Discontinued Operations

6 Months Ended

Jun. 30, 2016

Discontinued Operations

2. Discontinued Operations

Sale of the Gaiam Brand Business and Natural Habitat

On May 4, 2016 we sold our 51.4% equity interest in Natural Habitat, Inc. (“Natural Habitat”), our eco-travel subsidiary, in exchange for $12.85 million in cash, and recognized a gain of $10.3 million as disclosed in our Current Report on Form 8-K filed May 10, 2016.

On July 1, 2016, we sold the assets and liabilities of our Gaiam Brand business in exchange for a gross purchase price of $167.0 million subject to post-closing adjustments and recognized a preliminary gain of approximately $120.8 million before taxes as disclosed in our Current Reports on Form 8-K filed May 10, 2016 and July 8, 2016. Our Gaiam Brand business previously constituted the majority of our consolidated revenues and expenses, and consisted of Gaiam branded yoga, fitness and wellness consumer products, and content. The assets and liabilities, operating results and cash flows of our Gaiam Brand business are classified as held-for-sale as of June 30, 2016.

The Gaiam Brand business and our interest in our eco-travel subsidiary constituted all the assets and liabilities of our Gaiam Brand segment.

Discontinued Operations

The assets and liabilities, operating results, and cash flows of our Gaiam Brand business and Natural Habitat are presented as discontinued operations, separate from our continuing operations, for all periods presented in these interim condensed consolidated financial statements and footnotes, unless otherwise indicated.

Discontinued operating results for 2015 also include legal expenses associated with the sale of our DVD distribution business to Cinedigm. We were involved in legal disputes with Cinedigm associated with the sale, which were settled during 2015. The assets and liabilities in the following table as of December 31, 2015 include the Natural Habitat business, and the assets and liabilities as of June 30, 2016 consist of the Gaiam Brand business only.

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

(in thousands)	June 30,  2016		December 31, 2015
Current assets:
Cash	$	898	$	12,605
Accounts receivable, net		11,454		26,441
Inventory, less allowances		15,234		17,302
Other current assets		2,055		12,512
Total current assets of discontinued operations	$	29,641	$	68,860
Property, equipment and media library, net		4,474		6,237
Goodwill and other intangibles, net		1,877		5,497
Other assets		1,838		3,599
Total noncurrent assets of discontinued operations	$	8,189	$	15,333
Current liabilities:
Accounts payable and accrued liabilities	$	3,544	$	32,214
Total current liabilities of discontinued operations	$	3,544	$	32,214

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

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(in thousands, except per share data)	2016			2015			2016			2015
	(unaudited)						(unaudited)
Net revenue	$	21,130		$	37,862		$	52,627		$	72,393
Cost of goods sold		14,640			22,403			32,975			42,291
Gross profit		6,490			15,459			19,652			30,102
Operating expenses		15,321			14,655			32,599			29,818
Loss (income) from operations		(8,831	)		804			(12,947	)		284
Other (expense) income		(310	)		173			234			(105	)
(Loss) income before income taxes and noncontrolling interest		(9,141	)		977			(12,713	)		179
Income tax expense		(170	)		(126	)		(158	)		(174	)
Income from discontinued operations attributable to the non-controlling interest, net of tax		(370	)		(8	)		(310	)		(16	)
(Loss) income from the operation of discontinued operations		(9,681	)		843			(13,181	)		(11	)
Gain on disposal of discontinued operations:
Gain on sale of Natural Habitat, net of tax		10,327			—			10,327			—
Income (loss) from discontinued operations, net of tax	$	646		$	843		$	(2,854	)	$	(11	)

Prior to its divestiture in May 2016, Natural Habitat used derivative instruments to manage a portion of its exposure to changes in currency exchange rates due to payments made to foreign tour operators. The cash flow effects of these derivative contracts during 2016 are included in Net cash used in operating activities—discontinued operations in the Statements of Cash Flows. Realized and unrealized gains and losses on currency derivatives without hedge accounting designation are included in Income from discontinued operations, net of tax in the accompanying statements of operations. For the three and six month periods ended June 30, 2016 the gain recognized was $0.4 million and $1.3 million, respectively. The asset related to the fair value of the hedging instrument was included in Current assets of discontinued operations in the accompanying balance sheet prior to the sale.