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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

FORM 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2010oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                                    to


Commission file number 000-51483

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

Delaware

98-0352633(State or Other Jurisdiction
of Incorporation or Organization)

(I.R.S. Employer
Identification Number)2263 E. Vernon Ave.
Vernon, California

90058(Address of Principal Executive Offices)

(Zip Code)


(323) 266-3072(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Exchange Act:Common Stock, par value $0.0001 per share(Title of Class)

Nasdaq Global Market(Name of Each Exchange
on Which Registered)Securities registered under Section 12(g) of the Act:None(Title of Class)

None(Name of Each Exchange
on Which Registered)


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

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

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter)
is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendments to this Form 10-K. o

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

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o


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

The aggregate market value of the voting common equity held by non-affiliates as of June 30, 2010, was approximately $527,258,000, computed by
reference to the price of $22.07 per share, the price at which the common equity was last sold on such date as reported on the Nasdaq Global Market. For purposes of this computation, it is assumed
that the shares beneficially held by directors and officers of the registrant would be deemed to be stock held by affiliates.

On
March 9, 2011, 25,124,585 shares of common stock were outstanding.



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TRUE RELIGION APPAREL, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2010

TABLE OF CONTENTS



PagesPART I.

1Item 1.

Business

1Item 1A.

Risk Factors

7Item 1B.

Unresolved Staff Comments

13Item 2.

Properties

13Item 3.

Legal Proceedings

14Item 4.

Reserved

14PART II.

15Item 5.

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

15Item 6.

Selected Financial Data

17Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

18Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

31Item 8.

Financial Statements and Supplementary Data

31Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

31Item 9A.

Controls and Procedures

32Item 9B.

Other Information

32PART III.

33Item 10.

Directors, Executive Officers and Corporate Governance

33Item 11.

Executive Compensation

33Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters

33Item 13.

Certain Relationships and Related Transactions and Director Independence

33Item 14.

Principal Accountant Fees and Services

33PART IV.

34Item 15.

Exhibits, Financial Statements Schedules

34SIGNATURES

36


Exhibit 10.10
Exhibit 10.11
Exhibit 10.13
Exhibit 10.14
Exhibit 10.16
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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FORWARD-LOOKING STATEMENTS

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

PART I.

Item 1.    Business.

General

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

We
market our products to domestic and international wholesale customers by attendance at industry trade shows. Our collections are also presented to the wholesale customers in our
showrooms, located in New York City, Los Angeles, Hong Kong, Seoul, Tokyo, London, Milan, Dusseldorf and Munich. We have wholesale sales teams at each of our showrooms. Wholesale customers can be
found in six continents and include specialty stores, major department stores, off-price retailers, and wholesale distributors.

Our
products are sold in the United States in leading national premium stores, including Bloomingdale's, Neiman Marcus, Nordstrom, Saks Fifth Avenue, and in approximately 750 boutique
and specialty stores. We also sell our products in the United States through our 94 branded retail stores and through our True Religion Brand Jeans website, which is operated for us by a third party.
Our products are sold internationally through our seven branded retail stores and distributed internationally through our wholesale sales teams, international distributors and sales agents, who sell

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our
products to boutiques and specialty stores in major cities throughout Africa, Asia, Australia, Europe, the Middle East, South America and Canada.

Business Strategy

Our strategy is to build brand recognition by marketing our products to fashion-conscious, affluent consumers who shop in our own
branded retail stores, premium nationwide stores, select boutiques and specialty stores, and who want to wear and be seen in the latest and most fashionable premium jeans and related apparel. True
Religion Brand Jeans often sell in the range of $168 to $376 per pair at retail; occasionally, we offer specialty items at higher prices. We continually update our product offerings to be seen as a
trend-setter in the high fashion jeans apparel market.

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

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

Our Brand and Products

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

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

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

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

Our
2010 net sales categorized by gender were approximately as follows: women48%; men48%; and kids4%. Our largest retail product category in terms
of units sold in 2010 was denim bottoms, which accounted for 72% of total units sold in our U.S. Consumer Direct segment. Our average sales price for women's products in our full price retail stores
was $170 in 2010; for men's products, it was $175; and for kid's products, it was $104.

Our Sales Segments

Information regarding net sales, gross profit and operating income, attributable to each of our segments, is included within
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, and within Item 8. Financial Statements and Supplementary Data in Note 15, Segment
Information, of our Notes to Consolidation Financial Statements, which are incorporated herein by reference.

Our U.S. Consumer Direct Segment

Our U.S. Consumer Direct segment includes our United States branded retail stores and our e-commerce sales. As of
December 31, 2010, we operated 94 branded retail stores in the United States, including 27 stores located in outlet centers. We added 24 branded retail stores in 2010, and in 2011 we expect to
add approximately15 branded retail stores in the United States. Our branded retail stores are located across the United States in a variety of upscale shopping areas ("street" locations, regional
malls, and a limited number of outlet centers). Our typical branded retail store is approximately 1,700 square feet, while our typical branded retail store located in an outlet center is approximately
2,500 square feet. Our branded retail stores showcase the full range of our branded merchandise including licensed products, in an environment that emphasizes our unique "Malibu hippie-bohemian chic"
image through an extensive use of hand-hewn hickory pecan wood. Our e-commerce sales are made through a third-party who receives sales commissions in exchange for operating the
'True Religion Brand Jeans' website, accepting customer orders and fulfilling customer orders from their distribution center, where they hold our merchandise on consignment. In 2010, our U.S. Consumer
Direct segment generated net sales of $189.1 million, comprising 52.0% of our total net sales.

Our U.S. Wholesale Segment

Our U.S. Wholesale segment sells our products to leading nationwide premium department stores, specialty retailers and boutiques that
have the image and merchandising expertise that we demand for the effective presentation of our products. In 2010, our products were sold in Bloomingdale's, Neiman Marcus, Nordstrom and Saks Fifth
Avenue, and in approximately 750 specialty and boutique stores. Our U.S. Wholesale segment also sells our products, primarily prior season or excess merchandise, to off-price retailers. In
2010, our U.S. Wholesale segment generated net sales of $104.9 million, comprising 28.8% of our total net sales.

Our International Segment

Our International segment sells our products through a variety of channels, including subsidiaries that operate retail stores and sell
to wholesale customers who operate retail stores; distributors and sales agents who sell to upscale boutiques in their respective territory; and directly to wholesale customers who operate retail
stores. As of December 31, 2010, our International segment includes one full price and three outlet retail stores in Japan, one full price retail store in the United Kingdom, one full price
retail store in Canada and one full price retail store in Germany. Through our wholesale sales teams, international distributors and sales agents, our products are found in major cities throughout

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Africa,
Asia, Australia, Europe, the Middle East, North America and South America. In 2010, our International segment generated net sales of $64.4 million, comprising 17.7% of our total net
sales. We have established a Europe, Middle East, and Africa (EMEA) regional office in Switzerland and a regional office for Asia/Pacific in Hong Kong. We plan to grow our net sales and net earnings
from the International segment by presenting our merchandise at True Religion Brand Jeans stores and at premium retailers' stores in markets where fashion-conscious consumers shop. In 2011, we expect
to open a total of approximately eight branded retail stores in Canada, the United Kingdom, Germany and the Netherlands.

Our Licensing Business

We selectively license our brand name and logo to be included on products sold by other companies to enhance and extend the True
Religion Brand Jeans brand. Through licensing alliances, we combine our consumer insight, design, and marketing skills with the specific product competencies of our licensing partners to create, build
and expand our product offerings to fashion-conscious consumers. We grant our product licensees the right to design, manufacture and sell at wholesale specified categories of products under our
trademark. We have the right to approve or disapprove the licensees' designs, products and wholesale customers. Each licensing partner pays us royalties based upon its wholesale sales of products that
use our trademark. In addition, licensing partners may be required to allocate a portion of their sales revenues to advertise our products and share in the creative costs associated with these
products. Our licenses typically have three year terms and may grant the licensee conditional renewal options. We recognized $5.3 million in royalty revenue through our licensing business in
2010 as a component of our Core Services segment.

At
the end of 2010, our licensed merchandise categories were: footwear, fragrances, headwear (including scarves and gloves), sunglasses and swimwear. In 2010, we terminated our legwear
licensed merchandise category.

Marketing

The True Religion Brand Jeans marketing and public relations strategy is designed to communicate the signature design aesthetic and
lifestyle of our brand, and to reinforce our position as a global leader in premium denim. Our unique, "bohemian-chic" style was created by our founder, Chief Executive Officer and Chief
Merchant, Mr. Jeffrey Lubell. Mr. Lubell continues to oversee every aspect of our marketing, including the creative aspect.

The
True Religion Brand Jeans marketing department is based in Vernon, California. The department works hand-in-hand with Mr. Lubell to create seasonal
advertising campaigns which serve as the basis for all of our media and marketing communication efforts. The marketing mix consists of a variety of channels including: national and international print
advertising, strategic outdoor advertising, in-store advertising, digital advertising, and social media. This mix of media and channels is designed to support the brand's growth across
diverse consumer groups and markets. In addition, the brand strategically cultivates and enjoys a strong and loyal celebrity following. These unpaid celebrity endorsements have been, and continue to
be, highly effective in expanding our brand awareness and affinity.

Trademarks

We have 26 trademarks registered in the United States for "True Religion Brand Jeans" logos and marks. We have also secured
international trademark registrations in 43 countries and we continue to seek trademark registrations that we believe are necessary to protect the True Religion Brand Jeans brand. Generally, our
trademarks remain valid and enforceable so long as we continue to use the marks in commerce and the required registration renewals are filed. We consider our trademarks as

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valuable
assets in the marketing of our products and seek to protect them from infringement worldwide.

We
have been issued a patent in the United States for our Joey style jeans and three patents for our QT stitch, which are distinctive designs. The patent for our Joey style jeans will
expire in 2021 and the three patents for our QT stitch will expire in 2024. We have also been issued six patents in the European Community for our QT stitch which will expire in 2035.

Sources and Availability of Raw Materials

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

Design and Product Development

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

Manufacturing

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

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

Quality Control

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

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Government Regulation and Supervision

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

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

Competition

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



Employees

As of December 31, 2010, we employed on a full or part-time basis a total of 1,663 employees, consisting of 1,367 in
our retail stores, 149 in design and production, and 147 in general administration.

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

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

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Item 1A.    Risk Factors.

Risks Relating to Our Industry

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

Our performance is subject to worldwide economic conditions and their impact on levels of consumer spending that affect not only the
ultimate consumer, but also retailers, our largest direct customers. The United States and global economies have suffered from a prolonged recession for the past several years and as a result consumer
spending has deteriorated significantly from pre-recession levels and may remain depressed, or be subject to further deterioration, for the foreseeable future. The worldwide apparel
industry is heavily influenced by general economic cycles. Purchases of high-fashion apparel and accessories tend to decline in periods of recession or uncertainty regarding future
economic prospects, as disposable income declines. During periods of recession or economic uncertainty, we may not be able to maintain or increase our sales to existing customers, make sales to new
customers, open and operate new retail stores, maintain sales levels at our existing stores or the mix between full price and off-price stores, maintain or increase our international
operations on a profitable basis, or maintain our earnings from operations as a percentage of net sales. As a result, our operating results may be adversely and materially affected by continued
downward trends or uncertainty in the United States or global economies.

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

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

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

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

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

We face intense competition in the apparel industry from other established companies. A number of our competitors may have
significantly greater financial, technological, manufacturing, sales, marketing and distribution resources than we do. Their greater capabilities in these areas may enable them to better withstand
periodic downturns in the apparel industry, compete more effectively on the

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basis
of price and production, and more quickly develop new products. In addition, there are low barriers of entry into this industry and new companies may enter the markets in which we compete,
further increasing competition in the industry. Our branded retail stores compete with many other retailers, including department stores, some of whom are our major wholesale customers. We believe
that our ability to compete successfully depends on a number of factors, including the style and quality of our products and the strength of our brand name, as well as many factors beyond our control.
We may not be able to compete successfully in the future, and increased competition may result in price reductions, reduced profit margins, loss of market share and an inability to generate cash flows
that are sufficient to maintain or expand our development and marketing of new products, which would adversely impact the trading price of our common stock.

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

The principal fabrics used in our business are cotton, blends, synthetics and wools. The prices we pay our suppliers for our products
are dependent in part on the market price for raw materialsprimarily cottonused to produce them. The price and availability of cotton may fluctuate substantially, depending
on a variety of factors, including demand, crop yields, weather, supply conditions, transportation costs, work stoppages, government regulation, economic climates and other unpredictable factors.
Cotton prices world-wide have increased significantly in the past year, and the outlook for future prices is uncertain. Increases in raw material costs, together with other factors, will
make it difficult for us to sustain the gross margin level we have achieved in recent years and result in a decrease of our profitability unless we are able to pass higher prices on to our wholesale
and retail customers, reduce the costs of other inputs, or improve our production process so we reduce the amount of excess inventory that is sold at a discount. Moreover, any decrease in the
availability of cotton could impair our ability to meet our production requirements in a timely manner.

Risks Related to Our Business

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

We have experienced rapid growth since our inception, and have increased our net sales from $140.5 million in 2006 to
$363.7 million in 2010. We anticipate that our future growth rate will depend upon various factors, including the strength of our brand image, the market success of our current and future
products, the success or our growth strategies, competitive conditions and our ability to manage our future growth. Future growth may place a significant strain on our management and operations. As we
continue to grow in our operations, our operational, administrative, financial and legal procedures and controls will need to be expanded. As a result, we may need to train and manage an increasing
number of employees, which could distract our management team from our business. Our future success will depend substantially on the ability of our management team to manage our anticipated growth. If
we are unable to anticipate or manage our growth effectively, our future operating results could be adversely affected.

Our profitability may decline as a result of increasing pressure on margins.

The high fashion apparel industry is subject to significant pricing pressure caused by many factors, including intense competition,
consolidation in the retail industry, pressure from retailers to reduce the costs of products and changes in consumer spending patterns. These factors may cause us to reduce our sales prices for sales
of products to retailers and directly to consumers in our Consumer Direct segment which could cause our gross margin to decline. If our sale prices decline and we are unable to offset such price
reductions with comparable reductions in our operating costs, our future operating results could be adversely affected.

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

Our performance is substantially dependent upon the expertise of our Chief Executive Officer, Jeffrey Lubell, and other key management
personnel. In addition to his executive officer functions, Mr. Lubell is our chief merchant and heads our design team. His leadership in the design, marketing and operational areas of our
business has been instrumental to our growth. The death or disability of Mr. Lubell or other extended or permanent loss of his services, or any negative market or industry perception with
respect to him or arising from his loss, could have a material adverse effect on our business. Our other executive officers and other members of senior management have substantial experience and
expertise in our business and have made significant contributions to our growth and success. The unexpected loss of services of one or more of these individuals could also have a material adverse
effect on us. We do not maintain "key man" insurance with respect to Mr. Lubell or any of our other key management personnel, and any of them may leave us at any time, which could severely
disrupt our business and future operating results.

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

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

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

Our growth strategy is dependent in part on our ability to open and operate new stores and the availability of suitable store locations
on acceptable terms. Although we operated 94 branded retail stores in the United States and seven international branded retail stores as of December 31, 2010, we historically have been
primarily a wholesaler. In 2011, we plan to open approximately 15 company-operated branded retail and outlet stores in the United States and eight stores in other countries. The success of this
strategy is dependent upon, among other factors, the identification of suitable markets and sites for store locations, the negotiation of acceptable lease terms, the hiring, training and retention of
competent sales personnel, and making capital expenditures for these stores. We must also offer a broad product assortment, appropriately manage retail inventory levels, install and operate effective
retail systems, execute effective pricing strategies and integrate our stores into our overall business mix. An increase in the number of branded company-operated stores will place increased demands
on our operational, managerial and administrative resources and require us to further develop our retailing skills and capabilities. These increased demands could cause us to operate our business less
effectively, which in turn could cause deterioration in the financial performance of our existing stores. The commitments associated with our expansion will increase our operating expenses may be
costly to terminate, and these investments may be difficult to recapture if we decide to close a store or change our strategy.

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We may be unsuccessful in implementing our planned international expansion, which could impair the value of our brand, harm our business and negatively affect our result of
operation.

We plan to grow our net sales and net earnings from our International segment by opening True Religion Brand Jeans stores in various
international markets. For example, we recently established a regional office for EMEA in Switzerland and a regional office for Asia/Pacific in Hong Kong and currently plan to open stores in Canada,
the United Kingdom, Germany and the Netherlands. As we expand outside the United States, we may incur significant costs relating to starting up, maintaining and expanding foreign operations. Costs may
include, but are not limited to obtaining prime locations for stores, setting foreign offices and hiring personnel. We may be unable to open and operate new stores successfully and our growth may be
limited, unless we are able to:



We
cannot be sure that we can successfully open new stores or that our new stores will be profitable. Additionally, our international expansion may place increased demands on our operational,
managerial and administrative resources and these increased demands may cause the Company to operate its business less efficiently, which could harm the performance of its existing stores.

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

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

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

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

Our
dependence on contract manufacturing could subject us to difficulty in obtaining timely delivery of products of acceptable quality. A manufacturer's failure to ship products to us in
a timely

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

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

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

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

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

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

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

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Our ability to attract customers to our stores depends heavily on the success of the shopping centers and street locations in which they are located.

In order to generate customer traffic, we locate many of our stores in prominent locations within successful shopping centers or in
fashionable shopping districts. We cannot control the development of new shopping centers or districts; the availability or cost of appropriate locations within existing or new shopping centers or
districts; competition with other retailers for prominent locations; or the success of individual shopping centers or districts. All of these factors may impact our ability to meet our growth targets
and could have a material adverse effect on our financial condition or results of operations.

A privacy breach could damage our reputation and our relationship with our customers, expose the Company to litigation risk and adversely affect our business.

As part of our normal course of business, we collect, process and retain sensitive and confidential customer information. Despite
security measures we have in place, our facilities and systems, and those of the Company's third party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses,
misplaced or lost data, programming and/or human errors, or other similar events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential information,
whether by the Company or its vendors, could severely damage our reputation and our relationships with our customers, expose the Company to risks of litigation and liability and adversely affect our
business.

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

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



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

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

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be
materially affected by fluctuations in the U.S. dollar, negatively impacting our results of operations and our ability to generate revenue growth.

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

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

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

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

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

Our quarterly sales and operating results have varied significantly in the past and can be expected to fluctuate in the future due to a
number of factors, many of which are beyond our control. For example, sales of our products have historically been somewhat seasonal in nature with the largest sales generally occurring in the second
half of the year. Delays in scheduling or pickup of products by our wholesale customers could negatively impact our net sales and results of operations for any given quarter. The timing of new store
openings and the amount of sales contributed by new stores could also impact our net sales and results of operations for any given quarter. The compensation expense for the awards that vest
immediately caused an increase in our selling, general and administrative expenses and reduced our net income and earnings per share in our quarterly income statements. Also, our annualized tax rate
is based on projections of our operating results for the year, which we review and revise as necessary at the end of each quarter. Any quarterly fluctuations in our annualized tax rate that may occur
could have a material impact on our quarterly operating results. As a result of these specific and other general factors, our operating results will likely vary from quarter to quarter and the results
for any particular quarter may not be necessarily indicative of results for the full year. Any shortfall in sales or net income from levels expected by securities analysts and investors could cause a
decrease in the trading price of our common stock.

Item 1B.    Unresolved Staff Comments.

None.

Item 2.    Properties.

We lease our corporate headquarters facility, which is a 119,000 square foot industrial building located in Vernon, California. The
lease agreement expires on August 31, 2016, and we have the right

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to
renew the lease agreement for up to ten years if we comply with the lease agreement terms. We conduct our design, administrative and distribution operations at this facility.

We
lease our retail store locations under operating lease agreements expiring on various dates through 2022. Standard store lease agreements cover a period of ten years and do not
include a renewal option. These facilities are located in the United States, the United Kingdom, Japan, Canada and Germany. Many of the store lease agreements allow us to terminate the agreement,
generally in the third or fourth year, if our sales do not meet a pre-determined level. As of December 31, 2010, we had 101 stores open, including four in Japan and one each in the
United Kingdom, Canada and Germany. In 2011, we expect to open approximately 15 stores in the United States and eight stores internationally. At the end of 2010, our total retail square footage, which
includes international retail stores and storage space at all stores, was approximately 209,000. Our retail stores range in size from 600 to 4,700 square feet.

We
also lease our domestic and international showrooms and international administrative offices under lease agreements expiring on various dates through 2019. The showrooms are located
in Los Angeles, New York, Duesseldorf, Munich and Milan and total approximately 17,000 square feet. The international administrative offices are located in Tokyo, Dusseldorf, Hong Kong and Seoul and
total approximately 11,000 square feet. The offices in Tokyo, Hong Kong and Seoul include showroom spaces.

Item 3.    Legal Proceedings.

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

Item 4.    Reserved

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Table of Contents

PART II.

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

Market Information

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

2010

2009High

Low

High

LowFirst Quarter

$
30.85

$
18.73

$
14.13

$
7.83Second Quarter

$
33.11

$
22.07

$
24.52

$
11.87Third Quarter

$
25.79

$
17.54

$
26.51

$
19.64Fourth Quarter

$
23.86

$
18.73

$
28.33

$
17.57


Holders

As of March 4, 2011 there were 57 record holders and approximately 16,500 beneficial holders of our Common Stock.

Dividends

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

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Table of Contents

Stock Price Performance

The following graph compares, for each of the last five fiscal years, commencing on December 31, 2005 and ending
December 31, 2010, the cumulative total return of True Religion Apparel, Inc. common stock, Standard & Poor's 500 Index, and Standard & Poor's 1500 Apparel,
Accessories & Luxury Goods Index. The Apparel, Accessories & Luxury Goods Index is comprised of 17 companies, also representing a sector of the Standard & Poor's 500 Index. The
cumulative total return of True Religion Apparel, Inc. common stock assumes $100 invested on December 31, 2005 in our common stock and in each of the foregoing indices. The stock price
performance graph is not necessarily indicative of future stock price performance. The return on $100 invested in the S&P 500 and the S&P 1500 Apparel, Accessories & Luxury Goods
Index over the 5 year period from December 2005 to December 2010 was $112 and $152, respectively.

GRAPHIC





Transactions in Our Equity Securities

For the period covered by this report, we have not engaged in any transactions involving the sale of our unregistered equity securities
that were not disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K. We have not engaged in any sales of registered securities for which
the

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Table of Contents

use
of proceeds is required to be disclosed. This table provides certain information with respect to our purchases of shares of our common stock during the fourth quarter of 2010:

Period

Total Number
of Shares
Purchased(a)

Average
Price Paid
Per Share(a)

Total Number of
Shares Purchased as
Part of Publicly
Announced Plan

Approximate Dollar
Value of Shares That
May Yet Be Purchased
Under the PlanOctober 1, 2010October 31, 2010


1,346

$
22.04





November 1, 2010November 30, 2010


245

$
20.82





December 1, 2010December 31, 2010




$






Total


1,591

$
21.85








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


Item 6.    Selected Financial Data.

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

For the Years Ended December 31,2010

2009

2008

2007

2006Statement of operations data (In Thousands):Net sales

$
363,714

$
311,001

$
270,000

$
173,256

$
140,489Operating income


69,922


77,597


68,876


47,142


34,977Provision for income taxes


26,690


30,434


25,570


21,100


14,035Net income attributable to True Religion Apparel, Inc.


43,496


47,332


44,371


27,845


21,746Earnings per share attributable to True Religion Apparel, Inc.:Basic

$
1.78

$
1.97

$
1.89

$
1.21

$
0.97Diluted

$
1.75

$
1.92

$
1.83

$
1.16

$
0.92Weighted number of shares outstandingbasic


24,495


23,993


23,511


22,964


22,496Weighted number of shares outstandingdiluted


24,852


24,659


24,270


23,949


23,608




As of December 31,2010

2009

2008

2007

2006Balance sheet data ($000's):Working capital

$
211,833

$
166,565

$
113,108

$
72,846

$
58,845Total assets

$
295,884

$
229,806

$
166,452

$
113,258

$
79,751Stockholders' equity

$
249,032

$
197,854

$
142,250

$
95,247

$
64,147


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Table of Contents

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

Executive Summary

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

Strategic Initiatives

We believe that our brand, differentiated design vision, high-quality supply chain and diversified business strategy
anchored by our direct to consumer sales model enable us to be well positioned to expand our business and enhance shareholder value through execution of our strategy and focusing on key strategic
initiatives, which include:



Presentation of Segment Financial Information

We have reclassified certain prior period segment information to conform to the current year presentation. We reclassified our
reportable segment formerly titled "Other" to include the functions

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which
support the overall business and were previously classified in the U.S. Wholesale segment. The functions that were reclassified include the design, production, marketing, distribution, credit,
customer service, information technology and accounting departments. In connection with this reclassification, we renamed the segment "Core Services". As a result of this change, we have reclassified
certain SG&A expenses previously presented in the U.S. Wholesale segment to Core Services in order to conform to the revised presentation. We made the change to our reportable segments to more closely
align them with how management reviews and monitors the performance of our operating segments. Total consolidated SG&A expenses and total consolidated operating income were not changed as a result of
these reclassifications. The reclassifications had no impact upon previously reported consolidated net sales and consolidated gross profit by reportable segment. Additionally, these reclassifications
did not impact the consolidated balance sheets, statements of income, or statements of cash flows.

2010 Compared to 2009

The following table summarizes results of operations for 2010 compared to 2009 (dollar amounts in thousands, except per share data):

Years Ended December 31,2010

2009Amount

%

Amount

%

Change

%Net sales

$
363,714


100.0
%
$
311,001


100.0
%
$
52,713


16.9
%Gross profit


229,979


63.2
%

195,562


62.9
%

34,417


17.6
%Selling, general and administrative expenses


160,057


44.0
%

117,965


37.9
%

42,092


35.7
%Operating income


69,922


19.2
%

77,597


25.0
%

(7,675
)

(9.9
)%Other income, net


403


0.1
%

169


0.0
%

234


138.5
%Provision for income taxes


26,690


7.3
%

30,434


9.8
%

(3,744
)

(12.3
)%Net Income attributable to True Religion Apparel, Inc.

$
43,496


12.0
%
$
47,332


15.2
%
$
(3,836
)

(8.1
)%Earnings per share attributable to True Religion Apparel, Inc.:Basic

$
1.78




$
1.97




$
(0.19
)

(9.6
)%Diluted

$
1.75




$
1.92




$
(0.17
)

(8.9
)%


Net Sales

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

Years Ended December 31,

Change2010

2009

Amount

%U.S. Consumer Direct


189,097


129,030


60,067


46.6
%U.S. Wholesale


104,874


123,203


(18,329
)

(14.9
)%International


64,443


54,479


9,964


18.3
%Core Services


5,300


4,289


1,011


23.6
%Total net sales

$
363,714

$
311,001

$
52,713


16.9
%


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Table of Contents

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

December 31,

Change2010

2009

%U.S. Consumer Direct


52.0
%

41.5
%

10.5
%U.S. Wholesale


28.8


39.6


(10.8
)%International


17.7


17.5


0.2
%Core Services


1.5


1.4


0.1
%Total net sales


100.0
%

100.0
%


U.S.
Consumer Direct net sales increased by 46.6% to $189.1 million in 2010, primarily because we opened 24 stores in 2010, finishing the year with 94 stores compared to 70 stores
at the end of 2009. In addition, our same store sales increased 9.6% as we introduced a strategy to offer new styles regularly in our retail stores. In 2011, we expect to open approximately15 branded
retail stores in the United States.

U.S.
Wholesale net sales decreased 14.9% to $104.9 million. Net sales to major accounts, which include Nordstrom, Bloomingdale's, Saks Fifth Avenue and Neiman Marcus, decreased as
we continue to be impacted by the overall sales decline in the women's premium denim category at the major department stores. In addition, we reduced our sales to off-price retailers to
maintain our premium brand positioning. Partially offsetting these decreases was an increase in our net sales to specialty retailers.

International
net sales increased 18.3% to $64.4 million primarily due to increased sales to the Europe, Middle East and Africa ("EMEA") and Asia Pacific regions. The increase in
net sales to the EMEA region was driven by the addition of our German joint venture in August 2010 and the opening of a retail store in London, England in May 2010. The increase in net sales in the
Asia Pacific region was driven by the additional of our Hong Kong-based Asia Pacific team beginning in late 2009. During 2010, we opened three international branded retail stores: one in
Toronto, Canada, one in London, England and one in Tokyo, Japan. Our Store in Cologne, Germany was opened in March 2010, shortly before we acquired it in August 2010. In 2011, we expect to open eight
international branded retail stores.

Core
services net sales increased 23.6% to $5.3 million in 2010 from $4.3 million in 2009, due to increases in royalties due under existing licensing contracts.

Gross Profit

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

Years Ended December 31,

Change2010

2009

Amount

%U.S. Consumer Direct

$
136,915

$
95,276

$
41,639


43.7
%U.S. Wholesale


53,362


65,882


(12,520
)

(19.0
)%International


34,402


30,115


4,287


14.2
%Core Services


5,300


4,289


1,011


23.6
%Total gross profit

$
229,979

$
195,562

$
34,417


17.6
%


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Table of Contents

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

December 31,

Change2010

2009

%U.S. Consumer Direct


72.4
%

73.8
%

(1.4
)%U.S. Wholesale


50.9


53.5


(2.6
)%International


53.4


55.3


(1.9
)%Core Services


100.0


100.0


0.0
%Total gross margin


63.2
%

62.9
%

0.3
%


Overall
gross margin improved from 62.9% of net sales in 2009 to 63.2% of net sales in 2010, primarily reflecting the ongoing net sales mix shift towards the higher-margin U.S. Consumer
Direct business.

The
U.S. Consumer Direct gross margin decreased to 72.4% in 2010 from 73.8% in 2009 as a higher percentage of the segment's net sales came from the lower margin outlet stores as compared
to the full price stores and an increase in sales of the lower margin sportswear.

U.S.
Wholesale gross profit decreased to 50.9% in 2010 from 53.5% in 2009 primarily due to additional sales discounts that we offered to spur sales of merchandise on hand.

International
gross margin decreased to 53.4% in 2010 from 55.3% in 2009 primarily because the gross margin earned on sales in the third quarter by our new German joint venture was
driven by merchandise that was acquired from our former distributor at a higher cost.

Selling, General and Administrative Expenses

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

Years Ended December 31,

Change2010

2009

Amount

%U.S. Consumer Direct

$
72,274

$
50,510

$
21,764


43.1
%U.S. Wholesale


7,097


5,775


1,322


22.9
%International


16,915


4,948


11,967


241.9
%Core Services


63,771


56,732


7,039


12.4
%Total selling, general and administrative expenses

$
160,057

$
117,965

$
42,092


35.7
%


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

December 31,

Change2010

2009

%U.S. Consumer Direct


38.2
%

39.1
%

(0.9
)%U.S. Wholesale


6.8


4.7


2.1
%International


26.2


9.1


17.1
%Core Services


NM


NM


NMTotal SG&A rate


44.0
%

37.9
%

6.1
%


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Table of Contents

The
U.S. Consumer Direct SG&A increase of $21.8 million or 43.1% is directly related to the growth in the number of stores over the prior year, from 70 at the end of 2009 to 94 at
the end of 2010. As a percentage of net sales, the U.S. Consumer Direct SG&A rate decreased from 39.1% in 2009 to 38.2% in 2010 primarily due to the segment's same store sales increase producing
leverage on fixed costs.

U.S.
Wholesale SG&A increased $1.3 million, or 22.9%, primarily as a result of the costs incurred over the first half of 2010 in connection with the transition from a sales agent
to an in-house sales team.

International
SG&A increased $12.0 million, or 241.9%, primarily due to the new wholesale sales teams in Asia Pacific and Germany, the opening of four new retail stores, and the
costs to set up a European regional office in Switzerland.

Core
Services SG&A increased $7.0 million or 12.4% primarily due to $4.3 million in separation costs associated with the termination of our former president in May 2010. In
addition, our advertising costs increased as well as depreciation expense in 2010 as we installed a new wholesale and financial information technology system in the second half of 2009.

Operating Income

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

Years Ended December 31,

Change2010

2009

Amount

%U.S. Consumer Direct

$
64,641

$
44,766

$
19,875


44.4
%U.S. Wholesale


46,265


60,107


(13,842
)

(23.0
)%International


17,487


25,167


(7,680
)

(30.5
)%Core Services


(58,471
)

(52,443
)

(6,028
)

11.5
%Total operating income

$
69,922

$
77,597

$
(7,675
)

(9.9
)%


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

December 31,

Change2010

2009

%U.S. Consumer Direct


34.2
%

34.7
%

(0.5
)%U.S. Wholesale


44.1


48.8


(4.7
)%International


27.1


46.2


(19.1
)%Core Services


NM


NM


NMTotal SG&A rate


19.2
%

25.0
%

(5.8
)%


The
U.S. Consumer Direct operating margin decreased from 34.7% in 2009 compared to 34.2% in 2010 primarily due to the decreased gross margin as a result of higher percentage of the
segment's sales came from the lower margin outlet stores as compared to the full price stores and an increase in sales of the lower margin sportswear.

U.S.
Wholesale operating income decreased as a percentage of U.S. Wholesale net sales from 48.8% in 2009 to 44.1% in 2010 primarily due to the decrease in gross margin and the
deleveraging of SG&A expenses caused by the net sales decline.

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Table of Contents

International
operating income decreased as a percentage of International net sales, from 46.2% in 2009 to 27.1% in 2010 primarily due to the increase in SG&A expenses as a result of our
strategic initiative to expand our brand's presence in the Asia Pacific and EMEA regions.

Other Income, net

Other income, net was $0.4 million in 2010 compared to $0.2 million in 2009. This increase is primarily due to foreign
exchange gains on our intercompany balances with our foreign subsidiaries.

Provision for Income Taxes

Our effective tax rate was 38.0% for 2010 compared to 39.1% in 2009. The decrease in the effective tax rate is primarily due to an
increase in 2010, in the U.S. Federal Domestic Activity Production deduction percentage.

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

Net income attributable to True Religion Apparel, Inc. was $43.5 million, or $1.75 per diluted share, for 2010 compared
to $47.3 million, or $1.92 per diluted share, for 2009. The separation costs of $4.3 million ($2.7 million net of taxes) reduced our diluted earnings per share attributable to
True Religion Apparel, Inc. by $0.11 for 2010. Net income attributable to True Religion Apparel, Inc. excluding separation costs for 2010 would have been $46.2 million, or $1.86
per diluted share. The remaining decrease in net income attributable to True Religion Apparel, Inc. and diluted earnings per share attributable to True Religion Apparel, Inc. is
primarily due to the overall slowdown in sales of women's premium denim at the major department stores.

2009 Compared to 2008

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

Years Ended December 31,2009

2008Amount

%

Amount

%

Change

%Net sales

$
311,001


100.0
%
$
270,000


100.0
%
$
41,001


15.2
%Gross profit


195,562


62.9
%

157,001


58.1
%

38,561


24.6
%Selling, general and administrative expenses


117,965


37.9
%

88,125


32.6
%

29,840


33.9
%Operating income


77,597


25.0
%

68,876


25.5
%

8,721


12.7
%Interest income, net


169


0.0
%

1,065


0.4
%

(896
)

(84.1
)%Provision for income taxes


30,434


9.8
%

25,570


9.5
%

4,864


19.0
%Net Income attributable to True Religion Apparel, Inc.

$
47,332


15.2
%
$
44,371


16.4
%
$
2,961


6.7
%Earnings per share attributable to True Religion Apparel, Inc.: Basic

$
1.97




$
1.89




$
0.08


4.2
%Diluted

$
1.92




$
1.83




$
0.09


4.9
%


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Table of Contents

Net Sales

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

Years Ended December 31,

Change2009

2008

Amount

%U.S. Consumer Direct


129,030


75,314


53,716


71.3
%U.S. Wholesale


123,203


153,235


(30,032
)

(19.6
)%International


54,479


40,044


14,435


36.0
%Core Services


4,289


1,407


2,882


204.8
%Total net sales

$
311,001

$
270,000

$
41,001


15.2
%


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

December 31,

Change2009

2008

%U.S. Consumer Direct


41.5
%

27.9
%

13.6
%U.S. Wholesale


39.6


56.8


(17.2
)%International


17.5


14.8


2.7
%Core Services


1.4


0.5


0.9
%Total net sales


100.0
%

100.0
%


U.S.
Consumer Direct net sales increased by 71.3% to $129.0 million in 2009 as we finished the year with 70 stores compared to 42 stores at the end of 2008. The additional sales
from new stores were partially offset by a decrease in sales at our 15 stores which opened before the end of 2007 due to a reduction in shoppers visiting our stores caused by the challenging economic
and consumer environment.

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

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

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Table of Contents

Gross Profit

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

Years Ended December 31,

Change2009

2008

Amount

%U.S. Consumer Direct

$
95,276

$
57,669

$
37,607


65.2
%U.S. Wholesale


65,882


78,670


(12,788
)

(16.3
)%International


30,115


19,255


10,860


56.4
%Core Services


4,289


1,407


2,882


204.8
%Total gross profit

$
195,562

$
157,001

$
38,561


24.6
%


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

December 31,

Change2009

2008

%U.S. Consumer Direct


73.8
%

76.6
%

(2.8
)%U.S. Wholesale


53.5


51.3


2.2
%International


55.3


48.1


7.2
%Core Services


100.0


100.0


0.0
%Total gross margin


62.9
%

58.1
%

4.8
%


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

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

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

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

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Table of Contents

Selling, General and Administrative Expenses

The following table presents the components of SG&A by segment (dollar amounts in thousands):

Years Ended December 31,

Change2009

2008

Amount

%U.S. Consumer Direct

$
50,510

$
29,859

$
20,651


69.2
%U.S. Wholesale


5,775


6,786


(1,011
)

(14.9
)%International


4,948


2,494


2,454


98.4
%Core Services


56,732


48,986


7,746


15.8
%Total selling, general and administrative expenses

$
117,965

$
88,125

$
29,840


33.9
%


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

December 31,

Change2009

2008

%U.S. Consumer Direct


39.1
%

39.6
%

(0.5
)%U.S. Wholesale


4.7


4.4


0.3
%International


9.1


6.2


2.9
%Core Services


NM


NM


NMTotal SG&A rate


37.9
%

32.6
%

5.3
%


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

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

U.S.
Wholesale SG&A decreased by 14.9% primarily due to a decrease in sales commissions linked to the U.S. Wholesale net sales decrease.

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

Core
Services SG&A increased $7.7 million, from $49.0 million in 2008 to $56.7 million in 2009. This increase is primarily attributable to executive
performance-based compensation. Our executive compensation program was redesigned in 2008 to condition a greater portion of executive compensation on the satisfaction of earnings targets. Our
2009 performance outpaced our 2009 earnings target by a higher rate than in 2008. Also contributing to this increase is an increase in design, production, warehouse and operations accounting employees
to support our overall business growth and an increase in share-based compensation. The increase in share-based compensation is due to meeting company-wide earnings targets on
performance-based awards that were granted in 2009. Core Services SG&A, as a percentage of total net sales, remained relatively flat (18.2% in 2009 compared to 18.1% in 2008).

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Table of Contents

Operating Income

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

Years Ended December 31,

Change2009

2008

Amount

%U.S. Consumer Direct

$
44,766

$
27,810

$
16,956


61.0
%U.S. Wholesale


60,107


71,884


(11,777
)

(16.4
)%International


25,167


16,761


8,406


50.2
%Core Services


(52,443
)

(47,579
)

(4,864
)

10.2
%Total operating income

$
77,597

$
68,876

$
8,721


12.7
%


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

December 31,

Change2009

2008

%U.S. Consumer Direct


34.7
%

37.0
%

(2.3
)%U.S. Wholesale


48.8


46.9


1.7
%International


46.2


41.9


4.3
%Core Services


NM


NM


NMTotal SG&A rate


25.0
%

25.5
%

(0.5
)%


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

U.S.
Wholesale operating income increased as a percentage of U.S. Wholesale net sales from 46.9% in 2008 to 48.8% in 2009 due to the increase in gross margin as a result of the continued
improvements in our sourcing and production processes.

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

Interest Income, net

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

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Table of Contents

Provision for Income Taxes

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

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

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

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.

Financial Condition

Net cash provided by operating activities in 2010 was $67.8 million. Although our net income decreased by $3.8 million in
2010 as compared to 2009, more of our expenses were for non-cash items, including depreciation and stock-based compensation. Therefore, our net cash provided by operating activities
increased in 2010 by $1.3 million as compared to $66.5 million in 2009.

Net
cash used in investing activities was $13.5 million in 2010 compared to $15.3 million in 2009. This decrease of $1.8 million is primarily due to a decrease in
capital expenditures of $2.6 million. During 2009, we had $1.9 million in capital expenditures for the new information technology system that was implemented in the third quarter of
2009; we did not have similar capital expenditures in 2010. Our expenditures for new stores were consistent in both years. This decrease in capital expenditures was partially offset by the business
acquisition of our German joint venture assets of $0.8 million in 2010.

Net
cash used in financing activities was $6.1 million in 2010 compared to net cash used of $3.0 million in 2009. This increase is due to an increase in cash used for
statutory tax withholding payments for stock-based compensation, which was partially offset by an increase in the excess tax benefit from stock-based compensation. These increases are primarily due to
an increase in the number of shares vesting and an increase in our stock price when shares vested in 2010, which resulted in higher taxable compensation.

Liquidity and Capital Resources

Our primary ongoing cash requirements are currently expected to be for our ongoing operations, capital expenditures for new branded
retail stores, our expansion internationally, and information technology and other infrastructure needs. Management believes that cash flow from continuing operations and on-hand cash and
cash equivalents will provide adequate funds for the foreseeable working capital needs and planned capital expenditures. Over the long term, we manage our cash and capital structure to maximize
shareholder return, strengthen our financial position and maintain flexibility for future strategic initiatives. We believe our cash, cash equivalents, short-term investments and future
operating cash flows, as well as any potential future borrowing facilities, will be sufficient, 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,

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including
our profitability, operating cash flows, debt levels, debt ratings, contractual restrictions, and market conditions, and we cannot guarantee that we would be able to obtain financing on
favorable terms, if needed.

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

Capital
expenditures for 2011 are expected to approximate $24 million.

Tabular Disclosure of Contractual Obligations

The following table sets forth, as of December 31, 2010, our scheduled contractual cash obligations due for each of the periods
indicated below (dollar amounts in thousands):

Payment Due by PeriodContractual Obligations

Total

Less than
One Year

1 - 3 Years

3 - 5 Years

More Than
5 YearsOperating lease obligations


170,038


20,289


41,154


40,764


67,831Purchase obligations


28,900


28,900








Total

$
198,938

$
49,189

$
41,154

$
40,764

$
67,831


Seasonality of Business

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

Critical Accounting Policies

The preparation of our financial statements in accordance with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and
revenues and expenses during the period. Our management bases its estimates on historical experience and on other factors and assumptions that management believes to be reasonable under the
circumstances. Actual results may differ from these estimates. The following discussion highlights the policies management believes are critical. For a summary of all our significant accounting
policies, including those discussed below, see Note 2Summary of Significant Accounting Policies in our consolidated financial statements provided under Part II,
Item 8 of this Annual Report on Form 10-K.

Sales Recognition

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

Sales
within our U.S. Wholesale and International segments are recognized at the time title passes and risk of loss is transferred to the customer. Sales are recorded net of estimates
for returns, discounts, operational chargebacks and markdown allowances. Returns and allowances require

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Table of Contents

pre-approval
by management and discounts are based on trade terms. We review and refine these estimates on a quarterly basis using historical trends, seasonal results, and current
economic and market conditions. Our historical estimates of these costs have not differed materially from actual results.

Retail
store sales are recognized net of estimated returns at the time of sale to consumers. E-commerce sales of products ordered through our retail internet site known as www.truereligionbrandjeans.comare
recognized upon estimated delivery of the shipment to the customers. E-commerce sales also are reduced by
an estimate of returns. Retail store sales and E-commerce sales exclude sales taxes. We recognize revenue associated with our gift cards upon redemption of the gift card. We currently do
not recognize gift card breakage as we do not have sufficient historical evidence.

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

Uncollectible Accounts

Management evaluates our accounts receivables to assess if they will ultimately be collected. In performing this evaluation,
significant judgment is used, including an analysis of specific risks on a customer-by-customer basis for larger accounts. Based on this information, management provides a
reserve for the estimated amounts believed to be uncollectible.

Inventories

Slow-moving merchandise is typically sold at prices exceeding our cost in our outlet retail stores or to wholesale
customers who specialize in off-price merchandise. As of December 31, 2010 and 2009, we recorded inventory impairment charges for slow-moving inventory of
$0.7 million and $0.5 million, respectively, based upon analysis of balances on hand by style, recent sales trends, projected future sales, and historical markdown trends.

Stock-Based Compensation

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

Income Taxes

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

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Table of Contents

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

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

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk.

Exchange Rate Risk

We operate a wholesale business and four retail stores in Japan and most of our wholesale sales and all of our retail sales and SG&A
expenses in Japan are denominated in Japanese Yen. We operate a retail store in the U.K. All of that store's retail sales and SG&A expenses are denominated in British Pounds. Since August 2010, we
have operated a wholesale business in part of Europe and a retail store in Germany through a joint venture. All of the joint venture's sales and SG&A expenses are denominated in Euro, except for
merchandise which is purchased in U.S. Dollars. Since October 2010, we have operated a retail store in Canada. All of that store's retail sales and SG&A expenses are denominated in Canadian Dollars.
Since November 2010, we established a regional sales office in Switzerland. All SG&A expenses are denominated in Euro. Because these operations are not significant to our overall business, our
exposure to fluctuations in the U.S. Dollar and Japanese Yen exchange rate; the U.S. Dollar and Great Britain Pound exchange rate; the U.S. Dollar and Euro exchange rate and the U.S. Dollar and
Canadian Dollar exchange rate are not considered material as of December 31, 2010. We received U.S. Dollars for all other merchandise sales and licensing revenue during the year ended
December 31, 2010. Merchandise purchases from contract manufacturers are denominated in U.S. Dollars.

Investments

We had investments in auction rate securities (ARS) which had experienced an illiquid market since 2008. In October 2008, we were
notified that the two brokers who sold ARS to us would purchase the ARS at a price of par plus accrued interest, and on November 11, 2008, we accepted the offers from these brokers. The first
portion of the ARS, in the amount of $4.9 million, was purchased by the broker in January 2009 at par plus accrued interest, and the remaining portion, in the amount of $5.0 million, was
purchased by the second broker in July 2010 at par plus accrued interest.

Item 8.    Financial Statements and Supplementary Data.

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

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

None

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Item 9A.    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.



As of the end of the period covered by this Annual Report on Form 10-K, we performed an evaluation under the
supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the design and effectiveness of our disclosure controls and procedures
(as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act of 1934 as amended). Based upon that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that, as of the end of the period covered by this Annual Report, our disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing
and reporting of material financial and non-financial information within the time periods specified within the Commission's rules and forms. Our Chief Executive Officer and Chief Financial
Officer also concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.



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

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



There were no 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.

Item 9B.    Other Information.

None.

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Table of Contents

PART III.

Item 10.    Directors, Executive Officers and Corporate Governance.

The information required under this item is included in our Proxy Statement for our 2011 Annual Meeting of Stockholders, which is
incorporated by reference herein and will be filed within 120 days after the end of our fiscal year.

Item 11.    Executive Compensation.

The information required under this item is included in our Proxy Statement for our 2011 Annual Meeting of Stockholders, which is
incorporated by reference herein and will be filed within 120 days after the end of our fiscal year.

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

The information required under this item is included in our Proxy Statement for our 2011 Annual Meeting of Stockholders, which is
incorporated by reference herein and will be filed within 120 days after the end of our fiscal year.

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

The information required under this item is included in our Proxy Statement for our 2011 Annual Meeting of Stockholders, which is
incorporated by reference herein and will be filed within 120 days after the end of our fiscal year.

Item 14.    Principal Accountant Fees and Services.

The information required under this item is included in our Proxy Statement for our 2011 Annual Meeting of Stockholders, which is
incorporated by reference herein and will be filed within 120 days after the end of our fiscal year.

33

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Table of Contents

PART IV.

Item 15.    Exhibits, Financial Statements Schedules.

(a)

(1)

FINANCIAL STATEMENTSSee Index to Consolidated Financial Statements of this Annual Report on Form 10-K.(2)

FINANCIAL STATEMENT SCHEDULESSee Index to consolidated Financial Statements on page F-1 hereof(3)

EXHIBITSSee Exhibit Index below.


EXHIBIT INDEX

Exhibit No.

Description3.1

Certificate of Incorporation (incorporated by reference from our Form 8-K Current Report, filed August 22, 2005).3.2

Amended and Restated Bylaws (incorporated by reference from our Form 8-K Current Report, filed December 12, 2008).4.1

Specimen Common Stock Certificate (incorporated by reference from our Form 8-K Current Report, filed August 22, 2005).4.2

Form of True Religion Apparel, Inc. 2009 Equity Incentive Plan Restricted Stock Award Certificate (incorporated by reference from our Registration Statement on Form S-8 filed on July 29,
2009).4.3

Form of True Religion Apparel, Inc. 2009 Equity Incentive Plan Performance Award Certificate (Restricted Stock) (incorporated by reference from our Registration Statement on Form S-8 filed on July 29,
2009).10.1

Form of Indemnification Agreement between True Religion Apparel, Inc. and its officers and directors (incorporated by reference from our Form 10-Q Quarterly Report, filed November 8, 2010).10.2

Employment Agreement by and between the Company and Jeffrey Lubell dated January 4, 2006 (incorporated by reference from our Form 8-K Current Report, filed on January 10, 2006).*10.3

Standard Industrial/Commercial Single-Tenant LeaseGross dated May 17, 2006, among SDJ Enterprises, Ltd., Guru Denim, Inc. and the Company (incorporated by reference from our Form 8-K Current
Report, filed April 14, 2006).10.4

Amendment to Employment Agreement dated May 31, 2006, by and between Jeffrey Lubell and the Company (incorporated by reference from our Form 8-K Current Report, filed June 5, 2006).*10.5

Amendment to the True Religion Apparel, Inc. 2005 Stock Incentive Plan (incorporated by reference from our Form 8-K Current Report filed on March 8, 2007).*10.6

True Religion Apparel, Inc. Executive Cash Incentive Bonus Plan (incorporated by reference from our Form 8-K Current Report filed on April 3, 2008).*10.7

Amendment No. 2 to Employment Agreement by and between the Company and Jeffrey Lubell dated September 12, 2008 (incorporated by reference from our Form 8-K Current Report filed September 17,
2008).


34

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Table of Contents

Exhibit No.

Description10.8

Amended and Restated True Religion Apparel, Inc. 2009 Equity Incentive Plan (incorporated by reference from our Registration Statement on Form S-8 filed on July 29, 2009).*10.9

Employment Agreement by and between the Company and Lynne Koplin (incorporated by reference from our Form 8-K Current Report filed on January 6, 2010)*10.10

Summary of Executive Officer Compensation.*10.11

Summary of Board of Directors Compensation.*10.12

Employment Agreement, dated as of May 13, 2010, by and between the Company and Michael Egeck (incorporated by reference from our Form 10-Q Quarterly Report, filed August 5, 2010).*10.13

Amendment to Employment Agreement by and between the Company and Michael Egeck dated August 13, 2010.*10.14

Amendment to Employment Agreement by and between the Company and Lynne Koplin dated August 13, 2010.*10.15

Employment Agreement by and between the Company and Peter Collins dated August 13, 2010 (incorporated by reference from our Form 8-K Current Report, filed on August 13, 2010).*10.16

Amendment to Standard Industrial/Commercial Single-Tenant Lease, among SDJ Enterprises, Ltd., Guru Denim, Inc. and the Company dated November 22, 2010.*14.1

True Religion Apparel, Inc. Code of Conduct (incorporated by reference from our Form 8-K Current Report filed October 8, 2008).21.1

Subsidiaries of the Company23.1

Consent of Independent Registered Public Accounting Firm, Deloitte & Touche LLP24.1

Powers of Attorney.31.1

Certification of Principal Executive Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934.31.2

Certification of Principal Financial Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934.32.1

Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2

Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*Represents
a management contract or compensatory plan, contract or arrangement in which any director or any of the named executives participates.Filed
herewith.


35

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Table of Contents

SIGNATURES

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

TRUE RELIGION APPAREL, INC.Dated: March 11, 2011

/s/ JEFFREY LUBELL Jeffrey Lubell Chief Executive Officer and Chairman of the Board


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

Name

Position

Date/s/ JEFFREY LUBELL Jeffrey Lubell

Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

March 11, 2011/s/ PETER F. COLLINS Peter F. Collins

Chief Financial Officer (Principal Financial and Accounting Officer)

March 11, 2011/s/ JOSEPH H. COULOMBE Joseph H. Coulombe

Director

March 11, 2011/s/ G. LOUIS GRAZIADIO III G. Louis Graziadio III

Director

March 11, 2011/s/ ROBERT L. HARRIS, II Robert L. Harris, II

Director

March 11, 2011/s/ MARK S. MARON Mark S. Maron

Director

March 11, 2011/s/ MARCELLO BOTTOLI Marcello Bottoli

Director

March 11, 2011/s/ SETH R. JOHNSON Seth R. Johnson

Director

March 11, 2011


36

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Table of Contents

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES        INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PagesReport of Management on Internal Control Over Financial Reporting

F-2Reports of Independent Registered Public Accounting Firm

F-3Consolidated Balance Sheets as of December 31, 2010 and 2009

F-5Consolidated Statements of Income for the years ended December 31, 2010, 2009 and 2008

F-6Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008

F-7Consolidated Statements of Stockholders' Equity for the years ended December 31, 2010, 2009 and 2008

F-8Notes to Consolidated Financial Statements

F-9Consolidated Financial Statement Schedule:Valuation and Qualifying Accounts as of and for the years ended December 31, 2010, 2009, and 2008

F-29


F-1

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Table of Contents

REPORT OF MANAGEMENT ON        INTERNAL CONTROL OVER FINANCIAL REPORTING

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

Our
management conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal
control over
financial reporting based on the framework inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2010.

Our
internal control over financial reporting as of December 31, 2010 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as
stated in their report, which is included herein on page F-3.

F-2

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We
have audited the internal control over financial reporting of True Religion Apparel, Inc. and Subsidiaries ("the Company") as of December 31, 2010, based on criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanyingReport of Management on Internal Control Over
Financial Reporting.Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

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

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

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

In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of
and for the year ended December 31, 2010, of the Company and our report dated March 11, 2011 expressed an unqualified opinion on those financial statements and financial statement
schedule.

/S/
DELOITTE & TOUCHE LLP
Los Angeles, California
March 11, 2011

F-3

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We
have audited the accompanying consolidated balance sheets of True Religion Apparel, Inc. and Subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related
consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement
schedule listed in Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our audits.

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

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of True Religion Apparel, Inc. and Subsidiaries as of December 31,
2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of
December 31, 2010, based on the criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 11, 2011 expressed an unqualified opinion on the Company's internal control over financial reporting.

/S/
DELOITTE & TOUCHE LLP
Los Angeles, California
March 11, 2011

F-4

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Table of Contents

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (Amounts in thousands, except par amounts)

As of December 31,2010

2009ASSETSCurrent Assets:Cash and cash equivalents

$
153,792

$
105,531Short-term investments





4,948Accounts receivable, net of allowances


27,856


27,217Inventory


41,691


34,502Deferred income tax assets


9,660


8,753Prepaid expenses and other current assets


10,280


7,000Total current assets


243,279


187,951Property and equipment, net


48,448


39,693Other assets


4,157


2,162TOTAL ASSETS

$
295,884

$
229,806LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities:Accounts payable and accrued expenses

$
17,234

$
11,717Accrued salaries, wages and benefits


9,501


8,843Income taxes payable


4,711


826Total current liabilities


31,446


21,386Long-term deferred rent


11,286


7,851Long-term deferred income tax liabilities


2,195


2,715Total long-term liabilities


13,481


10,566Total liabilities


44,927


31,952Commitments and contingencies (Note 10)Redeemable noncontrolling interest


1,925


Stockholders' Equity:Preferred stock, $0.0001 par value, 20,000 shares authorized, none issued and outstanding, respectively





Common stock, $0.0001 par value, 80,000 shares authorized, 25,336 and 25,250 issued and outstanding, respectively


3


3Additional paid in capital


66,468


49,840Retained earnings


181,634


147,809Accumulated other comprehensive income, net of tax


927


202Total stockholders' equity


249,032


197,854TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
295,884

$
229,806


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

F-5

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Table of Contents

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF INCOME        (Amounts in thousands, except per share amounts)

Years Ended December 31,2010

2009

2008Net sales

$
363,714

$
311,001

$
270,000Cost of sales


133,735


115,439


112,999Gross profit


229,979


195,562


157,001Selling, general, and administrative expenses


160,057


117,965


88,125Operating income


69,922


77,597


68,876Other income, net


403


169


1,065Income before provision for income taxes


70,325


77,766


69,941Provision for income taxes


26,690


30,434


25,570Net income


43,635


47,332


44,371Less: Net income attributable to redeemable noncontrolling interest


139





Net income attributable to True Religion Apparel, Inc.

$
43,496

$
47,332

$
44,371Earnings per share attributable to True Religion Apparel, Inc:Basic

$
1.78

$
1.97

$
1.89Diluted

$
1.75

$
1.92

$
1.83Weighted average shares outstanding:Basic


24,495


23,993


23,511Diluted


24,852


24,659


24,270


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

F-6

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Table of Contents

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        (Amounts in thousands)

Years Ended December 31,2010

2009

2008CASH FLOWS FROM OPERATING ACTIVITIES:Net income

$
43,635

$
47,332

$
44,371Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


10,342


6,492


3,427Provision for bad debts


556


99


577Stock-based compensation


13,059


11,899


10,297Tax benefit from stock-based compensation


3,569


54


229Excess tax benefit from stock-based compensation


(3,569
)

(54
)

(229
)Deferred income taxes


(1,421
)

(642
)

(128
)Other, net


141


206


305Changes in operating assets and liabilities:Accounts receivable


(1,111
)

5,779


(6,357
)Inventory


(5,329
)

(8,719
)

(4,377
)Prepaid expenses and other current assets


(2,733
)

(2,861
)

(1,834
)Other assets


(1,803
)

(280
)

(448
)Accounts payable and accrued expenses


4,471


2,800


(825
)Accrued salaries, wages and benefits


659


1,954


2,831Income taxes payable


3,859


(884
)

(2,168
)Long-term deferred rent


3,436


3,315


3,391Net cash provided by operating activities


67,761


66,490


49,062CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment


(17,446
)

(20,082
)

(18,187
)Sales of investments


4,950


4,900


5,550Business acquisition


(845
)




Expenditures to establish trademarks


(176
)

(128
)

(81
)Net cash used in investing activities


(13,517
)

(15,310
)

(12,718
)CASH FLOWS FROM FINANCING ACTIVITIES:Statutory tax withholding payment for stock-based compensation


(9,671
)

(3,031
)

(8,110
)Excess tax benefit from stock-based compensation


3,569


54


229Proceeds from exercise of stock options








25Net cash used in financing activities


(6,102
)

(2,977
)

(7,856
)Effect of exchange rate changes in cash


119


83


71Net increase in cash and cash equivalents


48,261


48,286


28,559Cash and cash equivalents, beginning of year


105,531


57,245


28,686Cash and cash equivalents, end of year

$
153,792

$
105,531

$
57,245


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

F-7

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Table of Contents

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        (Amounts in thousands)

Shares

Amount

Additional
Paid In
Capital

Accumulated
Other
Comprehensive
Income

Retained
Earnings

TotalBalance at January 1, 2008


23,587

$
2

$
26,491

$


$
68,754

$
95,247Net income attributable to True Religion Apparel, Inc. for the year ended December 31, 2008














44,371


44,371Other comprehensive income, net:Unrealized losses arising during year











(1,583
)




(1,583
)Losses on available for sale securities reclassified to trading











1,583





1,583Cumulative translation adjustment











186





186Comprehensive net income

















44,557Stock-based compensation








10,297








10,297Issuance of restricted shares


659














Exercise of stock options


836





1,537








1,537Retirement of common stock


(583
)










(9,617
)

(9,617
)Forfeiture of restricted shares


(49
)













Tax benefit on stock-based compensation








229








229Balance at December 31, 2008


24,450


2


38,554

$
186


103,508


142,250Net income attributable to True Religion Apparel, Inc. for the year ended December 31, 2009














47,332


47,332Other comprehensive income, net:Cumulative translation adjustment











16





16Comprehensive net income

















47,348Stock-based compensation








11,899








11,899Issuance of restricted shares


1,135


1


(1
)







Retirement of common stock


(223
)










(3,031
)

(3,031
)Forfeiture of restricted shares


(112
)













Tax deficiency on stock-based compensation








(612
)







(612
)Balance at December 31, 2009


25,250

$
3

$
49,840

$
202

$
147,809

$
197,854Net income attributable to True Religion Apparel, Inc. for the year ended December 31, 2010














43,496


43,496Other comprehensive income, net:Cumulative translation adjustment











725





725Comprehensive net income

















44,221Stock-based compensation








13,059








13,059Issuance of restricted shares


693














Retirement of common stock


(393
)










(9,671
)

(9,671
)Forfeiture of restricted shares


(214
)













Tax benefit on stock-based compensation








3,569








3,569Balance at December 31, 2010


25,336

$
3

$
66,468

$
927

$
181,634

$
249,032


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

F-8

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Table of Contents

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1DESCRIPTION OF BUSINESS

True Religion Apparel, Inc. and subsidiaries (referred to in this Annual Report on Form 10-K as "the Company," "our," "we," or "True Religion") designs,
markets, sells and distributes premium fashion apparel, centered on our core denim products using the brand name "True Religion Brand Jeans." Our products include 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 branded retail stores, branded outlet stores and through our retail internet site located atwww.truereligionbrandjeans.com. Our
U.S. Wholesale sales are made to leading upscale nationwide-retailers, boutiques and off-price retailers. Our International sales are made through a variety of channels, including
subsidiaries and joint ventures that operate retail stores and sell to wholesale customers who operate retail stores; distributors who warehouse products at their expense and they ship to, and collect
payment from, their customers; and directly to wholesale customers who operate retail stores. As of December 31, 2010, our international segment includes one full price and three outlet retail
stores in Japan, one full price retail store in England, one full price retail store in Canada and one full price retail store in Germany. 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 consolidated financial statements include the accounts of True Religion Apparel, Inc., its subsidiaries and its
majority owned subsidiary which operates according to a joint venture agreement with its noncontrolling interest holder. All intercompany accounts and transactions have been eliminated upon
consolidation.

Use of Estimates

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

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

F-9

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Table of Contents

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Value Measurements

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



Level 1:

Quoted market prices in active markets for identical assets or liabilities

Level 2:

Observable market-based inputs or unobservable inputs that are corroborated by market data

Level 3:

Unobservable inputs reflecting the reporting entity's own assumptions


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

Sales Recognition

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

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

Retail
store sales are recognized net of estimated returns at the time of sale to consumers. E-commerce sales of products ordered through our retail internet site known as www.truereligionbrandjeans.comare
recognized upon estimated delivery of the shipment to the customers. E-commerce sales also are reduced by
an estimate of returns. Retail store sales and E-commerce sales exclude sales taxes. We recognize revenue associated with our gift cards upon redemption of the gift card. We currently do
not recognize gift card breakage as we do not have sufficient historical evidence.

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

Classification of Certain Costs and Expenses

We classify merchandise, inbound freight costs and out-bound shipping costs in cost of sales. Selling, general &
administrative expenses ("SG&A") include merchandise design and pre-production,

F-10

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Table of Contents

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

marketing
and advertising, sales commissions, customer service, U.S. Consumer Direct expenses and general and administrative expenses. U.S. Consumer Direct expenses include wages and commissions,
retail occupancy costs, supplies and direct segment management costs. General and administrative expenses include wages and performance compensation for our executive, finance, human resources, legal,
and information systems departments, headquarters occupancy costs (including the portion used by the distribution function), and professional service costs. Included in selling, general and
administrative expenses in the accompanying consolidated statements of income are handling charges of $4.5 million, $4.0 million and $3.6 million in 2010, 2009 and 2008,
respectively.

Advertising Costs

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

Advertising
expenses amounted to $8.0 million, $5.4 million and $3.9 million for the years ended December 31, 2010, 2009 and 2008, respectively.

Comprehensive Income

Comprehensive income for the years ended December 31, 2010, 2009 and 2008, consists of net income, cumulative translation
adjustments and adjustments to available for sale securities.

Net Income per Common Share

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Years Ended December 31,2010

2009

2008Basic


24,495


23,993


23,511Dilutive effect of unvested restricted stock awards and stock options


357


666


759Diluted shares


24,852


24,659


24,270


Stock-Based Compensation

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

Cash and Cash Equivalents

We consider all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents. Cash
equivalents are carried at cost, which approximates their fair market value. At December 31, 2010, cash equivalents consist of an investment in a money market fund that invest only in U.S.
Treasury securities.

Accounts Receivable

Management evaluates our accounts receivables to assess if they will ultimately be collected. In performing this evaluation,
significant judgment is used, including an analysis of specific risks on a customer-by-customer basis for larger accounts. Based on this information, management provides a
reserve for the estimated amounts believed to be uncollectible. Based on historical losses, existing economic conditions and collection practices, our allowance for doubtful accounts has been
estimated to be $0.5 million and $0.3 million at December 31, 2010 and 2009, respectively. Our actual credit losses for the periods presented have not significantly exceeded
management's estimates.

Concentration of Credit Risks

For the year ended December 31, 2010 no sale to any one customer accounted for more than 10% or our net sales. For the years
ended December 31, 2009 and 2008, sales to one customer accounted for 15% of our net sales. As of December 31, 2010, 27% of our net accounts receivable was due from

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TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

one
of our customers. As of December 31, 2009, 27% and 10% of our net accounts receivable were due from two of our customers.

Inventories

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

Slow-moving
merchandise is typically sold at prices exceeding our cost in our outlet retail stores or to wholesale customers who specialize in off-price
merchandise. As of December 31, 2010 and 2009, we recorded inventory impairment charges for slow-moving inventory of $0.7 million and $0.5 million, respectively, based
upon analysis of balances on hand by style, recent sales trends, projected future sales, and historical markdown trends.

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

Property and Equipment, Net

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

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

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

Income Taxes

We use the asset and liability method of accounting for income taxes. Using this method, deferred tax assets and liabilities are
recorded based on differences between financial reporting and tax basis of assets and liabilities. The deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse. We establish

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

valuation
allowances for tax benefits when we believe it is more likely than not that such assets will not be realized.

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

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

Foreign Currency Translation

The local currency is the functional currency for all of our significant international operations, except for EMEA, whose functional
currency is Euros. In accordance with ASC 830-30, assets and liabilities of our foreign operations are translated from foreign currencies into U.S. dollars at period-end rates,
while income and expense are translated at the weighted-average exchange rates for the period. The related translation adjustments are reflected as a foreign currency translation adjustment in
accumulated other comprehensive income (loss) within stockholders' equity.

Foreign Currency Transaction Gains and Losses

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the local
functional currency are included in the consolidated statements of income or accumulated other comprehensive income (loss), as appropriate.

Leases

We lease our corporate headquarters facility and all of our branded retail stores. All of these leases are classified as operating
leases and they expire at various dates through 2022. We have no significant individual or master lease agreements.

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

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

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

In
some lease agreements, we receive landlord incentives to reimburse us for leasehold improvements. These incentives are recorded as a deferred rent credit and recognized as a reduction
to rent expense on a straight-line basis over the lease term. As of December 31, 2010 and 2009, landlord incentives comprised $5.2 million and $3.5 million,
respectively, of the deferred rent liability balance.

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TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Reclassifications

We have reclassified certain prior period amounts to conform to the current year presentation. We have revised our previously reported
consolidated balance sheet for the year ended December 31, 2009 to combine the accounts receivable from factor with accounts receivable from customers into one line item called accounts
receivable, net of allowances. We have also revised our consolidated statements of cash flows for the years ended December 31, 2009 and 2008 to combine the accounts receivable from factor with
accounts receivable from customers into one line item called accounts receivable. These reclassifications are not considered material to the consolidated financial statements.

We
have also reclassified certain prior period segment information to conform to the current year presentation. We reclassified our reportable segment formerly titled "Other" to include
the functions which support the overall business and were previously classified in the U.S. Wholesale segment. The functions that were reclassified include the design, production, marketing,
distribution, credit, customer service, information technology and accounting departments. In connection with this reclassification, we renamed the segment "Core Services". As a result of this change,
we have reclassified certain SG&A expenses previously presented in the U.S. Wholesale segment to Core Services in order to conform to the revised presentation. We made the change to our reportable
segments to more closely align them with how management reviews and monitors the performance of our operating segments. Total consolidated SG&A expenses and total consolidated operating income were
not changed as a result of these reclassifications. The reclassifications had no impact upon previously reported consolidated net sales and consolidated gross profit by reportable segment.
Additionally, these reclassifications did not impact the consolidated balance sheets, statements of income, or statements of cash flows. The following table summarizes the reclassifications made for
the years ended December 31, 2009 and 2008 (amounts in thousands):

2009As Originally
Reported

Reclassification

As
RevisedOperating Income:U.S. Wholesale

$
30,763

$
29,344

$
60,107Core Services

$
(23,099
)
$
(29,344
)
$
(52,443
)Capital expenditures:U.S. Wholesale

$
1,673

$
(1,557
)
$
116Core Services

$
3,625

$
1,557

$
5,1822008As Originally
Reported

Reclassification

As
RevisedOperating Income:U.S. Wholesale

$
47,452

$
24,432

$
71,884Core Services

$
(23,147
)
$
(24,432
)
$
(47,579
)Capital expenditures:U.S. Wholesale

$
810

$
(714
)
$
96Core Services

$
1,459

$
714

$
2,173


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TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3CASH EQUIVALENTS AND INVESTMENTS

As of December 31, 2010 and 2009, we held $133.6 million and $94.3 million, respectively, of cash equivalents measured at fair value using quoted prices in active
markets (Level 1 input).

As
of December 31, 2009, investments consisted of auction rate securities ("'ARS") aggregating $5.0 million. These investments, with a par amount of $5.0 million,
were purchased from us by a broker during the year ended December 31, 2010 at par plus accrued interest.

Our
ARS and put option represent Level 3 assets. Our ARS were recorded at fair value using broker quotes. The fair value of the put option was determined by an internally
developed discounted cash flow model. The following table provides a summary of changes in fair value of our Level 3 financial assets during the two years ended December 31, 2010
(amounts in thousands):

Level 3 AssetsShort-Term

Long-TermARS

Put Option

Total

ARS

Put Option

TotalBalance at December 31, 2008

$
3,263

$
1,587

$
4,850

$
4,114

$
876

$
4,990Transfer to short-term


4,618


347


4,965


(4,618
)

(347
)

(4,965
)Net settlements


(3,288
)

(1,587
)

(4,875
)

(25
)




(25
)Realized gain included in interest income, net


(45
)




(45
)

529





529Revaluation of put option included in interest income, net





53


53





(529
)

(529
)Balance at December 31, 2009


4,548


400


4,948

$


$


$
Net settlements


(4,807
)

(143
)

(4,950
)Realized gain (loss) included in interest income, net


259





259Revaluation of put option included in interest income, net





(257
)

(257
)Balance at December 31, 2010

$


$


$



NOTE 4ACCOUNTS RECEIVABLE

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

2010

2009Reserve for returns

$
390

$
606Reserve for chargebacks and markdown allowances


597


467Reserve for bad debt


566


297Total

$
1,553

$
1,370


In
addition to the above reserves, we recorded an allowance for trade discounts of $0.4 million as of December 31, 2010 and $0.6 million as of December 31,
2009.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5INVENTORY

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

2010

2009Raw Materials

$
1,284

$
604Work-in-Progress


1,599


1,800Finished Goods


38,808


32,098Total

$
41,691

$
34,502


NOTE 6PROPERTY AND EQUIPMENT

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

2010

2009Computer systems & equipment

$
9,916

$
7,943Furniture & fixtures


7,568


4,009Leasehold improvements


44,831


34,154Machinery & equipment


3,308


2,305Trade show booths


1,592


1,013Construction in progress


3,404


2,72870,619


52,152Less: accumulated depreciation


22,171


12,459Property and equipment, net

$
48,448

$
39,693


Construction
in progress at December 31, 2010 and 2009 represents the capital expenditures for leasehold improvements that will be used in our new branded retail stores. When
these projects are completed, these balances are transferred to the appropriate property and equipment category and depreciated according to their estimated useful life.

Depreciation
expense, which is included as a component of selling, general and administrative expenses in the accompanying consolidated statements of income, was $10.3 million,
$6.3 million and $3.4 million for the years ended December 31, 2010, 2009 and 2008, respectively.

NOTE 7ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

2010

2009Accrued expenses

$
5,836

$
2,714Accounts payable


3,580


1,602Accrued sales and use taxes


2,632


2,025Accrued percentage rent


2,029


1,367Other


3,157


4,009Accounts payable and accrued expenses

$
17,234

$
11,717


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TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8LICENSING REVENUE

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

We
recognized licensing revenue of $5.3 million, $4.3 million and $1.4 million for the years ended December 31, 2010, 2009 and 2008 as a component of net
sales in the accompanying consolidated statements of income. These licensing revenues included prepayments recognized ratably and estimated sales and royalties based on information obtained from the
licensee.

NOTE 9STOCK-BASED COMPENSATION

On April 7, 2009, our Board of Directors approved the True Religion Apparel, Inc. 2009 Equity Incentive Plan (the "2009 Incentive Plan") which was approved by the
shareholders at our Annual
Shareholder Meeting on June 2, 2009. Upon approval of the 2009 Incentive Plan by the shareholders, grants under the Company's 2005 Stock Incentive Plan (the "2005 Incentive Plan") were
discontinued and any shares available for issuance under the 2005 Incentive Plan were rolled into the 2009 Incentive Plan. The 2009 Incentive Plan reserves for issuance an aggregate of 1,000,000
shares of common stock, increased by 613,761 shares that rolled into the plan from our 2005 Incentive Plan.

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

December 31,2010

2009

2008Stock-based compensation expense, before tax benefits

$
13,059

$
11,899

$
10,297Tax benefits


5,256


4,502


2,732Stock-based compensation expense, after tax benefits

$
7,803

$
7,397

$
7,565


Restricted Stock Awards

Shares awarded under the 2009 and 2005 Incentive Plans entitle the shareholder to all the rights of common stock ownership except that
the shares may not be sold, transferred, pledged, exchanged or otherwise disposed of during the restriction period. The restriction period is determined by the Compensation Committee of the Board of
Directors and may not exceed 10 years. Restricted stock awards have generally been granted with vesting periods of up to three years. 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 years ended December 31, 2010, 2009 and 2008, we awarded performance-based restricted stock to executive officers and
others, which are subject to certain performance and service conditions. Upon achieving the performance condition, the non-vested performance awards partially

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9STOCK-BASED COMPENSATION (Continued)

vest
on the first anniversary of the grant date and the remainder on the second anniversary of the grant for a combined service period of two years. In order for these performance awards to vest, the
Company's annual earnings before interest and income tax expenses (EBIT) must exceed a minimum amount; depending upon the Company's actual annual EBIT, additional restricted stock may be earned, up to
a maximum number. The actual number of shares of the performance-based award earned in 2010 was 309,437, which is equal to the sum of the "Awards granted in 2010, at maximum" and the "Performance
forfeited" amounts in the table below.

The
following table summarizes our non-vested performance-based restricted stock activities for the year ended December 31, 2010:

Shares

Weighted Average
Grant Date Fair
Value

Weighted Average
Remaining
Contractual Life
(Years)

Intrinsic
Value
($000's)Prior year awards:Non-vested, beginning of year


838,322

$
11.31Vested


(653,995
)
$
11.38Service forfeited


(5,975
)
$
12.56Non-vested, end of year


178,352Awards granted in 2010, at maximum:


447,037

$
28.76Performance forfeited


(137,600
)
$
28.93Service forfeited


(24,135
)
$
29.28Non-vested, end of year


285,302Total non-vested, end of year


463,654

$
21.87


0.8

$
10,321


Our
policy for attributing the value of graded vesting to these share-based payments is the graded attribution (accelerated) method. The estimated fair value of the performance stock
awarded is based on the price of our common stock on the date of grant and an assumed forfeiture rate of 5.3% in 2010, 3.4% in 2009, and 4.6% in 2008; these forfeiture rate assumptions were based on
historical experience. The fair value of the performance shares awarded and earned was $8.9 million in 2010, $8.8 million in 2009, and $2.0 million in 2008. The total fair value
of performance stock vested during the year ended December 31, 2010, 2009 and 2008 was $7.4 million, $1.4 million and $0, respectively. As of December 31, 2010, the total
unamortized stock-based compensation expense related to the non-vested performance stock awards was $2.8 million, which is expected to be recognized over a weighted average period of
0.8 years.

During
May 2010, we entered into a separation agreement with our former president which accelerated the vesting of his unvested 2009 performance share award and modified the service
period requirement on a portion of his unvested 2010 performance share award. As a result of this separation agreement, we recorded an additional $3.0 million in stock-based compensation
expense during the year ended December 31, 2010 due to the modification of these awards.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9STOCK-BASED COMPENSATION (Continued)

Non-vested service-based awards

During the years ended December 31, 2010, 2009 and 2008, we awarded service-based restricted stock to employees, officers 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 year ended December 31, 2010:

Shares

Weighted Average
Grant Date Fair
Value

Weighted Average
Remaining
Contractual Life
(Years)

Intrinsic
Value
($000's)Non-vested, beginning of year


360,166

$
16.23Granted


246,079

$
25.06Vested


(275,534
)
$
17.44Forfeited


(46,449
)
$
21.38Non-vested, end of year


284,262

$
21.86


1.5

$
6,328


Our
policy for attributing the value of graded vesting of these share-based payments is the straight-line single option approach. The estimated fair value of the
non-vested service-based stock awarded is based on the price of our common stock on the date of grant and an assumed forfeiture rate of 5.3% in 2010, 3.4% in 2009, and 4.6% in 2008; these
forfeiture rate assumptions were based on historical experience. The fair value of the non-vested service-based stock awards was $6.2 million in 2010, $2.8 million in 2009,
and $9.7 million in 2008. The total fair value of service-based stock awards vested during the year ended December 31, 2010, 2009 and 2008 was $4.8 million, $8.2 million
and $7.0 million, respectively. As of December 31, 2010, the total unamortized stock-based compensation expense related to the non-vested service-based stock awards was
$4.0 million, which is expected to be recognized over a weighted average period of 1.5 years.

We
have a practice of withholding common shares, upon an employee's request, to satisfy employee minimum statutory income tax withholdings for restricted shares when they vest. During
the years ended December 31, 2010, 2009 and 2008, we withheld 393,000, 223,275 and 150,926 shares for a total value of $9.7 million, $3.0 million and $2.8 million,
respectively. These amounts are considered a financing activity and recorded as statutory tax withholding payment for stock-based compensation in the accompanying 2010, 2009 and 2008 consolidated
statements of cash flows.

Included
in the non-vested service based awards amount for 2010 is an inducement award of 100,000 shares issued outside of the 2009 Incentive Plan. This inducement award
vests one third per year over a three year period beginning in June 2010.

Stock Options

Stock options were granted under the prior plans. Option grants were for a term of five years and vested over a period of zero to three
years. We did not grant any new stock options during the years ended December 31, 2010, 2009 and 2008, and all options previously granted have been exercised or forfeited.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9STOCK-BASED COMPENSATION (Continued)

During
the years ended December 31, 2010 and 2009, no options to acquire shares of our common stock were exercised. During the year ended December 31, 2008, options to
acquire 836,665 shares of our common stock were exercised, of which 432,255 of these shares were withheld by us to meet the related employee minimum statutory income tax withholding requirement of
$5.3 million and exercise price of $1.5 million. The minimum statutory income tax withholding amounts are recorded as tax withholding payments for stock-based compensation as a financing
activity in the accompanying consolidated statements of cash flows.

The
total intrinsic value of options exercised during the year ended December 31, 2008 was $11.6 million.

We
receive a tax deduction for certain stock option exercises during the period the options are exercised, generally for the excess of the fair value of stock at the date of exercise
over the exercise price of the options. We also receive a tax deduction that may be different than our financial statement expense for restricted stock when it vests. FASB ASC 718:
CompensationStock Compensation ("FASB ASC 718") requires cash flows resulting from tax benefits in excess of the related stock-based compensation to be classified as part of cash flows
from financing activities. In accordance with FASB ASC 718, we reported $3.6 million, $0.1 million and $0.2 million of excess tax benefits as financing cash flows for the years
ended December 31, 2010, 2009 and 2008, respectively. The total tax (deficit) benefit realized from stock option exercises or restricted stock vesting for the years ended December 31,
2010, 2009 and 2008 was $3.6 million, $(0.6) million and $0.2 million, respectively. Cash received from stock option exercises was less than $0.1 million for the year ended
December 31, 2008.

NOTE 10COMMITMENTS AND CONTINGENCIES

Leases

We lease our headquarters facility and retail store locations under operating lease agreements expiring on various dates through
January 2022. Some of these leases require us to make periodic payments for property taxes, utilities and common area operating expenses. Certain leases include lease incentives, rent abatements and
fixed rent escalations, for which the effects are being recorded and amortized over the initial lease term on a straight-line basis. We have options to renew certain leases under various
terms as specified within each lease agreement. We have no capitalized lease obligations.

As
of December 31, 2010, we had 119 long-term lease agreements, which consisted of 100 retail stores in the U.S., seven international retail stores, our headquarters
facility in Vernon, California which includes a parking annex, four showrooms in the U.S., and administrative offices and showrooms in Japan, South Korea, Hong Kong, Germany and Italy. Our leased
properties aggregate 375,000 square feet of space, which consists of 150,000 square feet for our headquarters, international administrative and distribution facilities, 208,000 square feet of retail
space and 17,000 square feet of showroom space. Our lease agreements for 94 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. As of December 31, 2010 we had 94 retail stores that were open in the U.S., 6 stores in the U.S. that had not been opened yet, four retail stores in Japan, one
retail store in the U.K., one retail store in Germany and one retail store in Canada.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10COMMITMENTS AND CONTINGENCIES (Continued)

Rent expense was $24.1 million, $16.2 million and $9.3 million in 2010, 2009 and 2008, respectively. These amounts include contingent rental expense of
$2.7 million, $1.6 million and $0.8 million in 2010, 2009 and 2008, respectively.

Future
minimum lease payments under these operating leases as of December 31, 2010 are summarized as follows (amounts in thousands):

Year ending December 31,2011

$
20,2892012


20,5812013


20,5732014


20,4532015


20,311Thereafter


67,831Total minimum lease payments

$
170,038


Subsequent
to December 31, 2010, we entered into 10 new retail leases, which have expiration dates through May 2021 and future minimum lease payments of approximately
$16.3 million.

Legal Proceedings

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

NOTE 11BUSINESS ACQUISITION AND REDEEMABLE NONCONTROLLING INTEREST

In July 2010, we entered into a joint venture agreement through our newly formed wholly owned subsidiary, True Religion Brand Jeans Germany GmbH (TRBJ Germany), with our former
German distributor, UNIFA Premium GmbH ("UP") for the wholesale and retail distribution of True Religion Brand Jeans products in Germany, Switzerland, Austria, the Netherlands, Belgium and
Luxembourg. In connection with the joint venture agreement, we canceled the distribution agreement with UP and entered into a new distribution agreement with TRBJ Germany and we entered into an
agreement with UP whereby we purchased certain assets, including inventory and fixed assets, of UP for an immaterial cash payment; and, UP purchased a redeemable noncontrolling interest in TRBJ
Germany. Following these transactions, we own a controlling 60% interest in TRBJ Germany, and UP owns a 40% interest. We have accounted for the transaction as a business combination and have allocated
the total consideration consisting of cash and the 40% interest in TRBJ Germany to the tangible assets. Consideration transferred did not result in a purchase price excess, thus no goodwill was
recognized as of our valuation date. The business of TRBJ Germany operates according to a joint venture agreement that includes a call option and a put option on UP's 40% redeemable noncontrolling
interest, allowing us to purchase UP's shares (the call option) or UP to sell us their shares (the put option) at a purchase price equal to the fair market value of UP's shares at the time of delivery
of the call or put option. Both options can be exercised beginning on the five year anniversary of the joint venture agreement and on every anniversary date thereafter. Additionally, the exercise of
such options may be accelerated upon the occurrence of certain changes in control as defined in the joint venture agreement. As the

F-22

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Table of Contents

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11BUSINESS ACQUISITION AND REDEEMABLE NONCONTROLLING INTEREST (Continued)

redeemable
interest is considered probable of becoming currently redeemable in the future, the redeemable interest will be adjusted to its estimated fair value at each reporting period.

We
calculated the fair value of the redeemable noncontrolling interest by discounting the future cash flows of TRBJ Germany and determined that the fair value of the noncontrolling
interest approximated the carrying value as of December 31, 2010.

The
total consideration paid is summarized below (amounts in thousands):

As of
August 1,
2010Cash

$
845Redeemable noncontrolling interest


1,763Total consideration paid

$
2,608


The
purchase price allocation is summarized below (amounts in thousands):

As of
August 1,
2010Fixed assets

$
642Inventory


1,449Other assets


517Total assets acquired

$
2,608


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

For the
Year Ended
December 31,
2010Redeemable noncontrolling interest, January 1, 2010

$
Net income attributable to redeemable noncontrolling interest


139Foreign currency translation adjustment


23Capital contributions by redeemable noncontrolling interest


1,763Redeemable noncontrolling interest, December 31, 2010

$
1,925


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Table of Contents

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12INCOME TAXES

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

2010

2009

2008Current income tax:Federal

$
21,818

$
23,967

$
22,475State and local


5,386


7,098


3,191Foreign


907


11


Total current income tax expense


28,111


31,076


25,666Deferred income taxes:Federal


(851
)

(480
)

401State and local


(328
)

(334
)

(423
)Foreign


(242
)

172


(74
)Total deferred income tax benefit


(1,421
)

(642
)

(96
)Total income tax expense

$
26,690

$
30,434

$
25,570


Except
where required by U.S. tax law, no provision was made for U.S. income taxes on the undistributed earnings of the foreign subsidiaries as of the Company intends to utilize those
earnings in the foreign operations for an indefinite period of time. That portion of accumulated undistributed earnings of foreign subsidiaries as of December 31, 2010 and 2009 was
$1.1 million and $0, respectively.

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

2010

2009

2008Tax provision at statutory federal rate


35.0
%

35.0
%

35.0
%State income taxes, net of federal benefit


4.8


5.7


2.5Excess compensation under IRC Sec. 162(m)


0.1





1.2Domestic production deduction


(2.2
)

(1.8
)

(2.0
)Tax exempt interest








(0.3
)Other


0.3


0.2


0.2Effective tax rate


38.0
%

39.1
%

36.6
%


Deferred
income taxes reflect the net tax effect of temporary differences between amounts recorded for financial reporting purposes and amounts recorded for income tax purposes. The
major

F-24

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Table of Contents

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12INCOME TAXES (Continued)

components
of deferred tax assets and liabilities are as follows as of December 31 (amounts in thousands):

2010

2009Current deferred tax assets:Compensation

$
4,199

$
4,629Inventory


2,900


1,821Bad debt


203


116State taxes, net of federal benefits


896


1,496Other


1,462


691Total current deferred tax assets


9,660


8,753Long term deferred tax (liability) asset:Lease incentives


2,409


1,891Fixed assets


(4,604
)

(4,606
)Total long-term deferred tax liability


(2,195
)

(2,715
)Total net deferred tax asset

$
7,465

$
6,038


Our
federal income tax returns for 2007 through 2009 remain subject to examination, and our state income tax returns for 2006 through 2009 remain subject to examination. Our foreign
jurisdiction tax returns for 2008 through 2010 remain subject to examination with no material adjustments expected. As of December 31, 2010 and 2009, our reserves for unrecognized tax benefits
are not material to the consolidated financial statements.

NOTE 13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. for the years ended
December 31 (in thousands, except per share information):

2010

2009

2008Net income attributable to True Religion Apparel, Inc.

$
43,496

$
47,332

$
44,371Basic shares


24,495


23,993


23,511Dilutive effect of unvested restricted stock awards and stock options


357


666


759Diluted shares


24,852


24,659


24,270Earnings per share attributable to True Religion Apparel, Inc.basic

$
1.78

$
1.97

$
1.89Earnings per share attributable to True Religion Apparel, Inc.diluted

$
1.75

$
1.92

$
1.83


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Table of Contents

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14COMPREHENSIVE INCOME

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

2010

2009

2008Net income

$
43,635

$
47,332

$
44,371Cumulative translation adjustment


748


16


186Unrealized losses on investmentsUnrealized losses arising during year, net of taxes of $890








(1,583
)Losses on available for sale securities reclassified to trading, included in net income, net of taxes of $890








1,583Comprehensive income


44,383


47,348


44,557Comprehensive income attributable to redeemable noncontrolling interest


(162
)




Comprehensive income attributable to True Religion Apparel, Inc.

$
44,221

$
47,348

$
44,557


NOTE 15SEGMENT INFORMATION

The Company's reportable business segments and respective accounting policies of each segment are the same as those described in Note 1 and Note 2. We evaluate the
performance of each operating segment based on operating income.

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Table of Contents

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 15SEGMENT INFORMATION (Continued)

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

2010

2009

2008Net sales:U.S. Consumer Direct

$
189,097

$
129,030

$
75,314U.S. Wholesale


104,874


123,203


153,235International


64,443


54,479


40,044Core Services


5,300


4,289


1,407Total net sales

$
363,714

$
311,001

$
270,000Gross profit:U.S. Consumer Direct

$
136,915

$
95,276

$
57,669U.S. Wholesale


53,362


65,882


78,670International


34,402


30,115


19,255Core Services


5,300


4,289


1,407Total gross profit

$
229,979

$
195,562

$
157,001Operating income:U.S. Consumer Direct

$
64,641

$
44,766

$
27,810U.S. Wholesale


46,265


60,107


71,884International


17,487


25,167


16,761Core Services


(58,471
)

(52,443
)

(47,579
)Total operating income

$
69,922

$
77,597

$
68,876Capital expendituresU.S. Consumer Direct

$
11,818

$
14,437

$
15,540U.S. Wholesale


573


116


96International


3,084


347


378Core Services


1,971


5,182


2,173Total capital expenditures

$
17,446

$
20,082

$
18,187Total assetsU.S. Consumer Direct

$
68,418

$
55,763U.S. Wholesale


35,001


31,159International


24,940


16,897Core Services


167,525


125,987Total assets

$
295,884

$
229,806


As
of December 31, 2010 and 2009, $274.1 million and $224.9 million, respectively, of our assets were located in the United States. Also, at December 31, 2010
and 2009, we had accounts receivable due from foreign distributors of $5.5 million and $8.0 million, respectively, and trademarks of $0.3 million and $0.2 million,
respectively, associated with foreign countries. The U.S. Wholesale segment had net sales to one customer exceeding 10% of our net sales, which amounted to $29.0 million in 2010,
$41.1 million in 2009 and $39.2 million in 2008. Our 2010 net sales categorized

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Table of Contents

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 15SEGMENT INFORMATION (Continued)

by
gender were approximately as follows: women48%; men48%; and kids4%. Our 2009 net sales categorized by gender were approximately as follows:
women55%; men41%; and kids4%. Our 2008 net sales categorized by gender were approximately as follows: women58%; men38%; and
kids4%.

Retail
occupancy costs included in U.S. Consumer Direct expenses amount to $22.2 million, $16.5 million and $8.8 million, for the years ended December 31,
2010, 2009 and 2008, respectively.

NOTE 16QUARTERLY INFORMATION (UNAUDITED)

The following is a summary of the unaudited quarterly financial information for the years ended December 31, 2010 and 2009 (amounts in thousands, except per share data):

Year ended December 31, 2010

First Quarter

Second Quarter

Third Quarter

Fourth QuarterNet sales

$
77,872

$
82,184

$
92,751

$
110,907Gross profit

$
49,975

$
52,674

$
57,568

$
69,762Net income attributable to TrueReligion Apparel, Inc.

$
8,396

$
7,533

$
11,779

$
15,788Earnings per share attributable to TrueReligion Apparel, Inc.:Basic

$
0.35

$
0.31

$
0.48

$
0.64Diluted

$
0.34

$
0.30

$
0.48

$
0.63




Year ended December 31, 2009

First Quarter

Second Quarter

Third Quarter

Fourth QuarterNet sales

$
63,624

$
72,116

$
82,423

$
92,838Gross profit

$
38,719

$
44,800

$
53,334

$
58,709Net income attributable to TrueReligion Apparel, Inc.

$
7,625

$
10,987

$
14,085

$
14,635Earnings per share attributable to TrueReligion Apparel, Inc.:Basic

$
0.32

$
0.46

$
0.59

$
0.61Diluted

$
0.32

$
0.45

$
0.58

$
0.59


NOTE 17SUPPLEMENTAL CASH FLOW INFORMATION

During the years ended December 31, 2010, 2009 and 2008, we paid taxes in the amount of $20.7 million, $31.1 million and $27.4 million, respectively.

As
of December 31, 2010 and 2009, we had recorded the purchase of $1.8 million and $0.8 million, respectively, of property and equipment that had not yet been paid
for. These amounts have been excluded from "Purchases of property and equipment" and "Accounts payable and accrued expenses" in the accompanying consolidated cash flows.

As
of December 31, 2010, noncash investing activity relating to the purchase of the German joint venture was $1.8 million.

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Table of Contents

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES    SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS    (In thousands)

Balance at
Beginning of
Period

Charged to
Costs and
Expenses

Deductions

Balance at
End of
Period2010Reserve for returns

$
606

$
4,211

$
(4,427
)
$
390Reserve for chargebacks and markdown allowances

$
467

$
655

$
(525
)
$
597Reserve for bad debt

$
297

$
556

$
(287
)
$
5662009Reserve for returns

$
474

$
829

$
(697
)
$
606Reserve for chargebacks and markdown allowances

$
439

$
952

$
(924
)
$
467Reserve for bad debt

$
266

$
99

$
(68
)
$
2972008Reserve for returns

$
317

$
298

$
(141
)
$
474Reserve for chargebacks and markdown allowances

$
385

$
124

$
(70
)
$
439Reserve for bad debt

$
244

$
577

$
(555
)
$
266


F-29

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