Annual report pursuant to Section 13 and 15(d)

Discontinued Operations

v2.4.0.8
Discontinued Operations
 12 Months Ended
Dec. 31, 2013
Discontinued Operations

12. Discontinued Operations

On October 21, 2013, we consummated the sale of GVE Newco, LLC (“GVE”), a wholly-owned subsidiary of ours representing our non-branded entertainment media business, to Cinedigm Corp. (“CIDM”) for $51.7 million, comprised of $47.5 million in cash, 666,978 shares of CIDM’s Class A common stock with an estimated fair value as of transaction consummation of approximately $1.2 million, $2 million of assigned accounts receivable, and a $1 million assumed payment obligation. In addition, the sale consideration will also include a post-closing adjustment payable in cash on April 15, 2014 and based on the final closing net working capital of GVE, which the parties are currently negotiating. During the fourth quarter of 2013, we discontinued our DRTV operations. In connection with these discontinued operations, we recognized certain exit activity and asset impairment charges. Accordingly, the assets and liabilities, operating results, and cash flows for these businesses, and their related exit activity and asset impairment charges, are presented as discontinued operations in our financial statements and footnotes presented herein.

The major components of assets and liabilities of our discontinued operations were as follows:

 

     December 31,  

(in thousands)

    2013      2012  

Current assets:

      

Accounts receivable, net

    $ 2,168       $ 35,618   

Inventory, less allowances

      818         8,588   

Deferred advertising costs

      —          3,506   

Advances

      —          10,708   

Other current assets

      226         532   
  

 

 

     

 

 

  

Total current assets

      3,212         58,952   

Property and equipment, net

      —          453   

Media library, net

      —          2,649   

Goodwill

      —          6,731   

Other intangibles, net

      —          5,418   

Other assets

      10         11   
  

 

 

     

 

 

  

Total assets

    $ 3,222       $ 74,214   
  

 

 

     

 

 

  

Current liabilities:

      

Line of credit

    $ —        $ 16,231   

Accounts payable

      1,121         7,920   

Participations payable

      —          569   

Accrued liabilities

      475         25,175   
  

 

 

     

 

 

  

Total current liabilities

    $ 1,596       $ 49,895   
  

 

 

     

 

 

  

With regards to our DRTV discontinued operations, we commenced wind-down activities in December, 2013, and we expect to fully cease and sell its operations and assets no later than December 31, 2014. The expected proceed from the disposition of this business unit are not expected to be material.

On July 31, 2012, each of our subsidiaries Gaiam Americas, Inc., SPRI Products, Inc., GT Direct, Inc., and Gaiam Vivendi Entertainment (collectively the “Borrowers”) entered into a Revolving Credit and Security Agreement (the “PNC Credit Agreement”) with PNC Bank, N.A. (“PNC”), for the use and benefit of GVE’s operations, which were subsequently discontinued. Borrowings were secured by a pledge of the Borrowers’ assets. The PNC Credit Agreement provided for a revolving line of credit of up to $35 million, subject to borrowing base and related limitations. Subject to certain limitations, the principal amount of the revolving loan was due and payable on the earlier of July 30, 2015 or upon the termination of the PNC Credit Agreement.

On October 21, 2013, the Borrowers paid in full the outstanding balance owed to PNC, $19,621,941 (inclusive of principal and interest and other fees), and terminated the underlying PNC Credit Agreement. The Borrowers also paid an early termination fee in an amount equal to $350,000. Upon termination, PNC released all liens granted in its favor on the collateral pledged under the PNC Credit Agreement. All interest charges under the PNC Credit Agreement have been allocated to discontinued operations.

 

The income from discontinued operations amounts as reported on our consolidated statements of operations were comprised of the following amounts:

 

     Years Ended December 31,  

(in thousands)

    2013     2012     2011  

Net revenue

    $ 53,539      $ 75,232      $ 51,082   
  

 

 

    

 

 

    

 

 

  

Income from operations before income taxes

      2,386        10,417        59   

Exit activity and asset impairment charges before income taxes (a)

      (1,776 )      —         —    

Income tax expense

      (209 )      (3,769 )      (56 ) 
  

 

 

    

 

 

    

 

 

  

Income from operations of discontinued operations

      401        6,648        3   
  

 

 

    

 

 

    

 

 

  

Gain (loss) on disposal of discontinued operations:

       

Gain on sale of GVE before income taxes

      5,622        —         —    

Loss on abandonment of DRTV before income taxes (b)

      (9,481 )      —         —    

Income tax expense

      1,463        —         —    
  

 

 

    

 

 

    

 

 

  

Gain from disposal of discontinued operations

      (2,396 )      —         —    
  

 

 

    

 

 

    

 

 

  

Income from discontinued operations.

    $ (1,995 )    $ 6,648      $ 3   
  

 

 

    

 

 

    

 

 

  

 

(a) In direct conjunction with the discontinuing of our GVE and DRTV operations, during 2013 we recognized exit activity charges of $0.8 million for employee termination benefits and $1.0 million for non-cancellable facility leases, of which $0.3 million had been paid as of December 31, 2013, the balance of these amounts is expected to be paid in 2014
(b) As a direct result of the discontinuance of our GVE and DRTV operations, we recognized impairment charges of $2.5 million for inventory, $3.8 million for deferred advertising costs, $0.8 million for advances, $0.4 million for property and equipment, $2.1 million for media library, $6.7 million for goodwill, and $3.5 million for other intangibles.