A LIFESTYLE COMPANY

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of Gaiam’s financial condition and results of operations should be read in conjunction
with the consolidated financial statements and related notes included elsewhere in this document.
OVERVIEW
Gaiam is a multi-channel lifestyle company catering to customers who value personal development, healthy living and the
environment. Gaiam was incorporated in Colorado in 1988. In 1995, Gaiam began to expand nationally and make acquisitions.
From 1996 to 2000, our revenues increased from $14.8 million to $60.6 million, representing a compound annual growth rate
of approximately 42.2%.
Gaiam’s business model is evolving as evidenced by the increase in the percentage of our revenues attributable to our
business-to-business segment and the launch of our e-commerce channel. During 1998, business-to-business revenues
accounted for approximately 13% of all revenues, while in 2000, this segment’s revenues increased to approximately
28% of total revenue. Although Gaiam has used acquisitions to grow its business, internal growth remained strong at
24% during 2000, up from 18% in 1999. In addition, Gaiam’s gross margin continued to increase as a result of developing
more proprietary merchandise, on which we have better margins, and negotiating better pricing from our vendors due to
volume discounts.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of revenues for the periods indicated:
PART II
2000 1999 1998
Net revenue 100.0% 100.0% 100.0%
Cost of goods sold 39.3% 39.8% 42.9%
Gross profit 60.7% 60.2% 57.1%
Expenses:
Selling and operating 45.1% 48.8% 46.1%
Corporate, general and administrative 8.3% 6.7% 7.8%
Total expenses 53.4% 55.5% 53.9%
Income (loss) from operations 7.3% 4.7% 3.2%
Other income (expense), net –0.4% 1.3% 1.3%
Income before income taxes and minority interest 6.9% 6.0% 4.5%
Provision for income taxes 2.6% 2.3% 0.8%
Minority interest in net income of consolidated
subsidiary, net of tax –0.1% –0.1% 0.9%
Net income 4.4% 3.8% 2.8%
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Revenues increased 32.5% to $60.6 million in 2000 from $45.7 million in 1999. Gaiam’s internal growth rate was 24%,
fueled primarily by the growth in sales to national retail chains and e-commerce business. Business-to-business revenues
grew 50.3% to $16.8 million in 2000 from $11.2 million in 1999.
Gross profit, which consists of revenues less cost of sales (primarily merchandise acquisition costs and in-bound freight),
increased 33.6% to $36.8 million in 2000 from $27.5 million during 1999. As a percentage of revenue, gross profit
increased to 60.7% in 2000 from 60.2% in 1999. This was primarily attributable to the growth of Gaiam’s proprietary
product offerings, on which we have better margins, which constituted 37% of sales in 2000, up from 24% in 1999.
Selling and operating expenses, which consist primarily of sales and marketing costs, commissions and fulfillment expenses,
increased 22.3%, which is less than the revenue increase of 32.5%, to $27.3 million in 2000 from $22.3 million in 1999.
As a percentage of revenues, selling and operating expenses decreased to 45.1% in 2000 from 48.8% in 1999.
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