10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly report period ended September 30, 2012

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                         to

Commission File Number: 000-51483

TRUE RELIGION APPAREL, INC.

(Exact name of registrant specified in its charter)

DELAWARE	98-0352633
(State or other jurisdiction of  incorporation or organization)	(IRS Employer Identification No.)

2263 East Vernon Avenue, Vernon, CA 90058

(Address of Principal Executive Offices)

(323) 266-3072

Issuer’s telephone number, including area code

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

As of October 31, 2012, 25,786,496 shares of common stock were outstanding.

TRUE RELIGION APPAREL, INC.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	ITEM 1.	Financial Statements (unaudited)
		Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011	1
		Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2012 and 2011	2
		Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2012 and 2011	3
		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011	4
		Notes to Condensed Consolidated Financial Statements	5
	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	ITEM 3.	Quantitative and Qualitative Disclosure about Market Risk	23
	ITEM 4.	Controls and Procedures	23
PART II — OTHER INFORMATION
	ITEM 1.	Legal Proceedings	24
	ITEM 1A.	Risk Factors	24
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
	ITEM 3.	Default Upon Senior Securities	24
	ITEM 4.	Mine Safety Disclosures	24
	ITEM 5.	Other Information	24
	ITEM 6.	Exhibits	25
SIGNATURES			26
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

ii

PART I — Financial Information

Item 1.                    Financial Statements (Unaudited)

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except par value amounts)

(Unaudited)

	September 30,		December 31,
	2012		2011
ASSETS
Current Assets:
Cash and cash equivalents	$	51,395	$	200,366
Short-term investments	117,308		—
Accounts receivable, net of allowances	36,156		23,959
Inventories	64,076		53,320
Deferred income tax assets	6,066		7,027
Prepaid income taxes	6,901		3,879
Prepaid expenses and other current assets	11,944		12,137
Total current assets	293,846		300,688
Property and equipment, net	62,579		53,698
Long-term investments	31,721		—
Deferred income tax assets	866		1,271
Other assets	5,263		4,496
TOTAL ASSETS	$	394,275	$	360,153
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	30,936	$	22,872
Accrued salaries, wages and benefits	11,130		11,506
Income taxes payable	262		6,538
Total current liabilities	42,328		40,916
Long-term deferred rent	17,125		13,986
Long-term deferred income tax liabilities	3,698		2,224
Long-term income tax payable	898		604
Total long-term liabilities	21,721		16,814
Total liabilities	64,049		57,730
Commitments and contingencies
Redeemable noncontrolling interest	2,972		2,635
Stockholders’ Equity:
Preferred stock, $0.0001 par value, 20,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.0001 par value, 80,000 shares authorized, 25,780 and 25,492 issued and outstanding, respectively	3		3
Additional paid-in capital	86,960		77,950
Retained earnings	238,775		221,122
Accumulated other comprehensive income, net	1,516		713
Total stockholders’ equity	327,254		299,788
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	394,275	$	360,153

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

1

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands except per share data)

(Unaudited)

	Three Months Ended					Nine months Ended
	September 30,					September 30,
	2012			2011		2012			2011
Net sales	$	118,549		$	108,364	$	330,243		$	300,389
Cost of sales	43,526			38,174		118,838			105,086
Gross profit	75,023			70,190		211,405			195,303
Selling, general and administrative expenses	56,161			50,264		158,679			145,351
Operating income	18,862			19,926		52,726			49,952
Other (income) expense, net	(415		)	250		(78		)	(231		)
Income before provision for income taxes	19,277			19,676		52,804			50,183
Provision for income taxes	6,928			7,374		19,904			19,070
Net income	12,349			12,302		32,900			31,113
Less: Net income attributable to redeemable noncontrolling interest	5			217		366			612
Net income attributable to True Religion Apparel, Inc.	$	12,344		$	12,085	$	32,534		$	30,501
Earnings per share attributable to True Religion Apparel, Inc.:
Basic	$	0.49		$	0.48	$	1.30		$	1.23
Diluted	$	0.49		$	0.48	$	1.29		$	1.22
Weighted average shares outstanding:
Basic	25,176			24,927		25,103			24,831
Diluted	25,311			24,999		25,304			25,002
Dividends per common share	$	0.20		$	—	$	0.40		$	—

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

2

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

	Three Months Ended						Nine months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Net income	$	12,349		$	12,302		$	32,900		$	31,113
Cumulative translation adjustment	862			(488		)	725			(70		)
Unrealized gains on investments:
Unrealized gains arising during the year	49			—			49			—
Comprehensive income	13,260			11,814			33,674			31,043
Comprehensive income attributable to redeemable noncontrolling interest	(70		)	(73		)	(337		)	(639		)
Comprehensive income attributable to True Religion Apparel, Inc.	$	13,190		$	11,741		$	33,337		$	30,404

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

3

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Nine months Ended September 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	32,900		$	31,113
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	9,873			9,351
Provision for bad debts	714			857
Stock-based compensation	8,604			8,516
Tax benefit from stock-based compensation	405			761
Excess tax benefit from stock-based compensation	(511		)	(1,219		)
Deferred income taxes	2,836			2,177
Other, net	301			75
Changes in operating assets and liabilities:
Accounts receivable	(12,966		)	204
Inventories	(10,706		)	(12,255		)
Prepaid expenses and other current assets	742			(674		)
Other assets	(791		)	(442		)
Accounts payable and accrued expenses	6,664			8,745
Accrued salaries, wages and benefits	(389		)	(218		)
Prepaid income taxes and income taxes payable	(9,002		)	(747		)
Long-term deferred rent	3,069			2,420
Net cash provided by operating activities	31,743			48,664
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments	(167,282		)	—
Proceeds from maturities or sales of investments	18,028			—
Purchases of property and equipment	(17,389		)	(15,622		)
Expenditures to establish trademarks	(7		)	(30		)
Other assets	(242		)	—
Net cash used in investing activities	(166,892		)	(15,652		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Statutory tax withholding payment for stock-based compensation	(4,558		)	(5,450		)
Cash dividends paid	(10,076		)	—
Excess tax benefit from stock-based compensation	511			1,219
Net cash used in financing activities	(14,123		)	(4,231		)
Effect of exchange rate changes on cash	301			(415		)
Net (decrease) increase in cash and cash equivalents	(148,971		)	28,366
Cash and cash equivalents, beginning of period	200,366			153,792
Cash and cash equivalents, end of period	$	51,395		$	182,158

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

4

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — Description of the Business

True Religion Apparel, Inc. and subsidiaries (referred to in the Quarterly Report on Form 10-Q as “the Company,” “our,” or “we”) 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 jeans, pants, woven and knit tops and outerwear made from denim, fleece, jersey and other fabrics. We are known for our unique fits, washes and styling details. Our products are distributed through multiple wholesale and retail segments on six continents, including North America, Europe, Asia, Australia, Africa and South America.

We operate in four primary business segments: U.S. Consumer Direct, U.S. Wholesale, International, and Core Services. We sell directly to consumers in the United States through full-price stores, outlet stores and through our retail internet site located at www.truereligionbrandjeans.com. As of September 30, 2012, we operated 85 full price stores and 34 outlet stores in the U.S.  Our U.S. Wholesale sales are made to leading nationwide premium department stores, specialty retailers and boutiques, and off-price retailers. Our International sales are made through a variety of channels, including subsidiaries and a joint venture that operate retail stores and sell to wholesale customers who operate retail stores; distributors who warehouse products at their expense and then ship to, and collect payment from, their customers; and directly to wholesale customers who operate retail stores. As of September 30, 2012, our International segment operated 18 full price stores and ten outlet stores.  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. This licensing business is included in our Core Services segment.  Our corporate operations, which include the design, production, marketing, distribution, credit, customer service, information technology, accounting, executive, legal, and human resources departments, are also included in the Core Services segment.

NOTE 2 — Summary of Significant Accounting Policies

Basis of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of True Religion Apparel, Inc., its subsidiaries, and its majority-owned subsidiary, True Religion Brand Jeans Germany GmbH (“TRBJ Germany”), which operates according to a joint venture agreement with its noncontrolling interest holder. All intercompany accounts and transactions have been eliminated in consolidation.

In the ordinary course of business, we make sales to customers affiliated with the noncontrolling interest holder of TRBJ Germany (“Related Parties”).  Net sales to Related Parties, which is included in net sales in the accompanying condensed consolidated statements of income, were $0.6 million and $1.8 million for the three and nine months ended September 30, 2012, respectively, and were $0.5 million and $2.5 million for the three and nine months ended September 30, 2011.  As of September 30, 2012 and 2011, our accounts receivable from Related Parties was $4.2 million and $4.1 million, respectively.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of True Religion Apparel, Inc. have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X for interim financial information issued by the Securities and Exchange Commission (“SEC”). Accordingly, as permitted under applicable rules and regulations, they do not include all of the information and notes required by GAAP for annual financial statements.  The accompanying condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC. The same accounting policies are followed for preparing quarterly and annual financial information. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.  The results of operations for the three and nine months ended September 30, 2012, are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.

Concentration of Credit Risks

As of September 30, 2012 and December 31, 2011, the accounts receivable due from one customer was 15% and 10%, respectively, of our total accounts receivable, net of allowances.

5

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and notes thereto. Actual results could differ materially from those estimates.

Significant estimates inherent in the preparation of the accompanying condensed consolidated financial statements include reserves for customer returns, chargebacks, allowances for bad debts, inventory valuation, contingencies, valuation of long-lived assets, fixed asset useful lives, income taxes and other tax contingencies, and the valuation of stock-based compensation and related forfeiture rates.

Gift Cards

We sell gift cards with no expiration dates to customers.  We recognize revenue associated with our gift cards upon redemption of the gift card.  In addition, we may recognize revenue from gift cards in the future when we determine that the likelihood of the gift card being redeemed is remote and that we have no legal obligation to remit the unredeemed gift card to relevant jurisdictions.  We will utilize historical redemption patterns to consider the likelihood of gift card redemption.  During the three and nine months ended September 30, 2012 and 2011, no revenue was recognized related to gift card breakage.

NOTE 3 — Cash Equivalents and Investments

As of September 30, 2012 and December 31, 2011, we held $40.7 million and $175.1 million, respectively, of cash equivalents, which consist of an investment in a money market fund that invests only in U.S. Treasury securities.  These investments are measured at fair value using quoted prices in active markets (Level 1 input).

Our Investments consist of fixed maturity U.S. Treasury securities, which are classified as available-for-sale securities and are reported at fair value.  The fair values for these investments were obtained from third-party broker statements, which are primarily derived from observable market-based inputs or unobservable inputs that are corroborated by market data (Level 2 input).  Management has established guidelines and practices to limit the amount of credit risk. We assess whether unrealized losses are other-than-temporary. As of September 30, 2012, none of our investments were in an unrealized loss position.

Investments consist of the following (amounts in thousands):

	September 30, 2012
	Amortized Cost		Unrealized Gain		Unrealized Loss	Fair value
Available-for-sale:
U.S. Treasury securities	$	148,980	$	49	—	$	149,029

The contractual maturities were as follows (amounts in thousands):

	September 30, 2012		December 31, 2011
Due within one year	$	117,308	$	—
Due within two years	31,721		—
Total	$	149,029	$	—

Net investment income, which is included in other (income) expense, net, in the accompanying condensed consolidated statements of income, was $0.1 million for the three months and nine months ended September 30, 2012, respectively.  The realized loss on the sale of an investment during the three months ended September 30, 2012 was less than $0.1 million.

During the three months ended September 30, 2012, management re-evaluated its previous conclusion that investments in U.S. Treasury securities should be classified as held-to-maturity as a result of an opportunity to sell a U.S. Treasury security in our portfolio for another U.S. Treasury that would provide a greater yield.  Our investment policy objectives are to: maintain sufficient liquidity to meet financial obligations, ensure safety of principal and earn a market rate of return.  Management concluded that the requirements to maintain a held-to-maturity classification would potentially impact our ability to earn a market rate of return.  As a result, we reclassified all of our investments that were previously classified as held-to-maturity to available-for-sale.  The carrying value and fair value of the investments transferred from held-to-maturity to available-for-sale was $149.1 million at the date of transfer.

6

NOTE 4 — Accounts Receivable

We recorded the following allowances against our wholesale accounts receivable (amounts in thousands):

	As of September 30,		As of December 31,
	2012		2011
Reserve for returns	$	834	$	807
Reserve for chargebacks and markdown allowances	202		316
Reserve for bad debt	1,025		860
Total	$	2,061	$	1,983

In addition to the above reserves, we recorded an allowance for trade discounts of less than $0.1 million as of September 30, 2012 and December 31, 2011.

NOTE 5 — Inventories

Inventories consisted of the following (amounts in thousands):

	As of September 30,		As of December 31,
	2012		2011
Raw materials	$	665	$	604
Work-in-progress	3,691		2,395
Finished goods	59,720		50,321
Total	$	64,076	$	53,320

NOTE 6 — Property and Equipment, net

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

	As ofSeptember 30,		As ofDecember 31,
	2012		2011
Computer systems and equipment	$	13,749	$	15,357
Furniture and fixtures	13,322		9,498
Leasehold improvements	62,081		55,141
Machinery and equipment	5,116		4,412
Trade show booths	1,318		1,356
Construction in progress	2,424		1,896
	98,010		87,660
Less: accumulated depreciation	35,431		33,962
Property and equipment, net	$	62,579	$	53,698

Construction in progress as of September 30, 2012 and December 31, 2011 primarily represents the capital expenditures for retail stores that have not opened, or information technology projects that have not been completed, as of the balance sheet date.  When the stores are opened or the information technology projects are completed, these balances will be 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 condensed consolidated statements of income, was $9.9 million and $9.4 million for the nine months ended September 30, 2012 and 2011, respectively.

NOTE 7—Accounts Payable and Accrued Expenses

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

	As ofSeptember 30,		As ofDecember 31,
	2012		2011
Accounts payable	$	17,184	$	6,761
Accrued expenses	5,550		7,597
Accrued sales and use taxes	2,003		2,582
Accrued percentage rent	1,474		1,785
Other	4,725		4,147
Accounts payable and accrued expenses	$	30,936	$	22,872

7

NOTE 8 — Stock-based Compensation

The following table summarizes our stock-based compensation expense, which is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income (amounts in thousands):

	Three Months Ended				Nine months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Stock-based compensation expense, before income tax benefit	$	2,357	$	1,765	$	8,604	$	8,516
Income tax benefit	882		679		3,220		3,275
Stock-based compensation expense, after income tax benefit	$	1,475	$	1,086	$	5,384	$	5,241

Restricted Stock Awards

Restricted shares awarded under the 2009 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 nor are dividends paid until the restriction period ends.  Upon termination, dividends accrued on non-vested shares will be forfeited. 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. Subject to employment agreements entered into with senior executives, all unvested restricted shares are forfeited if the recipient of the restricted stock award no longer provides services, as defined, to us.

Non-vested performance-based awards

During the nine months ended September 30, 2012 and 2011, we awarded performance-based restricted stock to executive officers that vest over a period of two years, which is a service condition.  Upon achieving the performance condition, the non-vested performance awards partially vest on the first anniversary of the grant date and the remainder on the second anniversary of the grant date for a combined service period of two years.  In order for these performance awards to vest, the Company’s annual adjusted earnings before interest and income tax expenses (“Adjusted EBIT”) must exceed a minimum amount; depending upon the Company’s actual annual Adjusted EBIT, additional restricted stock may be earned, up to a maximum amount.

The following table summarizes our performance-based restricted stock activities for the nine months ended September 30, 2012:

					Weighted
			Weighted		Average
			Average Grant		Remaining	Intrinsic
			Date Fair		Contractual	Value
	Shares		Value		Life (Years)	($000’s)
Prior year awards:
Non-vested, beginning of year	391,174		$	23.98
Vested	(281,896	)	$	24.41
Service forfeited	—		$	—
Non-vested prior year awards, end of period	109,278
Awards granted in 2012, at maximum:	353,215		$	26.04
Performance forfeited	—		$	—
Service forfeited	—		$	—
Non-vested current year awards, end of period	353,215
Total non-vested, end of period	462,493		$	25.31	0.8	$	9,865

8

The estimated fair value of the performance-based stock awarded is based on the price of our common stock at the date of grant and an assumed forfeiture rate of 1.5% as of September 30, 2012; this forfeiture rate assumption is based on historical experience adjusted for unusual, large forfeitures.  The fair value of the performance-based stock awarded in the nine months ended September 30, 2012 and 2011 was $9.2 million and $11.6 million, respectively.  The total fair value of performance-based stock vested during the nine months ended September 30, 2012 and 2011 was $6.9 million and $7.9 million, respectively.  As of September 30, 2012, the total unamortized stock-based compensation expense related to the performance-based stock was $4.5 million, which is expected to be recognized over a weighted average period of 0.8 years.

Non-vested service-based awards

During the nine months ended September 30, 2012 and 2011, we awarded restricted stock to employees and directors that vest over a period of up to three years.

The following table summarizes our non-vested service-based restricted stock activities for the nine months ended September 30, 2012:

	Shares		Weighted AverageGrant Date FairValue		Weighted AverageRemainingContractual Life(Years)	IntrinsicValue($000’s)
Non-vested, beginning of year	170,062		$	23.35
Granted	119,625		$	26.20
Vested	(135,502	)	$	24.01
Forfeited	(15,346	)	$	27.41
Non-vested, end of period	138,839		$	24.71	1.4	$	2,961

The estimated fair value of the non-vested, service-based stock awarded is based on the price of our common stock at the date of grant and an assumed forfeiture rate of 7.9% as of September 30, 2012; this forfeiture rate assumption is based on historical experience adjusted for unusual, large forfeitures.  The fair value of service-based stock awarded in the nine months ended September 30, 2012 and 2011 was $3.1 million and $3.4 million, respectively.  The total fair value of service-based stock vested during the nine months ended September 30, 2012 and 2011 was $3.3 million and $3.7 million, respectively.  As of September 30, 2012, the total unamortized stock-based compensation expense related to the non-vested, service-based stock was $2.4 million which is expected to be recognized over a weighted average period of 1.4 years.

9

Minimum Statutory Income Taxes on Restricted Awards

We have a practice of withholding common shares, upon an employee’s or director’s request, to satisfy employee and director minimum statutory income tax withholdings for restricted shares when they vest. During the nine months ended September 30, 2012 and 2011, we withheld 169,730 and 228,109 shares for a total value of $4.6 million and $5.5 million, respectively. These amounts are considered a financing activity and recorded as statutory tax withholding payment for stock-based compensation in the accompanying condensed consolidated statements of cash flows.

NOTE 9 — Commitments and Contingencies

Leases

We lease our headquarters facilities and retail store locations under operating lease agreements expiring on various dates through January 2024.  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 September 30, 2012, we had 171 long-term lease agreements, which consisted of 126 retail stores in the U.S., 31 international retail stores, two distribution and administrative facilities in Vernon, California, two showrooms in the U.S., and administrative offices and/or showrooms in Japan, South Korea, Hong Kong, Germany, Italy, the U.K. and Switzerland. Our leased properties aggregate 688,000 square feet of space, which consists of 374,000 square feet for our distribution and administrative functions, 300,000 square feet of retail space and 14,000 square feet of showroom space.  Our lease agreements for 140 of the retail stores leases require payment of a percentage of sales, ranging from 4% to 18%, if our net sales at the retail store exceed a defined threshold.

Rent expense was $27.3 million and $22.3 million for the nine months ended September 30, 2012 and 2011, respectively. These amounts include contingent rental expense of $2.9 million and $2.4 million for the nine months ended September 30, 2012 and 2011, respectively.

Future minimum lease payments under these operating leases as of September 30, 2012 are summarized as follows (amounts in thousands):

Year Ending December 31,
2012 (remainder of year)	$	7,305
2013	30,501
2014	30,619
2015	30,440
2016	29,988
Thereafter	103,047
Total minimum lease payments	$	231,900

Legal Proceedings

From time to time, we are involved in various legal proceedings arising in the ordinary course of business. We believe the recorded reserves in our condensed consolidated balance sheet as of September 30, 2012 are adequate in light of the probable and estimable liabilities.  As of the date of this report, we do not believe there are any currently identified claims, proceedings or litigation, either alone or in the aggregate, that will have a material impact on our future results of operations, financial position or cash flows.  Since these matters are subject to inherent uncertainties, our view of them may change in the future.

Income Taxes

In connection with an examination of our federal income tax return filed for the tax year ended December 31, 2009, the Internal Revenue Service (“IRS”) has disallowed the domestic production activities deduction.  During the nine months ended September 30, 2012, the IRS issued an assessment for $1.4 million in tax and a $0.3 million penalty.

We have completed our income tax provision for 2010, 2011 and 2012 using the same position that the IRS has challenged in its 2009 federal income tax return.  The cumulative income tax benefit for deductions included for those periods is $4.6 million.

We filed a formal protest with the Office of Appeals Division within the IRS, and we intend to vigorously defend our position.  In the event of an unfavorable outcome at the Office of Appeals, we will strongly consider litigating the matter in U.S. Tax Court.  The unpaid assessment will continue to accrue interest at the statutory rate until resolved.  Although the outcome remains uncertain, management believes a taxpayer favorable resolution will be obtained and therefore the full tax benefit for the deduction has been recognized.

10

NOTE 10 —Redeemable Noncontrolling Interest

We calculated the fair value of the redeemable noncontrolling interest by discounting the estimated future cash flows of our majority-owned subsidiary, TRBJ Germany, and determined that the fair value of the noncontrolling interest was lower than the carrying value as of September 30, 2012.  As no previous increases have been recorded, the noncontrolling interest approximated the greater of the fair market value or the carrying value as of September 30, 2012 and December 31, 2011.  The fair value calculation of the redeemable noncontrolling interest was based on unobservable inputs reflecting management’s own assumptions (Level 3 input).

The following table presents a reconciliation of the redeemable noncontrolling interest (amounts in thousands):

	Nine months Ended
	September 30,
	2012			2011
Redeemable noncontrolling interest, beginning of year	$	2,635		$	1,925
Net income attributable to redeemable noncontrolling interest	366			612
Foreign currency translation adjustment	(29		)	27
Redeemable noncontrolling interest, end of period	$	2,972		$	2,564

NOTE 11 — Earnings Per Share

The following is a reconciliation of the shares used to compute basic and diluted earnings per share attributable to True Religion Apparel, Inc. (in thousands, except per share information):

	Three Months Ended				Nine months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Net income attributable to True Religion Apparel, Inc.	$	12,344	$	12,085	$	32,534	$	30,501
Basic shares	25,176		24,927		25,103		24,831
Dilutive effect of unvested restricted stock	135		72		201		171
Diluted shares	$	25,311	$	24,999	$	25,304	$	25,002
Earnings per share attributable to True Religion Apparel, Inc. — basic	$	0.49	$	0.48	$	1.30	$	1.23
Earnings per share attributable to True Religion Apparel, Inc. — diluted	$	0.49	$	0.48	$	1.29	$	1.22

For the three and nine months ended September 30, 2012, 353,215 and 240,652 weighted shares, respectively, of restricted stock awards which are subject to performance conditions that have not been achieved were excluded from the calculation of dilutive shares. For the three and nine months ended September 30, 2011, 392,059 and 266,658 weighted shares, respectively, of restricted stock awards which are subject to performance conditions that have not been achieved were excluded from the calculation of dilutive shares.

11

NOTE 12 — Segment Information

Summarized financial information concerning our reportable segments is shown in the following table (amounts in thousands):

	Three Months Ended						Nine months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Net sales:
U.S. Consumer Direct	$	65,325		$	61,817		$	195,144		$	174,025
U.S. Wholesale	29,809			22,020			73,670			63,888
International	22,748			23,461			59,604			60,021
Core Services	667			1,066			1,825			2,455
	$	118,549		$	108,364		$	330,243		$	300,389
Gross Profit:
U.S. Consumer Direct	$	46,313		$	43,490		$	137,268		$	124,929
U.S. Wholesale	14,962			11,388			37,598			33,510
International	13,081			14,246			34,714			34,409
Core Services	667			1,066			1,825			2,455
	$	75,023		$	70,190		$	211,405		$	195,303
Operating income:
U.S. Consumer Direct	$	21,230		$	20,989		$	64,630		$	61,189
U.S. Wholesale	13,251			9,752			32,903			27,700
International	1,744			6,801			5,961			13,165
Core Services	(17,363		)	(17,616		)	(50,768		)	(52,102		)
	$	18,862		$	19,926		$	52,726		$	49,952

	Nine months Ended
	September 30,
	2012		2011
Capital expenditures:
U.S. Consumer Direct	$	8,755	$	10,181
U.S. Wholesale	38		485
International	7,338		3,518
Core Services	2,060		1,438
	$	18,191	$	15,622

	September 30, 2012		December 31, 2011
Total assets:
U.S. Consumer Direct	$	77,323	$	78,089
U.S. Wholesale	40,861		41,700
International	58,668		26,182
Core Services	217,423		214,182
	$	394,275	$	360,153

NOTE 13 — Stockholders’ Equity

In April 2012, our Board of Directors approved a stock repurchase program granting us the authority to repurchase up to $30,000,000 of our common stock.  Under the stock repurchase program, we will repurchase shares in the open market from time to time, depending on market conditions.  The primary objective of the stock repurchase program is to offset the share dilution attributable to stock based compensation beginning in 2012.  We may suspend or discontinue the repurchase program at any time.  We have not purchased any shares of our common stock since the stock repurchase program was approved and had $30,000,000 in remaining share repurchase capacity as of September 30, 2012.  The actual number and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission rules.

During the nine months ended September 30, 2012, we paid $10.1 million in cash dividends to holders of our common stock.

In October 2012, our Board of Directors approved a quarterly cash dividend to our stockholders of $0.20 per share.  The quarterly dividend will be paid on November 29, 2012 to all stockholders of record as of November 15, 2012.  Future dividends will be subject to Board approval.

12

NOTE 14 — Supplemental Disclosure of Cash Flow Information

During the nine months ended September 30, 2012 and 2011, we paid income taxes of $18.0 million and $19.4 million, respectively.

As of September 30, 2012, and 2011, we had recorded the purchase of $1.6 million and $0.9 million, respectively, of property and equipment for which the vendors had not yet been paid.  These amounts have been excluded from “Purchases of property and equipment” and “Accounts payable and accrued expenses” in the accompanying condensed consolidated statements of cash flows.

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ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We generally identify forward-looking statements in this report using words like “believe,” “intend,” “expect,” “estimate,” “may,” “plan,” “should plan,” “project,” “contemplate,” “anticipate,” “predict,” “potential,” “continue,” or similar expressions.  You may find some of these statements below and elsewhere in this Quarterly Report.  These forward-looking statements are not historical facts and are inherently uncertain and outside of our control.  Any or all of our forward-looking statements in this report may turn out to be wrong.  They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties.  Many factors mentioned in our discussion in this report will be important to determining future results.  Consequently, no forward-looking statement can be guaranteed.  Actual future results may vary materially.  Factors that may cause our plans, expectations, future financial condition and results to change are described throughout this report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed on February 29, 2012 (the “2011 Annual Report”), particularly in “Risk Factors,” Part 1, Item 1A of that report, and include the following:

·the negative general economic conditions and the current global financial crisis;

·our ability to predict fashion trends;

·our ability to continue to maintain our brand image and reputation;

·competition from companies with significantly greater resources than ours;

·increases in the price of raw materials or their reduced availability; and

·our ability to continue and control our expansion plans.

The forward-looking information set forth in this Quarterly Report on Form 10-Q is as of November 5, 2012, and we undertake no duty to update this information.  Shareholders and prospective investors can find information filed with the SEC after August 1, 2012 at our website at www.truereligionbrandjeans.com or at the SEC website at www.sec.gov.

RESULTS OF OPERATIONS

We design, market, sell and distribute premium fashion apparel, centered on our core denim products using the brand name “True Religion Brand Jeans.”  Our products include jeans, pants, woven and knit tops and outerwear made from denim, fleece, jersey and other fabrics. We are known for our unique fits, washes and styling details. Our products are distributed through multiple wholesale and retail channels on six continents, including North America, Europe, Asia, Australia, Africa and South America. As of September 30, 2012, we had 119 retail stores in the United States compared to 109 as of December 31, 2011, and 105 as of September 30, 2011.  As of September 30, 2012 we had 28 international stores compared to 16 as of December 31, 2011 and 13 as of September 30, 2011.

After receiving indications of interest from third parties regarding a potential transaction with the Company, our Board of Directors has formed a Special Committee comprised of its non-management directors to explore and evaluate potential strategic alternatives available to the Company, including a possible sale, in order to maximize shareholder value.  No decision has been made to engage in a transaction or transactions, and there can be no assurance that any transaction or any other strategic alternative will occur or, if undertaken, the terms or timing thereof.  The Special Committee has not set a definitive timetable for completion of the strategic review process.

Third Quarter 2012 Compared to Third Quarter 2011

The following table summarizes results of operations for the three months ended September 30, 2012 and 2011 (dollar amounts in thousands, except per share data):

	Three Months Ended September 30,
	2012					2011				Change
	Amount			%		Amount		%		Amount			%
Net sales	$	118,549		100.0	%	$	108,364	100.0	%	$	10,185		9.4	%
Gross profit	75,023			63.3	%	70,190		64.8	%	4,833			6.9	%
Selling, general and administrative expenses	56,161			47.4	%	50,264		46.4	%	5,897			11.7	%
Operating income	18,862			15.9	%	19,926		18.4	%	(1,064		)	(5.3	)%
Other (income) expense, net	(415		)	(0.4	)%	250		0.2	%	(665		)	NM
Provision for income taxes	6,928			5.8	%	7,374		6.8	%	(446		)	(6.0	)%
Net income attributable to True Religion Apparel, Inc.	$	12,344		10.4	%	$	12,085	11.2	%	$	259		2.1	%
Net income per share attributable to True Religion Apparel, Inc.:
Basic	$	0.49				$	0.48			$	0.01		2.1	%
Diluted	$	0.49				$	0.48			$	0.01		2.1	%

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Net Sales

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

	Three Months Ended, September 30,				Change
	2012		2011		Amount			%
U.S. Consumer Direct	$	65,325	$	61,817	$	3,508		5.7	%
U.S. Wholesale	29,809		22,020		7,789			35.4
International	22,748		23,461		(713		)	(3.0	)
Core Services	667		1,066		(399		)	(37.4	)
Total net sales	$	118,549	$	108,364	$	10,185		9.4	%

The following table summarizes the percentage of total net sales by segment:

	Three Months Ended, September 30,
	2012		2011
U.S. Consumer Direct	55.1	%	57.0	%
U.S. Wholesale	25.1		20.3
International	19.2		21.7
Core Services	0.6		1.0
Total net sales	100.0	%	100.0	%

The increase in the U.S. Consumer Direct segment’s net sales (which includes our retail stores and e-commerce site) of 5.7% resulted from the expansion of our retail store count.  Same store sales decreased 4.7% in the third quarter of 2012 as compared to the third quarter of 2011.  Factors contributing to the same store sales decline include decreases in traffic in our stores and prolonged summer weather.  Also, our sales of denim merchandise slowed in the quarter, but sales trends for non-denim pants and men’s tee shirts were favorable.  During the remainder of 2012, we expect to open three retail stores in the United States.

U.S. Wholesale net sales increased 35.4% to $29.8 million primarily due to an increase in sales to the Off-Price and Specialty channels, which was partially offset by a decrease in sales to Majors.  This is the third consecutive year-over-year quarterly sales increase for this segment.  We increased the amount of slow-moving merchandise sold to the Off-Price channel in order to put more ‘designed for’ merchandise in our consumer direct outlet stores. The ‘designed for’ merchandise typically yields higher sell-through rates and better gross margins in our outlet stores as compared to the performance of discounted slow-moving merchandise.

International net sales declined by 3.0% to $22.7 million primarily due to a slowdown in wholesale sales in Korea and Germany.  Partially offsetting this decrease is a 115% increase in our international retail sales due to an increase in our retail store count from 13 operated as of September 30, 2011 to 28 as of September 30, 2012.  During the remainder of 2012, we expect to open two international retail stores.

Core Services net sales is comprised of royalties due under licensing arrangements.  Core Services net sales decreased 37.4% to $0.7 million due primarily to the non-renewal of a licensing agreement.  It is our intention to refocus our internal resources on enhancing our relationships with our successful licensees and explore licensing opportunities in other merchandise categories.

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Gross Profit

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

	Three Months Ended, September 30,				Change
	2012		2011		Amount			%
U.S. Consumer Direct	$	46,313	$	43,490	$	2,823		6.5	%
U.S. Wholesale	14,962		11,388		3,574			31.4
International	13,081		14,246		(1,165		)	(8.2	)
Core Services	667		1,066		(399		)	(37.4	)
Total gross profit	$	75,023	$	70,190	$	4,833		6.9	%

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

	Three Months Ended, September 30,				Change
	2012		2011		%
U.S. Consumer Direct	70.9	%	70.4	%	0.5	%
U.S. Wholesale	50.2		51.7		(1.5	)
International	57.5		60.7		(3.2	)
Core Services	100.0		100.0		0.0
Total gross margin	63.3	%	64.8	%	(1.5	)%

Overall gross profit increased 6.9% to $75.0 million in the third quarter of 2012, driven primarily by the overall sales increase.  The gross margin decreased 150 basis points to 63.3% primarily due to an increased sales mix of discontinued merchandise.

The U.S. Consumer Direct gross margin increased to 70.9% in the third quarter of 2012 from 70.4% in the same quarter in 2011 primarily due to improvement in the outlet stores’ gross margin.

The U.S. Wholesale gross margin decreased by 150 basis points, to 50.2%, in the third quarter primarily due to the increased sales of slow-moving merchandise to the Off-Price channel.

The International gross margin decreased to 57.5% in the third quarter of 2012 from 60.7% in the same quarter in 2011 primarily driven by lower wholesale gross margins due to discounting to clear slow-moving merchandise. Additionally, we reduced retail prices in Canada to more closely align our Canada retail prices with the U.S. retail prices.

Selling, General and Administrative Expenses

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

	Three Months Ended, September 30,				Change
	2012		2011		Amount			%
U.S. Consumer Direct	$	25,083	$	22,501	$	2,582		11.5	%
U.S. Wholesale	1,711		1,636		75			4.6
International	11,337		7,445		3,892			52.3
Core Services	18,030		18,682		(652		)	(3.5	)
Total selling, general and administrative expenses	$	56,161	$	50,264	$	5,897		11.7	%

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

	Three Months Ended, September 30,				Change
	2012		2011		%
U.S. Consumer Direct	38.4	%	36.4	%	2.0	%
U.S. Wholesale	5.7		7.4		(1.7	)
International	49.8		31.7		18.1
Core Services	NM		NM		NM
Total SG&A rate	47.4	%	46.4	%	1.0	%

The U.S. Consumer Direct SG&A increased $2.6 million, from $22.5 million in the third quarter of 2011 to $25.1 million in the third quarter of 2012.  This increase is primarily related to the store expansion over the past year, from 105 stores at the end of September 2011 to 119 stores at the end of September 2012.  Also contributing to the increase is the addition of merchandise planning and buying resources to support growth in this segment.  As a percentage of net sales, U.S. Consumer Direct SG&A increased from 36.4% in the third quarter of 2011 to 38.4% in the third quarter of 2012, primarily due to increases in new store SG&A and merchandise planning and buying resources.

U.S. Wholesale SG&A remained relatively flat at $1.7 million in the third quarter of 2012 compared to the third quarter of 2011.  The segment’s increase in net sales on flat SG&A drove the U.S. Wholesale SG&A rate down from 7.4% in the third quarter of 2011 to 5.7% in the third quarter of 2012.

International SG&A increased $3.9 million, from $7.4 million in the third quarter of 2011 to $11.3 million in the third quarter of 2012, due to our planned expansion, including an increase in the number of branded retail stores from 13 stores at September 30, 2011 to 28 stores at September 30, 2012.  The increase in the SG&A rate from 31.7% in the third quarter of 2011 to 49.8% in the third quarter of 2012 is primarily attributable to the segment’s wholesale sales decline and increased operating costs associated with the additional 15 branded retail stores.

Core Services SG&A decreased $0.7 million, from $18.7 million in the third quarter of 2011 to $18.0 million in the third quarter of 2012.  The decrease is primarily due to net separation costs of $1.2 million associated with the resignation of a former executive that we recorded in the third quarter of 2011.  This was partially offset by the increase in bad debt expense of $0.5 million.  As a percentage of total net sales, Core Services SG&A decreased from 17.2% in the third quarter of 2011 to 15.2% in the third quarter of 2012.  The 200 basis points decrease in the Core Services SG&A rate is due to the 9.4% increase in total net sales, which produced leverage on fixed costs, coupled with the decrease in the net separation costs.

Operating Income

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

	Three Months Ended, September 30,						Change
	2012			2011			Amount			%
U.S. Consumer Direct	$	21,230		$	20,989		$	241		1.1	%
U.S. Wholesale	13,251			9,752			3,499			35.9
International	1,744			6,801			(5,057		)	(74.4	)
Core Services	(17,363		)	(17,616		)	253			1.4
Total operating income	$	18,862		$	19,926		$	(1,064	)	(5.3	)%

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

	Three Months Ended, September 30,				Change
	2012		2011		%
U.S. Consumer Direct	32.5	%	34.0	%	(1.5	)%
U.S. Wholesale	44.5		44.3		0.2
International	7.7		29.0		(21.3	)
Core Services	NM		NM		NM
Total operating income margin	15.9	%	18.4	%	(2.5	)%

17

Operating income totaled $18.9 million, down 5.3% from the third quarter of last year.  Operating margin was 15.9% in the third quarter of 2012 versus 18.4% in the third quarter of 2011.  The decline is primarily attributable to the reduced operating margin in the U.S. Consumer Direct and International segments.

The U.S. Consumer Direct operating margin decreased from 34.0% in the third quarter of 2011 to 32.5% in the third quarter of 2012 due to the decrease in same store sales and the increase in merchandise planning and buying resources.

The U.S. Wholesale operating margin increased from 44.3% in the third quarter of 2011 to 44.5% in the third quarter of 2012 driven by the 35.4% increase in this segment’s net sales.

The International operating margin decreased from 29.0% in the third quarter of 2011 to 7.7% in the third quarter of 2012 primarily due to wholesale sales decreases and the segment’s gross margin decrease.

Other (Income) Expense, net

Net other (income) expense was $(0.4) million in the third quarter of 2012 compared to $0.2 million in the third quarter of 2011.  This increase is primarily due to the foreign exchange gains on our intercompany balances with our foreign subsidiaries.

Provision for Income Taxes

The effective tax rate for the third quarter of 2012 was 35.9% compared to 37.5% for the third quarter of 2011.  The 2012 effective tax rate decrease over 2011 is linked to an increase in income apportioned to foreign jurisdictions with lower income tax rates as we continue to establish our international presence.

Net Income attributable to True Religion Apparel, Inc. and Earnings Per Diluted Share

Net income attributable to True Religion Apparel, Inc. was $12.3 million, or $0.49 per diluted share, for the third quarter of 2012 compared to $12.1 million, or $0.48 per diluted share, for the third quarter of 2011.  Excluding the net separation costs associated with the resignation of a former executive, the adjusted net income attributable to True Religion Apparel, Inc. for the third quarter of 2011 was $12.9 million, or $0.51 per diluted share.

Year-to-Date 2012 Compared to Year-to-Date 2011

The following table summarizes results of operations for the nine months ended September 30, 2012 and 2011 (dollar amounts in thousands, except per share data):

	Nine months Ended September 30,
	2012					2011					Change
	Amount			%		Amount			%		Amount			%
Net sales	$	330,243		100.0	%	$	300,389		100.0	%	$	29,854		9.9	%
Gross profit	211,405			64.0	%	195,303			65.0	%	16,102			8.2	%
Selling, general and administrative expenses	158,679			48.0	%	145,351			48.4	%	13,328			9.2	%
Operating income	52,726			16.0	%	49,952			16.6	%	2,774			5.6	%
Other income, net	(78		)	(0.0	)%	(231		)	(0.1	)%	(153		)	NM
Provision for income taxes	19,904			6.0	%	19,070			6.3	%	834			4.4	%
Net income attributable to True Religion Apparel, Inc.	$	32,534		9.9	%	$	30,501		10.2	%	$	2,033		6.7	%
Net income per share attributable to True Religion Apparel, Inc.:
Basic	$	1.30				$	1.23				$	0.07		5.7	%
Diluted	$	1.29				$	1.22				$	0.07		5.7	%

Net Sales

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

	Nine months Ended September 30,				Change
	2012		2011		Amount			%
U.S. Consumer Direct	$	195,144	$	174,025	$	21,119		12.1	%
U.S. Wholesale	73,670		63,888		9,782			15.3
International	59,604		60,021		(417		)	(0.7	)
Core Services	1,825		2,455		(630		)	(25.7	)
Total net sales	$	330,243	$	300,389	$	29,854		9.9	%

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The following table summarizes the percentage of total net sales by segment:

	Nine months Ended September 30,
	2012		2011
U.S. Consumer Direct	59.1	%	57.9	%
U.S. Wholesale	22.3		21.3
International	18.0		20.0
Core Services	0.6		0.8
Total net sales	100.0	%	100.0	%

The increase in the U.S. Consumer Direct segment’s net sales (which includes our retail stores and e-commerce site) of 12.1% resulted from the expansion of our retail store count and a 3.3% same store sales increase.  The same store sales increase was driven by favorable men’s merchandise sales trends in both denim and non-denim categories, which was partially offset by a sales slowdown in the women’s denim category.

U.S. Wholesale net sales increased 15.3% to $73.7 million primarily due to an increase in sales to the Off-Price and Specialty channels, which was partially offset by a decrease in sales to Majors.  The Off-Price channel’s sales increase reflects our decision to clear slow-moving merchandise through this channel along with the overall growth of the number of stores operated by these customers.  The demand for men’s merchandise in the Specialty channel spurred this channel’s sales increase.

International net sales decreased 0.7% to $59.6 million primarily due to the wholesale sales slowdowns in Korea, Germany, and Canada.  This was offset by an increase in retail sales as we have steadily increased our international store count since the beginning of 2011.

Core Services net sales is comprised of royalties earned through licensing arrangements.  Core Services net sales decreased 25.7% to $1.8 million due to the non-renewal of a licensing agreement and reduced sales by other licensees.

Gross Profit

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

	Nine months Ended September 30,				Change
	2012		2011		Amount			%
U.S. Consumer Direct	$	137,268	$	124,929	$	12,339		9.9	%
U.S. Wholesale	37,598		33,510		4,088			12.2
International	34,714		34,409		305			0.9
Core Services	1,825		2,455		(630		)	(25.7	)
Total gross profit	$	211,405	$	195,303	$	16,102		8.2	%

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

	Nine months Ended, September 30,				Change
	2012		2011		%
U.S. Consumer Direct	70.3	%	71.8	%	(1.5	)%
U.S. Wholesale	51.0		52.5		(1.5	)
International	58.2		57.3		0.9
Core Services	100.0		100.0		0.0
Total gross margin	64.0	%	65.0	%	(1.0	)%

Overall gross profit increased 8.2% to $211.4 million in the first nine months of 2012, driven primarily by the overall sales growth.  In the first nine months of 2012, gross margin decreased 100 basis points to 64.0% primarily due to the 150 basis point decrease in the U.S. Consumer Direct segment’s gross margin, which was partially offset by the 90 basis point increase in the International segment’s gross margin.

19

The U.S. Consumer Direct gross margin decreased to 70.3% in the first nine months of 2012 from 71.8% in the same period in 2011 as we experienced a sales mix shift toward our lower margin outlet stores and we took increased markdowns in our outlet stores in order to clear slower-moving women’s merchandise.

U.S. Wholesale gross margin decreased by 150 basis points, to 51.0%, primarily due to a sales mix shift within the Off-Price channel towards increased sales of lower margin slow-moving merchandise, which earns a lower gross margin than merchandise designed for this channel.

The International gross margin increased to 58.2% in the first nine months of 2012 from 57.3% in the same period in 2011 driven primarily by the sales mix shift towards our international direct retail business, which earns a higher gross margin than our international wholesale business.

Selling, General and Administrative Expenses

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

	Nine months Ended September 30,				Change
	2012		2011		Amount			%
U.S. Consumer Direct	$	72,637	$	63,740	$	8,897		14.0	%
U.S. Wholesale	4,694		5,810		(1,116		)	(19.2	)
International	28,755		21,244		7,511			35.4
Core Services	52,593		54,557		(1,964		)	(3.6	)
Total selling, general and administrative expenses	$	158,679	$	145,351	$	13,328		9.2	%

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

	Nine months Ended, September 30,				Change
	2012		2011		%
U.S. Consumer Direct	37.2	%	36.6	%	0.6	%
U.S. Wholesale	6.4		9.1		(2.7	)
International	48.2		35.4		12.8
Core Services	NM		NM		NM
Total SG&A rate	48.0	%	48.4	%	(0.4	)%

The U.S. Consumer Direct SG&A increased $8.9 million, from $63.7 million in the first nine months of 2011 to $72.6 million in the first nine months of 2012.  This increase is primarily related to the store expansion over the past year, from 105 stores at the end of September 2011 to 119 stores at the end of September 2012.  Also contributing to the increase were the increases in merchandise planning and buying resources to support the growth in this segment.  As a percentage of net sales, U.S. Consumer Direct SG&A increased from 36.6% in the first nine months of 2011 to 37.2% in the first nine months of 2012 primarily due to these planned increases in back office support.  The four-wall SG&A rate improved 90 basis points from 32.5% to 31.6%, due to the segment’s same store sales increase, which produced leverage on fixed costs.

U.S. Wholesale SG&A decreased $1.1 million, from $5.8 million in the first nine months of 2011 to $4.7 million in the first nine months of 2012 due to a decrease in bad debt expense.  In the second quarter of 2011, we wrote off a $0.7 million receivable from a former customer as a result of its bankruptcy filing.  The decrease in SG&A costs combined with the segment’s increase in net sales contributed to the U.S. Wholesale SG&A rate decreasing from 9.1% in the first nine months of 2011 to 6.4% in the first nine months of 2012.

International SG&A increased $7.5 million, from $21.2 million in the first nine months of 2011 to $28.7 million in the first nine months of 2012, due to our planned international expansion, including an increase in the number of branded retail stores from 13 stores at September 30, 2011 to 28 stores at September 30, 2012.  The 1280 basis points increase in the SG&A rate was driven by the wholesale sales decrease and the sales mix shift to the direct retail business, which has a higher SG&A rate than the wholesale business.

20

Core Services SG&A decreased $2.0 million, from $54.6 million in the first nine months of 2011 to $52.6 million in the first nine months of 2012, primarily due to a decrease in litigation settlement expense of $1.5 million and a 2011 separation cost of $1.2 million associated with the resignation of the Company’s former president.  As a percentage of total net sales, Core Services SG&A decreased from 18.2% in the first nine months of 2011 to 15.9% in the first nine months of 2012 due to the 9.9% increase in total net sales and the decrease in litigation settlement expense and separation costs.

Operating Income

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

	Nine months Ended September 30,						Change
	2012			2011			Amount			%
U.S. Consumer Direct	$	64,630		$	61,189		$	3,441		5.6	%
U.S. Wholesale	32,903			27,700			5,203			18.8
International	5,961			13,165			(7,204		)	(54.7	)
Core Services	(50,768		)	(52,102		)	1,334			(2.6	)
Total operating income	$	52,726		$	49,952		$	2,774		5.6	%

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

	Nine months Ended, September 30,				Change
	2012		2011		%
U.S. Consumer Direct	33.1	%	35.2	%	(2.1	)%
U.S. Wholesale	44.7		43.4		1.3
International	10.0		21.9		(11.9	)
Core Services	NM		NM		NM
Total operating income margin	16.0	%	16.6	%	(0.6	)%

Operating income totaled $52.7 million, up 5.6% from the first nine months of last year.  Operating margin was 16.0% in the first nine months of 2012 versus 16.6% in the first nine months of 2011.  The operating margin for the first nine months of 2011 adjusted for the litigation settlement expense and net separation costs, which totaled $2.7 million, was 17.5% or 150 basis points better than the first nine months of 2012.  The reduced operating margin in the U.S. Consumer Direct and International segments were the primary drivers of this decrease.

The U.S. Consumer Direct operating margin decreased from 35.2% in the first nine months of 2011 to 33.1% in the first nine months of 2012 primarily due to the reduced gross margin.

U.S. Wholesale operating margin increased from 43.4% in the first nine months of 2011 to 44.7% in the first nine months of 2012 driven by the segment’s growth in net sales.

International operating margin decreased from 21.9% in the first nine months of 2011 to 10.0% in the first nine months of 2012 primarily due to wholesale sales slowdowns in Korea, Germany, and Canada.

Other Expense (Income), net

Net other expense (income) was not significant in the first nine months of 2012 and 2011.

Provision for Income Taxes

The effective tax rate for the first nine months of 2012 was 37.7%, compared to 38.0% for the first nine months of 2011.  The 2012 effective tax rate decrease over 2011 is linked to an increase income apportioned to foreign jurisdictions with lower income tax rates as we continue to establish our international presence.

Net Income attributable to True Religion Apparel, Inc. and Earnings Per Diluted Share

Net income attributable to True Religion Apparel, Inc. was $32.5 million, or $1.29 per diluted share, for the first nine months of 2012 compared to $30.5 million, or $1.22 per diluted share, for the first nine months of 2011.  The increase in net income attributable to True Religion Apparel, Inc. resulted primarily from a 9.9% increase in total net sales.  Included in the 2011 result was a litigation settlement expense and separation costs, which reduced net income attributable to True Religion Apparel, Inc. by $1.7 million, net of tax.  Excluding the litigation settlement and the separation costs of $0.07 per share (after tax), net income attributable to True Religion Apparel, Inc. for the first nine months of 2011 was $1.29 based on weighted average shares outstanding of 25.0 million.

21

Inflation

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.

LIQUIDITY AND CAPITAL RESOURCES

In the first nine months of 2012, cash and cash equivalents decreased by $149.0 million from the beginning of the year primarily due to the net purchase of $149.3 million in short and long-term investments.

Operating Activities

Net cash provided by operating activities for the first nine months of 2012 was $31.7 million compared to $48.7 million in the first nine months of 2011.  This decrease in net cash provided by operating activities is primarily due to the increase in U.S. wholesale sales in in the third quarter of 2012 as compared to in the third quarter of 2011, which caused receivables to grow and cash receipts to be delayed in 2012 compared to 2011.  We also increased our use of cash for income taxes during the first nine months of 2012 primarily because we made larger than required estimated tax payment so as to avoid penalties for deficient estimated payments and due to higher than expected overpayments of tax arising from a favorable state law change that occurred in the third quarter of 2012.

Investing Activities

Net cash used in investing activities was $166.9 million in the first nine months of 2012, an increase of $151.2 million, compared to the first nine months of 2011, which is primarily linked to purchases of short and long-term investments.  In 2012, we purchased U.S Treasury securities so we would have more direct control of our investments, which were previously held in a money market fund that invested in U.S. Treasury securities.

Financing Activities

Net cash used in financing activities was $14.1 million in the first nine months of 2012, an increase of $9.9 million compared to the first nine months of 2011.  This increase is primarily due to the initiation of a cash dividend in 2012, which amounted to $10.1 million and was paid in the second and third quarters of 2012.

Liquidity

Our primary ongoing cash requirements are currently expected to be for our ongoing operations, dividends, if and when declared in the future, capital expenditures for new retail stores, our international expansion, and information technology and other infrastructure needs. Management believes that cash flows from continuing operations, on-hand cash and cash equivalents, and our investments in U.S. Treasuries 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 strengthen our financial position, maximize shareholder returns, and maintain flexibility for future strategic initiatives. We believe our cash, cash equivalents, investments and future operating cash flows will be sufficient, for at least the next twelve months, 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, and market conditions, and we cannot guarantee that we would be able to obtain financing on favorable terms, if needed.

Capital expenditures for the remainder of 2012 are expected to approximate $5 million.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonable likely to have a current or future effect on our financial condition, changes in financial condition, net sales or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors, except our contractual obligations discussed below.

Contractual Obligations

As compared to December 31, 2011, the only material change in our contractual obligations as specified in Item 303(a)(5) of Regulation S-K as of October 31, 2012 is the execution of 31 new retail leases and two administrative office leases which have aggregate future minimum lease payments of $47.2 million.  For additional information regarding our contractual obligations as of December 31, 2011, see the Management’s Discussion and Analysis section of the 2011 Annual Report.

22

Seasonality of Business

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

CRITICAL ACCOUNTING POLICIES

The preparation of our financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires that we 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 net sales and expenses during the period. We base our estimates on historical experience and on other factors and assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. Our critical accounting policies and methodologies in the nine months ended September 30, 2012 are consistent with those discussed in our 2011 Annual Report.

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk

Exchange Rate Risk

We operate a wholesale business and four retail stores in Japan; a portion of our wholesale sales and all of our retail sales and SG&A expenses in Japan are denominated in Japanese Yen. We operate a wholesale business and five retail stores in the United Kingdom, which have sales and SG&A expenses denominated in British Pounds. We operate wholesale and retail businesses in other parts of Europe; their sales and SG&A expenses are denominated primarily in Euros with some denominated in Swiss Francs.  We operate nine retail stores in Canada, whose sales and SG&A expenses are denominated in Canadian Dollars.    Because the transactions denominated in foreign currencies are not significant to our overall business, our exposure to exchange rate fluctuations between the U.S. Dollar and these foreign currencies are not considered material as of September 30, 2012.  We received U.S. Dollars for all other merchandise sales and licensing revenue during the nine months ended September 30, 2012.  Merchandise purchases from contract manufacturers are denominated in U.S. Dollars, except for an immaterial amount which is denominated in Euros.

Interest Rate Risk

Interest income is sensitive to changes in the general level of U.S. interest rates. However, based on the nature and current level of our short-term and long-term investments, which primarily consist of U.S. Treasury securities, we do not believe we have material risk of exposure to changes in the fair value of our short-term and long-term investments as a result of changes in interest rates.

ITEM 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, 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 (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly 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 SEC’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.

Changes in Internal Control Over Financial Reporting

During the third quarter of 2012, we completed the process of implementing a new enterprise resource planning system.  This new system replaces an enterprise resource planning system we previously used.  We engaged in pre-implementation planning, design, and testing of the system, and we also conducted post-implementation monitoring, testing and process modifications to ensure the effectiveness of internal controls over financial reporting. We have not experienced any significant difficulties to date in connection with the implementation or operation of the new enterprise resource planning system.

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.

23

PART II — OTHER INFORMATION

ITEM 1.  Legal Proceedings

From time to time, we are involved in various legal proceedings arising in the ordinary course of business. We believe the recorded reserves in our condensed balance sheets as of September 30, 2012 are adequate in light of the probable and estimable liabilities.  As of the date of this report, we do not believe that we have any currently identified claims, proceedings or litigation, either alone or in the aggregate, that will have a material impact on our future results of operations, financial position or cash flows.  Since these matters are subject to inherent uncertainties, our view of them may change in the future.

ITEM 1A.               Risk Factors

In our 2011 Annual Report, we discussed the Company’s risk factors in Part I, “Item 1A. Risk Factors.” Our risk factors are unchanged from those discussed in the 2011 Annual Report.

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

(a)    None

(b)    None

(c)    See below

This table provides certain information with respect to our purchases of shares of our common stock during the third quarter of 2012:

				Total Number of	Approximate Dollar
	Total Number	Average		Shares Purchased as	Value of Shares That
	of Shares	Price Paid		Part of Publicly	May Yet Be Purchased
Period	Purchased (a)	Per Share (a)		Announced Plan	Under the Plan
July 1, 2012 — July 31, 2012	612	$	27.53	—	—
August 1, 2012 — August 31, 2012	1,101	$	23.12	—	—
September 1, 2012 — September 30, 2012	245	$	21.24	—	—
Total	1,958	$	24.27	—	—

(a)   These columns reflect the surrender to the Company of shares of common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock issued to employees or directors.

ITEM 3.  Defaults Upon Senior Securities

None

ITEM 4.  Mine Safety Disclosures

None

ITEM 5.  Other Information

None

24

ITEM 6.Exhibits.

The following exhibits are either filed herewith or incorporated herein by reference:

Exhibit
Number	Description
31.1	Certification of the Chief Executive Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2	Certification of the Chief Financial Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1	Certification of the Chief Executive Officer provided 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 the Chief Financial Officer provided pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

*Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a Registration Statement or Prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise not subject to liability.

25

SIGNATURES

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

TRUE RELIGION APPAREL, INC.
By:	/s/ JEFFREY LUBELL
	Jeffrey Lubell, Chief Executive Officer and  Chairman of the Board
	(Principal Executive Officer)
Date: November 5, 2012
By:	/s/ PETER F. COLLINS
	Peter F. Collins, Chief Financial Officer
	(Principal Financial Officer  and Principal Accounting Officer)
Date: November 5, 2012

26

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

 SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey Lubell, certify that:

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

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

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

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

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

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

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

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

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

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

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

Date: November 5, 2012
	/s/ JEFFREY LUBELL
	Jeffrey Lubell
	Chief Executive Officer and Chairman of the Board
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

 SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Peter F. Collins, certify that:

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

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

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

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

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

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

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

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

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

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

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

Date: November 5, 2012
	/s/ PETER F. COLLINS
	Peter F. Collins
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Jeffrey Lubell, Chief Executive Officer and Chairman of the Board of True Religion Apparel, Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)the quarterly report on Form 10-Q of True Religion Apparel, Inc. for the period ended September 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of True Religion Apparel, Inc.

Dated: November 5, 2012
	/s/ JEFFREY LUBELL
	Jeffrey Lubell
	Chief Executive Officer and Chairman of the Board
	(Principal Executive Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to True Religion Apparel, Inc. and will be retained by True Religion Apparel, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as emended.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Peter F. Collins, Chief Financial Officer of True Religion Apparel, Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)the quarterly report on Form 10-Q of True Religion Apparel, Inc. for the period ended September 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of True Religion Apparel, Inc.

Dated:  November 5, 2012

/s/ PETER F. COLLINS

Peter F. Collins

Chief Financial Officer

(Principal Financial Officer and Principal

Accounting Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to True Religion Apparel, Inc. and will be retained by True Religion Apparel, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as emended.

XML

Stock-based Compensation (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Stock-based compensation expense
Stock-based compensation expense, before income tax benefit	$ 2,357,000	$ 1,765,000	$ 8,604,000	$ 8,516,000
Income Tax benefit	882,000	679,000	3,220,000	3,275,000
Stock-based compensation expense, after income tax benefit	1,475,000	1,086,000	5,384,000	5,241,000
Additional disclosures
Tax withholding payment for stock-based compensation			4,558,000	5,450,000
Restricted Stock Awards
Stock-based Compensation
Restriction period, maximum (in years)			10
Vesting period, maximum (in years)			P3Y
Performance-based awards
Stock-based Compensation
Service period			2 years
Restricted stock activities
Non-vested at the end of the period (in shares)	462,493		462,493
Weighted Average Grant Date Fair Value
Non-vested at the end of the period (in dollars per share)	$ 25.31		$ 25.31
Weighted Average Remaining Contractual Life (in years)
Non-vested at the end of the period (in years)			0.8
Intrinsic Value
Non-vested at the end of the period	9,865,000		9,865,000
Additional disclosures
Assumed forfeiture rate (as a percent)			1.50%
Fair value of shares awarded			9,200,000	11,600,000
Fair value of shares vested			6,900,000	7,900,000
Unamortized stock-based compensation expense	4,500,000		4,500,000
Weighted average period over which unamortized stock-based compensation expense will be recognized (in years)			0.8
Prior year awards
Restricted stock activities
Non-vested at the beginning of the period (in shares)			391,174
Vested (in shares)			(281,896)
Non-vested at the end of the period (in shares)	109,278		109,278
Weighted Average Grant Date Fair Value
Non-vested at the beginning of the period (in dollars per share)			$ 23.98
Vested (in dollars per share)			$ 24.41
Current year awards
Restricted stock activities
Non-vested at the end of the period (in shares)	353,215		353,215
Current year awards | Maximum
Restricted stock activities
Granted (in shares)			353,215
Weighted Average Grant Date Fair Value
Granted (in dollars per share)			$ 26.04
Service-based awards
Stock-based Compensation
Vesting period, maximum (in years)			P3Y	P3Y
Restricted stock activities
Non-vested at the beginning of the period (in shares)			170,062
Granted (in shares)			119,625
Vested (in shares)			(135,502)
Forfeited (in shares)			(15,346)
Non-vested at the end of the period (in shares)	138,839		138,839
Weighted Average Grant Date Fair Value
Non-vested at the beginning of the period (in dollars per share)			$ 23.35
Granted (in dollars per share)			$ 26.20
Vested (in dollars per share)			$ 24.01
Forfeited (in dollars per share)	$ 27.41		$ 27.41
Non-vested at the end of the period (in dollars per share)	$ 24.71		$ 24.71
Weighted Average Remaining Contractual Life (in years)
Non-vested at the end of the period (in years)			1.4
Intrinsic Value
Non-vested at the end of the period	2,961,000		2,961,000
Additional disclosures
Assumed forfeiture rate (as a percent)			7.90%
Fair value of shares awarded			3,100,000	3,400,000
Fair value of shares vested			3,300,000	3,700,000
Unamortized stock-based compensation expense	2,400,000		2,400,000
Weighted average period over which unamortized stock-based compensation expense will be recognized (in years)			1.4
Tax withholdings (in shares)			169,730	228,109
Tax withholding payment for stock-based compensation			$ 4,600,000	$ 5,500,000

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Summary of Significant Accounting Policies (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 Accounts receivable Credit concentration risk Customer one customer	Dec. 31, 2011 Accounts receivable Credit concentration risk Customer one customer
Related Party Transactions
Net sales to related parties	$ 0.6	$ 0.5	$ 1.8	$ 2.5
Accounts receivable from related parties	$ 4.2	$ 4.1	$ 4.2	$ 4.1
Concentration of credit risks
Concentration risk percentage					15.00%	10.00%
Number of significant customers					1	1

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Property and Equipment, net (Tables)

9 Months Ended

Sep. 30, 2012

Property and Equipment, net

Schedule of property and equipment

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

	As ofSeptember 30,		As ofDecember 31,
	2012		2011
Computer systems and equipment	$	13,749	$	15,357
Furniture and fixtures	13,322		9,498
Leasehold improvements	62,081		55,141
Machinery and equipment	5,116		4,412
Trade show booths	1,318		1,356
Construction in progress	2,424		1,896
	98,010		87,660
Less: accumulated depreciation	35,431		33,962
Property and equipment, net	$	62,579	$	53,698

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Earnings Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Earnings Per Share
Net income attributable to True Religion Apparel, Inc.	$ 12,344	$ 12,085	$ 32,534	$ 30,501
Basic shares	25,176	24,927	25,103	24,831
Dilutive effect of unvested restricted stock (in shares)	135	72	201	171
Diluted shares	25,311	24,999	25,304	25,002
Basic (in dollars per share)	$ 0.49	$ 0.48	$ 1.30	$ 1.23
Diluted (in dollars per share)	$ 0.49	$ 0.48	$ 1.29	$ 1.22
Weighted average number of shares excluded from calculation of dilutive shares	353,215	392,059	240,652	266,658

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Property and Equipment, net (Details) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Property and equipment
Property and equipment, gross	$ 98,010,000		$ 87,660,000
Less: accumulated depreciation	35,431,000		33,962,000
Property and equipment, net	62,579,000		53,698,000
Depreciation expense	9,900,000	9,400,000
Computer systems and equipment
Property and equipment
Property and equipment, gross	13,749,000		15,357,000
Furniture and fixtures
Property and equipment
Property and equipment, gross	13,322,000		9,498,000
Leasehold improvements
Property and equipment
Property and equipment, gross	62,081,000		55,141,000
Machinery and equipment
Property and equipment
Property and equipment, gross	5,116,000		4,412,000
Trade show booths
Property and equipment
Property and equipment, gross	1,318,000		1,356,000
Construction in progress
Property and equipment
Property and equipment, gross	$ 2,424,000		$ 1,896,000

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Cash Equivalents and Investments

9 Months Ended

Sep. 30, 2012

Cash Equivalents and Investments

Cash Equivalents and Investments

NOTE 3 — Cash Equivalents and Investments

As of September 30, 2012 and December 31, 2011, we held $40.7 million and $175.1 million, respectively, of cash equivalents, which consist of an investment in a money market fund that invests only in U.S. Treasury securities.  These investments are measured at fair value using quoted prices in active markets (Level 1 input).

Our Investments consist of fixed maturity U.S. Treasury securities, which are classified as available-for-sale securities and are reported at fair value.  The fair values for these investments were obtained from third-party broker statements, which are primarily derived from observable market-based inputs or unobservable inputs that are corroborated by market data (Level 2 input).  Management has established guidelines and practices to limit the amount of credit risk. We assess whether unrealized losses are other-than-temporary. As of September 30, 2012, none of our investments were in an unrealized loss position.

Investments consist of the following (amounts in thousands):

	September 30, 2012
	Amortized Cost		Unrealized Gain		Unrealized Loss	Fair value
Available-for-sale:
U.S. Treasury securities	$	148,980	$	49	—	$	149,029

The contractual maturities were as follows (amounts in thousands):

	September 30, 2012		December 31, 2011
Due within one year	$	117,308	$	—
Due within two years	31,721		—
Total	$	149,029	$	—

Net investment income, which is included in other (income) expense, net, in the accompanying condensed consolidated statements of income, was $0.1 million for the three months and nine months ended September 30, 2012, respectively.  The realized loss on the sale of an investment during the three months ended September 30, 2012 was less than $0.1 million.

During the three months ended September 30, 2012, management re-evaluated its previous conclusion that investments in U.S. Treasury securities should be classified as held-to-maturity as a result of an opportunity to sell a U.S. Treasury security in our portfolio for another U.S. Treasury that would provide a greater yield.  Our investment policy objectives are to: maintain sufficient liquidity to meet financial obligations, ensure safety of principal and earn a market rate of return.  Management concluded that the requirements to maintain a held-to-maturity classification would potentially impact our ability to earn a market rate of return.  As a result, we reclassified all of our investments that were previously classified as held-to-maturity to available-for-sale.  The carrying value and fair value of the investments transferred from held-to-maturity to available-for-sale was $149.1 million at the date of transfer.

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Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Segment Information
Net sales	$ 118,549	$ 108,364	$ 330,243	$ 300,389
Gross profit	75,023	70,190	211,405	195,303
Operating Income	18,862	19,926	52,726	49,952
Capital expenditures			18,191	15,622
Total assets	394,275		394,275		360,153
U.S. Consumer Direct
Segment Information
Net sales	65,325	61,817	195,144	174,025
Gross profit	46,313	43,490	137,268	124,929
Operating Income	21,230	20,989	64,630	61,189
Capital expenditures			8,755	10,181
Total assets	77,323		77,323		78,089
U.S. Wholesale
Segment Information
Net sales	29,809	22,020	73,670	63,888
Gross profit	14,962	11,388	37,598	33,510
Operating Income	13,251	9,752	32,903	27,700
Capital expenditures			38	485
Total assets	40,861		40,861		41,700
International
Segment Information
Net sales	22,748	23,461	59,604	60,021
Gross profit	13,081	14,246	34,714	34,409
Operating Income	1,744	6,801	5,961	13,165
Capital expenditures			7,338	3,518
Total assets	58,668		58,668		26,182
Core Services
Segment Information
Net sales	667	1,066	1,825	2,455
Gross profit	667	1,066	1,825	2,455
Operating Income	(17,363)	(17,616)	(50,768)	(52,102)
Capital expenditures			2,060	1,438
Total assets	$ 217,423		$ 217,423		$ 214,182

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Redeemable Noncontrolling Interest (Tables)

9 Months Ended

Sep. 30, 2012

Redeemable Noncontrolling Interest

Schedule of the redeemable noncontrolling interest

The following table presents a reconciliation of the redeemable noncontrolling interest (amounts in thousands):

	Nine months Ended
	September 30,
	2012			2011
Redeemable noncontrolling interest, beginning of year	$	2,635		$	1,925
Net income attributable to redeemable noncontrolling interest	366			612
Foreign currency translation adjustment	(29		)	27
Redeemable noncontrolling interest, end of period	$	2,972		$	2,564

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies

Schedule of future minimum lease payments under operating leases

Future minimum lease payments under these operating leases as of September 30, 2012 are summarized as follows (amounts in thousands):

Year Ending December 31,
2012 (remainder of year)	$	7,305
2013	30,501
2014	30,619
2015	30,440
2016	29,988
Thereafter	103,047
Total minimum lease payments	$	231,900

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Stockholders' Equity (Details) (USD $)	9 Months Ended
	Sep. 30, 2012	Oct. 30, 2012
Stockholders' Equity
Stock repurchase program, authorized amount	$ 30,000,000
Remaining authorized repurchase amount	30,000,000
Cash dividends paid	$ 10,076,000
Cash dividends paid, quarterly (in dollars per share)		$ 0.20

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Share

Schedule of reconciliation of the shares used to compute basic and diluted earnings per share

The following is a reconciliation of the shares used to compute basic and diluted earnings per share attributable to True Religion Apparel, Inc. (in thousands, except per share information):

	Three Months Ended				Nine months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Net income attributable to True Religion Apparel, Inc.	$	12,344	$	12,085	$	32,534	$	30,501
Basic shares	25,176		24,927		25,103		24,831
Dilutive effect of unvested restricted stock	135		72		201		171
Diluted shares	$	25,311	$	24,999	$	25,304	$	25,002
Earnings per share attributable to True Religion Apparel, Inc. — basic	$	0.49	$	0.48	$	1.30	$	1.23
Earnings per share attributable to True Religion Apparel, Inc. — diluted	$	0.49	$	0.48	$	1.29	$	1.22

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2012

Segment Information

Summary of financial information concerning reportable segments

Summarized financial information concerning our reportable segments is shown in the following table (amounts in thousands):

	Three Months Ended						Nine months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Net sales:
U.S. Consumer Direct	$	65,325		$	61,817		$	195,144		$	174,025
U.S. Wholesale	29,809			22,020			73,670			63,888
International	22,748			23,461			59,604			60,021
Core Services	667			1,066			1,825			2,455
	$	118,549		$	108,364		$	330,243		$	300,389
Gross Profit:
U.S. Consumer Direct	$	46,313		$	43,490		$	137,268		$	124,929
U.S. Wholesale	14,962			11,388			37,598			33,510
International	13,081			14,246			34,714			34,409
Core Services	667			1,066			1,825			2,455
	$	75,023		$	70,190		$	211,405		$	195,303
Operating income:
U.S. Consumer Direct	$	21,230		$	20,989		$	64,630		$	61,189
U.S. Wholesale	13,251			9,752			32,903			27,700
International	1,744			6,801			5,961			13,165
Core Services	(17,363		)	(17,616		)	(50,768		)	(52,102		)
	$	18,862		$	19,926		$	52,726		$	49,952

	Nine months Ended
	September 30,
	2012		2011
Capital expenditures:
U.S. Consumer Direct	$	8,755	$	10,181
U.S. Wholesale	38		485
International	7,338		3,518
Core Services	2,060		1,438
	$	18,191	$	15,622

	September 30, 2012		December 31, 2011
Total assets:
U.S. Consumer Direct	$	77,323	$	78,089
U.S. Wholesale	40,861		41,700
International	58,668		26,182
Core Services	217,423		214,182
	$	394,275	$	360,153

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

NOTE 2 — Summary of Significant Accounting Policies

Basis of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of True Religion Apparel, Inc., its subsidiaries, and its majority-owned subsidiary, True Religion Brand Jeans Germany GmbH (“TRBJ Germany”), which operates according to a joint venture agreement with its noncontrolling interest holder. All intercompany accounts and transactions have been eliminated in consolidation.

In the ordinary course of business, we make sales to customers affiliated with the noncontrolling interest holder of TRBJ Germany (“Related Parties”).  Net sales to Related Parties, which is included in net sales in the accompanying condensed consolidated statements of income, were $0.6 million and $1.8 million for the three and nine months ended September 30, 2012, respectively, and were $0.5 million and $2.5 million for the three and nine months ended September 30, 2011.  As of September 30, 2012 and 2011, our accounts receivable from Related Parties was $4.2 million and $4.1 million, respectively.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of True Religion Apparel, Inc. have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X for interim financial information issued by the Securities and Exchange Commission (“SEC”). Accordingly, as permitted under applicable rules and regulations, they do not include all of the information and notes required by GAAP for annual financial statements.  The accompanying condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC. The same accounting policies are followed for preparing quarterly and annual financial information. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.  The results of operations for the three and nine months ended September 30, 2012, are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.

Concentration of Credit Risks

As of September 30, 2012 and December 31, 2011, the accounts receivable due from one customer was 15% and 10%, respectively, of our total accounts receivable, net of allowances.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and notes thereto. Actual results could differ materially from those estimates.

Significant estimates inherent in the preparation of the accompanying condensed consolidated financial statements include reserves for customer returns, chargebacks, allowances for bad debts, inventory valuation, contingencies, valuation of long-lived assets, fixed asset useful lives, income taxes and other tax contingencies, and the valuation of stock-based compensation and related forfeiture rates.

Gift Cards

We sell gift cards with no expiration dates to customers.  We recognize revenue associated with our gift cards upon redemption of the gift card.  In addition, we may recognize revenue from gift cards in the future when we determine that the likelihood of the gift card being redeemed is remote and that we have no legal obligation to remit the unredeemed gift card to relevant jurisdictions.  We will utilize historical redemption patterns to consider the likelihood of gift card redemption.  During the three and nine months ended September 30, 2012 and 2011, no revenue was recognized related to gift card breakage.

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Description of the Business (Details)	9 Months Ended
	Sep. 30, 2012 segment continent
Description of the Business
Number of continents in which products are distributed	6
Number of primary business segments	4
U.S. Consumer Direct | United States
DESCRIPTION OF BUSINESS
Number of full price stores	85
Number of outlet stores	34
International
DESCRIPTION OF BUSINESS
Number of full price stores	18
Number of outlet stores	10

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Commitments and Contingencies (Details) (USD $)	9 Months Ended
	Sep. 30, 2012 retailstore sqft Agreement	Sep. 30, 2011
Leases
Number of long-term lease agreements	171
Aggregate leased property space (in square feet)	688,000
Headquarters, international administrative and distribution facilities space (in square feet)	374,000
Retail store space (in square feet)	300,000
Showroom space (in square feet)	14,000
Number of retail store leases requiring payment as a percentage of sales	140
Rent expense
Rent expense	$ 27,300,000	$ 22,300,000
Contingent rental expense	2,900,000	2,400,000
Future minimum lease payments
2012 (remainder of year)	7,305,000
2013	30,501,000
2014	30,619,000
2015	30,440,000
2016	29,988,000
Thereafter	103,047,000
Total minimum lease payments	231,900,000
Income Taxes
Assessment of tax issued by IRS for 2009 tax year	1,400,000
Assessment of penalty issued by IRS for 2009 tax year	300,000
Cumulative income tax benefit for deductions	$ 4,600,000
Minimum
Leases
Lease payment as a percentage of sales	4.00%
Maximum
Leases
Lease payment as a percentage of sales	18.00%
United States
Leases
Number of retail store leases	126
Number of showrooms	2
International
Leases
Number of retail store leases	31
California
Leases
Distribution and administrative facilities	2

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Current Assets:
Cash and cash equivalents	$ 51,395	$ 200,366
Short-term investments	117,308
Accounts receivable, net of allowances	36,156	23,959
Inventories	64,076	53,320
Deferred income tax assets	6,066	7,027
Prepaid income taxes	6,901	3,879
Prepaid expenses and other current assets	11,944	12,137
Total current assets	293,846	300,688
Property and equipment, net	62,579	53,698
Long-term investments	31,721
Deferred income tax assets	866	1,271
Other assets	5,263	4,496
TOTAL ASSETS	394,275	360,153
Current Liabilities:
Accounts payable and accrued expenses	30,936	22,872
Accrued salaries, wages and benefits	11,130	11,506
Income taxes payable	262	6,538
Total current liabilities	42,328	40,916
Long-term deferred rent	17,125	13,986
Long-term deferred income tax liabilities	3,698	2,224
Long-term income tax payable	898	604
Total long-term liabilities	21,721	16,814
Total liabilities	64,049	57,730
Commitments and contingencies
Redeemable noncontrolling interest	2,972	2,635
Stockholders' Equity:
Preferred stock, $0.0001 par value, 20,000 shares authorized, no shares issued and outstanding
Common stock, $0.0001 par value, 80,000 shares authorized, 25,780 and 25,492 issued and outstanding, respectively	3	3
Additional paid-in capital	86,960	77,950
Retained earnings	238,775	221,122
Accumulated other comprehensive income, net	1,516	713
Total stockholders' equity	327,254	299,788
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 394,275	$ 360,153

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Supplemental Disclosure of Cash Flow Information (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Supplemental Disclosure of Cash Flow Information
Taxes paid	$ 18.0	$ 19.4
Purchase of property and equipment even though the vendors had not yet been paid	$ 1.6	$ 0.9

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 32,900	$ 31,113
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	9,873	9,351
Provision for bad debts	714	857
Stock-based compensation	8,604	8,516
Tax benefit from stock-based compensation	405	761
Excess tax benefit from stock-based compensation	(511)	(1,219)
Deferred income taxes	2,836	2,177
Other, net	301	75
Changes in operating assets and liabilities:
Accounts receivable	(12,966)	204
Inventories	(10,706)	(12,255)
Prepaid expenses and other current assets	742	(674)
Other assets	(791)	(442)
Accounts payable and accrued expenses	6,664	8,745
Accrued salaries, wages and benefits	(389)	(218)
Prepaid income taxes and income taxes payable	(9,002)	(747)
Long-term deferred rent	3,069	2,420
Net cash provided by operating activities	31,743	48,664
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments	(167,282)
Proceeds from maturities or sales of investments	18,028
Purchases of property and equipment	(17,389)	(15,622)
Expenditures to establish trademarks	(7)	(30)
Other assets	(242)
Net cash used in investing activities	(166,892)	(15,652)
CASH FLOWS FROM FINANCING ACTIVITIES:
Statutory tax withholding payment for stock-based compensation	(4,558)	(5,450)
Cash dividends paid	(10,076)
Excess tax benefit from stock-based compensation	511	1,219
Net cash used in financing activities	(14,123)	(4,231)
Effect of exchange rate changes on cash	301	(415)
Net (decrease) increase in cash and cash equivalents	(148,971)	28,366
Cash and cash equivalents, beginning of period	200,366	153,792
Cash and cash equivalents, end of period	$ 51,395	$ 182,158

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Accounts Receivable (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Accounts receivable
Allowances against wholesale accounts receivable	$ 2,061,000	$ 1,983,000
Maximum
Accounts receivable
Allowance for trade discounts	100,000	100,000
Reserve for returns
Accounts receivable
Allowances against wholesale accounts receivable	834,000	807,000
Reserve for chargebacks and markdown allowances
Accounts receivable
Allowances against wholesale accounts receivable	202,000	316,000
Reserve for bad debt
Accounts receivable
Allowances against wholesale accounts receivable	$ 1,025,000	$ 860,000

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Cash Equivalents and Investments (Tables)

9 Months Ended

Sep. 30, 2012

Cash Equivalents and Investments

Schedule of Investments

Investments consist of the following (amounts in thousands):

	September 30, 2012
	Amortized Cost		Unrealized Gain		Unrealized Loss	Fair value
Available-for-sale:
U.S. Treasury securities	$	148,980	$	49	—	$	149,029

Schedule of contractual maturities

The contractual maturities were as follows (amounts in thousands):

	September 30, 2012		December 31, 2011
Due within one year	$	117,308	$	—
Due within two years	31,721		—
Total	$	149,029	$	—

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Inventories (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Inventories
Raw materials	$ 665	$ 604
Work-in-progress	3,691	2,395
Finished goods	59,720	50,321
Total	$ 64,076	$ 53,320

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Inventories (Tables)

9 Months Ended

Sep. 30, 2012

Inventories

Schedule of Inventory

Inventories consisted of the following (amounts in thousands):

	As of September 30,		As of December 31,
	2012		2011
Raw materials	$	665	$	604
Work-in-progress	3,691		2,395
Finished goods	59,720		50,321
Total	$	64,076	$	53,320

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Description of the Business

9 Months Ended

Sep. 30, 2012

Description of the Business

Description of the Business

NOTE 1 — Description of the Business

True Religion Apparel, Inc. and subsidiaries (referred to in the Quarterly Report on Form 10-Q as “the Company,” “our,” or “we”) 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 jeans, pants, woven and knit tops and outerwear made from denim, fleece, jersey and other fabrics. We are known for our unique fits, washes and styling details. Our products are distributed through multiple wholesale and retail segments on six continents, including North America, Europe, Asia, Australia, Africa and South America.

We operate in four primary business segments: U.S. Consumer Direct, U.S. Wholesale, International, and Core Services. We sell directly to consumers in the United States through full-price stores, outlet stores and through our retail internet site located at www.truereligionbrandjeans.com. As of September 30, 2012, we operated 85 full price stores and 34 outlet stores in the U.S.  Our U.S. Wholesale sales are made to leading nationwide premium department stores, specialty retailers and boutiques, and off-price retailers. Our International sales are made through a variety of channels, including subsidiaries and a joint venture that operate retail stores and sell to wholesale customers who operate retail stores; distributors who warehouse products at their expense and then ship to, and collect payment from, their customers; and directly to wholesale customers who operate retail stores. As of September 30, 2012, our International segment operated 18 full price stores and ten outlet stores.  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. This licensing business is included in our Core Services segment.  Our corporate operations, which include the design, production, marketing, distribution, credit, customer service, information technology, accounting, executive, legal, and human resources departments, are also included in the Core Services segment.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
CONDENSED CONSOLIDATED BALANCE SHEETS
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	20,000	20,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	80,000	80,000
Common stock, shares issued	25,780	25,492
Common stock, shares outstanding	25,780	25,492

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Earnings Per Share

9 Months Ended

Sep. 30, 2012

Earnings Per Share

Earnings Per Share

NOTE 11 — Earnings Per Share

The following is a reconciliation of the shares used to compute basic and diluted earnings per share attributable to True Religion Apparel, Inc. (in thousands, except per share information):

	Three Months Ended				Nine months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Net income attributable to True Religion Apparel, Inc.	$	12,344	$	12,085	$	32,534	$	30,501
Basic shares	25,176		24,927		25,103		24,831
Dilutive effect of unvested restricted stock	135		72		201		171
Diluted shares	$	25,311	$	24,999	$	25,304	$	25,002
Earnings per share attributable to True Religion Apparel, Inc. — basic	$	0.49	$	0.48	$	1.30	$	1.23
Earnings per share attributable to True Religion Apparel, Inc. — diluted	$	0.49	$	0.48	$	1.29	$	1.22

For the three and nine months ended September 30, 2012, 353,215 and 240,652 weighted shares, respectively, of restricted stock awards which are subject to performance conditions that have not been achieved were excluded from the calculation of dilutive shares. For the three and nine months ended September 30, 2011, 392,059 and 266,658 weighted shares, respectively, of restricted stock awards which are subject to performance conditions that have not been achieved were excluded from the calculation of dilutive shares.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Oct. 31, 2012
Document and Entity Information
Entity Registrant Name	TRUE RELIGION APPAREL INC
Entity Central Index Key	0001160858
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		25,786,496
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

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Segment Information

9 Months Ended

Sep. 30, 2012

Segment Information

Segment Information

NOTE 12 — Segment Information

Summarized financial information concerning our reportable segments is shown in the following table (amounts in thousands):

	Three Months Ended						Nine months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Net sales:
U.S. Consumer Direct	$	65,325		$	61,817		$	195,144		$	174,025
U.S. Wholesale	29,809			22,020			73,670			63,888
International	22,748			23,461			59,604			60,021
Core Services	667			1,066			1,825			2,455
	$	118,549		$	108,364		$	330,243		$	300,389
Gross Profit:
U.S. Consumer Direct	$	46,313		$	43,490		$	137,268		$	124,929
U.S. Wholesale	14,962			11,388			37,598			33,510
International	13,081			14,246			34,714			34,409
Core Services	667			1,066			1,825			2,455
	$	75,023		$	70,190		$	211,405		$	195,303
Operating income:
U.S. Consumer Direct	$	21,230		$	20,989		$	64,630		$	61,189
U.S. Wholesale	13,251			9,752			32,903			27,700
International	1,744			6,801			5,961			13,165
Core Services	(17,363		)	(17,616		)	(50,768		)	(52,102		)
	$	18,862		$	19,926		$	52,726		$	49,952

	Nine months Ended
	September 30,
	2012		2011
Capital expenditures:
U.S. Consumer Direct	$	8,755	$	10,181
U.S. Wholesale	38		485
International	7,338		3,518
Core Services	2,060		1,438
	$	18,191	$	15,622

	September 30, 2012		December 31, 2011
Total assets:
U.S. Consumer Direct	$	77,323	$	78,089
U.S. Wholesale	40,861		41,700
International	58,668		26,182
Core Services	217,423		214,182
	$	394,275	$	360,153

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net sales	$ 118,549	$ 108,364	$ 330,243	$ 300,389
Cost of sales	43,526	38,174	118,838	105,086
Gross profit	75,023	70,190	211,405	195,303
Selling, general and administrative expenses	56,161	50,264	158,679	145,351
Operating income	18,862	19,926	52,726	49,952
Other (income) expense, net	(415)	250	(78)	(231)
Income before provision for income taxes	19,277	19,676	52,804	50,183
Provision for income taxes	6,928	7,374	19,904	19,070
Net income	12,349	12,302	32,900	31,113
Less: Net income attributable to redeemable noncontrolling interest	5	217	366	612
Net income attributable to True Religion Apparel, Inc.	$ 12,344	$ 12,085	$ 32,534	$ 30,501
Earnings per share attributable to True Religion Apparel, Inc.:
Basic (in dollars per share)	$ 0.49	$ 0.48	$ 1.30	$ 1.23
Diluted (in dollars per share)	$ 0.49	$ 0.48	$ 1.29	$ 1.22
Weighted average shares outstanding:
Basic (in shares)	25,176	24,927	25,103	24,831
Diluted (in shares)	25,311	24,999	25,304	25,002
Dividends per common share (in dollars per share)	$ 0.20		$ 0.40

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Property and Equipment, net

9 Months Ended

Sep. 30, 2012

Property and Equipment, net

Property and Equipment, net

NOTE 6 — Property and Equipment, net

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

	As ofSeptember 30,		As ofDecember 31,
	2012		2011
Computer systems and equipment	$	13,749	$	15,357
Furniture and fixtures	13,322		9,498
Leasehold improvements	62,081		55,141
Machinery and equipment	5,116		4,412
Trade show booths	1,318		1,356
Construction in progress	2,424		1,896
	98,010		87,660
Less: accumulated depreciation	35,431		33,962
Property and equipment, net	$	62,579	$	53,698

Construction in progress as of September 30, 2012 and December 31, 2011 primarily represents the capital expenditures for retail stores that have not opened, or information technology projects that have not been completed, as of the balance sheet date.  When the stores are opened or the information technology projects are completed, these balances will be 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 condensed consolidated statements of income, was $9.9 million and $9.4 million for the nine months ended September 30, 2012 and 2011, respectively.

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Inventories

9 Months Ended

Sep. 30, 2012

Inventories

Inventories

NOTE 5 — Inventories

Inventories consisted of the following (amounts in thousands):

	As of September 30,		As of December 31,
	2012		2011
Raw materials	$	665	$	604
Work-in-progress	3,691		2,395
Finished goods	59,720		50,321
Total	$	64,076	$	53,320

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Accounts Receivable (Tables)

9 Months Ended

Sep. 30, 2012

Accounts Receivable

Schedule of allowances against wholesale accounts receivable

We recorded the following allowances against our wholesale accounts receivable (amounts in thousands):

	As of September 30,		As of December 31,
	2012		2011
Reserve for returns	$	834	$	807
Reserve for chargebacks and markdown allowances	202		316
Reserve for bad debt	1,025		860
Total	$	2,061	$	1,983

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Stockholders' Equity

9 Months Ended

Sep. 30, 2012

Stockholders' Equity

Stockholders' Equity

NOTE 13 — Stockholders’ Equity

In April 2012, our Board of Directors approved a stock repurchase program granting us the authority to repurchase up to $30,000,000 of our common stock.  Under the stock repurchase program, we will repurchase shares in the open market from time to time, depending on market conditions.  The primary objective of the stock repurchase program is to offset the share dilution attributable to stock based compensation beginning in 2012.  We may suspend or discontinue the repurchase program at any time.  We have not purchased any shares of our common stock since the stock repurchase program was approved and had $30,000,000 in remaining share repurchase capacity as of September 30, 2012.  The actual number and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission rules.

During the nine months ended September 30, 2012, we paid $10.1 million in cash dividends to holders of our common stock.

In October 2012, our Board of Directors approved a quarterly cash dividend to our stockholders of $0.20 per share.  The quarterly dividend will be paid on November 29, 2012 to all stockholders of record as of November 15, 2012.  Future dividends will be subject to Board approval.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies

Commitments and Contingencies

NOTE 9 — Commitments and Contingencies

Leases

We lease our headquarters facilities and retail store locations under operating lease agreements expiring on various dates through January 2024.  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 September 30, 2012, we had 171 long-term lease agreements, which consisted of 126 retail stores in the U.S., 31 international retail stores, two distribution and administrative facilities in Vernon, California, two showrooms in the U.S., and administrative offices and/or showrooms in Japan, South Korea, Hong Kong, Germany, Italy, the U.K. and Switzerland. Our leased properties aggregate 688,000 square feet of space, which consists of 374,000 square feet for our distribution and administrative functions, 300,000 square feet of retail space and 14,000 square feet of showroom space.  Our lease agreements for 140 of the retail stores leases require payment of a percentage of sales, ranging from 4% to 18%, if our net sales at the retail store exceed a defined threshold.

Rent expense was $27.3 million and $22.3 million for the nine months ended September 30, 2012 and 2011, respectively. These amounts include contingent rental expense of $2.9 million and $2.4 million for the nine months ended September 30, 2012 and 2011, respectively.

Future minimum lease payments under these operating leases as of September 30, 2012 are summarized as follows (amounts in thousands):

Year Ending December 31,
2012 (remainder of year)	$	7,305
2013	30,501
2014	30,619
2015	30,440
2016	29,988
Thereafter	103,047
Total minimum lease payments	$	231,900

Legal Proceedings

From time to time, we are involved in various legal proceedings arising in the ordinary course of business. We believe the recorded reserves in our condensed consolidated balance sheet as of September 30, 2012 are adequate in light of the probable and estimable liabilities.  As of the date of this report, we do not believe there are any currently identified claims, proceedings or litigation, either alone or in the aggregate, that will have a material impact on our future results of operations, financial position or cash flows.  Since these matters are subject to inherent uncertainties, our view of them may change in the future.

Income Taxes

In connection with an examination of our federal income tax return filed for the tax year ended December 31, 2009, the Internal Revenue Service (“IRS”) has disallowed the domestic production activities deduction.  During the nine months ended September 30, 2012, the IRS issued an assessment for $1.4 million in tax and a $0.3 million penalty.

We have completed our income tax provision for 2010, 2011 and 2012 using the same position that the IRS has challenged in its 2009 federal income tax return.  The cumulative income tax benefit for deductions included for those periods is $4.6 million.

We filed a formal protest with the Office of Appeals Division within the IRS, and we intend to vigorously defend our position.  In the event of an unfavorable outcome at the Office of Appeals, we will strongly consider litigating the matter in U.S. Tax Court.  The unpaid assessment will continue to accrue interest at the statutory rate until resolved.  Although the outcome remains uncertain, management believes a taxpayer favorable resolution will be obtained and therefore the full tax benefit for the deduction has been recognized.

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Accounts Payable and Accrued Expenses

9 Months Ended

Sep. 30, 2012

Accounts Payable and Accrued Expenses

Accounts Payable and Accrued Expenses

NOTE 7—Accounts Payable and Accrued Expenses

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

	As ofSeptember 30,		As ofDecember 31,
	2012		2011
Accounts payable	$	17,184	$	6,761
Accrued expenses	5,550		7,597
Accrued sales and use taxes	2,003		2,582
Accrued percentage rent	1,474		1,785
Other	4,725		4,147
Accounts payable and accrued expenses	$	30,936	$	22,872

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Stock-based Compensation

9 Months Ended

Sep. 30, 2012

Stock-based Compensation

Stock-based Compensation

NOTE 8 — Stock-based Compensation

The following table summarizes our stock-based compensation expense, which is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income (amounts in thousands):

	Three Months Ended				Nine months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Stock-based compensation expense, before income tax benefit	$	2,357	$	1,765	$	8,604	$	8,516
Income tax benefit	882		679		3,220		3,275
Stock-based compensation expense, after income tax benefit	$	1,475	$	1,086	$	5,384	$	5,241

Restricted Stock Awards

Restricted shares awarded under the 2009 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 nor are dividends paid until the restriction period ends.  Upon termination, dividends accrued on non-vested shares will be forfeited. 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. Subject to employment agreements entered into with senior executives, all unvested restricted shares are forfeited if the recipient of the restricted stock award no longer provides services, as defined, to us.

Non-vested performance-based awards

During the nine months ended September 30, 2012 and 2011, we awarded performance-based restricted stock to executive officers that vest over a period of two years, which is a service condition.  Upon achieving the performance condition, the non-vested performance awards partially vest on the first anniversary of the grant date and the remainder on the second anniversary of the grant date for a combined service period of two years.  In order for these performance awards to vest, the Company’s annual adjusted earnings before interest and income tax expenses (“Adjusted EBIT”) must exceed a minimum amount; depending upon the Company’s actual annual Adjusted EBIT, additional restricted stock may be earned, up to a maximum amount.

The following table summarizes our performance-based restricted stock activities for the nine months ended September 30, 2012:

					Weighted
			Weighted		Average
			Average Grant		Remaining	Intrinsic
			Date Fair		Contractual	Value
	Shares		Value		Life (Years)	($000’s)
Prior year awards:
Non-vested, beginning of year	391,174		$	23.98
Vested	(281,896	)	$	24.41
Service forfeited	—		$	—
Non-vested prior year awards, end of period	109,278
Awards granted in 2012, at maximum:	353,215		$	26.04
Performance forfeited	—		$	—
Service forfeited	—		$	—
Non-vested current year awards, end of period	353,215
Total non-vested, end of period	462,493		$	25.31	0.8	$	9,865

The estimated fair value of the performance-based stock awarded is based on the price of our common stock at the date of grant and an assumed forfeiture rate of 1.5% as of September 30, 2012; this forfeiture rate assumption is based on historical experience adjusted for unusual, large forfeitures.  The fair value of the performance-based stock awarded in the nine months ended September 30, 2012 and 2011 was $9.2 million and $11.6 million, respectively.  The total fair value of performance-based stock vested during the nine months ended September 30, 2012 and 2011 was $6.9 million and $7.9 million, respectively.  As of September 30, 2012, the total unamortized stock-based compensation expense related to the performance-based stock was $4.5 million, which is expected to be recognized over a weighted average period of 0.8 years.

Non-vested service-based awards

During the nine months ended September 30, 2012 and 2011, we awarded restricted stock to employees and directors that vest over a period of up to three years.

The following table summarizes our non-vested service-based restricted stock activities for the nine months ended September 30, 2012:

	Shares		Weighted AverageGrant Date FairValue		Weighted AverageRemainingContractual Life(Years)	IntrinsicValue($000’s)
Non-vested, beginning of year	170,062		$	23.35
Granted	119,625		$	26.20
Vested	(135,502	)	$	24.01
Forfeited	(15,346	)	$	27.41
Non-vested, end of period	138,839		$	24.71	1.4	$	2,961

The estimated fair value of the non-vested, service-based stock awarded is based on the price of our common stock at the date of grant and an assumed forfeiture rate of 7.9% as of September 30, 2012; this forfeiture rate assumption is based on historical experience adjusted for unusual, large forfeitures.  The fair value of service-based stock awarded in the nine months ended September 30, 2012 and 2011 was $3.1 million and $3.4 million, respectively.  The total fair value of service-based stock vested during the nine months ended September 30, 2012 and 2011 was $3.3 million and $3.7 million, respectively.  As of September 30, 2012, the total unamortized stock-based compensation expense related to the non-vested, service-based stock was $2.4 million which is expected to be recognized over a weighted average period of 1.4 years.

Minimum Statutory Income Taxes on Restricted Awards

We have a practice of withholding common shares, upon an employee’s or director’s request, to satisfy employee and director minimum statutory income tax withholdings for restricted shares when they vest. During the nine months ended September 30, 2012 and 2011, we withheld 169,730 and 228,109 shares for a total value of $4.6 million and $5.5 million, respectively. These amounts are considered a financing activity and recorded as statutory tax withholding payment for stock-based compensation in the accompanying condensed consolidated statements of cash flows.

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Redeemable Noncontrolling Interest

9 Months Ended

Sep. 30, 2012

Redeemable Noncontrolling Interest

Redeemable Noncontrolling Interest

NOTE 10 —Redeemable Noncontrolling Interest

We calculated the fair value of the redeemable noncontrolling interest by discounting the estimated future cash flows of our majority-owned subsidiary, TRBJ Germany, and determined that the fair value of the noncontrolling interest was lower than the carrying value as of September 30, 2012.  As no previous increases have been recorded, the noncontrolling interest approximated the greater of the fair market value or the carrying value as of September 30, 2012 and December 31, 2011.  The fair value calculation of the redeemable noncontrolling interest was based on unobservable inputs reflecting management’s own assumptions (Level 3 input).

The following table presents a reconciliation of the redeemable noncontrolling interest (amounts in thousands):

	Nine months Ended
	September 30,
	2012			2011
Redeemable noncontrolling interest, beginning of year	$	2,635		$	1,925
Net income attributable to redeemable noncontrolling interest	366			612
Foreign currency translation adjustment	(29		)	27
Redeemable noncontrolling interest, end of period	$	2,972		$	2,564

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Cash Equivalents and Investments (Details) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2012 U.S. Treasury securities	Sep. 30, 2012 U.S. Treasury securities	Sep. 30, 2012 U.S. Treasury securities Less than	Sep. 30, 2012 Level 1 input	Dec. 31, 2011 Level 1 input
Cash Equivalents
Cash equivalents measured at fair value				$ 40,700,000	$ 175,100,000
Available for sale:
Amortized Cost	148,980,000	148,980,000
Unrealized Gain		49,000
Fair value	149,029,000	149,029,000
Contractual maturities of Available for sale securities
Due within one year	117,308,000	117,308,000
Due within two years	31,721,000	31,721,000
Total	149,029,000	149,029,000
Net investment income	100,000	100,000
Realized loss on the sale of investments			$ 100,000

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2012

Summary of Significant Accounting Policies

Basis of Consolidation

Basis of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of True Religion Apparel, Inc., its subsidiaries, and its majority-owned subsidiary, True Religion Brand Jeans Germany GmbH (“TRBJ Germany”), which operates according to a joint venture agreement with its noncontrolling interest holder. All intercompany accounts and transactions have been eliminated in consolidation.

In the ordinary course of business, we make sales to customers affiliated with the noncontrolling interest holder of TRBJ Germany (“Related Parties”).  Net sales to Related Parties, which is included in net sales in the accompanying condensed consolidated statements of income, were $0.6 million and $1.8 million for the three and nine months ended September 30, 2012, respectively, and were $0.5 million and $2.5 million for the three and nine months ended September 30, 2011.  As of September 30, 2012 and 2011, our accounts receivable from Related Parties was $4.2 million and $4.1 million, respectively.

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of True Religion Apparel, Inc. have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X for interim financial information issued by the Securities and Exchange Commission (“SEC”). Accordingly, as permitted under applicable rules and regulations, they do not include all of the information and notes required by GAAP for annual financial statements.  The accompanying condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC. The same accounting policies are followed for preparing quarterly and annual financial information. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.  The results of operations for the three and nine months ended September 30, 2012, are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.

Concentration of Credit Risks

Concentration of Credit Risks

As of September 30, 2012 and December 31, 2011, the accounts receivable due from one customer was 15% and 10%, respectively, of our total accounts receivable, net of allowances.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and notes thereto. Actual results could differ materially from those estimates.

Significant estimates inherent in the preparation of the accompanying condensed consolidated financial statements include reserves for customer returns, chargebacks, allowances for bad debts, inventory valuation, contingencies, valuation of long-lived assets, fixed asset useful lives, income taxes and other tax contingencies, and the valuation of stock-based compensation and related forfeiture rates.

Gift Cards

Gift Cards

We sell gift cards with no expiration dates to customers.  We recognize revenue associated with our gift cards upon redemption of the gift card.  In addition, we may recognize revenue from gift cards in the future when we determine that the likelihood of the gift card being redeemed is remote and that we have no legal obligation to remit the unredeemed gift card to relevant jurisdictions.  We will utilize historical redemption patterns to consider the likelihood of gift card redemption.  During the three and nine months ended September 30, 2012 and 2011, no revenue was recognized related to gift card breakage.

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Accounts Payable and Accrued Expenses (Tables)

9 Months Ended

Sep. 30, 2012

Accounts Payable and Accrued Expenses

Schedule of accounts payable and accrued expenses

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

	As ofSeptember 30,		As ofDecember 31,
	2012		2011
Accounts payable	$	17,184	$	6,761
Accrued expenses	5,550		7,597
Accrued sales and use taxes	2,003		2,582
Accrued percentage rent	1,474		1,785
Other	4,725		4,147
Accounts payable and accrued expenses	$	30,936	$	22,872

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Redeemable Noncontrolling Interest (Details) (USD $) In Thousands, unless otherwise specified			9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 TRBJ Germany	Sep. 30, 2011 TRBJ Germany
Reconciliation of the redeemable noncontrolling interest
Redeemable noncontrolling interest, balance at the beginning of the period	$ 2,972	$ 2,635	$ 2,635	$ 1,925
Net income attributable to redeemable noncontrolling interest			366	612
Foreign currency translation adjustment			(29)	27
Redeemable noncontrolling interest, balance at the end of the period	$ 2,972	$ 2,635	$ 2,972	$ 2,564

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net income	$ 12,349	$ 12,302	$ 32,900	$ 31,113
Cumulative translation adjustment	862	(488)	725	(70)
Unrealized gains on investments:
Unrealized gains arising during the year	49		49
Comprehensive income	13,260	11,814	33,674	31,043
Comprehensive income attributable to redeemable noncontrolling interest	(70)	(73)	(337)	(639)
Comprehensive income attributable to True Religion Apparel, Inc.	$ 13,190	$ 11,741	$ 33,337	$ 30,404

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Accounts Receivable

9 Months Ended

Sep. 30, 2012

Accounts Receivable

Accounts Receivable

NOTE 4 — Accounts Receivable

We recorded the following allowances against our wholesale accounts receivable (amounts in thousands):

	As of September 30,		As of December 31,
	2012		2011
Reserve for returns	$	834	$	807
Reserve for chargebacks and markdown allowances	202		316
Reserve for bad debt	1,025		860
Total	$	2,061	$	1,983

In addition to the above reserves, we recorded an allowance for trade discounts of less than $0.1 million as of September 30, 2012 and December 31, 2011.

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Stock-based Compensation (Tables)

9 Months Ended

Sep. 30, 2012

Stock-based Compensation

Schedule of stock-based compensation expense, included in selling, general and administrative expenses

The following table summarizes our stock-based compensation expense, which is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income (amounts in thousands):

	Three Months Ended				Nine months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Stock-based compensation expense, before income tax benefit	$	2,357	$	1,765	$	8,604	$	8,516
Income tax benefit	882		679		3,220		3,275
Stock-based compensation expense, after income tax benefit	$	1,475	$	1,086	$	5,384	$	5,241

Summary performance-based restricted stock activities

					Weighted
			Weighted			Average
			Average Grant			Remaining	Intrinsic
			Date Fair			Contractual	Value
	Shares		Value			Life (Years)	($000’s)
Prior year awards:
Non-vested, beginning of year	391,174		$	23.98
Vested	(281,896	)	$	24.41
Service forfeited	—		$	—
Non-vested prior year awards, end of period	109,278
Awards granted in 2012, at maximum:	353,215		$	26.04
Performance forfeited	—		$	—
Service forfeited	—		$	—
Non-vested current year awards, end of period	353,215
Total non-vested, end of period	462,493		$	25.31		0.8	$	9,865

Summary of non-vested, service-based, restricted stock activities

	Shares		Weighted AverageGrant Date FairValue		Weighted AverageRemainingContractual Life(Years)	IntrinsicValue($000’s)
Non-vested, beginning of year	170,062		$	23.35
Granted	119,625		$	26.20
Vested	(135,502	)	$	24.01
Forfeited	(15,346	)	$	27.41
Non-vested, end of period	138,839		$	24.71	1.4	$	2,961

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Accounts Payable and Accrued Expenses (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Accounts Payable and Accrued Expenses
Accounts payable	$ 17,184	$ 6,761
Accrued expenses	5,550	7,597
Accrued sales and use taxes	2,003	2,582
Accrued percentage rent	1,474	1,785
Other	4,725	4,147
Accounts payable and accrued expenses	$ 30,936	$ 22,872

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Supplemental Disclosure of Cash Flow Information

9 Months Ended

Sep. 30, 2012

Supplemental Disclosure of Cash Flow Information

Supplemental Disclosure of Cash Flow Information

NOTE 14 — Supplemental Disclosure of Cash Flow Information

During the nine months ended September 30, 2012 and 2011, we paid income taxes of $18.0 million and $19.4 million, respectively.

As of September 30, 2012, and 2011, we had recorded the purchase of $1.6 million and $0.9 million, respectively, of property and equipment for which the vendors had not yet been paid.  These amounts have been excluded from “Purchases of property and equipment” and “Accounts payable and accrued expenses” in the accompanying condensed consolidated statements of cash flows.