True Religion Bows to Taxman

The apparel company incorrectly calculated income tax under its compensation programs, among other errors, and will restate its financials.
Stephen TaubNovember 8, 2007

True Religion Apparel said it will restate its financials for the 2005 and 2006 fiscal years and the first two quarters of 2007 to correct compensation accounting errors.

Income tax expenses recorded for those periods were calculated incorrectly because compensation programs did not fully comply with federal and state income tax regulations, the company said without elaborating.

As a result of the revision, net income for the six months ended June 30, 2007, will increase by about $300,000. For 2006, net income will decrease by about $1 million while 2005 earnings will be reduced by about $1.6 million.

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True Religion said it also will correct other less significant errors. These include a 2006 restricted stock accounting method error of $1.2 million, which was recorded when identified in the first quarter of 2007. It will now be recorded in the 2006 financial statements.

Further, the company said a voluntary review of its accounting for stock-based compensation awarded in 2003 and 2004 may result in additional compensation expense of $4 million on a pre-tax basis, or $2.4 million on a net income basis. The potential expense would be recognized over the 2003 to 2006 period.

The company noted that the stock-based compensation awarded in 2003 and 2004 has no impact on the 2007 income statement because all of those awards became fully vested before the end of 2006.

True Religion will delay the filing of its September 30 quarterly report until after it concludes its analysis of the stock-based compensation awards and files its amended annual financial statements. That is expected to be done by year-end.

Another company, Outdoor Channel Holdings, restate its financials for the first two quarters 2007 to correct the amortization period for some executive compensation costs.