RECENT POSTS
Saturday, April 13, 2019
When AWS Takes Over the World

Thursday, April 11, 2019
Data Trends in Focus: Restructuring Costs

Sunday, April 7, 2019
How One Customer Crushed It With Calcbench

Thursday, April 4, 2019
TJX Shows Complexity of Leasing Costs Reporting

Tuesday, April 2, 2019
CEO Pay Ratios: Some 2018 Thoughts

Wednesday, March 27, 2019
Corporate Spending: Where It Goes, 2017 vs. 2018

Monday, March 25, 2019
Health Insurers: A Bit Winded?

Friday, March 22, 2019
Our New Master Class Video

Thursday, March 21, 2019
Tech Data’s Goodwill Adjustment

Tuesday, March 19, 2019
There’s Taxes, and There’s Taxes

Saturday, March 16, 2019
Adventures in Tax Cuts and Net Income

Monday, March 11, 2019
Big Moves in Goodwill, Intangible Value

Friday, March 8, 2019
CVS, Goodwill, and Enterprise Value

Thursday, February 28, 2019
Summary of Our Goodwill Research/ How-To

Wednesday, February 27, 2019
What Does ‘Other’ Mean? An Example

Thursday, February 21, 2019
Another Tale, Buried in the Footnotes

Wednesday, February 13, 2019
Low Latency Calcbench

Monday, February 11, 2019
Now Streaming on Hulu: Red Ink

Thursday, February 7, 2019
Early Look at 2018 Tax Decline

Wednesday, February 6, 2019
You Revised WHAT, Netflix?

Archive  |  Search:
Chicken Soup for the Analyst’s Soul
Wednesday, July 25, 2018

Odds are you’ve felt down in the dumps from time to time, and perhaps you turned to one of those Chicken Soup for the Soul books — you know, those feel-good collections of inspirational true stories about mothers, fathers, teenagers, veterans, and lots of other demographics.

Well, we happened to read Chicken Soup for the Soul Entertainment Inc.’s financial statements this week, and boy, those folks are probably feeling pretty good this year too.

First we noticed Chicken Soup’s stunning increase in net income, from $781,000 in 2016 to $22.8 million last year. Revenue, however, only rose from $8.12 million to $11 million — a jump of 35 percent, which is good, but nowhere near to explaining the gigantic spike in profit.

So we started looking through the income statement, captured below. The reason is about three-quarters of the page down. Do you see it?

A one-time “gain on bargain purchase” of $24.3 million. A bargain purchase, indeed.

We had to know more, So we flew over to the Interactive Disclosure page and looked up what Chicken Soup had to say under the Business Combinations item. We found that in November 2017, Chicken Soup acquired a company called Screen Media for $5.3 million.

Screen Media is the operator of PopcornFlix.com, a video-on-demand website that fits within Chicken Soup’s broader media empire. Currently offering Breakfast at Tiffany’s, Braveheart, and Death Bed: The Bed That Eats, among other titles. To each their own.

Apparently Screen Media was in debt up to its film reels. The company is privately held, so we don’t know how much debt — but enough debt that its lenders simply wanted the owners to sell the business, which was limping along with falling revenue and operating losses anyway.

Meanwhile, that business of selling video-on-demand does have value, in the form of future revenue streams. So Chicken Soup had a third-party appraiser evaluate the whole operation, and disclosed this:

Under the income-based approach, the third-party appraiser calculated the net present value (“NPV”) of after-tax cash flows as expected from the film library and from Popcornflix. The NPV was added to a terminal or exit value for these assets to obtain estimates of fair value. Based on the fair value of the net assets acquired, the acquisition of Screen Media resulted in a gain on bargain purchase of $24.3 million.

Screen Media, in recent years, had been heavily indebted and their lenders allowed it to seek an acquirer who would pay an agreed-upon amount to such lenders, who were willing to accept a significant reduction in the total indebtedness due. This allowed the Company to acquire Screen Media on a debt-free basis at a significant discount.

So Chicken Soup essentially acquired the business debt free, and turned a $5.3 million purchase into a one-time gain on the income statement of $24.3 million.

Call it Chicken Soup for the Financial Analyst’s Soul — and you can unravel mysteries just like it, easily and clearly, through Calcbench.


FREE Calcbench Premium
Two Week Trial

Research Financial & Accounting Data Like Never Before. More features and try our Excel add-in. Sign up now to try the Premium Suite.