Gaiam: Q4 and Fiscal 2008 Results

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Gaiam, Inc., a lifestyle media company announced results for its fourth quarter and fiscal year ended December 31, 2008.

Revenue for the fourth quarter ended December 31, 2008 decreased 8.9% to $74.5 million from $81.8 million recorded in the same quarter last year, primarily due to a decrease in consumer spending and conservative retail buying throughout the holiday season.

Gross profit decreased to $38.3 million or 51.4% of revenue for the fourth quarter of 2008, from $51.1 million, or 62.5% of revenue, in the comparable quarter last year. The change in gross margin reflects the company's investment in the lower margin solar business, continued aggressive retail expansion and absorption of increased product and freight costs.

Selling and operating expenses decreased $1.5 million, or 3.7%, to $39.7 million during the fourth quarter of 2008 from $41.2 million during the same quarter last year, partially reflecting recent cost control initiatives.

Other expenses of $42.3 million for the quarter include non-cash charges for goodwill impairment of $27.2 million from the company's 56% owned solar subsidiary, Real Goods Solar and $15.1 million related to the company's goodwill and intangible assets in its direct segment. The goodwill impairments, resulting from the application of SFAS No. 142, Goodwill and Other Intangible Assets, were primarily driven by the decline in the market price of the company's common shares (Nasdaq) experienced in the fourth quarter.

As a result of these charges, the company recorded a net loss of $30.3 million in the quarter, or $1.26 per share, compared to earnings of $4.2 million, or $0.17 per share, in the fourth quarter of 2007. Excluding the above impairment charges, disposition of businesses and the loss from consolidating Real Good Solar, the company's fourth quarter net loss would have been $1.2 million, or $0.05 per share.

For the year ended December 31, 2008, Gaiam recorded net revenue of $257.2 million, a 2.2% decrease from $262.9 million in 2007. Including the impairment charges, the company recorded a net loss of $35.6 million, or $1.46 per share, compared to net income of $8.5 million, or $0.34 per share, for the last fiscal year. Excluding the impairment charges, disposition of businesses and the loss from consolidating Real Goods Solar, the company's net income would have been $0.8 million, or $0.03 per share for the year. Driven by the impairment charges, Gaiam generated an $8.4 million tax refund and $7.0 million current tax credit.

"While our fourth quarter results reflect the broader market trends, we remain committed to our growth strategies and expect to deliver measurable financial returns for 2009 even if the economic climate does not improve," commented Lynn Powers, Gaiam's President. "We continue to make great progress on our category management and store within a store growth initiatives ending the year with over 10,000 store-within-store presentations, a 43% increase from a year ago. In addition, we continue to implement cost savings measures, including renegotiating freight contracts and product costs with our manufacturers, overhead restructuring, disposing of unprofitable businesses, and optimizing our direct business through reduced prospecting and increased online customer acquisition strategies."

"We ended the year with $32.0 million in cash, no debt and a current ratio of 3.9. Our goal for 2009 is to grow revenue and focus on free cash flow. We are already in the process of streamlining our business units that experienced negative cash flow last year. We will continue to use the current macroeconomic environment and our strong balance sheet as an opportunity to further expand our branded store-within-store presence at retail," said Jirka Rysavy, Gaiam Chairman and CEO. "Lynn Powers, our President and CEO of North America and my only direct report for the last several years, will assume the title of CEO in addition to her title of President. She will focus on making 2009 our highest revenue and best free cash flow year ever. Lynn will continue to report to me as I will focus my time on growing our community and making it an income contributor."

Carole Buyers joined Gaiam as VP of Corporate Finance and Investor Relations. Carole came to Gaiam from The Boston Company (Bank of New York Mellon), where she served as Vice President. For several years she also covered Gaiam when she was a sell side analyst for RBC Capital Markets.

A replay of the call will begin approximately one hour after the end of the call and will continue until 11:00 p.m. CDT on March 24, 2009.

Replay number: 888-568-0623

For more information about Gaiam, please visit, or call 1-800-869-3603.

This press release includes forward-looking statements relating to matters that are not historical facts. Forward-looking statements may be identified by the use of words such as "expect," "intend," "believe," "will," "should" or comparable terminology or by discussions of strategy. While Gaiam believes its assumptions and expectations underlying forward-looking statements are reasonable, there can be no assurance that actual results will not be materially different. Risks and uncertainties that could cause materially different results include, among others, introduction of new products and services, completion and integration of acquisitions, the possibility of negative economic conditions, and other risks and uncertainties included in Gaiam's filings with the Securities and Exchange Commission. Gaiam assumes no duty to update any forward-looking statements.

    Contacts:  Carole Buyers
               VP Corporate Finance and Investor Relations

               John Mills
               Senior Managing Director, ICR

                                    GAIAM, INC.
                       (In thousands, except per share data)

                                Twelve months ended      Twelve months ended
                                 December 31, 2008        December 31, 2007
                                 -----------------        -----------------

    Net revenue                  $257,172   100.0%       $262,943    100.0%
    Cost of goods sold            107,927    42.0%         94,565     36.0%
                                  -------                  ------

    Gross profit                  149,245    58.0%        168,378     64.0%

    Selling and operating         142,401    55.4%        144,768     55.0%
    Corporate, general and
     administration                13,059     5.1%         13,157      5.0%
    Other expenses, net            82,928    32.2%              -      0.0%
                                   ------                     ---

    Income (loss) from
     operations                   (89,143)  -34.7%         10,453      4.0%

    Interest and other income      34,016    13.3%          4,148      1.5%
                                   ------                   -----

    Income (loss) before
     income taxes                 (55,127)  -21.4%         14,601      5.5%

    Income tax expense
     (benefit)                     (7,542)   -2.9%          5,767      2.2%

    Minority interest in net
     (income) loss
     of consolidated
     subsidiaries                  11,962     4.6%           (310)    -0.1%
                                   ------                    ----

    Net income (loss)            $(35,623)  -13.9%         $8,524      3.2%
                                 ========                  ======

    Shares outstanding:
         Basic                     24,452                  24,962
         Diluted                   24,452                  25,214

    Income (loss) per share:
         Basic                     $(1.46)                  $0.34
         Diluted                   $(1.46)                  $0.34

                                    GAIAM, INC.
                       (In thousands, except per share data)

                                 Three months ended       Three months ended
                                 December 31, 2008        December 31, 2007
                                 -----------------        -----------------

    Net revenue                   $74,497   100.0%        $81,806    100.0%
    Cost of goods sold             36,228    48.6%         30,679     37.5%
                                   ------                  ------

    Gross profit                   38,269    51.4%         51,127     62.5%

    Selling and operating          39,715    53.3%         41,234     50.4%
    Corporate, general and
     administration                 3,458     4.7%          3,334      4.1%
    Other expenses, net            42,273    56.7%              -      0.0%
                                   ------                     ---

    Income (loss) from
     operations                   (47,177)  -63.3%          6,559      8.0%

    Interest and other
     income                         1,653     2.2%            773      0.9%
                                    -----                     ---

    Income (loss) before
     income taxes                 (45,524)  -61.1%          7,332      8.9%

    Income tax expense
     (benefit)                     (3,511)   -4.7%          2,899      3.5%

    Minority interest in
     net (income) loss
     of consolidated
     subsidiaries                  11,711    15.7%           (233)    -0.3%
                                   ------                    ----

    Net income (loss)            $(30,302)  -40.7%         $4,200      5.1%
                                 ========                  ======

    Shares outstanding:
         Basic                     23,980                  24,846
         Diluted                   23,980                  25,154

    Income (loss) per share:
         Basic                     $(1.26)                  $0.17
         Diluted                   $(1.26)                  $0.17

                                      GAIAM, INC.
                              CONSOLIDATED BALANCE SHEETS
                       (In thousands, except share information)

                                                     December 31, December 31,
                                                         2008         2007
                                                         ----         ----
    Current assets:
      Cash and cash equivalents                         $31,965      $66,258
      Accounts receivable, net                           33,664       30,157
      Inventory, net                                     35,736       29,839
      Deferred advertising costs                          2,578        3,602
      Income taxes receivable                             8,410            -
      Deferred tax assets                                 7,038        6,005
      Other current assets                                9,841        5,205
                                                          -----        -----
    Total current assets                                129,232      141,066

    Property and equipment, net                          27,381        9,509
    Media library, net                                   12,102       37,566
    Deferred tax assets, net                              6,076        4,057
    Goodwill                                             23,180       42,856
    Other intangibles, net                                  880        1,554
    Notes receivable and other assets                     3,247        4,104
                                                          -----        -----
    Total assets                                       $202,098     $240,712
                                                       ========     ========
    Liabilities and shareholders' equity
    Current liabilities:
      Accounts payable                                  $26,567      $23,620
      Accrued liabilities                                 6,885       10,631
                                                          -----       ------
    Total current liabilities                            33,452       34,251

    Minority interest                                    15,178        6,073

    Commitments and contingencies

    Shareholders' equity:
      Class A common stock, $.0001 par value,
       150,000,000 shares authorized, 18,541,201
       and 19,553,631 shares issued and
       outstanding at December 31, 2008 and
       2007, respectively                                     2            2
      Class B common stock, $.0001 par value,
       50,000,000 shares authorized, 5,400,000
       issued and outstanding at December 31, 2008
       and 2007                                               1            1
      Additional paid-in capital                        163,652      174,046
      Accumulated other comprehensive income                 88          991
      (Accumulated deficit) retained earnings           (10,275)      25,348
                                                        -------       ------
    Total shareholders' equity                          153,468      200,388
                                                        -------      -------
    Total liabilities and shareholders' equity         $202,098     $240,712
                                                       ========     ========

Non-GAAP Financial Measures

The company has utilized the non-GAAP information set forth below as an additional device to aid in understanding and analyzing its financial results for the year ended December 31, 2008. Management believes that these non-GAAP measures will allow for a better evaluation of the operating performance of the company's business and facilitate meaningful comparison of the results in the current period to those in prior periods and future periods. Reference to these non-GAAP measures should not be considered a substitute for results that are presented in a manner consistent with GAAP.

A reconciliation of the company's year-ended December 31, 2008 GAAP net loss to its year-ended December 31, 2008 non-GAAP net loss is set forth below (in millions except share and per share data):

                                          For the Quarter
                                               Ended        For the Year Ended
                                         December 31, 2008  December 31, 2008
                                         -----------------  -----------------

    Net loss                                       $(30.3)            $(35.6)

    Exclusion of Real Goods Solar net loss           27.4               28.0

    Exclusion of minority interest in Real
     Goods Solar                                    (12.0)             (12.1)

    Exclusion of non-cash gain on issuance
     of Real Goods Solar stock                       (0.9)             (20.1)

    Exclusion for disposition of businesses           0.5                1.4

    Exclusion of non-cash impairment of
     goodwill and intangible assets                  14.1               39.2

    Non-GAAP net (loss) income                      $(1.2)              $0.8

    Non-GAAP weighted average shares used
     in earnings per share calculation
     (diluted)                                 23,980,000         24,599,000

    Non-GAAP (loss) earnings per share
     (diluted)                                     $(0.05)             $0.03

Source: Gaiam, Inc.
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