Quarterly report pursuant to Section 13 or 15(d)

Mergers and Acquisitions

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Mergers and Acquisitions
 6 Months Ended
Jun. 30, 2012
Mergers and Acquisitions [Abstract]  
Mergers and Acquisitions
4. Mergers and Acquisitions

On March 28, 2012, we obtained 100% of the voting equity interests of VE Newco, LLC (“Gaiam Vivendi Entertainment”), a subsidiary comprised of the former Vivendi Entertainment division of Universal Music Group Distribution, Corp. (“UMG”), pursuant to a Purchase Agreement dated March 6, 2012, as amended, between UMG and one of our subsidiaries. Gaiam Vivendi Entertainment, with its exclusive distribution rights agreements with large independent studios/content providers, distributes entertainment content through home video, digital and television distribution channels.

The provisional total consideration transferred was $32.1 million and was comprised of $13.4 million in cash and a $18.7 million non-interest bearing, 90 day promissory note (“Note”) representing the carrying value of Gaiam Vivendi Entertainment’s working capital. Under the terms of the Note and other related Gaiam Vivendi Entertainment acquisition agreements, UMG was to collect the pre-closing accounts receivable of Gaiam Vivendi Entertainment for a 90 day period following the closing date of the acquisition and apply those collections to the Note, with any excess remitted to Gaiam Vivendi Entertainment. By mid-June 2012, UMG had collected enough funds from Gaiam Vivendi Entertainment’s pre-closing accounts receivable to fully satisfy the Note. The consideration excluded nil and $1.7 million of expenses that were reported as acquisition-related costs in our condensed consolidated statement of operations for the three and six months ended June 30, 2012, respectively. The acquisition also effectively settled a preexisting media distribution relationship between Gaiam Vivendi Entertainment and us, resulting in the elimination upon consolidation of certain accounts receivable, participations payable and inventory balances.

We acquired Gaiam Vivendi Entertainment, with its distribution rights to over 3,000 media titles, to materially strengthen our existing media distribution services platform and elevate us to the third largest non-theatrical content distributor in the United States. With the combined scale of Gaiam Vivendi Entertainment’s and our existing distribution operations, we expect to realize significant operational and financial synergies, including reduced third-party distribution costs and lower post-production and digital distribution costs, which are projected to increase our gross margins. These anticipated strategic benefits will be the primary contributors to any goodwill resulting from the acquisition.

The estimated purchase price and fair values of assets acquired and liabilities assumed are provisional and are based on currently available information. We believe that information provides a reasonable basis for estimating the consideration transferred and the fair values of assets acquired and liabilities assumed, but we are waiting for additional information necessary to finalize those amounts. Therefore, the provisional purchase price and measurements of fair value reflected below are subject to change. We expect to finalize the purchase price during the third quarter of 2012 and determine valuations and complete the purchase price allocation as soon as practicable, but no later than one year from the acquisition date. Any goodwill identified is attributable to our business segment and deductible for tax purposes.

 

The following table summarizes the provisional estimated purchase price and fair values of Gaiam Vivendi Entertainment’s acquired net assets, which are additions to our business segment’s net assets.

 

         

(in thousands)

   March 28,
2012		  

Accounts receivable

   $ 25,113  

Advances

     5,903  

Other current assets

     33  

Goodwill

     6,731  

Other intangibles

     8,600  
   

 

 

  

Total assets

     46,380  
   

 

 

  

Participations payable

     (12,013 ) 

Accrued liabilities

     (2,264 ) 
   

 

 

  

Net assets acquired

   $ 32,103  
   

 

 

  

We included the results of operations from Gaiam Vivendi Entertainment in our consolidated financial statements from March 28, 2012. Consequentially, $6.3 million and $6.6 million of net revenue and $1.1 million and $1.2 million of net income attributable to Gaiam Vivendi Entertainment are included in our condensed consolidated statement of operations for the three and six months ended June 30, 2012, respectively.

The following is supplemental unaudited interim pro forma information for the Gaiam Vivendi Entertainment acquisition as if we had acquired this business on January 1, 2011. RSOL was not deconsolidated until December 31, 2011 and, thus, the 2011 supplemental pro forma results below reflect RSOL on a consolidated basis. The pro forma net losses were decreased by $0.8 million for the six months ended June 30, 2012 and decreased by $0.7 million and $1.0 million for the three and six months ended June 30, 2011, respectively, to reflect the removal of amortization related to Gaiam Vivendi Entertainment’s historical intangibles, less amortization related to intangibles resulting from our acquisition of Gaiam Vivendi Entertainment. The pro forma adjustments were based on available information and upon assumptions that we believe were reasonable in order to reflect, on a supplemental pro forma basis, the impact of this acquisition on our historical financial information.

 

                                 
    Supplemental Pro Forma (Unaudited)  
    Three Months Ended
June 30,		     Six Months Ended
June 30,		  

(in thousands, except per share data)

   2012     2011 (a)     2012     2011 (a)  

Net revenue

   $ 45,446     $ 55,540     $ 101,820     $ 117,511  
   

 

 

    

 

 

    

 

 

    

 

 

  

Net loss attributable to Gaiam, Inc.

   $ (2,053 )    $ (5,560 )    $ (2,157 )    $ (7,092 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  

Net loss per share - basic

   $ (0.09 )    $ (0.24 )    $ (0.10 )    $ (0.30 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  

Net loss per share - diluted

   $ (0.09 )    $ (0.24 )    $ (0.10 )    $ (0.30 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  

 

(a) The 2011 pro forma results reflect Real Goods Solar on a consolidated basis. Real Goods Solar was deconsolidated on December 31, 2011. If Real Goods Solar had been deconsolidated as of January 1, 2011, pro forma results would have been net revenue of $35.6 million and $80.1 million, net loss of $5.3 million and $6.8 million, and diluted net loss per share of $0.23 and $0.29 for the three and six months ended June 30, 2011, respectively.