operations data (In Thousands):
Net sales	$	311,001	$	270,000	$	173,256	$	140,489	$	103,219
Operating income		77,597		68,876		47,142		34,977		31,470
Provision for income taxes		30,434		25,570		21,100		14,035		13,126
Net income		47,332		44,371		27,845		21,746		18,440
Earnings per share:
Basic	$	1.97	$	1.89	$	1.21	$	0.97	$	0.85
Diluted	$	1.92	$	1.83	$	1.16	$	0.92	$	0.81
Weighted number of shares outstanding—basic		23,993		23,511		22,964		22,496		21,677
Weighted number of shares outstanding—diluted		24,659		24,270		23,949		23,608		22,657

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

We design, market, distribute and sell premium denim apparel, centered on our core denim products using the brand name "True Religion Brand Jeans." Our products include pants, tops, and jackets, made from denim, fleece, corduroy and other fabrics. We are known for our unique fit and styling details. Through multiple wholesale and retail channels, our expanding product line reaches fashion-conscious consumers on six continents, including North America, Europe, Asia, Australia, Africa and South America.

We believe that our core strengths have enabled us to be well positioned to expand our business and enhance shareholder value through execution of our strategy and focusing on key strategic initiatives which include:

The sales growth we experienced in 2009 reflects the strength of our expanded product assortment and the continued growth in our Consumer Direct business. The key highlights of 2009 were:

The following table summarizes results of operations for 2009 compared to 2008 (dollar amounts in thousands, except per share data):

	Years Ended December 31,

	2009					2008
	Amount		%			Amount		%			Change			%
Net sales	$	311,001		100.0	%	$	270,000		100.0	%	$	41,001			15.2	%
Gross profit		195,562		62.9	%		157,001		58.1	%		38,561			24.6	%
Selling, general and administrative expenses		117,965		37.9	%		88,125		32.6	%		29,840			33.9	%
Operating income		77,597		25.0	%		68,876		25.5	%		8,721			12.7	%
Interest income, net		169		0.0	%		1,065		0.4	%		(896	)		(84.1	)%
Provision for income taxes		30,434		9.8	%		25,570		9.5	%		4,864			19.0	%
Net Income	$	47,332		15.2	%	$	44,371		16.4	%	$	2,961			6.7	%
Net income per share—Basic	$	1.97				$	1.89				$	0.08			4.2	%
Net income per share—Diluted	$	1.92				$	1.83				$	0.09			4.9	%

The following table summarizes net sales by segment (dollar amounts in thousands):

Consumer Direct net sales increased by 71.3% to $129.0 million in 2009 as we finished the year with 70 stores compared to 42 stores at the end of 2008. The additional sales from new stores were partially offset by a decrease in sales at our 15 stores which opened before the end of 2007 due to a reduction in shoppers visiting our stores caused by the challenging economic and consumer environment. In 2010, we expect to open 27 branded retail stores in the United States and one in Canada.

U.S. Wholesale net sales decreased 19.6% to $123.2 million. In 2009, our net sales to boutique customers decreased sharply; these customers were more impacted by the challenging retail environment as they generally depend to a larger extent on external financing. Our sales to "major" accounts, which consist of customers such as Nordstrom, Bloomingdale's, Saks Fifth Avenue and Neiman Marcus, decreased 14.9% from the prior year as these customers experienced a decline in sales of premium denim due to the economic recession. Partially offsetting these decreases was a slight increase in our sales to off-price retailers of $0.7 million to $38.5 million. Sales to Nordstrom, Inc. accounted for 15.2% of our net sales in 2009. In 2010, we expect this segment's sales to the off-price retailers will be reduced by $10 million as we will place a greater emphasis on regular-price wholesale sales.

International net sales increased 36.0% to $54.5 million primarily due to increased sales to distributors in Asia and Europe. Our sales to customers in Japan increased in 2009 as compared to 2008 because we terminated our Japanese distributor in the second quarter of 2008 and established our own subsidiary, which is selling merchandise to wholesale accounts and operating three outlet stores. Our brand is less established outside the U.S., so this segment's sales are growing in spite of the challenging retail environment in many international markets as our brand gains greater exposure. In 2010, we expect to open two international branded retail stores in London, England and Tokyo, Japan.

The following table summarizes gross profit by segment (dollar amounts in thousands):

The following table summarizes gross profit as a percentage of net sales ("gross margin") by segment:

Overall gross margin improved from 58.1% of net sales in 2008 to 62.9% of net sales in 2009, primarily reflecting the ongoing net sales mix shift towards the higher-margin consumer direct business.

The Consumer Direct gross margin decreased to 73.8% in 2009 from 76.6% in 2008 as a larger share of Consumer Direct sales came from the outlet stores as compared to the full price store sales. Outlet stores sales generate lower gross margins because the merchandise is sold at a discounted price. Also causing the decrease was the expected decline of the outlet stores' gross margin as we are relying more on our own outlet stores to sell slow-moving merchandise and as the outlet stores now have fewer higher-margin irregulars in their merchandise assortment.

U.S. Wholesale gross profit decreased 16.3% to $65.9 million in 2009 compared to $78.7 million in 2008, due to the decline in U.S. Wholesale net sales. However, this segment's gross margin increased to 53.5% in 2009 from 51.3% in 2008, due to the continued improvements in our sourcing and production processes, including an increase in the gross margin of off-price sales.

International gross margin increased to 55.3% in 2009 from 48.1% in 2008, primarily due to the increase in direct sales to select Asian markets, which carry higher gross margins than sales through distributors.

The following table presents the components of selling, general & administrative expenses ("SG&A") by segment (dollar amounts in thousands):

The following table summarizes SG&A as a percentage of net sales ("SG&A rate"), by segment:

In 2009, SG&A increased 33.9% to $118.0 million, compared to $88.1 million in 2008.

The Consumer Direct SG&A increased $20.7 million, from $29.9 million in 2008 to $50.5 million in 2009. This increase is directly related to the growth in the number of stores over the prior year, from 42 at the end of 2008 to 70 at the end of 2009. The slight decrease in Consumer Direct SG&A rate from 39.6% in 2008 to 39.1% in 2009, is primarily due to the reduction of labor expenses as a percentage of net sales.

U.S. Wholesale SG&A increased by 12.5% primarily due to the increase in design, production, warehouse and operations accounting employees to support our overall business growth and an increase in share-based compensation. The increase in share-based compensation is due to meeting company-wide earnings targets on performance-based awards which were granted in 2009. Partially offsetting these increases was a decrease in sales commissions linked to the U.S. Wholesale net sales decrease.

International SG&A increased $2.5 million, or 98.4%, primarily due to the expansion of our international operations.

Other SG&A increased $2.8 million, from $24.6 million in 2008 to $27.4 in 2009. This increase is primarily attributable to executive performance-based compensation. Our executive compensation program was redesigned in 2008 to condition a greater portion of executive compensation on the satisfaction of earnings targets. Our 2009 performance outpaced our 2009 earnings target by a higher rate than in 2008. Other SG&A, as a percentage of total net sales, decreased from 9.1% in 2008 to 8.8% in 2009 due to the increase is total net sales.

The following table summarizes operating income by segment (dollar amounts in thousands):

The following table summarizes operating income as a percentage of net sales ("operating margin"), by segment:

The Consumer Direct operating margin decreased from 37.0% in 2008 to 34.7% in 2009. This decrease in operating margin was due to a combination of a decline in sales at our 15 stores opened before the end of 2007 due to the challenging retail environment, and the planned, lower operating margin for stores opened in 2009. Overall, the stores opened in 2008 have improved their operating margin in 2009 as compared to 2008.

U.S. Wholesale operating income decreased as a percentage of U.S. Wholesale net sales (operating margin) from 30.9% in 2008 to 25.0% in 2009 primarily due to the decrease in this segment's net sales and the addition of resources in 2009 to support our overall business growth.

International operating income increased as a percentage of International net sales, from 41.9% in 2008 to 46.2% in 2009 primarily due to the increase in direct sales to customers versus wholesale distributors.

Interest income, net was $0.2 million in 2009 compared to $1.1 million in 2008. While we had an increase in our cash equivalents and investments in 2009 compared to 2008, the average yield on our investments has decreased due to changes in the investment market and our shift to more conservative investments.

The effective tax rate was 39.1% for 2009 compared to 36.6% in 2008. In 2008, we implemented a tax planning strategy that retroactively changed our filing status in certain states, which reduced our cumulative tax provision by $1.5 million. We also finalized our 2007 tax returns during the 2008 period, which included additional analysis of our federal and state tax obligations; as a result of this analysis, we reduced our income tax provision in 2008 by $0.6 million. These factors were the primary drivers resulting in a lower effective tax rate of 36.6% in 2008.

Net income was $47.3 million in 2009 compared to $44.4 million in 2008, an increase of 6.7%. This increase is attributable primarily to the increase in net sales. Earnings per diluted share increased 4.9% from $1.83 in 2008 to $1.92 in 2009.

The sales growth we experienced in 2008 reflects the strength of our expanded product assortment and the continued growth in our Consumer Direct business. The key highlights of 2008 were:

The following table summarizes results of operations for 2008 compared to 2007 (dollar amounts in thousands, except per share data):

	Years Ended December 31,

	2008					2007
	Amount		%			Amount		%			Change			%
Net sales	$	270,000		100.0	%	$	173,256		100.0	%	$	96,744			55.8	%
Gross profit		157,001		58.1	%		98,827		57.0	%		58,174			58.9	%
Selling, general and administrative expenses		88,125		32.6	%		51,685		29.8	%		36,440			70.5	%
Operating income		68,876		25.5	%		47,142		27.2	%		21,734			46.1	%
Interest income, net		1,065		0.4	%		1,803		1.0	%		(738	)		(40.9	)%
Provision for income taxes		25,570		9.5	%		21,100		12.2	%		4,470			21.2	%
Net Income	$	44,371		16.4	%	$	27,845		16.1	%	$	16,526			59.3	%
Net income per share—Basic	$	1.89				$	1.21				$	0.68			56.2	%
Net income per share—Diluted	$	1.83				$	1.16				$	0.67			57.8	%

The following table summarizes net sales by segment (dollar amounts in thousands):

U.S. Wholesale net sales increased 37.6% to $153.2 million. In 2008, our sales to "major" (e.g. Nordstrom, Bloomingdale's) accounts increased 58.1% from the prior year as our consumers

reacted favorably to the new jean groups that we introduced in 2008 and the updated styling of our on-going groups. We increased our net sales in 2008 to off-price retailers as we exited slower-moving styles and sold basic styles made from prior season fabrics. Our net sales to these customers represented 13.7% of our net sales in 2008 and 10.8% of our net sales in 2007. Our net sales to boutique customers decreased 11.4%, as the demand for our 2008 collection was tempered by the impact of the U.S. economic slowdown and our decision to not ship accounts that were past due or suspected of re-selling our merchandise.

Consumer Direct net sales increased by 157.3% to $75.3 million in 2008. The increase was primarily driven by new store openings. We opened 11 stores in 2007 and 27 stores in 2008, bringing our total to 42 stores at the end of 2008. In addition to the store count increase, our Consumer Direct net sales benefited from the favorable reaction to our 2008 collections and the expansion of our sportswear and licensed-product offerings, which comprised 24% of our retail store sales in 2008.

International net sales increased 26.2% to $40.0 million due primarily to increased sales to distributors for Europe and North America. Offsetting this increase was a planned sales decrease in Japan as a result of our transition from a third party distributor to a company-owned subsidiary. Beginning with the spring 2008 season, we started the pre-season selling activities sooner than in the prior year, which we believe contributed to the growth in our international sales along with the favorable customer reaction to our newer collections.

The following table summarizes gross profit by segment (dollar amounts in thousands):

Overall gross margin (gross profit as a percentage of net sales) improved from 57.0% of net sales in 2007 to 58.1% of net sales in 2008, reflecting the ongoing net sales mix shift towards the higher-margin consumer direct business.

U.S. Wholesale gross profit increased 31.1% to $78.7 million in 2008 compared to $60.0 million in 2007, but the gross margin decreased to 51.3% in 2008 from 53.9% in 2007. The decrease in the gross margin is due to increased sales of prior season and slow moving merchandise to select off-price retailers and a decrease in net sales to boutique customers, which produce a higher gross margin than other wholesale customers.

The Consumer Direct gross margin remained relatively constant in 2008 (76.6%) compared to 2007 (76.7%).

The following table presents the components of selling, general & administrative expenses (SG&A) (dollar amounts in thousands):

U.S. Wholesale SG&A increased to $31.2 million or 20.4% of U.S. Wholesale net sales in 2008, from $23.6 million, or 21.2% of U.S. Wholesale net sales in 2007. With the increase in U.S. Wholesale net sales, we were able to leverage our design and production costs. Partially offsetting this leverage was additional advertising costs of $2.1 million in connection with the 2008 spring and fall national print campaigns. We did not have any national print campaigns in 2007.

The Consumer Direct SG&A increased $19.3 million to $29.9 million or 39.6% of Consumer Direct net sales, in 2008 from $10.6 million, or 36.1% of Consumer Direct net sales, in 2007. This SG&A increase is directly related to the growth in the number of stores since the beginning of 2007. The increase in SG&A as a percentage of net sales is the result of increasing the store-level labor expenses in 2008 to enhance our customer service.

Other SG&A increased $7.8 million, from $16.7 million in 2007 to $24.6 in 2008. This increase is primarily attributable to executive performance-based compensation and professional fees. Our executive compensation program was redesigned in 2008 to condition a greater portion of executive compensation on the satisfaction of earnings targets. Our 2008 performance outpaced our 2008 earnings target by a higher rate than in 2007. The increase in professional fees is due to the restatement of our 2004 through 2006 annual financial statements, as well as trademark protection and other corporate matters. Other SG&A, as a percentage of total net sales in 2008 was 9.1% compared to 9.7% in 2007.

The following table summarizes operating income by segment (dollar amounts in thousands):

U.S. Wholesale operating income increased $11.0 million from 2007 to 2008 but decreased as a percentage of U.S. Wholesale net sales from 32.7% in 2007 to 31.0% in 2008. This decrease is due to the decrease in this segment's gross margin discussed above.

The Consumer Direct operating income increased $15.9 million from 2007 to 2008 but decreased as a percentage of Consumer Direct net sales from 40.6% to 36.9%. This decrease as a percentage of net sales was due primarily to increased operating expenses associated with the expansion of the Consumer Direct segment.

International operating income increased to $16.8 million from $14.7 million in 2007 but decreased as a percentage of International net sales from 46.4% in 2007 to 41.9% in 2008 due to costs to establish and ramp up our first international subsidiary, in Japan.

Interest income, net was $1.1 million in 2008 compared to $1.8 million in 2007. While we had an increase in our cash equivalents and investments in 2008 compared to 2007, the average yield on our investments has decreased due to changes in the investment market and our shift to more conservative investments.

The effective tax rate was 36.6% for 2008 compared to 43.1% in 2007. The 2007 effective tax rate was higher than the 2008 rate because in 2008 we implemented a tax planning strategy that retroactively changed our filing status in certain states, which reduced our tax provision by $1.6 million and increased our diluted earnings per share by $0.07. Additionally, in 2007 a larger portion of our executive compensation was nondeductible for income tax purposes resulting in a higher effective income tax rate.

Net income was $44.4 million in 2008 compared to $27.8 million in 2007, an increase of 59.3%. This increase is attributable primarily to the increase in net sales. Earnings per diluted share increased 57.8% from $1.16 in 2007 to $1.83 in 2008.

Historically, our operations have not been materially affected by inflation. We cannot assure that our operations will not be affected by inflation in the future.

Net cash provided by operating activities was $66.5 million in 2009 compared to $49.1 million in 2008. The $17.4 million increase was primarily due to continued segment mix shift towards the Consumer Direct segment, as this segment's sales become cash quicker than the wholesale business, which extends credit to many customers.

Net cash used in investing activities was $15.3 million in 2009 compared to $12.7 million in 2008. This increase of $2.6 million is primarily due to an increase in capital expenditures of $1.9 million, primarily from the implementation of a new technology system in 2009.

Net cash used in financing activities was $3.0 million in 2009 compared to net cash used of $7.9 million in 2008. Our primary financing activity in both 2009 and 2008 were cash payments on behalf of our employees who had us withhold common stock to satisfy their minimum statutory income tax withholdings on restricted share awards that vested and options that were exercised. The payment was higher in 2008 because approximately 837,000 stock options were exercised in that year while no stock options were exercised in 2009.

Our primary ongoing cash requirements are currently expected to be for our ongoing operations, capital expenditures for new branded retail stores, our expansion internationally, and information technology and other infrastructure needs. Management believes that cash flow from continuing operations and on-hand cash and cash equivalents will provide adequate funds for the foreseeable working capital needs and planned capital expenditures. Over the long term, we manage our cash and capital structure to maximize shareholder return, strengthen our financial position and maintain flexibility for future strategic initiatives. We believe our cash, cash equivalents, short-term investments and future operating cash flows, as well as any potential future borrowing facilities, will be sufficient to fund scheduled future payments and potential long-term initiatives. The availability of financing in the form of debt or equity is influenced by many factors, including our profitability, operating cash flows, debt levels, debt ratings, contractual restrictions, and market conditions, and we cannot assure you that we would be able to obtain financing on favorable terms.

We have investments in auction rate securities (ARS) which have experienced an illiquid market since 2008. In October 2008, we were notified that the two brokers who sold ARS to us would purchase the ARS at a price of par plus accrued interest, and on November 11, 2008, we accepted the offers from these brokers. The first portion of the ARS, in the amount of $4.9 million, was purchased by the broker in January 2009 at par plus accrued interest, and the second portion, in the amount of $5.0 million, is expected to be purchased by the broker by July 2012, although we may instruct the broker to purchase these ARS beginning in June 2010. See Item 6A Quantitative and Qualitative Disclosures about Market Risk.

The following table sets forth, as of December 31, 2009, our scheduled contractual cash obligations due for each of the periods indicated below (dollar amounts in thousands):

Due to the holiday shopping season in December, our U.S. Wholesale segment sales historically have been higher in the second half of the year and our Consumer Direct segment sales historically have been higher in the fourth quarter.

The preparation of our financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period. Our management bases its estimates on historical experience and on other factors and assumptions that management believes to be reasonable under the circumstances. Actual results may differ from these estimates. The following

discussion highlights the policies management believes are critical. For a summary of all our significant accounting policies, including those discussed below, see Note 2—Summary of Significant Accounting Policies in our consolidated financial statements provided under Part II, Item 8 of this Annual Report on Form 10-K.

Financial Accounting Standards Board ("FASB") Accounting Standards Codification (the "Codification" or "ASC")

In June 2009, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162," an accounting standard which established the Codification to become the single source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities, with the exception of guidance issued by the U.S. Securities and Exchange Commission (the "SEC") and its staff. All guidance contained in the Codification carries an equal level of authority. The Codification is not intended to change GAAP, but rather is expected to simplify accounting research by reorganizing current GAAP into approximately 90 accounting topics. We adopted this accounting standard in preparing the Consolidated Financial Statements for the year ended December 31, 2009 included in this Annual Report on Form 10-K. The adoption of this accounting standard had no impact on retained earnings and did not have an impact on our financial position, results of operations or cash flows.

Sales are recognized across all segments of the business when there is persuasive evidence of an arrangement, delivery has occurred, price has been fixed or is determinable, and collectibility can be reasonably assured.

Sales within our U.S. Wholesale and International segments are recognized at the time title passes and risk of loss is transferred to the customer. Sales are recorded net of estimates for returns, discounts, operational chargebacks and markdowns. Returns and allowances require pre-approval by management and discounts are based on trade terms. We review and refine these estimates on a quarterly basis using historical trends, seasonal results, and current economic and market conditions. Our historical estimates of these costs have not differed materially from actual results.

Retail store sales are recognized net of estimated returns at the time of sale to consumers. E-commerce sales of products ordered through our retail internet site known as www.truereligionbrandjeans.com are recognized upon estimated delivery of the shipment to the customers. E-commerce sales also are reduced by an estimate of returns. Retail store sales and E-commerce sales exclude sales taxes.

Revenues from licensing arrangements are recognized when earned in accordance with the terms of the underlying agreements, generally based upon the higher of (a) contractually guaranteed minimum royalty levels and (b) a percentage of wholesale sales of licensed product by our licensees. We recognize revenue associated with our gift cards upon redemption of the gift card.

Slow-moving merchandise is typically sold at prices exceeding our cost in our outlet retail stores or to wholesale customers who specialize in off-price merchandise. As of December 31, 2009, we recorded reserves for slow-moving inventory of $0.5 million based upon analysis of balances on hand by style, recent sales trends, projected future sales, and historical markdown trends.

We recognize restricted stock compensation expense for awards with only service conditions using the straight-line method over the requisite service period of the entire award. The requisite service period is the period during which an employee is required to provide service in exchange for an award, which often is the vesting period. If a portion of the restricted stock vests immediately or in another period such that the cumulative vested amount exceeds the cumulative straight line expense amount, we record compensation expense equal to at least the cumulative compensation expense of the vested amount of the restricted stock. Compensation expense for restricted stock awards with performance based conditions is recognized on an accelerated basis using the graded attribution method over the requisite service period.

We use the asset and liability method of accounting for income taxes. Using this method, deferred tax assets and liabilities are recorded based on differences between financial reporting and tax basis of assets and liabilities. The deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We establish valuation allowances for tax benefits when we believe it is more likely than not that such assets will not be realized.

FASB ASC 740: Accounting for Income Taxes ("FASB ASC 740") clarifies the accounting for uncertainty in income taxes recognized in financial statements. In accordance with FASB ASC 740, we regularly evaluate the likelihood of recognizing the benefit for income tax positions we have taken in various federal and state filings by considering all relevant facts, circumstances, and information available. For those benefits that we believe it is more likely than not that the benefit will be sustained, we recognize the largest amount we believe is cumulatively greater than 50% likely to be realized.

We record interest and penalties, if any, on any underpayment of income taxes as a component of provision for income taxes and selling, general and administrative expenses, respectively.

In April 2009, the FASB issued FASB ASC 825: Financial Instruments ("FASB ASC 825") (formerly FASB Staff Position FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments). FASB ASC 825 which requires disclosure about the fair value of financial instruments in interim financial statements as well as in annual financial statements was effective for interim periods ending after June 15, 2009. We adopted the provisions of FASB ASC 825 during the second quarter of 2009, and the adoption did not have a significant impact on our financial position, cash flows or disclosures.

In April 2009, the FASB issued FASB ASC 320: Investments—Debt and Equity Securities ("FASB ASC 320") (formerly FASB Staff Position FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments). FASB ASC 320 provides guidance in determining whether impairments in debt securities are other than temporary, and modifies the presentation and disclosures surrounding such instruments. It was effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. We adopted the provisions of

FASB ASC 320 during the second quarter of 2009, and the adoption did not have a significant impact on our financial position, cash flows or disclosures.

In April 2009, the FASB issued FASB ASC 820: Fair Value Measurements and Disclosures ("FASB ASC 820") (formerly FASB Staff Position FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly). FASB ASC 820 clarifies when markets are not active or that market pricing may not actually reflect the "real" value of an asset. If a market is determined to be inactive and the market price is reflective of a distressed price, then an alternative method of pricing can be used to estimate fair value, such as a present value technique. FASB ASC 820 was effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009 and shall be applied prospectively. We adopted the provisions during the second quarter of 2009, and the adoption did not have a significant impact on our financial position, cash flows or disclosures.

During 2008, we established a subsidiary in Japan, which operates a wholesale business and three outlet retail stores. All retail sales and some wholesale sales, as well as our operating expenses, are denominated in the local currency. Because these operations are not significant to our overall business, our exposure to fluctuations in the U.S. Dollar and the local exchange rates are not considered material as of December 31, 2009. We received United States dollars ("USD") for all other merchandise sales and licensing revenue during the year ended December 31, 2009. Merchandise purchases from contract manufacturers are denominated in USD.

The information required by this Item is incorporated herein by reference to the Consolidated Financial Statements and Supplementary Data listed in Item 15 of Part IV of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

As of the end of the period covered by this Annual Report on Form 10-K, we performed an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the design and effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act of 1934 as

amended). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Annual Report, our disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing and reporting of material financial and non-financial information within the time periods specified within the Commission's rules and forms. Our Chief Executive Officer and Chief Financial Officer also concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Our management's report on internal control over financial reporting, and the related report of our independent public accounting firm, are included in Part II Item 8 Financial Statements and Supplementary Data in our Annual Report on Form 10-K under Management's Annual Report on Internal Control Over Financial Reporting and Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting, on pages F-2 and F-3 respectively, and are incorporated by reference.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

There were no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The information required under this item is included in our Proxy Statement for our 2010 Annual Meeting of Stockholders, which is incorporated by reference herein and will be filed within 120 days after the end of our fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.

Item 13. Certain Relationships and Related Transactions and Director Independence.

Exhibit No.			Description

	3.1		Certificate of Incorporation (incorporated by reference from our Form 8-K Current Report, filed August 22, 2005).
	3.2		Amended and Restated Bylaws (incorporated by reference from our Form 8-K Current Report, filed December 12, 2008).
	4.1		Specimen Common Stock Certificate (incorporated by reference from our Form 8-K Current Report, filed August 22, 2005).
	4.2		Form of True Religion Apparel, Inc. 2009 Equity Incentive Plan Restricted Stock Award Certificate (incorporated by reference from our Registration Statement on Form S-8 filed on July 29, 2009).
	4.3		Form of True Religion Apparel, Inc. 2009 Equity Incentive Plan Performance Award Certificate (Restricted Stock) (incorporated by reference from our Registration Statement on Form S-8 filed on July 29, 2009).
	10.1		True Religion Apparel, Inc. 2005 Stock Incentive Plan (incorporated by reference from our Definitive Proxy Statement filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, as filed on July 22, 2005).*
	10.2		Form of Indemnification Agreement between True Religion Apparel, Inc. and its officers and directors (incorporated by reference from our Form 10-Q Quarterly Report, filed November 14, 2005).
	10.3		Employment Agreement by and between the Company and Jeffrey Lubell dated January 4, 2006 (incorporated by reference from our Form 8-K Current Report, filed on January 10, 2006).*
	10.4		Employment Agreement dated April 12, 2006, by and between the Company and Michael Buckley, effective as of April 24, 2006 (incorporated by reference from our Form 8-K Current Report, filed April 14, 2006).*
	10.5		Standard Industrial/Commercial Single-Tenant Lease—Gross dated May 17, 2006, among ADJ Enterprises, Ltd., Guru Denim, Inc. and the Company (incorporated by reference from our Form 8-K Current Report, filed April 14, 2006).
	10.6		Amendment to Employment Agreement dated May 31, 2006, by and between Jeffrey Lubell and the Company (incorporated by reference from our Form 8-K Current Report, filed June 5, 2006).*
	10.7		Employment Letter, dated March 7, 2007, by and between the Company and Peter Collins (incorporated by reference from our Form 8-K Current Report filed on March 8, 2007).*

Exhibit No.			Description

	10.8		Amendment to the True Religion Apparel, Inc. 2005 Stock Incentive Plan (incorporated by reference from our Form 8-K Current Report filed on March 8, 2007).*
	10.9		True Religion Apparel, Inc. Executive Cash Incentive Bonus Plan (incorporated by reference from our Form 8-K Current Report filed on April 3, 2008).*
	10.10		Amendment No. 2 to Employment Agreement by and between the Company and Jeffrey Lubell dated September 12, 2008 (incorporated by reference from our Form 8-K Current Report filed September 17, 2008).
	10.11		Letter Agreement, by and between the Company and Kelly Gvildys dated February 7, 2008. (incorporated by reference from our Form 10-K Annual Report filed on March 11, 1009)*
	10.12		Amended and Restated True Religion Apparel, Inc. 2009 Equity Incentive Plan (incorporated by reference from our Registration Statement on Form S-8 filed on July 29, 2009).*
	10.13		Employment Agreement by and between the Company and Lynne Koplin (incorporated by reference from our Form 8-K Current Report filed on January 6, 2010)*
	10.14		Summary of Board of Directors Compensation.*†
	10.15		Summary of Executive Officer Compensation (incorporated by reference from our Form 8-K Current Report filed January 10, 2008).*
	14.1		True Religion Apparel, Inc. Code of Conduct (incorporated by reference from our Form 8-K Current Report filed October 8, 2008).
	21.1		Subsidiaries of the Company†
	23.1		Consent of Independent Registered Public Accounting Firm, Deloitte & Touche LLP†
	24.1		Powers of Attorney.†
	31.1		Certification of Principal Executive Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934.†
	31.2		Certification of Principal Financial Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934.†
	32.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.†
	32.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.†

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated.

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


		Pages
Report of Management on Internal Control Over Financial Reporting		F-2
Reports of Independent Registered Public Accounting Firm		F-3
Consolidated Balance Sheets as of December 31, 2009 and 2008		F-5
Consolidated Statements of Income for the years ended December 31, 2009, 2008 and 2007		F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007		F-7
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2009, 2008 and 2007		F-8
Notes to Consolidated Financial Statements		F-9
Consolidated Financial Statement Schedule:
Valuation and Qualifying Accounts as of and for the years ended December 31, 2009, 2008, and 2007		F-27

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as is defined in the Securities Exchange Act of 1934, as amended. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and overriding of controls. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Consequently, an effective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial information.

Our management conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.

Our internal control over financial reporting as of December 31, 2009 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

To the Board of Directors and Stockholders of
True Religion Apparel, Inc.
Vernon, California:

We have audited the internal control over financial reporting of True Religion Apparel, Inc. and Subsidiaries ("the Company") as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2009, of the Company and our report dated March 9, 2010 expressed an unqualified opinion on those financial statements and financial statement schedule.

The Board of Directors and Stockholders of
True Religion Apparel, Inc.
Vernon, California:

We have audited the accompanying consolidated balance sheets of True Religion Apparel, Inc. and Subsidiaries (the "Company") as of December 31, 2009 and 2008, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2009. Our audits also included the financial statement schedule listed in Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of True Religion Apparel, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2010 expressed an unqualified opinion on the Company's internal control over financial reporting.

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except par amounts)

			December 31,

			2009		2008
ASSETS
Current Assets:
	Cash and cash equivalents		$	105,531	$	57,245
	Short-term investments			4,948		4,850
	Accounts receivable, net of allowances:
		From customers		27,214		10,043
		From factor		3		23,060
	Inventory			34,502		25,828
	Deferred income tax assets			8,753		6,498
	Prepaid expenses and other current assets			7,000		4,148

		Total current assets		187,951		131,672
Property and equipment, net				39,693		28,006
Long-term investments				—		4,990
Other assets				2,162		1,784

TOTAL ASSETS			$	229,806	$	166,452

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
	Accounts payable and accrued expenses		$	11,717	$	10,633
	Accrued salaries, wages and benefits			8,843		6,889
	Income taxes payable			826		1,042

		Total current liabilities		21,386		18,564

Long-term deferred rent				7,851		4,536
Long-term deferred income tax liabilities				2,715		1,102

		Total long-term liabilities		10,566		5,638

Total liabilities				31,952		24,202

Commitments and contingencies (Note 10)
Stockholders' Equity:
	Preferred stock, $0.0001 par value, 20,000 shares authorized, none issued and outstanding, respectively			—		—
	Common stock, $0.0001 par value, 80,000 shares authorized, 25,250 and 24,450 issued and outstanding, respectively			3		2
	Additional paid in capital			49,840		38,554
	Retained earnings			147,809		103,508
	Accumulated other comprehensive income, net of tax			202		186

Total stockholders' equity				197,854		142,250

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY			$	229,806	$	166,452

The accompanying notes are an integral part of these consolidated financial statements.

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share amounts)

		Years Ended

		2009			2008			2007
Net sales		$	311,001		$	270,000		$	173,256
Cost of sales			115,439			112,999			74,429

Gross profit			195,562			157,001			98,827
Selling, general, and administrative expenses			117,965			88,125			51,685

Operating income			77,597			68,876			47,142
Interest income, net			(169	)		(1,065	)		(1,803	)

Income before provision for income taxes			77,766			69,941			48,945
Provision for income taxes			30,434			25,570			21,100

Net Income		$	47,332		$	44,371		$	27,845

Earnings per share:
	Basic	$	1.97		$	1.89		$	1.21

	Diluted	$	1.92		$	1.83		$	1.16

Weighted average shares outstanding:
	Basic		23,993			23,511			22,964

	Diluted		24,659			24,270			23,949

The accompanying notes are an integral part of these consolidated financial statements.

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

			Years Ended

			2009			2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$	47,332		$	44,371		$	27,845
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			6,492			3,427			2,044
	Provision for bad debts			99			577			228
	Stock-based compensation			11,899			10,297			5,731
	Tax benefit from stock-based compensation			54			229			1,303
	Excess tax benefit from stock-based compensation			(54	)		(229	)		(1,270	)
	Deferred income taxes			(642	)		(128	)		(2,636	)
	Other			206			305			—
	Changes in operating assets and liabilities:
		Accounts receivable from factor		23,057			(8,271	)		(7,269	)
		Accounts receivable from customers		(17,278	)		1,914			(4,828	)
		Inventory		(8,719	)		(4,377	)		(11,477	)
		Prepaid expenses and other current assets		(2,861	)		(1,834	)		(1,608	)
		Other assets		(280	)		(448	)		—
		Accounts payable and accrued expenses		2,800			(825	)		(29	)
		Accrued salaries, wages and benefits		1,954			2,831			2,150
		Income taxes payable		(884	)		(2,168	)		(1,094	)
		Long-term deferred rent		3,315			3,391			720

Net cash provided by operating activities				66,490			49,062			9,810

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment			(20,082	)		(18,187	)		(8,765	)
	Purchases of investments			—			—			(17,505	)
	Sales of investments			4,900			5,550			2,105
	Expenditures to establish trademarks			(128	)		(81	)		(228	)

Net cash used in investing activities				(15,310	)		(12,718	)		(24,393	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Statutory tax withholding payment for stock-based compensation			(3,031	)		(8,110	)		(3,077	)
	Excess tax benefit from stock-based compensation			54			229			1,270
	Proceeds from exercise of stock options			—			25			198

Net cash (used in) provided by financing activities				(2,977	)		(7,856	)		(1,609	)

Effect of exchange rate changes in cash				83			71			—
Net increase (decrease) in cash and cash equivalents				48,286			28,559			(16,192	)
Cash and cash equivalents, beginning of year				57,245			28,686			44,878

Cash and cash equivalents, end of year			$	105,531		$	57,245		$	28,686

The accompanying notes are an integral part of these consolidated financial statements.

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Amounts in thousands)

					Amount		Additional Paid In Capital			Accumulated Other Comprehensive Income			Retained Earnings			Total

Balance at January 1, 2007			23,254		$	2	$	20,159		$	—		$	43,986		$	64,147
	Net income for the year ended December 31, 2007													27,845			27,845
	Stock-based compensation							5,731			—						5,731
	Issuance of restricted shares		347			—		—			—						—
	Exercise of stock options		272			—		198			—						198
	Retirement of common stock		(183	)		—		—			—			(3,077	)		(3,077	)
	Forfeiture of restricted shares		(103	)		—		—			—
	Tax benefit on stock-based compensation							403			—						403

Balance at December 31, 2007			23,587			2		26,491			—			68,754			95,247
	Net income for the year ended December 31, 2008										—			44,371			44,371
	Other comprehensive income, net:
		Unrealized losses arising during year									(1,583	)					(1,583	)
		Losses on available for sale securities reclassified to trading									1,583						1,583
		Cumulative translation adjustment									186						186

	Comprehensive net income																44,557
	Stock-based compensation							10,297			—						10,297
	Issuance of restricted shares		659			—		—			—						—
	Exercise of stock options		836			—		1,537			—						1,537
	Retirement of common stock		(583	)		—		—			—			(9,617	)		(9,617	)
	Forfeiture of restricted shares		(49	)		—		—			—						—
	Tax benefit on stock-based compensation							229			—						229

Balance at December 31, 2008			24,450			2		38,554		$	186			103,508			142,250
	Net income for the year ended December 31, 2009										—			47,332			47,332
	Other comprehensive income, net
		Cumulative translation adjustment									16						16

	Comprehensive net income																47,348
	Stock-based compensation							11,899			—						11,899
	Issuance of restricted shares		1,135			1		(1	)		—						—
	Retirement of common stock		(223	)		—		—			—			(3,031	)		(3,031	)
	Forfeiture of restricted shares		(112	)		—		—			—						—
	Tax deficiency on stock-based compensation							(612	)		—						(612	)

Balance at December 31, 2009			25,250		$	3	$	49,840		$	202		$	147,809		$	197,854

The accompanying notes are an integral part of these consolidated financial statements.

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

True Religion Apparel, Inc. and subsidiaries (referred to in this Annual Report on Form 10-K as "the Company," "our," "we," or "True Religion") designs, markets, sells and distributes premium fashion apparel, centered on our core denim products using the brand name "True Religion Brand Jeans." Our products include pants, tops and jackets made from denim, fleece, corduroy and other fabrics. We are known for our unique fits and styling details. Through multiple wholesale and retail segments, our expanding product line reaches fashion-conscious consumers on six continents, including North America, Europe, Asia, Australia, Africa and South America.

We operate in four primary business segments: U.S. Wholesale, International, Consumer Direct and Other. Our U.S. Wholesale sales are made to leading upscale nationwide-retailers, boutiques and off-price retailers. Our International sales are primarily made to distributors covering more than 50 countries on six continents. The distributors warehouse products at their expense and they ship to and collect payment from their customers directly. We also sell directly to consumers through full-price branded retail stores, branded outlet stores and through our retail internet site located at www.truereligionbrandjeans.com. In addition, we selectively license to third parties the right to use our various trademarks in connection with the manufacture and sale of designated products in specified geographical areas for specified periods. The licensing business is included in the Other segment. Our corporate operations, which include the executive, legal, and human resources departments, are also included in the Other segment.

The accompanying consolidated financial statements include the accounts of True Religion Apparel, Inc. and its wholly-owned subsidiaries.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes thereto. Actual results could differ materially from those estimates.

Significant estimates inherent in the preparation of the accompanying consolidated financial statements include reserves for customer returns; chargebacks; allowances for bad debts; allowance for slow moving inventory; contingencies; fixed asset useful lives; income taxes and related contingencies; and the valuation of stock-based compensation and related forfeiture rates.

Financial Accounting Standards Board ("FASB") Accounting Standards Codification (the "Codification" or "ASC")

intended to change GAAP, but rather is expected to simplify accounting research by reorganizing current GAAP into approximately 90 accounting topics. We adopted this accounting standard in preparing the Consolidated Financial Statements for the year ended December 31, 2009 included in this Annual Report on Form 10-K. The adoption of this accounting standard had no impact on retained earnings and did not have an impact on our financial position, results of operations or cash flows.

We use the fair value measurement hierarchy which is based on the inputs used to measure fair value. The following is a list of defined levels in the fair value hierarchy based on the data and/or methods used to determine fair value:

We use observable market inputs (quoted market prices) when measuring fair value and require a Level 1 quoted price to be used to measure fair value whenever possible. Our cash equivalents represent Level 1 investments, which are valued based on quoted market prices. Our auction rate securities represent Level 3 investments, which are valued based on broker quotes as well as subsequent auctions, if any (see Note 3).

Revenue from licensing arrangements are recognized when earned in accordance with the terms of the underlying agreements, generally based upon the higher of (a) contractually guaranteed minimum royalty levels and (b) estimates of sales and royalty data received from our licensees.

We classify merchandise, inbound freight costs and out-bound shipping costs in cost of sales. Selling, general & administrative expenses ("SG&A") include merchandise design and pre-production, marketing and advertising, sales commissions, customer service, Consumer Direct expenses and general and administrative expenses. Consumer Direct expenses include wages and commissions, retail occupancy costs, supplies and direct segment management costs. General and administrative expenses include wages and performance compensation for our executive, finance, human resources, legal, and information systems departments, headquarters occupancy costs (including the portion used by the distribution function), and professional service costs. Included in selling, general and administrative expenses in the accompanying consolidated statements of income are handling charges of $4.0 million, $3.6 million and $2.8 million in 2009, 2008 and 2007, respectively.

Advertising costs, including the costs to produce advertising, are expensed when the advertisement is first exhibited. Cooperative advertising costs paid to wholesale customers are expensed as an advertising cost because the identified advertising benefit is sufficiently separable from the purchase of our products by the wholesale customers and the fair value of such benefit is reasonably measurable. These advertising expenses are recorded as a component of SG&A in the accompanying consolidated statements of income.

Advertising expenses amounted to $5.4 million, $3.9 million and $1.2 million for the years ended December 31, 2009, 2008 and 2007, respectively.

Comprehensive income for the years ended December 31, 2009 and 2008, consists of net income, adjustments to available for sale securities and cumulative translation adjustments. For the year ended December 31, 2007, comprehensive income equals net income as we had no other comprehensive income items.

Net income per common share is determined in accordance with FASB ASC 260: Earnings per Share. Basic net income per common share is computed based upon the weighted average number of common shares outstanding, and diluted net income per common share is computed based upon the weighted average number of common shares outstanding plus dilutive common share equivalents outstanding during the periods using the treasury stock method. Dilutive common share equivalents consist of incentive stock options, non-qualified stock options and restricted stock awards, other than performance awards which are excluded from diluted shares outstanding until the performance condition is achieved. Once the performance condition is achieved on performance awards, the shares are included in diluted common share equivalents weighted retroactive to the grant date.

The weighted-average number of common shares outstanding used to calculate basic net income per common share is reconciled to those shares used in calculating diluted net income per common share as follows (amounts in thousands):

We consider all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents. Cash equivalents are carried at cost, which approximates their fair market value. At December 31, 2009, cash equivalents consist of an investment in a money market fund that that invest only in U.S. Treasury securities.

Management evaluates our accounts receivables to estimate if they will ultimately be collected. In performing this evaluation, significant judgment is used, including an analysis of specific risks on a customer-by-customer basis for larger accounts. Based on this information, management provides a reserve for the estimated amounts believed to be uncollectible. Based on historical losses, existing economic conditions and collection practices, our allowance for doubtful accounts has been estimated to be $0.3 million and $0.3 million at December 31, 2009 and 2008, respectively. Our actual credit losses for the periods presented have not significantly exceeded management's estimates.

For the years ended December 31, 2009 and 2008, sales to one customer accounted for 15% of our net sales. As of December 31, 2009, 27% and 10% of our net accounts receivable were due from two of our customers. As of December 31, 2008, our Accounts Receivable from Factor, in the amount of $23.1 million, was due from Merchant Factor, which uses the collection function of a U.S. based

financial institution to collect the receivables that Merchant Factors purchased from us. Certain of our U.S. Wholesale customers remitted their payments for goods they purchased on credit to the financial institution; the financial institution transferred the collections to Merchant Factor, and Merchant Factor transferred to us the moneys that it received on these receivables. In July 2009, we notified Merchant Factor that we would no longer sell accounts receivable to them, thereby eliminating this concentration of credit risk. As of December 31, 2009, we had $3,000 in outstanding factor receivables.

Wholesale and Consumer Direct inventories are stated at the lower of cost or market value. Cost is determined using the average cost which approximates the first-in, first-out method.

Our denim manufacturing process includes two phases: i) cut and sew; and ii) washing and finishing. At times, we will instruct our contract manufacturers to send goods to us that have been completed through the cut and sew phase only. By delaying the second phase of the manufacturing process, we can use updated market information about which washes and finishes are most popular before we send these unwashed goods to the laundries and finishing houses to complete the manufacturing process. The denim products that we hold between the cut and sew phase and the wash and finish phase are considered work-in-progress.

Property and equipment, net, is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method based upon the estimated useful lives of depreciable assets, which are typically three years for computer systems and equipment, and trade show booths, five years for furniture & fixtures and machinery & equipment, and three to ten years for leasehold improvements. Leasehold improvements are depreciated over periods equal to the shorter of the estimated useful lives of the respective assets or the lease term.

Expenditures for repairs and maintenance are charged to operations as incurred, while renewals and betterments are capitalized.

Property and equipment are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying amounts may not be recoverable. In evaluating long-lived assets for recoverability, we use our best estimate of future cash flows expected to result from the use of the asset and eventual disposition. To the extent that estimated future discounted net cash flows attributable to the asset are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference between the carrying value of such asset and its estimated discounted net cash flows.

assets and liabilities. The deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We establish valuation allowances for tax benefits when we believe it is more likely than not that such assets will not be realized.

In accordance with FASB ASC 740: Accounting for Income Taxes ("FASB ASC 740"), we regularly evaluate the likelihood of recognizing the benefit for income tax positions we have taken in various federal and state filings by considering all relevant facts, circumstances, and information available. For those benefits that we believe it is more likely than not that the benefit will be sustained, we recognize the largest amount we believe is cumulatively greater than 50% likely to be realized. The adoption of FASB ASC 740 had no impact on our consolidated financial statements.

We record interest and penalties, if any, on any underpayment of income taxes as a component of provision for income taxes and SG&A, respectively, in the accompanying consolidated statements of income.

We lease our corporate headquarters facility and all of our branded retail stores. All of these leases are classified as operating leases and they expire at various dates through 2021. We have no significant individual or master lease agreements.

Our fixed, noncancelable lease terms generally are 5 to 10 years. Some of our leases include options that allow us to extend the lease term beyond the initial commitment period, subject to terms agreed to at lease inception.

For leases that contain predetermined, fixed escalations of the minimum rent, we recognize the rent expense on a straight-line basis over the lease term and record the difference between the rent expense and the rent payable as deferred rent.

Most of our leases also provide for payment of operating expenses, such as common area charges, real estate taxes and other executory costs. Some leases require additional payments based on sales which are recorded in rent expense when the contingent rent is probable.

In some lease agreements, we receive landlord incentives to reimburse us for leasehold improvements. These incentives are recorded as a deferred rent credit and recognized as a reduction to rent expense on a straight-line basis over the lease term. As of December 31, 2009 and 2008, landlord incentives comprised $3.5 million and $2.0 million, respectively, of the deferred rent credit balance.

In April 2009, the FASB issued FASB ASC 320: Investments—Debt and Equity Securities ("FASB ASC 320")-10-65 (formerly FASB Staff Position FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments). FASB ASC 320 provides guidance in determining whether impairments in debt securities are other than temporary, and modifies the presentation and disclosures surrounding such instruments. It was effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. We adopted the provisions of FASB ASC 320 during the second quarter of 2009, and the adoption did not have a significant impact on our financial position, cash flows or disclosures.

We have reclassified certain prior period amounts to conform to the current year presentation. We have revised our previously reported consolidated statements of cash flows for the year ended December 31, 2008 and 2007 to reflect a decrease in the provision for bad debts of $0.5 million and an increase in the provision for bad debts of $0.5 million, respectively. The corresponding offset to these adjustments was to accounts receivable from factor. These revisions reflect a reclassification of the provision for sales returns, which was previously included in provision for bad debts and returns to accounts receivable from factor.

As of December 31, 2009, we held $94.3 million of cash equivalents measured at fair value using quoted prices in active markets (Level 1 input).

Our investments consist of auction rate securities. Auction rate securities ("ARS") are variable rate bonds whose interest rate is periodically reset, typically every seven, 28, or 35 days. The underlying securities have contractual maturities from 2034 through 2039. As of December 31, 2009, we held five auction rate securities with an aggregate par value of $5.0 million and a fair value of $4.6 million. These securities are collateralized by higher education funded student loans and are supported by the federal government as part of the Federal Family Education Loan Program (FFELP). These securities have continued to pay their scheduled cash interest payments.

The Dutch auction process that periodically resets the applicable interest rate is intended to provide liquidity to the holder of the auction rate securities by matching buyers and sellers within a market context, enabling the holder to gain immediate liquidity by selling such interests at par or rolling over their investment. If there was an imbalance between buyers and sellers, the risk of a failed auction existed. The auction rate securities that we hold began to experience failed auctions in 2008. In

October 2008, we were notified that the two brokers who sold ARS to us would purchase the ARS at a price of par plus accrued interest. We accepted the offers from these brokers, providing us rights related to our ARS (the "Rights"). The first portion of the ARS, with a par amount of $4.9 million, was purchased by one broker in January 2009 at par plus accrued interest, and the second portion, with a par amount of $5.0 million, is expected to be purchased by the second broker by July 2012, although the broker may purchase these at any time and we may instruct the broker to purchase these ARS beginning in June 2010. Based on our ability to sell the remaining ARS in the next year, we transferred the remaining ARS from long-term to short-term during the third quarter of 2009.

Our Rights related to our ARS represent firm commitments, (an agreement with an unrelated party, binding on both parties and legally enforceable). The enforceability of the Rights results in a put option and is recognized as a freestanding asset separate from the ARS. We have elected to measure the put option at fair value, in order to match the changes in the fair value of the ARS. We expect that future changes in the fair value of the put option will approximate fair value movements in the related ARS.

Prior to accepting the Rights from the brokers, we recorded our ARS investments as available-for-sale and reported any unrealized gains or temporary unrealized losses, net of taxes, as a component of accumulated other comprehensive income in the consolidated balance sheets. In connection with the acceptance of the Rights from the brokers, we transferred our ARS from investments available-for-sale to trading securities during the fourth quarter of 2008.

Our ARS and put option represent Level 3 assets. Our ARS are recorded at fair value using broker quotes. We have elected to measure the put option at fair value, in order to match the changes in the fair value of the ARS. The fair value of the put option is determined by an internally developed discounted cash flow model. We expect that future changes in the fair value of the put option will approximate fair value movements in the related ARS. The following table provides a summary of changes in fair value of our Level 3 financial assets during the year ended December 31, 2009 (amounts in thousands):

	Level 3 Assets

	Short-Term									Long-Term
	ARS			Put Option			Total			ARS			Put Option			Total
Balance at December 31, 2007	$	—		$	—		$	—		$	—		$	—		$	—
Transfers to Level 3, including accrued interest		15,545						15,545
Transfers to long-term		(5,000	)					(5,000	)		5,000						5,000
Net settlements		(5,550	)					(5,550	)
Realized gain (loss) included in interest income, net		(1,732	)					(1,732	)		(886	)					(886	)
Revaluation of put option included in interest income, net					1,587			1,587						876			876

Balance at December 31, 2008		3,263			1,587			4,850			4,114			876			4,990
Transfer to short-term		4,618			347			4,965			(4,618	)		(347	)		(4,965	)
Net settlements		(3,288	)		(1,587	)		(4,875	)		(25	)					(25	)
Realized gain (loss) included in interest income, net		(45	)					(45	)		529						529
Revaluation of put option included in interest income, net					53			53						(529	)		(529	)

Balance at December 31, 2009	$	4,548		$	400		$	4,948		$	—		$	—		$	—

We recorded the following allowances against our accounts receivable as of December 31 (amounts in thousands):

In addition to the above reserves, we recorded an allowance for trade discounts of $0.6 million as of December 31, 2009 and $0.8 million as of December 31, 2008.

Inventories consisted of the following as of December 31 (amounts in thousands):

Property and equipment consisted of the following as of December 31 (amounts in thousands):

		2009		2008

Computer systems and equipment		$	7,943	$	1,885
Furniture and fixtures			4,009		2,777
Leasehold improvements			34,154		22,252
Machinery and equipment			2,305		1,544
Trade show booths			1,013		897
Construction in progress			2,728		4,670

			52,152		34,025
Less: accumulated depreciation			12,459		6,019

	Property and equipment, net	$	39,693	$	28,006

Construction in progress at December 31, 2009 and 2008 represents the capital expenditures for leasehold improvements that will be used in our new branded retail stores. Also included in construction in progress at December 31, 2008 were capital expenditures associated with the implementation of a new information technology system. When these projects are completed, these balances are transferred to the appropriate property and equipment category and depreciated according to their useful life.

Depreciation expense, which is included as a component of selling, general and administrative expenses in the accompanying consolidated statements of income, was $6.3 million, $3.4 million and $2.0 million for the years ended December 31, 2009, 2008 and 2007, respectively.

Accounts payable and accrued expenses consisted of the following as of December 31 (amounts in thousands):

We have six license agreements whereby we granted to the licensee the right to use the True Religion Brand Jeans trademark and related intellectual property. Each licensee is required to pay us an annual royalty fee equal to the greater of a percentage of the licensee's actual annual net sales or minimum annual net sales (as defined in the underlying agreement). Additionally, each licensee will pay us an annual minimum advertising contribution fee equal to a percentage of the minimum annual net sales (as defined in the underlying agreement).

Each licensee was also required to make non-refundable advance royalty payments which are to be credited against the first dollars of royalties that become due under the agreement and the minimum royalty guarantee. These payments are recognized ratably as revenue over the contract year (as defined) of the license agreement as a component of net sales in the accompanying consolidated statements of income. The unearned minimum advance payments are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets and total $0.2 million and $0.1 million at December 31, 2009 and 2008, respectively. We recognized licensing revenue of $4.3 million, $1.4 million and $0.9 million for the years ended December 31, 2009, 2008 and 2007 as a component of net sales in the accompanying consolidated statements of income. These licensing revenues included prepayments recognized ratably and estimated sales and royalties based on information obtained from the licensee.

Future minimum annual royalty and advertising contribution fees as of December 31, 2009 are summarized as follows (amounts in thousands):

On April 7, 2009, our Board of Directors approved the True Religion Apparel, Inc. 2009 Equity Incentive Plan (the "2009 Incentive Plan") which was approved by the shareholders at our Annual Shareholder Meeting on June 2, 2009. Upon approval of the 2009 Incentive Plan by the shareholders, grants under the Company's 2005 Stock Incentive Plan (the "2005 Incentive Plan") were discontinued and any shares available for issuance under the 2005 Incentive Plan were rolled into the 2009 Incentive Plan.

We recognize stock-based compensation expense either on the straight-line or the graded attribution (accelerated) method over the requisite service period. The following table summarizes our annual stock-based compensation expense, which is included in selling, general and administrative expenses in the accompanying consolidated statements of income (amounts in thousands):

Shares awarded under the 2009 and 2005 Incentive Plans entitle the shareholder to all the rights of common stock ownership except that the shares may not be sold, transferred, pledged, exchanged or otherwise disposed of during the restriction period. The restriction period is determined by the Compensation Committee of the Board of Directors and may not exceed 10 years. Restricted stock awards have generally been granted with vesting periods of up to three years. All unvested restricted shares are forfeited if the recipient of the restricted stock award no longer provides services, as defined, to us.

During the years ended December 31, 2009 and 2008, we awarded 1,135,194 and 658,958 shares, respectively, of restricted stock to employees, officers and directors which vest over a period of zero to three years. Included in the shares awarded in 2009 are 801,692 shares that vest in 2010 and 2011 that

were based on earnings targets for 2009. The fair value of these restricted shares, based on the price of our common stock at the date of grant, was $12.9 million and $12.0 million, respectively. Our policy for attributing the value of graded vesting share-based payments is the straight-line single option approach for grants with only service conditions and the graded attribution (accelerated) method for grants with performance conditions.

During 2007, we implemented a practice of withholding common shares, upon an employee's request, to satisfy employee minimum statutory income tax withholdings for restricted shares as they vest. During the years ended December 31, 2009, 2008 and 2007, we withheld 223,275, 150,926 and 115,144 shares for a total value of $3.0 million, $2.8 million and $1.8 million, respectively. These amounts are recorded as tax withholding payment for share-based compensation as a financing activity in the accompanying 2009 and 2008 consolidated statements of cash flows.

The following table summarizes our restricted stock activities for the year ended December 31, 2009 (dollar amounts in thousands except per share data):

As of December 31, 2009 and 2008, we estimated a forfeiture rate of 3.4% and 4.6%, respectively, based on historical experience. The aggregate intrinsic value of restricted stock outstanding as of December 31, 2009 and 2008, adjusted for estimated forfeitures, was $21.4 million and $8.8 million, respectively. As of December 31, 2009, the total unamortized stock-based compensation expense related to the restricted shares was $5.3 million, which is expected to be recognized over a weighted average period of 1.0 year. The total fair value of restricted stock vested during the year ended December 31, 2009, 2008 and 2007 was $9.7 million, $7.0 million and $5.7 million, respectively.

Stock options were granted under the prior plans. Option grants were for a term of five years and vested over a period of zero to three years. We did not grant any new stock options during the years ended December 31, 2009, 2008 and 2007, and all options previously granted have been exercised or forfeited.

In 2007, we recognized $0.3 million of compensation expense for stock options that were granted and modified under APB 25. Such expenses represents the intrinsic value of options modified for which an employee who terminated in 2007 would not have received such options had the vesting terms not been accelerated.

During the year ended December 31, 2009, no options to acquire shares of our common stock were exercised. During the year ended December 31, 2008, options to acquire 836,665 shares of our common stock were exercised, of which 432,255 of these shares were withheld by us to meet the related employee minimum statutory income tax withholding requirement of $5.3 million and exercise price of $1.5 million. During the year ended December 31, 2007, options to acquire 271,667 shares of our

common stock were exercised, of which 67,848 of these shares were withheld by us to meet the related employee minimum statutory income tax withholding requirement of $1.3 million. The minimum statutory income tax withholding amounts are recorded as tax withholding payments for stock-based compensation as a financing activity in the accompanying consolidated statements of cash flows.

The total intrinsic value of options exercised during the years ended December 31, 2008 and 2007 was $11.6 million and $4.6 million, respectively.

We receive a tax deduction for certain stock option exercises during the period the options are exercised, generally for the excess of the fair value of stock at the date of exercise over the exercise price of the options. We also receive a tax deduction that may be different than our financial statement expense for restricted stock when it vests. FASB ASC 718: Compensation—Stock Compensation ("FASB ASC 718") requires cash flows resulting from tax benefits in excess of the related stock-based compensation to be classified as part of cash flows from financing activities. In accordance with FASB ASC 718, we reported $0.1 million, $0.2 million and $1.3 million, respectively, of excess tax benefits as financing cash flows for the years ended December 31, 2009, 2008 and 2007. The total tax (deficit) benefit realized from stock option exercises or restricted stock vesting for the years ended December 31, 2009, 2008 and 2007 was ($0.6) million, $0.2 million and $1.3 million, respectively. Cash received from stock option exercises was less than $0.1 million and $0.2 million for the years ended December 31, 2008 and 2007, respectively.

We lease our headquarters facility and retail store locations under operating lease agreements expiring on various dates through January 2021. Some of these leases require us to make periodic payments for property taxes, utilities and common area operating expenses. Certain leases include lease incentives, rent abatements and fixed rent escalations, for which the effects are being recorded and amortized over the initial lease term on a straight-line basis. We have options to renew certain leases under various terms as specified within each lease agreement. We have no capitalized lease obligations.

As of December 31, 2009, we had entered into a total of 95 lease agreements, which consists of 87 retail stores in the U.S., three retail stores in Japan, our headquarters facility in Vernon, California which includes a parking annex, showrooms in Los Angeles and New York, and an administrative office in Japan. Our leased properties aggregate 313,000 square feet of space, which consists of 133,000 square feet for our headquarters, 172,000 square feet of retail space and 8,000 square feet of showroom space. Our lease agreements for 81 of the retail stores leases require payment of a percentage of sales, ranging from 4% to 15%, if our net sales at the retail store exceed a defined threshold. As of December 31, 2009 we had 70 retail stores that were open in the U.S., 17 that had not been opened yet and three retail stores open in Japan.

Rent expense was $16.2 million, $9.3 million and $3.7 million in 2009, 2008 and 2007, respectively. These amounts include contingent rental expense of $1.6 million, $0.8 million and $0.2 million in 2009, 2008 and 2007, respectively.

Future minimum lease payments under these operating leases as of December 31, 2009 are summarized as follows (amounts in thousands):

Subsequent to December 31, 2009, we entered into one new retail lease, which has an expiration date of January 2021 and future minimum lease payments of approximately $1.4 million.

From time to time, we are involved in various legal proceedings, which are incidental to the ordinary course of business. We do not believe that these routine matters are material to our business or financial condition.

Income tax expense consists of the following for the years ended December 31 (amounts in thousands):

		2009			2008			2007

Current income tax:
	Federal	$	23,967		$	22,475		$	18,591
	State and local		7,098			3,191			5,145
	Foreign		11			—			—

Total current income tax expense			31,076			25,666			23,736

Deferred income taxes:
	Federal		(480	)		401			(2,219	)
	State and local		(334	)		(423	)		(417	)
	Foreign		172			(74	)		—

Total deferred income tax benefit			(642	)		(96	)		(2,636	)

Total income tax expense		$	30,434		$	25,570		$	21,100

A reconciliation of the statutory Federal Income tax rate to the effective tax rate on income before provision for income taxes for the years ended December 31 is as follows:



Tax provision at statutory federal rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	5.7		2.5		6.3
Excess compensation under IRC Sec. 162(m)	—		1.2		3.0
Domestic production deduction	(1.8	)	(2.0	)	(1.7	)
Tax exempt interest	—		(0.3	)	(0.7	)
Interest exposure	—		—		0.7
Other	0.2		0.2		0.5

Effective tax rate	39.1	%	36.6	%	43.1	%

Deferred income taxes reflect the net tax effect of temporary differences between amounts recorded for financial reporting purposes and amounts recorded for income tax purposes. The major components of deferred tax assets and liabilities are as follows as of December 31 (amounts in thousands):

		2009			2008

Current deferred tax assets:
	Compensation	$	4,629		$	3,092
	Inventory		1,821			1,004
	Accrued interest		20			317
	Bad debt		116			105
	State taxes, net of federal benefits		1,496			1,454
	Other		671			526

Total current deferred tax assets			8,753			6,498

Long term deferred tax (liability) asset:
	Lease incentives		1,891			1,109
	Fixed assets		(4,606	)		(2,211	)

Total long-term deferred tax (liability) asset			(2,715	)		(1,102	)

Total net deferred tax asset		$	6,038		$	5,396

Our federal income tax return for 2006 through 2008 remains subject to examination, and our state income tax returns for 2005 through 2008 remain subject to examination. As of December 31, 2009 and 2008, our reserves for unrecognized tax benefits are not material to the consolidated financial statements.

The following is a reconciliation of the shares used to compute basic and diluted earnings per share is shown in the table for the years ended December 31 (in thousands, except per share information):

Comprehensive income consists of net income, unrealized gain (loss) on available-for-sale investments and cumulative translation adjustments. A reconciliation of other comprehensive income is shown in the table for the years ended December 31 (amounts in thousands):

The accounting policies of each segment are the same as those described in the summary of significant accounting policies (see Note 2). The U.S. Wholesale segment sells merchandise to select department stores, specialty and off-price retailers and boutiques in the United States. The International segment sells merchandise, often at a discount to our wholesale list price, primarily to foreign distributors, who in turn sell the merchandise to retailers in specific territories. Beginning in the third quarter of 2008, the International segment operated two outlet retail stores in Japan, then added a third store in the second quarter of 2009. The Consumer Direct segment sells our merchandise and merchandise purchased from our licensees in our U.S. stores and e-commerce site. The U.S. Wholesale segment's operations include our design, distribution center and customer service departments. We evaluate the performance of each operating segment based on operating income.

Summarized financial information concerning our reportable segments is shown in the following table for the years ended December 31 (amounts in thousands):

		2009			2008			2007

Net sales:
	Consumer Direct	$	129,029		$	75,314		$	29,268
	U.S. Wholesale		123,203			153,235			111,390
	International		54,479			40,044			31,728
	Other		4,289			1,407			870

Total net sales		$	311,001		$	270,000		$	173,256

Gross profit:
	Consumer Direct	$	95,276		$	57,669		$	22,452
	U.S. Wholesale		65,882			78,670			60,007
	International		30,115			19,255			15,498
	Other		4,289			1,407			870

Total gross profit		$	195,562		$	157,001		$	98,827

Operating income:
	Consumer Direct	$	44,766		$	27,810		$	11,875
	U.S. Wholesale		30,763			47,452			36,405
	International		25,167			16,761			14,718
	Other		(23,099	)		(23,147	)		(15,856	)

Total operating income		$	77,597		$	68,876		$	47,142

Capital expenditures
	Consumer Direct	$	14,437		$	15,540		$	5,300
	U.S. Wholesale		1,673			810			3,465
	International		347			378			—
	Other		3,625			1,459			—

Total capital expenditures		$	20,082		$	18,187		$	8,765

Total assets
	Consumer Direct	$	55,763		$	36,603
	U.S. Wholesale		31,159			43,030
	International		16,897			8,362
	Other		125,987			78,457

Total assets		$	229,806		$	166,452

As of December 31, 2009 and 2008, $224.9 million and $164.9 million, respectively, of our assets were located in the United States. Also, at December 31, 2009 and 2008, we had accounts receivable due from foreign distributors of $8.0 million and $7.0 million, respectively, and trademarks of $0.2 million and $0.2 million, respectively, associated with foreign countries. The U.S. Wholesale segment had net sales to one customer, exceeding 10% of our net sales, that amounted to $41.1 million in 2009 and $39.2 million in 2008. Our 2009 net sales categorized by gender were approximately as follows: women—55%; men—41%; and kids—4%. Our 2008 net sales categorized by gender were approximately as follows: women—58%; men—38%; and kids—4%.

Retail occupancy costs included in Consumer Direct expenses amount to $16.5 million, $8.8 million and $3.3 million, for the years ended December 31, 2009, 2008 and 2007, respectively.

The following is a summary of the unaudited quarterly financial information for the years ended December 31, 2009 and 2008 (amounts in thousands, except per share data):

During the years ended December 31, 2009, 2008 and 2007, we paid $31.1 million, $27.4 million and $23.1 million in taxes.

As of December 31, 2009 and 2008, we had recognized the purchase of $0.8 million and $2.4 million, respectively, of property and equipment that had not yet been paid for. These amounts have been excluded from "Purchases of property and equipment" in the accompanying consolidated cash flows.

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

	Balance at Beginning of Period		Charged to Costs and Expenses		Deductions			Balance at End of Period

2009
Reserve for returns	$	474	$	829	$	(697	)	$	606
Reserve for chargebacks	$	439	$	952	$	(924	)	$	467
Reserve for bad debt	$	266	$	99	$	(68	)	$	297
2008
Reserve for returns	$	317	$	298	$	(141	)	$	474
Reserve for chargebacks	$	385	$	124	$	(70	)	$	439
Reserve for bad debt	$	244	$	577	$	(555	)	$	266
2007
Reserve for returns	$	69	$	248	$	—		$	317
Reserve for chargebacks	$	735	$	—	$	(350	)	$	385
Reserve for bad debt	$	371	$	228	$	(355	)	$	244


ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


Delaware		98-0352633
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)
2263 E. Vernon Ave. Vernon, California		90058
(Address of Principal Executive Offices)		(Zip Code)


Securities registered pursuant to Section 12(b) of the Exchange Act:
Common Stock, par value $0.0001 per share (Title of Class)		Nasdaq Global Market (Name of Each Exchange on Which Registered)
Securities registered under Section 12(g) of the Act:
None (Title of Class)		None (Name of Each Exchange on Which Registered)


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

	2009				2008

	High		Low		High		Low
First Quarter	$	14.13	$	7.83	$	20.76	$	17.00
Second Quarter	$	24.52	$	11.87	$	26.76	$	15.51
Third Quarter	$	26.51	$	19.64	$	31.08	$	24.53
Fourth Quarter	$	28.33	$	17.57	$	25.69	$	10.25

			Pages

PART I.			1
	Item 1.	Business	1
	Item 1A.	Risk Factors	6
	Item 1B.	Unresolved Staff Comments	12
	Item 2.	Properties	12
	Item 3.	Legal Proceedings	12
	Item 4.	[Removed and Reserved]	12
PART II.			13
	Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
	Item 6.	Selected Financial Data	15
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	29
	Item 8.	Financial Statements and Supplementary Data	29
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	29
	Item 9A.	Controls and Procedures	29
	Item 9B.	Other Information	30
PART III.			30
	Item 10.	Directors, Executive Officers and Corporate Governance	30
	Item 11.	Executive Compensation	30
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters	30
	Item 13.	Certain Relationships and Related Transactions and Director Independence	31
	Item 14.	Principal Accountant Fees and Services	31
PART IV.			32
	Item 15.	Exhibits, Financial Statements Schedules	32
SIGNATURES			34

Period		Average Price Paid Per Share (a)

October 1, 2009—October 31, 2009	1,192	$	24.78	—	—
November 1, 2009—November 30, 2009	1,468	$	24.63	—	—
December 1, 2009—December 31, 2009	—	$	—	—	—

Total	2,660	$	24.70	—	—

	Payment Due by Period

Contractual Obligations	Total		Less than One Year		1 - 3 Years		3 - 5 Years		More Than 5 Years
Long-term debt obligations	$	—	$	—	$	—	$	—	$	—
Operating lease obligations		152,837		15,675		32,783		33,187		71,192
Purchase obligations		20,334		20,334		—		—		—

Total	$	173,171	$	36,009	$	32,783	$	33,187	$	71,192


(a)	(1)	FINANCIAL STATEMENTS—See Index to Consolidated Financial Statements of this Annual Report on Form 10-K.
	(2)	FINANCIAL STATEMENT SCHEDULES—See Index to consolidated Financial Statements on page F-1 hereof
	(3)	EXHIBITS—See Exhibit Index below.


		TRUE RELIGION APPAREL, INC.
Dated: March 9, 2010		/s/ JEFFREY LUBELL Jeffrey Lubell Chief Executive Officer and Chairman of the Board

Name	Position	Date


/s/ JEFFREY LUBELL Jeffrey Lubell	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)	March 9, 2010
/s/ PETER F. COLLINS Peter F. Collins	Chief Financial Officer (Principal Financial and Accounting Officer)	March 9, 2010
/s/ JOSEPH H. COULOMBE Joseph H. Coulombe	Director	March 9, 2010
/s/ G. LOUIS GRAZIADIO III G. Louis Graziadio III	Director	March 9, 2010
/s/ ROBERT L. HARRIS, II Robert L. Harris, II	Director	March 9, 2010
/s/ MARK S. MARON Mark S. Maron	Director	March 9, 2010
/s/ MARCELLO BOTTOLI Marcello Bottoli	Director	March 9, 2010

		2009		2008

Raw Materials		$	604	$	453
Work-in-Progress			1,800		1,709
Finished Goods			32,098		23,666

	Total	$	34,502	$	25,828

		2009		2008

Accrued expenses		$	2,714	$	5,134
Accrued sales and use taxes			2,025		1,086
Accounts payable			1,602		1,956
Accrued percentage rent			1,367		614
Other			4,009		1,843

	Accounts payable and accrued expenses	$	11,717	$	10,633

Year ending December 31,	Royalties		Advertising Contribution

2010	$	3,888	$	1,004
2011		3,106		729
2012		1,524		201
2013		480		—
2014		—		—
Thereafter		—		—

Total minimum royalty and advertising fees	$	8,998	$	1,934

				Weighted Average Grant Date Fair Value			Intrinsic Value

Non-vested, beginning of year		751,966		$	17.49
	Granted	1,135,194		$	11.36
	Vested	(577,050	)	$	16.80
	Forfeitures	(111,622	)	$	11.45

Non-vested, end of year		1,198,488		$	12.79	1.0	$	22,160

Year ended December 31, 2009	First Quarter		Second Quarter		Third Quarter		Fourth Quarter

Net sales	$	63,624	$	72,116	$	82,423	$	92,838
Gross profit	$	38,719	$	44,800	$	53,334	$	58,709
Net income	$	7,625	$	10,987	$	14,085	$	14,635
Earnings per share:
Basic	$	0.32	$	0.46	$	0.59	$	0.61
Diluted	$	0.32	$	0.45	$	0.58	$	0.59

Year ended December 31, 2008	First Quarter		Second Quarter		Third Quarter		Fourth Quarter

Net sales	$	53,432	$	64,158	$	79,420	$	72,990
Gross profit	$	30,485	$	36,888	$	46,364	$	43,264
Net income	$	6,947	$	9,281	$	15,437	$	12,707
Earnings per share:
Basic	$	0.30	$	0.39	$	0.65	$	0.54
Diluted	$	0.29	$	0.39	$	0.64	$	0.53