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EX-31.2 - EX-31.2 - Actua Corp | c92181exv31w2.htm |
EX-31.1 - EX-31.1 - Actua Corp | c92181exv31w1.htm |
EX-32.1 - EX-32.1 - Actua Corp | c92181exv32w1.htm |
EX-32.2 - EX-32.2 - Actua Corp | c92181exv32w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2009.
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to .
Commission File Number 001-16249
INTERNET CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware | 23-2996071 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification Number) | |
690 Lee Road, Suite 310, Wayne, PA | 19087 | |
(Address of principal executive offices) | (Zip Code) |
(610) 727-6900
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check One):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares of the Companys Common Stock, $0.001 par value per share, outstanding as of
November 2, 2009 was 36,732,607 shares.
INTERNET CAPITAL GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTERLY REPORT ON FORM 10-Q
INDEX
Although we refer in this Quarterly Report on Form 10-Q (this Report) to companies in which we
have acquired a convertible debt or an equity ownership interest as our partner companies and
indicate that we have a partnership with these companies, we do not act as an agent or legal
representative for any of our partner companies, we do not have the power or authority to legally
bind any of our partner companies, and we do not have the types of liabilities in relation to our
partner companies that a general partner of a partnership would have.
Our Internet website address is www.internetcapital.com. Unless this Report explicitly states
otherwise, neither the information on our website, nor the information on the website of any of our
partner companies, is incorporated by reference into this Report.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
all amendments to those reports filed by us with the U.S Securities and Exchange Commission (the
SEC) pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the
Exchange Act), are accessible free of charge through our website as soon as reasonably
practicable after we electronically file those documents with, or otherwise furnish them to, the
SEC.
The public may read and copy any of the reports that are filed with the SEC at the SECs Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains
an internet site (www.sec.gov) that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC.
2
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Forward-Looking Statements
Forward-looking statements made with respect to our financial condition and results of operations
and business in this Report and those made from time to time by us through our senior management
are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements are based on our current expectations and projections
about future events but are subject to known and unknown risks, uncertainties and assumptions about
us and our partner companies that may cause our actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements.
Factors that could cause our actual results, levels of activity, performance or achievements to
differ materially from those anticipated in forward-looking statements include, but are not limited
to:
| economic conditions generally; |
| capital spending by enterprises and customers; |
| our partner companies collective ability to compete successfully against their
respective competitors; |
| rapid technological developments in the respective markets in which our partner
companies operate and our partner companies collective ability to respond to such changes
in a timely and effective manner; |
| our ability to deploy capital effectively and on acceptable terms; |
| our ability to maximize value in connection with divestitures; |
| our ability to retain key personnel; and |
| our ability to manage existing capital resources effectively. |
In some cases, you can identify forward-looking statements by terminology such as may, will,
should, could, would, expect, plan, anticipate, believe, estimate, continue or
the negative of such terms or other similar expressions. All forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements included in this Report. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events
discussed in this Report might not occur. For a more detailed discussion of some of the foregoing
risks and uncertainties, see Item 1A Risk Factors in our Annual Report on Form 10-K for the
year ended December 31, 2008, as well as other reports and registration statements filed by us with
the SEC.
Our Partner Companies
The results of operations of our partner companies are reported within two segments: the core
reporting segment and the other holdings reporting segment. The core reporting segment includes
those partner companies in which ICGs management takes a very active role in providing strategic
direction and management assistance. We devote significant expertise and capital to maximizing the
success of those core partner companies. The other holdings reporting segment includes partner
companies over which, in general, we have less influence because they are public companies and/or
we have a relatively small ownership stake in those partner companies.
3
Table of Contents
At September 30, 2009, our core partner companies consisted of:
Channel Intelligence, Inc. (Channel Intelligence)
Channel Intelligence is a data solutions company that provides innovative suites of services for
manufacturers, retailers and publishers that help consumers work with retailers to find and buy
products, whether they start at retailer sites, manufacturer sites or destination shopping sites,
through the use of Channel Intelligences patented optimization technology and data solutions.
Freeborders, Inc. (Freeborders)
Freeborders is a provider of technology solutions and outsourcing from China. Freeborders provides
industry expertise to North American and European companies in financial services, technology,
retail/consumer goods, manufacturing and transportation and logistics. Freeborders offerings help
companies seeking cost-effective technology solutions.
ICG Commerce Holdings, Inc. (ICG Commerce)
ICG Commerce is a procurement services provider delivering total procurement cost savings through a
combination of deep expertise and hosted technology. ICG Commerce provides a comprehensive range
of solutions to help companies identify savings through sourcing, realize savings through
implementation of purchase-to-pay automation and drive continuous improvements through ongoing
category management.
Investor Force Holdings, Inc. (Investor Force)
Investor Force is a financial software company specializing in the development of online
applications for the financial services industry. Investor Force provides pension consultants and
other financial intermediaries with a Web-based enterprise platform that integrates data management
with robust analytic and reporting capabilities in support of their institutional and other
clients. Investor Forces applications provide investment consultants with the ability to conduct
real-time analysis and research into client, manager and market movement and to produce timely,
automated client reports.
Metastorm Inc. (Metastorm)
Metastorm is an enterprise software and service provider that enables its customers to turn
business strategies into business processes by fully integrating the work that people do with
software systems that optimize business performance. Metastorm delivers a complete set of scalable
business process management solutions that leverage existing information technology investments to
unite people, processes and technology in a service-based architecture.
StarCite, Inc. (StarCite)
StarCite provides a comprehensive suite of software applications and services to the meeting and
events industry. StarCite helps drive efficiencies and cost savings to both corporate buyers and
suppliers. Corporate, association and third-party meeting buyers rely on StarCites enterprise
meeting solutions for workflow, procurement, supply chain management, spend analysis and attendee
management. Thousands of industry suppliers rely on the StarCite online marketplace, supplier
marketing programs and enabling technologies to increase meeting revenues. StarCites
international division represents destination management companies and other premier international
travel suppliers.
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WhiteFence, Inc. (WhiteFence)
WhiteFence is a Web services provider used by household consumers to compare and purchase essential
home services, such as electricity, natural gas, telephone and cable/satellite television.
WhiteFence reaches customers directly through company-owned websites and through its network of
exclusive channel partners that integrate the Web services applications into their own business
processes and websites.
At September 30, 2009, our other holdings partner companies consisted of:
Acquirgy, Inc. (Acquirgy)
Acquirgy specializes in Search Engine Marketing (SEM) and Direct Response Television (DRTV)
services and provides comprehensive account service, as well as creative and production expertise
with integrated multichannel software platforms. SEM services include outsourced paid search
management, SEM Performance Consulting (SEMpcTM) for clients managing search internally
and search engine optimization. DRTV services include comprehensive script-to-screen DRTV
creative, production and media services.
Anthem Ventures Fund, L.P. (Anthem)
Anthem provides resources to enhance the development of emerging technology companies by providing
financial investment, operational and management advice, as well as access to a network of
professional relationships.
Captive Capital Corporation (Captive Capital)
Captive Capital creates and manages turn-key, multi-lender financing under its customers brand
names. Through funding relationships with lenders and syndication capabilities for large
transactions, Captive Capital serves manufacturers and distributors throughout the United States
and Canada.
ClickEquations, Inc. (f/k/a Commerce360, Inc.) (ClickEquations)
ClickEquations is a software-based search marketing company that improves paid and organic search
campaign performance for its clients, which include Internet Retailer 500 and Fortune 100
companies. Its proprietary technology uses advanced mathematics and statistical analysis to
optimize campaigns across the entire search chain and deliver improved campaign efficiency and
performance.
GoIndustry DoveBid plc (GoIndustry) (LSE.AIM:GOI)
GoIndustry is a leader in auction sales and valuations of used industrial machinery and equipment.
GoIndustry combines traditional asset sales experience with innovative e-commerce technology and
advanced direct marketing to service the needs of multi-national corporations, insolvency
practitioners, dealers and asset based lenders around the world.
Jamcracker, Inc. (Jamcracker)
The Jamcracker Services Delivery Network enables global on-demand service delivery by bringing
together on-demand services vendors, solution providers and resellers to foster channel
development, delivery and on-demand market growth.
Tibersoft Corporation (Tibersoft)
Tibersoft strengthens the trading relationships in the foodservice industry by using an integrated
blend of services and technology.
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Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. | Financial Statements |
INTERNET CAPITAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
(in thousands, | ||||||||
except per share data) | ||||||||
Assets |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 77,228 | $ | 89,295 | ||||
Restricted cash |
240 | 232 | ||||||
Accounts receivable, net of allowance ($385-2009; $721-2008) |
13,193 | 14,526 | ||||||
Broker receivable |
5,653 | | ||||||
Prepaid expenses and other current assets |
2,597 | 3,068 | ||||||
Total current assets |
98,911 | 107,121 | ||||||
Marketable securities |
67,515 | 57,367 | ||||||
Hedges of marketable securities |
601 | 6,551 | ||||||
Fixed assets, net |
2,489 | 1,783 | ||||||
Ownership interests in partner companies |
85,510 | 83,751 | ||||||
Goodwill |
16,944 | 26,658 | ||||||
Other assets, net |
1,100 | 2,349 | ||||||
Total Assets |
$ | 273,070 | $ | 285,580 | ||||
Liabilities |
||||||||
Current Liabilities |
||||||||
Current maturities of long-term debt |
$ | 70 | $ | 318 | ||||
Accounts payable |
1,176 | 2,026 | ||||||
Accrued expenses |
4,238 | 4,461 | ||||||
Accrued compensation and benefits |
9,518 | 10,385 | ||||||
Deferred revenue |
4,200 | 6,646 | ||||||
Total current liabilities |
19,202 | 23,836 | ||||||
Long-term debt |
83 | 3,916 | ||||||
Deferred revenue |
| 1,910 | ||||||
Other |
483 | 1,092 | ||||||
Total Liabilities |
$ | 19,768 | $ | 30,754 | ||||
Equity |
||||||||
Internet Capital Group, Inc.s Stockholders Equity |
||||||||
Preferred Stock, $0.01 par value; 10,000 shares authorized, none issued or
outstanding |
| | ||||||
Common Stock, $0.001 par value; 2,000,000 shares authorized, 38,766 (2009)
and 38,703 (2008) issued |
39 | 39 | ||||||
Treasury Stock, at cost, 2,040 (2009) and 1,948 (2008) shares |
(9,699 | ) | (9,329 | ) | ||||
Additional paid-in capital |
3,576,125 | 3,573,146 | ||||||
Accumulated deficit |
(3,387,132 | ) | (3,370,649 | ) | ||||
Accumulated other comprehensive income |
64,960 | 54,302 | ||||||
Total Internet Capital Group, Inc.s Stockholders Equity |
244,293 | 247,509 | ||||||
Noncontrolling Interest |
9,009 | 7,317 | ||||||
Total Equity |
253,302 | 254,826 | ||||||
Total Liabilities and Equity |
$ | 273,070 | $ | 285,580 | ||||
See accompanying notes to Consolidated Financial Statements.
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Table of Contents
INTERNET CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Revenues |
$ | 22,572 | $ | 17,104 | $ | 66,301 | $ | 50,707 | ||||||||
Operating expenses |
||||||||||||||||
Cost of revenue |
14,402 | 11,580 | 42,205 | 34,526 | ||||||||||||
Selling, general and administrative |
8,347 | 8,336 | 26,721 | 26,828 | ||||||||||||
Research and development |
2,178 | 3,219 | 7,418 | 7,455 | ||||||||||||
Impairment related and other |
1,295 | 197 | 5,269 | 389 | ||||||||||||
Total operating expenses |
26,222 | 23,332 | 81,613 | 69,198 | ||||||||||||
(3,650 | ) | (6,228 | ) | (15,312 | ) | (18,491 | ) | |||||||||
Other income (loss), net |
10,226 | 34,368 | 11,225 | 39,856 | ||||||||||||
Interest income |
98 | 317 | 338 | 1,550 | ||||||||||||
Interest expense |
(49 | ) | (129 | ) | (206 | ) | (206 | ) | ||||||||
Income (loss) before income taxes, equity loss and
noncontrolling interest |
6,625 | 28,328 | (3,955 | ) | 22,709 | |||||||||||
Income tax (expense) benefit |
(516 | ) | 224 | (884 | ) | (69 | ) | |||||||||
Equity loss |
(2,761 | ) | (6,020 | ) | (10,638 | ) | (17,842 | ) | ||||||||
Net income (loss) |
3,348 | 22,532 | (15,477 | ) | 4,798 | |||||||||||
Less: Net income attributable to the noncontrolling interest |
277 | 34 | 1,006 | 1,148 | ||||||||||||
Net income (loss) attributable to Internet Capital Group, Inc. |
$ | 3,071 | $ | 22,498 | $ | (16,483 | ) | $ | 3,650 | |||||||
Basic income (loss) per share: |
||||||||||||||||
Net income (loss) attributable to Internet Capital Group, Inc. |
$ | 0.08 | $ | 0.59 | $ | (0.45 | ) | $ | 0.10 | |||||||
Shares used in computation of basic income (loss) per share |
36,676 | 38,437 | 36,673 | 38,410 | ||||||||||||
Diluted income (loss) per share: |
||||||||||||||||
Net income (loss) attributable to Internet Capital Group, Inc. |
$ | 0.08 | $ | 0.58 | $ | (0.45 | ) | $ | 0.09 | |||||||
Shares used in computation of diluted income (loss) per share |
36,740 | 38,784 | 36,673 | 38,880 | ||||||||||||
See accompanying notes to Consolidated Financial Statements.
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Table of Contents
INTERNET CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
(in thousands) | ||||||||
Operating Activities |
||||||||
Net income (loss) |
$ | (16,483 | ) | $ | 3,650 | |||
Adjustments
to reconcile net loss to cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
1,354 | 1,182 | ||||||
Impairment related and other |
4,991 | 150 | ||||||
Equity-based compensation |
3,325 | 5,539 | ||||||
Equity loss |
10,638 | 17,842 | ||||||
Other (income) loss |
(11,225 | ) | (39,856 | ) | ||||
Noncontrolling interest |
1,006 | 1,148 | ||||||
Changes in assets and liabilities, net of effect of acquisitions: |
||||||||
Accounts receivable, net |
89 | (1,839 | ) | |||||
Prepaid expenses and other assets |
(677 | ) | (1,037 | ) | ||||
Accounts payable |
(44 | ) | 203 | |||||
Accrued expenses |
893 | (47 | ) | |||||
Accrued compensation and benefits |
(891 | ) | (1,826 | ) | ||||
Deferred revenue |
(1,494 | ) | 138 | |||||
Other liabilities |
(48 | ) | 377 | |||||
Cash flows provided by (used in) operating activities |
(8,566 | ) | (14,376 | ) | ||||
Investing Activities |
||||||||
Capital expenditures, net |
(1,969 | ) | (973 | ) | ||||
Advanced deposits for acquisition of fixed assets |
(206 | ) | | |||||
Change in restricted cash |
(20 | ) | (14 | ) | ||||
Proceeds from sales of marketable securities |
9,103 | 30,194 | ||||||
Proceeds from sales of partner company ownership interests |
2,607 | 3,206 | ||||||
Acquisitions of ownership interests in partner companies |
(12,746 | ) | (34,723 | ) | ||||
Increase in cash due to consolidation of partner company |
| 2,553 | ||||||
Decrease in
cash due to sale of subsidiary assets |
(81 | ) | | |||||
Cash flows provided by (used in) investing activities |
(3,312 | ) | 243 | |||||
Financing Activities |
||||||||
Borrowings of long-term debt |
| 1,500 | ||||||
Payments of long-term debt and capital lease obligations |
(130 | ) | (605 | ) | ||||
Line of credit repayments |
(115 | ) | (68 | ) | ||||
Purchase of treasury stock |
(370 | ) | (239 | ) | ||||
Other financing activities, net |
33 | | ||||||
Cash flows provided by (used in) financing activities |
(582 | ) | 588 | |||||
Net increase (decrease) in Cash and Cash Equivalents |
(12,460 | ) | (13,545 | ) | ||||
Effect of exchange rates on cash |
393 | (226 | ) | |||||
Cash and Cash Equivalents at beginning of period |
89,295 | 82,031 | ||||||
Cash and Cash Equivalents at the end of period |
$ | 77,228 | $ | 68,260 | ||||
See accompanying notes to Consolidated Financial Statements.
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Table of Contents
INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company
Description of the Company
Internet Capital Group, Inc. (the Company) acquires and builds Internet software and services
companies that improve the productivity and efficiency of their business customers. Founded in
1996, the Company devotes its expertise and capital to maximizing the success of these companies.
Although the Company refers to companies in which it has acquired a convertible debt or an equity
ownership interest as its partner companies and indicates that it has a partnership with these
companies, it does not act as an agent or legal representative for any of its partner companies, it
does not have the power or authority to legally bind any of its partner companies and it does not
have the types of liabilities in relation to its partner companies that a general partner of a
partnership would have.
2. Significant Accounting Policies
Basis of Presentation
The accompanying Consolidated Financial Statements are unaudited and, in the opinion of management,
include all adjustments consisting only of normal and recurring adjustments necessary for a fair
presentation of the results for these interim periods. These Consolidated Financial Statements
should be read in connection with the Consolidated Financial Statements and notes thereto included
in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2008. Results
of operations for the three- and nine-month periods ended September 30, 2009 are not necessarily
indicative of the results of operations expected for the full year.
The Consolidated Financial Statements include the accounts of the Company and its wholly-owned
subsidiaries. The Consolidated Financial Statements also include the following majority-owned
subsidiaries for all or a portion of the periods indicated, each of which has been consolidated
since the date the Company acquired majority voting control (collectively, the Consolidated
Subsidiaries):
Three and Nine Months Ended September 30, | ||
2009 | 2008 | |
ICG Commerce
|
ICG Commerce | |
Investor Force
|
Investor Force | |
Vcommerce(1)
|
Vcommerce(1) |
The Consolidated Balance Sheets include the following majority-owned subsidiaries at September
30, 2009 and December 31, 2008:
September 30, 2009 | December 31, 2008 | |
ICG Commerce
|
ICG Commerce | |
Investor Force
|
Investor Force | |
Vcommerce(1) |
(1) | On May 1, 2008, Vcommerce
Corporation (Vcommerce) became a consolidated partner
company when the Companys voting interest increased to 53%.
Vcommerces results of operations are included in the
Companys Consolidated Statements of Operations beginning
May 1, 2008. On August 28, 2009, substantially all of
Vcommerces assets were sold to Channel Intelligence, and is not
included in the Companys Consolidated Financial Statements
subsequent to that date. See Note 3, Ownership Interests in Partner Companies and Goodwill. |
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Table of Contents
INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Significant Accounting Policies (Continued)
Principles of Accounting for Ownership Interests in Partner Companies
Each of the various interests that the Company acquires in its partner companies is accounted for
under one of three methods: the consolidation method, the equity method and the cost method. The
applicable accounting method is generally determined based on the Companys voting interest in a
partner company.
Consolidation. Partner companies in which the Company directly or indirectly owns more than 50% of
the outstanding voting securities, and for which other stockholders do not possess the right to
affect significant management decisions, are accounted for under the consolidation method of
accounting. Under this method, a partner companys balance sheet and results of operations are
reflected within the Companys Consolidated Financial Statements, and all significant intercompany
accounts and transactions are eliminated. Participation of other partner company stockholders in
the net assets and in the earnings or losses of a consolidated partner company is reflected in the
caption Noncontrolling interest in the Companys Consolidated Balance Sheets and Statements of
Operations. Noncontrolling interest adjusts the Companys consolidated results of operations to
reflect only the Companys share of the earnings or losses of the consolidated partner company. The
results of operations and cash flows of a consolidated partner company are included through the
latest interim period in which the Company owned a greater than 50% direct or indirect voting
interest for the entire interim period or otherwise exercised control over the partner company.
Upon a reduction of the Companys ownership interest to below 50% of the outstanding voting
securities, the accounting method is adjusted to the equity or cost method of accounting, as
appropriate, for subsequent periods.
Equity Method. Partner companies that are not consolidated, but over which the Company exercises
significant influence, are accounted for under the equity method of accounting. Whether or not the
Company exercises significant influence with respect to a partner company depends on an evaluation
of several factors, including, among others, representation on the partner companys board of
directors and ownership level, which is generally between a 20% and a 50% interest in the voting
securities of the partner company, as well as voting rights associated with the Companys holdings
in common stock, preferred stock and other convertible instruments in the partner company. Under
the equity method of accounting, a partner companys accounts are not reflected within the
Companys Consolidated Balance Sheets and Statements of Operations. The Companys share of the
earnings or losses of the partner company, as well as any adjustments resulting from prior period
finalizations of equity income/losses, are reflected in the caption Equity loss in the
Consolidated Statements of Operations. For the three and nine months ended September 30, 2009,
those prior period adjustments are not material. The carrying values of the Companys equity
method partner companies are reflected in Ownership interests in partner companies in the
Companys Consolidated Balance Sheets.
When the Companys interest in an equity method partner company is reduced to zero, no further
losses are recorded in the Companys Consolidated Financial Statements, unless the Company has
guaranteed obligations of the partner company or has committed to additional funding. When the
partner company subsequently reports income, the Company will not record its share of such income
until it equals the amount of its share of losses not previously recognized.
Cost Method. Partner companies not accounted for under the consolidation or the equity method of
accounting are accounted for under the cost method of accounting. The Companys share of the
earnings or losses of cost method companies is not included in the Consolidated Balance Sheets or
Consolidated Statements of Operations. However, cost method partner company impairment charges are
recognized in the Consolidated Statements of Operations. If circumstances suggest that the value
of the partner company has subsequently recovered, the recovery is not recorded.
When a cost method partner company qualifies for use of the equity method, the Companys interest
is adjusted retroactively for its share of the past results of its operations. Therefore, prior
losses could significantly decrease the Companys carrying value balance at that time.
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Significant Accounting Policies (Continued)
The Company records its ownership interest in equity securities of partner companies accounted for
under the cost method at cost, unless these securities have readily determinable fair values based
on quoted market prices, in which case these interests are valued at fair value and classified as
marketable securities or some other classification in accordance with
accounting guidance for ownership interests in debt
and equity securities.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles (GAAP) requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results could differ from
these estimates. These estimates include evaluation of the Companys holdings in its partner
companies, holdings in marketable securities, asset impairment, revenue recognition, income taxes
and commitments and contingencies. These estimates and assumptions are based on managements best
judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical
experience and other factors, including the current economic environment, which management believes
to be reasonable under the circumstances. Management adjusts such estimates and assumptions when
facts and circumstances dictate. Volatile equity markets and reductions in information technology
spending have combined to increase the uncertainty inherent in such estimates and assumptions. It
is reasonably possible that the Companys accounting estimates with respect to the useful life of
intangible assets and the ultimate recoverability of ownership interests in partner companies and
goodwill could change in the near term and that the effect of such changes on the Companys
financial statements could be material. The Company believes the recorded amount of ownership
interests in partner companies and goodwill is not impaired at September 30, 2009.
Ownership Interests in Partner Companies, Goodwill and Intangibles, net
The Company is required to test goodwill for impairment annually, or more frequently as conditions
warrant, and intangible assets when events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company uses equity method accounting to evaluate
its equity method ownership interests in partner companies and determine whether an other than
temporary decline in the value of a partner company should be recognized.
The Company continually evaluates the carrying value of its ownership interests in each of its
partner companies for possible impairment based on achievement of business plan objectives and
milestones, the value of each ownership interest in the partner company relative to carrying value,
the financial condition and prospects of the partner company, and other relevant factors. The
business plan objectives and milestones the Company considers include, among others, those related
to financial performance, such as achievement of planned financial results or completion of capital
raising activities, and those that are not primarily financial in nature, such as obtaining key
business partnerships or the hiring of key employees. Impairment charges are determined by
comparing the estimated fair value of a partner company with its carrying value. Fair value is
determined by using a combination of estimating the cash flows related to the asset, including
estimated proceeds on disposition, and an analysis of market price multiples of companies engaged
in lines of business similar to the company being evaluated.
The Companys policy is to perform ongoing business reviews for all partner companies and goodwill
impairment tests annually in the fourth quarter of each fiscal year, or more frequently if
conditions warrant. The Company recorded total impairments of $23.2 million during the fourth
quarter of fiscal year 2008. Of this amount, $8.3 million was related to the impairment of
goodwill, and the remaining $14.9 million was a reduction to the
Companys basis in certain partner
companies. During the three and nine months ended September 30, 2009, the Company recorded
additional impairments of $1.1 million and $5.4 million,
respectively. Of the amounts recorded during the nine months ended
September 30, 2009,
approximately $4.9 million was related to the impairment of goodwill associated with Vcommerce, and
the remaining $0.5 million was an impairment charge recorded in the
first quarter to the basis in GoIndustry. At September 30, 2009, the Companys carrying value of its ownership interests in
partner companies totaled $85.5 million, goodwill totaled $16.9 million and intangibles, net, which
are included in Other assets, net on the Companys Consolidated Balance Sheets, totaled $0.6
million. See Note 3, Ownership Interests in Partner Companies and Goodwill for additional information
regarding our ownership interest in partner companies, goodwill and related impairment.
11
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Significant Accounting Policies (Continued)
Concentration of Customer Base and Credit Risk
For the three months ended September 30, 2009, two customers of ICG Commerce, The Hertz Corporation
(Hertz) and Kimberly-Clark Corporation (Kimberly-Clark), represented approximately 14% and 13%,
respectively, of ICGs consolidated revenue. For the nine months ended September 30, 2009, those
customers each represented approximately 14% of ICGs consolidated revenue. For the three months
ended September 30, 2008, each of those customers represented approximately 21% of ICGs
consolidated revenue. For the nine months ended September 30, 2008, Hertz and Kimberly-Clark
represented approximately 18% and 19%, respectively, of ICGs consolidated revenue. Accounts
receivable from Hertz and Kimberly-Clark as of September 30, 2009 were $1.7 million and $1.2
million, respectively. Accounts receivable from Hertz and Kimberly-Clark as of December 31, 2008
were $2.9 million and $1.4 million, respectively. The accounts receivable balances as of September
30, 2009 for these customers include $0.3 million and $0.1 million, respectively, of unbilled
accounts receivable. The accounts receivable balances as of December 31, 2008 for these customers
include $1.2 million and $0.3 million, respectively, of unbilled accounts receivable.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) released the FASB Accounting Standards
Codification (the ASC) on July 1, 2009 as the single source of authoritative nongovernmental
GAAP, superseding existing FASB, American Institute of Certified Public Accountants (AICPA),
Emerging Issues Task Force (EITF), and related accounting literature. The ASC was effective for
the Company beginning with the interim period ended September 30, 2009. The adoption of the ASC
resulted in changes to all references to authoritative accounting literature throughout the
Companys consolidated financial statements to be consistent with the ASC.
In December 2007, the FASB issued revised guidance for the accounting for business combinations.
The revised guidance, contained within ASC 805, Business Combinations (formerly FASB Statement of
Financial Accounting Standards (SFAS) No. 141(R), Business Combinations), requires most
identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business
combination to be recorded at full fair value. At adoption on January 1, 2009, the Companys
consolidated financial statements were not impacted by this guidance, which will be applied by the
Company to business combinations occurring on or after the adoption date.
In December 2007, the FASB issued accounting guidance contained within ASC 810, Consolidation
(formerly SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statementsan Amendment
of ARB No. 51), which requires noncontrolling interests (previously referred to as minority
interests) to be reported as a component of equity and changes the accounting for transactions with
noncontrolling interest holders. At adoption on January 1, 2009, the Companys consolidated
financial statements were not materially impacted by this guidance, other than the presentation of
noncontrolling interests in the Companys consolidated financial statements. This guidance is
being applied prospectively to all noncontrolling interests, including any that arose before the
adoption date. See Other Consolidated Company Information in Note 3, Ownership Interests in
Partner Companies and Goodwill.
In March 2008, the FASB issued new guidance on the disclosure of derivative instruments and hedging
activities. This guidance, included in ASC 815, Derivatives and Hedging (formerly
SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of SFAS
No. 133, Accounting for Derivatives and Hedging Activities), requires enhanced disclosures to
enable financial statement users to better understand the effects of derivatives and hedging on an
entitys financial position, financial performance and cash flow. At adoption on January 1, 2009,
the Companys consolidated financial statements were not materially impacted by this guidance.
12
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Significant Accounting Policies (Continued)
In June 2008, the FASB ratified guidance contained in ASC 815, Derivatives and Hedging (formerly
EITF No. 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys
Own Stock), which clarifies the determination of whether an instrument (or an embedded feature) is
indexed to an entitys own stock and would therefore qualify as a scope exception to derivative
accounting. At adoption on January 1, 2009, the Companys consolidated financial statements were
not materially impacted by this guidance.
In November 2008, the FASB ratified guidance included in ASC 323, Investments Equity Method and
Joint Ventures (formerly EITF No. 08-6, Equity Method Investment Accounting Considerations),
which clarifies how to account for certain transactions involving equity method companies.
Specifically, it addresses the initial measurement, decreases in value and changes in the level of
ownership of equity method companies. At adoption on January 1, 2009, the Companys consolidated
financial statements were not materially impacted by this guidance.
In April 2009, the FASB issued guidance included in ASC 825, Financial Instruments (formerly
final staff position (FSP) SFAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of
Financial Instruments). This guidance requires disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well as in annual
financial statements. At adoption beginning with the interim period ended June 30, 2009, the
Companys consolidated financial statements were not materially impacted by this guidance.
In April 2009, the FASB issued new guidance for the accounting of other-than-temporary impairments.
This guidance, which is included in ASC 320, Investments Debt and Equity Securities (formerly
FSP SFAS 115-2 and SFAS 124-2, Recognition and Presentation of Other Than Temporary Impairments),
is intended to bring greater consistency to the timing of impairment recognition and provide
greater clarity to investors about the credit and noncredit components of impaired debt securities
that are not expected to be sold. This guidance also requires increased and timelier disclosures
regarding expected cash flows, credit losses, and an aging of securities with unrealized losses.
At adoption beginning with the interim period ended June 30, 2009, the Companys consolidated
financial statements were not materially impacted by this guidance.
In April 2009, the FASB issued additional guidance for fair value measurement, which is part of ASC
820, Fair Value Measurements and Disclosures (formerly FSP SFAS No. 157-4, Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly), and provides guidance on how to determine the
fair value of assets and liabilities when the volume and level of activity for the asset/liability
has significantly decreased. This guidance also identifies circumstances that indicate a
transaction is not orderly. In addition, this guidance requires disclosure in interim and annual
periods of the inputs and valuation techniques used to measure fair value and a discussion of
changes in valuation techniques. This guidance became effective for the Company beginning with the
interim period ended June 30, 2009. At adoption beginning with the interim period ended June 30,
2009, the Companys consolidated financial statements were not materially impacted by this
guidance.
In May 2009, the FASB issued new guidance for accounting for subsequent events. This guidance,
included in ASC 855, Subsequent Events (formerly SFAS No. 165, Subsequent Events), establishes
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued. In particular, this
guidance establishes that entities must evaluate subsequent events through the date the financial
statements are issued, the circumstances under which a subsequent event should be recognized, and
the circumstances for which a subsequent event should be disclosed. It also requires the Company
to disclose the date through which subsequent events were evaluated. At adoption beginning with
the interim period ended June 30, 2009, the Companys consolidated financial statements were not
impacted by this guidance. The Company evaluated subsequent events through November 9, 2009, the
date the consolidated financial statements as of and for the period ended September 30, 2009 were
issued.
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Significant Accounting Policies (Continued)
In June 2009, the FASB issued accounting guidance as SFAS No. 167, Amendments to FASB
Interpretation No. 46(R), which has not yet been adopted into the ASC. The revised guidance
requires former qualifying special-purpose entities to be evaluated for consolidation, changes
the approach for determining a variable interest entitys primary beneficiary and the frequency
with which reassessments of this determination should be made, and requires additional disclosures
related to these items. This guidance will become effective for the Company beginning on January
1, 2010. The Company is currently evaluating the impact this standard will have on its
consolidated financial statements.
3. Ownership Interests in Partner Companies and Goodwill
The following table summarizes the Companys ownership interests in partner companies:
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(in thousands) | ||||||||
Ownership interests in partner companies Equity Method |
$ | 85,010 | $ | 83,751 | ||||
Ownership interests in partner companies Cost Method |
500 | | ||||||
$ | 85,510 | $ | 83,751 | |||||
During the nine months ended September 30, 2008, ClickEquations, which was previously accounted for
under the cost method, became an equity method company due to the Companys increase in ownership
through its participation in a financing round. Periods prior to 2008 have not been restated to
reflect prior equity losses from the Companys original acquisition of an interest in
ClickEquations, since that interest was immaterial to the Company.
The following table summarizes the Companys goodwill in partner companies:
(in thousands) | ||||
Goodwill at December 31, 2008 |
$ | 26,658 | ||
Impairment of Vcommerce (during the three months ended June 30, 2009) |
(3,750 | ) | ||
Decrease due to sale of Vcommerce assets on August 28, 2009 |
(4,838 | ) | ||
Impairment of Vcommerce (during the three months ended September 30, 2009) |
(1,126 | ) | ||
Goodwill at September 30, 2009 |
$ | 16,944 | ||
As of September 30, 2009 and December 31, 2008, all of the Companys goodwill was allocated to the
core reporting segment.
Consolidated Companies
Effective May 1, 2008, in connection with the Companys purchase of stock in Vcommerce in December
2006, the Company received additional shares of Vcommerce stock. Following the Companys receipt
of these additional shares, the Company accounted for Vcommerce, which was previously accounted for
under the equity method, under the consolidation method. The purchase price, including the $15.2
million carrying value of Vcommerce that had been accounted for under the equity method, was
allocated to the assets and liabilities based on their respective fair values at the date of the
acquisition. As of May 1, 2008, the assets and liabilities were allocated as follows: $17.9
million of goodwill; $0.9 million of intangibles; and $3.6 million of net liabilities.
14
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Ownership Interests in Partner Companies and Goodwill (Continued)
During the six months ended June 30, 2009, the Company concluded that the estimated fair value of
Vcommerce had declined. Accordingly, the Company performed its goodwill impairment testing as
described in Note 2, Significant Accounting Policies, and determined that an impairment of
goodwill of $3.8 million was required.
During
the three months ended September 30, 2009, Channel Intelligence
acquired substantially all of the assets and certain liabilities of
Vcommerce. As a result of this transaction, the Company recorded an
additional impairment charge in the amount of $1.1 million to
eliminate the Companys remaining basis in Vcommerce, which has
ceased operations. The Company has no future obligation for
Vcommerces liabilities and does not expect any future proceeds.
Subsequent to the transaction, Vcommerces residual assets and
liabilities are immaterial and not included on the Companys
Consolidated Balance Sheet at September 30, 2009.
Other Consolidated Company Information
On
January 1, 2009, the Company adopted revised guidance related to
accounting for noncontrolling interests. This guidance requires the pro forma
disclosure of consolidated net income (loss) attributable to the parent company and pro forma
earnings (loss) per share as if the Company had continued to
apply the initial guidance. The losses attributed to the
noncontrolling interest that resulted in a deficit noncontrolling interest balance for the three
and nine months ended September 30, 2009 were $0.4 million and $1.3 million, respectively.
Accordingly, had the Company recorded 100% of these losses, the Companys Net income (loss)
attributable to Internet Capital Group, Inc. on its Consolidated Statements of Operations would
have been $2.7 million and $(17.7) million in the respective periods. The Companys Net income
(loss) attributable to Internet Capital Group, Inc. per basic and diluted share would have each
been $0.07 and $(0.48) for the three and nine months ended September 30, 2009, respectively, had the
Company recorded 100% of these losses.
Equity Method Companies
The following unaudited summarized financial information relates to the Companys partner companies
accounted for under the equity method of accounting at September 30, 2009 and December 31, 2008.
This aggregate information has been compiled from the financial statements and capitalization
tables of the respective equity method partner companies.
Approximate Voting Ownership: | ||||||||
Equity Method Partner Company | September 30, 2009 | December 31, 2008 | ||||||
Acquirgy |
25 | % | | |||||
Channel Intelligence |
50 | %(1) | 46 | % | ||||
ClickEquations |
33 | % | 30 | % | ||||
Freeborders |
31 | % | 31 | % | ||||
GoIndustry |
26 | % | 29 | % | ||||
Metastorm |
33 | % | 33 | % | ||||
StarCite |
36 | % | 34 | % | ||||
WhiteFence |
36 | % | 36 | % |
(1) | The Company does not
consolidate Channel Intelligence since the Companys
ownership of this partner company does not exceed 50% (49.5%) and additional
factors, such as minority voting protection, support that the Company does not exert
control over Channel Intelligence. |
15
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Ownership Interests in Partner Companies and Goodwill (Continued)
Balance Sheets (Unaudited)
September 30, 2009 (1) | December 31, 2008 (2) | |||||||
(in thousands) | ||||||||
Cash, cash equivalents and short-term investments |
$ | 54,187 | $ | 47,749 | ||||
Other current assets |
61,106 | 72,935 | ||||||
Other non-current assets |
153,645 | 163,248 | ||||||
Total assets |
$ | 268,938 | $ | 283,932 | ||||
Current liabilities |
$ | 115,368 | $ | 141,414 | ||||
Non-current liabilities |
9,013 | 8,791 | ||||||
Long-term debt |
11,235 | 1,843 | ||||||
Stockholders equity |
133,322 | 131,884 | ||||||
Total liabilities and stockholders equity |
$ | 268,938 | $ | 283,932 | ||||
Total carrying value |
$ | 85,010 | $ | 83,751 | ||||
(1) | Includes Acquirgy, Channel Intelligence, ClickEquations, Freeborders, GoIndustry,
Metastorm, StarCite
and WhiteFence. |
|
(2) | Includes Channel Intelligence, ClickEquations, Freeborders, GoIndustry, Metastorm, StarCite and
WhiteFence. |
At September 30, 2009, the Companys carrying value in equity method partner companies in the
aggregate exceeded the Companys share of net assets of these equity partner companies by
approximately $42.6 million. This excess is allocated $33.9 million to goodwill, which is not
amortized, and $8.7 million to intangibles, which are generally amortized over a range of three to
seven years. Amortization expense associated with these intangibles
was $0.5 million and $1.5 million for the three and nine months ended September 30, 2009, respectively, and $0.4 million and
$1.0 million for the three and nine months ended September 30, 2008, respectively. This
amortization expense is included in the line item Equity loss excluding impairments in the
following table and in the line item Equity loss on the Companys Consolidated Statements of
Operations.
Results of Operations (Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 (1) | 2008 (2) | 2009 (1) | 2008 (2) | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Revenue |
$ | 57,061 | $ | 66,993 | $ | 169,615 | $ | 185,546 | ||||||||
Net income (loss) |
$ | (6,172 | ) | $ | (10,664 | ) | $ | (24,793 | ) | $ | (46,707 | ) | ||||
Equity loss excluding impairments |
$ | (2,761 | ) | $ | (6,020 | ) | $ | (10,094 | ) | $ | (17,842 | ) | ||||
Impairment charge of GoIndustry |
| | (544 | ) | | |||||||||||
Total equity loss |
$ | (2,761 | ) | $ | (6,020 | ) | $ | (10,638 | ) | $ | (17,842 | ) | ||||
(1) | Includes Acquirgy (from date of acquisition), Channel Intelligence, ClickEquations, Freeborders, GoIndustry,
Metastorm, StarCite and WhiteFence. |
|
(2) | Includes Channel Intelligence, ClickEquations, Freeborders, GoIndustry, Metastorm, StarCite, Vcommerce (to date
of consolidation) and WhiteFence. |
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Ownership Interests in Partner Companies and Goodwill (Continued)
Other Equity Company Information
In February 2008, GoIndustry issued equity in conjunction with a financing and an acquisition
transaction. In conjunction with the financing, the Company purchased an additional 52,690,950
shares of GoIndustry in exchange for approximately $10.5 million. In connection with the
acquisition of DoveBid, Inc., GoIndustry issued additional shares of stock. As a result of these
transactions, the Companys ownership
in GoIndustry was reduced from approximately 31% to approximately 29%.
The reduction in the Companys ownership interest in GoIndustry was accounted for as a disposition of shares and
resulted in a dilution loss for accounting purposes. The dilution loss totaled $1.3 million and
was recorded as an equity transaction with a decrease to additional paid-in capital during the
three months ended March 31, 2008. In January 2009, the Company purchased $1.4 million of
convertible long-term notes from GoIndustry. In September 2009, in conjunction with a financing
transaction, these long-term notes were converted to 56,952,636 shares of GoIndustry and the
Company purchased an additional 63,888,889 shares of GoIndustry for approximately $1.9 million. At
September 30, 2009, the Company owned 254,674,377 shares of GoIndustry, or approximately 26% of the
outstanding shares, as compared to 133,832,852 shares of GoIndustry, or approximately 29% of the
outstanding shares prior to the August 2009 financing transaction. The reduction in the Companys ownership interest in
GoIndustry from 29% to 26% was accounted for as a disposition of shares and resulted in a dilution
loss of $0.4 million in the three months ended September 30, 2009. In accordance with revised
accounting guidance for equity method companies, this dilution loss was recorded in Other income
(loss), net on the Companys Consolidated Statements of Operations. Due to the Companys 26%
ownership, GoIndustry continues to be accounted for under the equity method.
An impairment charge of $0.5 million was recorded by the Company during the three months ended
March 31, 2009 to reduce the Companys basis in GoIndustry as a result of declines in the fair
value of this partner company. As of September 30, 2009, no further impairment was required.
In February 2009, the Company entered into certain arrangements to guarantee approximately $3.6
million of debt for StarCite. This amount, which had been placed in an escrow account at the time
of the arrangement, was classified as restricted cash as of March 31, 2009. In May 2009, the
Company repaid the underlying debt in full and thereafter received an additional ownership interest
in StarCite. Accordingly, the Company increased its ownership in the partner company to 35% as of
June 30, 2009 from 34% as of March 31, 2009, and decreased restricted cash by the amount paid. The
Company has made a preliminary allocation of this purchase price and is in the process of
finalizing its purchase price allocation for this transaction. The Companys ownership interest in
the partner company further increased to 36% as of September 30, 2009, as a result of equity
transactions at the partner company.
On July 31, 2009, the Company acquired a 25% ownership percentage in Acquirgy. Also during the
three months ended September 30, 2009, the Company increased its ownership percentage at Channel
Intelligence and ClickEquations through the Companys participation in financing rounds. The total
amount of these acquisitions was $5.3 million. The Company has made preliminary allocations of the
respective purchase prices and is in the process of finalizing its purchase price allocations for
these transactions.
Escrow Information
As of September 30, 2009, the Company has outstanding aggregate cash proceeds, subject to indemnity
claims, of approximately $2.6 million associated with escrowed proceeds from sales of former equity
method partner companies. Additionally, the Company has outstanding 60,440 shares of
IntercontinentalExchange, Inc. (ICE) common stock, valued at approximately $5.9 million based on
the September 30, 2009 closing stock price of ICEs common stock, being held in escrow. These
share escrows primarily relate to sale consideration that was set aside to satisfy potential
purchase price adjustments and/or potential indemnity claims in connection with the sale of
Creditex Group, Inc. (Creditex) to ICE on August 29, 2008. During the nine months ended
September 30, 2009, the Company received a distribution of approximately $1.2 million of previously
escrowed funds related to the Companys former partner company, Marketron International, Inc.
(Marketron), which was recorded in Other income
(loss), net on the Companys Consolidated Statement of
Operations. The release of additional escrowed proceeds, if any, to the Company would result in
additional gains at the time the Company is entitled to such proceeds, the amount is fixed or
determinable and realization is assured, which is anticipated to occur at various times between
March 2010 and August 2012.
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Marketable Securities and Related Derivatives
Marketable securities represent the Companys holdings in publicly-traded equity securities
accounted for under the cost method of accounting. At September 30, 2009, the Company held a
noncontrolling interest in Blackboard, Inc. (Blackboard), which is traded on the NASDAQ Global
Market. The cost, unrealized holding gains/(losses), and fair value of marketable securities at
September 30, 2009 and December 31, 2008 were as follows:
Unrealized | ||||||||||||||||
Common Shares | Holding | |||||||||||||||
Owned | Cost | Gains/(Losses) | Fair Value | |||||||||||||
(in thousands, except shares) | ||||||||||||||||
September 30, 2009 |
||||||||||||||||
Blackboard |
1,787,060 | $ | 2,584 | $ | 64,931 | $ | 67,515 | |||||||||
December 31, 2008 |
||||||||||||||||
Blackboard |
2,187,060 | $ | 3,162 | $ | 54,205 | $ | 57,367 | |||||||||
The amounts reflected as the Companys cost for Blackboard include the carrying value on the
date the partner company converted to marketable securities and the value of warrants exercised.
During the three months ended September 30, 2009, the Company sold 400,000 shares of Blackboard
common stock at an average price of $36.50 per share. The Company received total proceeds of $14.6
million, including proceeds of $5.7 million for September 2009 trades that settled in October 2009
and are reflected as Broker receivable on the Companys Consolidated Balance Sheet at September
30, 2009. The Company recognized a gain on the sale of these securities in the amount of $14.0
million. This gain is included in Other income (loss), net on the Companys Consolidated
Statements of Operations.
The Company manages its exposure to and benefits from price fluctuations of Blackboard common stock
by using derivative securities or hedges. Although these instruments are derivative securities,
their economic risks are similar to, and managed on the same basis as, the risks associated with
the Blackboard shares the Company holds. Through September 30, 2009, the Company has entered into
cashless collar contracts with various expiration dates in 2010 to hedge 1,625,000 shares of its
total holdings of 1,787,060 shares of Blackboard common stock at weighted average minimum and
maximum prices per share of $24.27 and $56.35, respectively.
These instruments are marked to market through earnings each period. The mark-to-market impact is
reflected in Other income (loss), net for the appropriate period on the Companys Consolidated
Statements of Operations as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(in thousands) | ||||||||||||||||
Unrealized gain
(loss) on mark to
market of hedges |
$ | (3,393 | ) | $ | (1,647 | ) | $ | (5,950 | ) | $ | 581 |
The income or loss is primarily driven by the change in the closing price of Blackboard stock
from the beginning of the quarter to the end of the quarter. The price per share is reflected in
the table below as reported by the NASDAQ Global Market:
Dec. 31, | March 31, | June 30, | Sep. 30, | Dec. 31, | March 31, | June 30, | Sep. 30, | |||||||||||||||||||||||||
2007 | 2008 | 2008 | 2008 | 2008 | 2009 | 2009 | 2009 | |||||||||||||||||||||||||
Blackboard closing
stock price |
$ | 40.25 | $ | 33.33 | $ | 38.23 | $ | 40.29 | $ | 26.23 | $ | 31.74 | $ | 28.86 | $ | 37.78 |
18
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Marketable Securities and Related Derivatives (Continued)
In future quarters, the mark-to-market impact will generally be an expense if Blackboards stock
price rises, or income if Blackboards stock price declines, during the relevant quarter. If the
Company holds these hedges through their maturity dates and Blackboards stock price remains within
the weighted average
minimum and maximum prices per share, the value of the hedges will be
zero at maturity.
The fair value of these instruments was an asset of $0.6 million at September 30, 2009 and an asset
of $6.5 million at December 31, 2008, and, in each period, is included in Hedges of marketable
securities on the Companys Consolidated Balance Sheets. See Note 5, Financial Instruments.
5. Financial Instruments
Derivative Financial Instruments
The Company utilizes derivative financial instruments, the Blackboard security hedges and forward
exchange contracts, to manage its exposure to and benefits from price fluctuations of Blackboard
common stock and foreign currency risk, respectively. The cashless collar contracts related to
Blackboard common stock are discussed in Note 4, Marketable Securities and Related Derivatives.
In addition, during the nine months ended September 30, 2009, ICG Commerce purchased a put option
to mitigate the risk of currency fluctuations at ICG Commerces operations in the United Kingdom
and Europe. The value of the put option as of September 30, 2009
approximated zero.
The following table presents the classifications and fair values of our derivative instruments as
of September 30, 2009 and December 31, 2008:
Consolidated Balance Sheets | ||||||||||||
September 30, | December 31, | |||||||||||
Derivatives | Classification | 2009 | 2008 | |||||||||
(in thousands) | ||||||||||||
Cashless collar contracts |
Hedges of marketable securities | $ | 601 | $ | 6,551 | |||||||
Foreign exchange put option |
Other assets, net | $ | | $ | |
The following table presents the mark-to-market impact on earnings resulting from our hedging activities for
the periods ended September 30, 2009 and 2008:
Consolidated Statements of Operations | ||||||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||
Derivatives | Classification | 2009 | 2008 | 2009 | 2008 | |||||||||||||||
Cashless collar contracts |
Other income (loss), net | $ | (3,393 | ) | $ | (1,647 | ) | $ | (5,950 | ) | $ | 581 | ||||||||
Foreign exchange put option |
Other income (loss), net | $ | (5 | ) | $ | | $ | (33 | ) | $ | |
Fair Value Measurements
In September 2006, the FASB issued accounting guidance for fair value measurements. This guidance
clarifies the definition of fair value, establishes a three-tier hierarchy framework for measuring
fair value and expands the disclosures on fair value measurements. In accordance with accounting
guidance regarding fair value measurements and disclosures, our marketable securities are reported
at fair value on our consolidated balance sheet based on quoted prices in active markets for
identical or comparable assets.
19
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Financial Instruments (Continued)
The fair value of the Companys financial assets measured at fair value on a recurring basis were
as follows:
Balance at | ||||||||||||||||
September 30, | ||||||||||||||||
2009 | Level 1 | Level 2 | Level 3 | |||||||||||||
(in thousands) | ||||||||||||||||
Cash equivalents (money market accounts) |
$ | 70,667 | $ | 70,667 | $ | | $ | | ||||||||
Marketable securities (see Note 4) |
67,515 | 67,515 | | | ||||||||||||
Hedges of marketable securities (see Note 5) |
601 | | 601 | (a) | | |||||||||||
Hedges of foreign currency risk (see Note 5) |
| | | (a) | | |||||||||||
$ | 138,783 | $ | 138,182 | $ | 601 | $ | | |||||||||
(a) | The Companys respective counterparties under these arrangements provide the Company with
quarterly statements of the market values of these instruments based on significant inputs
that are observable or can be derived principally from, or corroborated by, observable market
data for substantially the full term of the relevant asset or liability. |
6. Debt
Long-term Debt
The Companys long-term debt at September 30, 2009 of $0.2 million relates to its
consolidated partner companies. The long-term debt is due as follows: $0.1 million is classified
as current and is due within one year, and the remaining $0.1 million is due through 2014.
Loan and Credit Agreements
On September 30, 2002, the Company entered into a loan agreement with Comerica Bank (the Loan
Agreement) to provide for the issuance of letters of credit up to $20.0 million, subject to a
cash-secured borrowing base as defined by the Loan Agreement. The Loan Agreement was reduced to
$10.0 million in 2004. In December 2008, the Loan Agreement was extended to December 12, 2009.
Issuance fees of 0.50% per annum of the face amount of each letter of credit will be paid to
Comerica Bank subsequent to issuance. The Loan Agreement also is subject to a 0.25% per annum
unused commitment fee payable to the bank quarterly. No amounts (letters of credit) were
outstanding at September 30, 2009 or December 31, 2008.
On May 8, 2008, the Company entered into a series of loan agreements with Credit Suisse Capital
LLC. Pursuant to these agreements, the Company may, from time to time, borrow funds secured by the
cashless collar contracts that the Company previously entered into with respect to 1,625,000 of its
shares of Blackboard common stock. The loans bear interest, which is payable quarterly in arrears,
at the three-month U.S. dollar LIBOR rate, computed on the basis of a 30-day month and a 360-day
year. This interest rate resets on the first day of each calendar quarter. The maturity of each
of the loans corresponds with the expiration of the underlying cashless collar contract.
Accordingly, the maturity dates of the loans range from March 15, 2010 to October 15, 2010. The
maximum borrowing capacity under each of the loan agreements equals the present value of the
minimum value of the underlying cashless collar contract, computed using the three month U. S.
dollar LIBOR rate. The aggregate maximum borrowing capacity under the loan agreements is
approximately $39.4 million as of September 30, 2009. The Company has not drawn any amounts under
the loan agreements to date.
20
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Debt (Continued)
On August 29, 2008, ICG Commerce and a number of its wholly-owned subsidiaries entered into a loan
agreement with PNC Bank, pursuant to which ICG Commerce and such subsidiaries may borrow up to
$10.0 million under a revolving line of credit. The line of credit matures on December 31, 2009
and is secured by the assets of the borrowing companies. Interest on any outstanding amounts is
computed at a rate to be selected by ICG Commerce at the end of each interest period from the
following: (1) a one, two, three or six-month eurodollar LIBOR rate plus either 175 or 200 basis
points, depending on the then-current debt-to-EBITDA
ratio of the borrowing companies, and (2) PNC Banks prime rate minus either
100 or 75 basis points, depending on the then-current debt-to-EBITDA ratio of the borrowing
companies. The loan agreement also provides for the issuance by the bank of letters of credit,
subject to specified fees and other terms. The loan agreement is subject to a 0.25% per annum
unused commitment fee that is payable to the bank quarterly. As of
September 30, 2009, no amounts are outstanding under this loan
agreement. ICG
Commerce had a total borrowing capacity of $10.0 million, with
interest rates between 2.00% and 2.38%.
7. Segment Information
The
Companys reportable segments using accounting guidance for
segment reporting consist of two reporting
segments, the core segment and the other holdings segment. Each segment includes the results
of the Companys consolidated partner companies and records the Companys share of earnings and
losses of partner companies accounted for under the equity method of accounting and captures the
Companys basis in the assets of all of its partner companies. Marketable securities are
considered corporate assets whereas, prior to becoming marketable securities, the partner company
to which they relate would have been included in the core or other holdings category.
The core reporting segment includes those partner companies in which the Companys management takes
a very active role in providing strategic direction and management assistance. The other holdings
reporting segment includes holdings in companies over which, in general, we have less influence due
to the fact that they are public or we have a relatively small ownership stake.
Approximately 10% of the Companys consolidated revenues for the three and nine months ended
September 30, 2009, respectively, relate to sales generated in the United Kingdom. Approximately
17% and 15% of the Companys consolidated revenues for the three and nine months ended September
30, 2008, respectively, related to sales generated in the United Kingdom. The remaining
consolidated revenues for the three and nine months ended September 30, 2009 and 2008 primarily
relate to sales generated in the United States. As of September 30, 2009 and December 31, 2008,
the Companys assets were located primarily in the United States.
21
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. | Segment Information (Continued) |
The following summarizes selected information related to the Companys segments for the respective
periods. All significant intersegment activity has been eliminated. Assets are owned or allocated
assets used by each reporting segment.
Segment Information | ||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Other | Total | Reconciling Items | Consolidated | |||||||||||||||||||||
Core | Holdings | Segment | Corporate | Other* | Results | |||||||||||||||||||
Three Months Ended
September 30, 2009 |
||||||||||||||||||||||||
Revenues |
$ | 22,572 | $ | | $ | 22,572 | $ | | $ | | $ | 22,572 | ||||||||||||
Net income (loss) |
$ | (1,742 | ) | $ | (638 | ) | $ | (2,380 | ) | $ | (3,366 | ) | $ | 8,817 | $ | 3,071 | ||||||||
Three Months Ended
September 30, 2008 |
||||||||||||||||||||||||
Revenues |
$ | 17,104 | $ | | $ | 17,104 | $ | | $ | | $ | 17,104 | ||||||||||||
Net income (loss) |
$ | (7,886 | ) | $ | (900 | ) | $ | (8,786 | ) | $ | (3,803 | ) | $ | 35,087 | $ | 22,498 | ||||||||
Nine Months Ended
September 30, 2009 |
||||||||||||||||||||||||
Revenues |
$ | 66,301 | $ | | $ | 66,301 | $ | | $ | | $ | 66,301 | ||||||||||||
Net income (loss) |
$ | (6,040 | ) | $ | (2,398 | ) | $ | (8,438 | ) | $ | (12,057 | ) | $ | 4,012 | $ | (16,483 | ) | |||||||
Nine Months Ended
September 30, 2008 |
||||||||||||||||||||||||
Revenues |
$ | 50,707 | $ | | $ | 50,707 | $ | | $ | | $ | 50,707 | ||||||||||||
Net income (loss) |
$ | (20,088 | ) | $ | (1,834 | ) | $ | (21,922 | ) | $ | (13,847 | ) | $ | 39,419 | $ | 3,650 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
*Corporate other income (loss) (Note 9) |
$ | 10,220 | $ | 34,791 | $ | 10,438 | $ | 40,237 | ||||||||
Corporate income tax (expense) benefit |
| 330 | | 330 | ||||||||||||
Noncontrolling interest |
(277 | ) | (34 | ) | (1,006 | ) | (1,148 | ) | ||||||||
Impairment of GoIndustry (Other Holdings) (Note 3) |
| | (544 | ) | | |||||||||||
Impairment of Vcommerce (Core) (Note 3) |
(1,126 | ) | | (4,876 | ) | | ||||||||||
$ | 8,817 | $ | 35,087 | $ | 4,012 | $ | 39,419 | |||||||||
Other | Total | Consolidated | ||||||||||||||||||||||
Core | Holdings | Segment | Corporate | Other | Results | |||||||||||||||||||
Assets as of: |
||||||||||||||||||||||||
September 30, 2009 |
$ | 130,303 | $ | 11,204 | $ | 141,507 | $ | 131,563 | $ | | $ | 273,070 | ||||||||||||
Assets as of: |
||||||||||||||||||||||||
December 31, 2008 |
$ | 138,374 | $ | 8,281 | $ | 146,655 | $ | 138,925 | $ | | $ | 285,580 |
22
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Parent Company Financial Information
Parent company financial information is provided to present the financial position and results of
operations of the Company and its wholly-owned subsidiaries as if the partner companies accounted
for under the consolidation method of accounting were accounted for under the equity method of
accounting for all applicable periods presented. The Companys share of the consolidated partner
companies losses is included in Equity loss in the parent company Statements of Operations for
all periods presented based on the Companys ownership percentage in each period. The carrying
value of the consolidated companies as of September 30, 2009 and December 31, 2008 is included in
Ownership interests in partner companies in the parent company balance sheets set forth below.
Parent Company Balance Sheets
As of September 30, 2009 | As of December 31, 2008 | |||||||
(in thousands) | ||||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 56,243 | $ | 73,208 | ||||
Broker receivable |
5,653 | | ||||||
Other current assets |
1,166 | 1,405 | ||||||
Current assets |
63,062 | 74,613 | ||||||
Ownership interests in partner companies |
116,620 | 113,395 | ||||||
Marketable securities |
67,515 | 57,367 | ||||||
Hedges of marketable securities |
601 | 6,551 | ||||||
Other |
385 | 394 | ||||||
Total assets |
$ | 248,183 | $ | 252,320 | ||||
Liabilities and stockholders equity |
||||||||
Current liabilities |
$ | 3,569 | $ | 4,011 | ||||
Non-current liabilities |
350 | 898 | ||||||
Stockholders equity |
244,264 | 247,411 | ||||||
Total liabilities and stockholders equity |
$ | 248,183 | $ | 252,320 | ||||
Parent Company Statements of Operations
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(in thousands) | ||||||||||||||||
Revenues |
$ | | $ | | $ | | $ | | ||||||||
Operating expenses |
||||||||||||||||
General and administrative |
3,452 | 4,065 | 12,357 | 15,214 | ||||||||||||
Impairment related and other |
1,126 | | 4,876 | |||||||||||||
Total operating expenses |
4,578 | 4,065 | 17,233 | 15,214 | ||||||||||||
(4,578 | ) | (4,065 | ) | (17,233 | ) | (15,214 | ) | |||||||||
Other income (loss), net |
10,220 | 34,791 | 10,438 | 40,237 | ||||||||||||
Interest income (expense), net |
86 | 262 | 300 | 1,367 | ||||||||||||
Income (loss) before income taxes and equity loss |
5,728 | 30,988 | (6,495 | ) | 26,390 | |||||||||||
Income tax benefit (expense) |
| 330 | | 330 | ||||||||||||
Equity loss |
(2,657 | ) | (8,820 | ) | (9,988 | ) | (23,070 | ) | ||||||||
Net income (loss) |
$ | 3,071 | $ | 22,498 | $ | (16,483 | ) | $ | 3,650 | |||||||
23
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Parent Company Financial Information (Continued)
Parent Company Statements of Cash Flows
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
(in thousands) | ||||||||
Operating Activities |
||||||||
Net income (loss) |
$ | (16,483 | ) | $ | 3,650 | |||
Adjustments to reconcile net loss to cash used in operating activities: |
||||||||
Depreciation and amortization |
75 | 100 | ||||||
Equity-based compensation |
2,782 | 4,941 | ||||||
Equity loss |
9,988 | 23,070 | ||||||
Other (income) loss |
(10,438 | ) | (40,237 | ) | ||||
Impairment related and other |
4,876 | |||||||
Changes in assets and liabilities, net of effect of acquisitions: |
||||||||
Prepaid expenses and other assets |
139 | (158 | ) | |||||
Accounts payable |
(8 | ) | 4 | |||||
Accrued expenses |
(19 | ) | (285 | ) | ||||
Accrued compensation and benefits |
(891 | ) | (1,608 | ) | ||||
Other liabilities |
(60 | ) | 403 | |||||
Cash provided by (used in) operating activities |
(10,039 | ) | (10,120 | ) | ||||
Investing Activities |
||||||||
Capital expenditures, net |
(20 | ) | (33 | ) | ||||
Proceeds from sales of marketable securities |
9,103 | 30,194 | ||||||
Proceeds from sales of ownership interests in partner companies |
2,607 | 3,206 | ||||||
Acquisitions of ownership interests in partner companies, net |
(18,246 | ) | (40,448 | ) | ||||
Cash provided by (used in) investing activities |
(6,556 | ) | (7,081 | ) | ||||
Financing Activities |
||||||||
Purchase of treasury stock |
(370 | ) | (239 | ) | ||||
Cash provided by (used in) financing activities |
(370 | ) | (239 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
(16,965 | ) | (17,440 | ) | ||||
Cash and cash equivalents at beginning of period |
73,208 | 69,125 | ||||||
Cash and cash equivalents at end of period |
$ | 56,243 | $ | 51,685 | ||||
9. Other Income (Loss)
Other Income (Loss), net
Other income (loss), net consists of the effect of transactions and other events relating to the
Companys ownership interests in its partner companies and its operations in general.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(in thousands) | ||||||||||||||||
Gain on sale of Creditex |
$ | | $ | 34,751 | $ | 430 | $ | 34,751 | ||||||||
Unrealized gain (loss) on
mark-to-market of hedges (Note 4) |
(3,393 | ) | (1,647 | ) | (5,950 | ) | 581 | |||||||||
Gains on sales/distributions of
ownership interests in partner
companies |
| | 2,177 | 3,205 | ||||||||||||
Dilution loss on GoIndustry (Note 3) |
(388 | ) | | (388 | ) | | ||||||||||
Realized
gains on marketable securities (Note 4) |
14,004 | 1,406 | 14,178 | 1,406 | ||||||||||||
Other |
(3 | ) | 281 | (9 | ) | 294 | ||||||||||
$ | 10,220 | $ | 34,791 | $ | 10,438 | $ | 40,237 | |||||||||
Total other income (loss) for
consolidated partner companies |
6 | (423 | ) | 787 | (381 | ) | ||||||||||
$ | 10,226 | $ | 34,368 | $ | 11,225 | $ | 39,856 | |||||||||
24
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Other Income (Loss) (Continued)
During the nine months ended September 30, 2009, the Company received an additional 7,549 shares of
ICE common stock in connection with a post-merger closing-related adjustment for the acquisition of
Creditex by ICE in August 2008. The value of these shares on the date on which they were received
was $0.4 million, which is included in Gain on sale of Creditex in the above table. The amount
of proceeds received by the Company from the subsequent sale of these securities in excess of their
initial value is included in Realized gains (losses) on marketable securities in the above table.
During the nine months ended September 30, 2009, the Company recorded gains of approximately $2.2
million related to distributions of various ownership interests, including the release of
approximately $1.2 million of escrowed proceeds related to Marketron. These gains are included in
Gains on sales/distributions of ownership interests in partner companies in the above table.
During the nine months ended September 30, 2009, ICG Commerce recorded foreign currency gains of
approximately $0.8 million related to changes in exchange rates associated with its operations in
the United Kingdom and Europe.
10. Income Taxes
The parent company files a consolidated federal income tax return with Investor Force. Excluding
the loss for the nine months ended September 30, 2009, the parent company and Investor Force
together had federal net operating loss carry-forwards of
approximately $515.0 million. They also
had combined capital loss carry-forwards of approximately $366.5 million that may be used to offset
future capital gains. All but approximately $20.0 million of the
net operating loss carry-forwards and all of the capital loss carry-forwards, as well as certain
other deferred tax assets, are subject to significant limitations on their utilization due to an
ownership change, as defined in Section 382 of the Internal Revenue Code. The annual limitation on
the utilization of these carry-forwards is approximately $14.5 million. These net operating loss
carry-forwards expire between 2015 and 2024, and the capital loss carry-forwards expire between
2009 and 2013. Additional limitations on the utilization of these carry-forwards may be imposed if
they experience another ownership change.
The parent companys and Investor Forces combined net deferred tax asset of $441.2 million at
September 30, 2009 consists of deferred tax assets of $462.4 million, relating primarily to partner
company basis differences, capital and net operating loss carry-forwards, offset by deferred tax
liabilities of $21.2 million, primarily related to unrealized appreciation in available for sale
securities. A full valuation allowance has been recorded against the net deferred tax assets.
The Internal Revenue Service is auditing the parent companys consolidated federal income tax
returns for the years ended December 31, 2005 through December 31, 2007. The statute of limitations
for the year ended December 31, 2005 has been extended to September 15, 2010.
ICG
Commerce recorded tax expense at an effective annual rate of 12.0% and 10.8% for the nine
months ended September 30, 2009 and 2008, respectively. These rates differ from the federal
statutory rate of 34%, primarily due to the utilization of net operating losses. ICG Commerce also
recorded a $0.3 million tax benefit in the nine months ended September 30, 2009 for a foreign tax
refund received as a result of the allowance of the utilization of net operating losses that
previously had been disallowed.
At December 31, 2008, ICG Commerce had federal net operating losses of approximately $164.0
million. Due to an ownership change experienced by ICG Commerce, a majority of these net operating
losses, as well as certain other deferred tax assets, are subject to significant limitations on
their utilization. ICG Commerce had a net deferred tax asset as of December 31, 2008 of
approximately $63.7 million, comprised primarily of net operating losses. A full valuation
allowance was recorded against the net deferred tax asset.
25
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Equity-Based Compensation
Equity-based compensation for the three and nine months ended September 30, 2009 and 2008 is
primarily included in Selling, general and administrative on the Companys Consolidated
Statements of Operations for their respective periods. The following table provides additional
information related to the Companys equity-based compensation:
Unrecognized | Weighted Average | |||||||||||||||||||||||
Equity-Based | Years Remaining of | |||||||||||||||||||||||
Three Months Ended | Nine Months Ended | Compensation at | Equity-Based | |||||||||||||||||||||
September 30, | September 30, | September 30, | Compensation Expense | |||||||||||||||||||||
2009 | 2008 | 2009 | 2008 | 2009 | at September 30, 2009 | |||||||||||||||||||
(in thousands, except weighted average years) | ||||||||||||||||||||||||
SARs* |
$ | 452 | $ | 1,016 | $ | 2,437 | $ | 2,990 | $ | 1,610 | 2.7 | |||||||||||||
Stock Options |
| 8 | 3 | 25 | 2 | 3.2 | ||||||||||||||||||
Restricted Stock |
18 | 408 | 53 | 1,440 | 117 | 2.0 | ||||||||||||||||||
DSUs** |
36 | 78 | 138 | 241 | 60 | 0.5 | ||||||||||||||||||
Equity-Based Compensation |
$ | 506 | $ | 1,510 | $ | 2,631 | $ | 4,696 | $ | 1,789 | ||||||||||||||
Equity-Based
Compensation for
Consolidated Partner
Companies |
174 | 230 | 546 | 580 | 940 | 1.9 | ||||||||||||||||||
Equity-Based Compensation |
$ | 680 | $ | 1,740 | $ | 3,177 | $ | 5,276 | $ | 2,729 | ||||||||||||||
* | Stock Appreciation Rights (SARs) |
|
** | Deferred Stock Units (DSUs) |
During the nine months ended September 30, 2009, the Company issued 36,000 DSUs to the
Companys non-management directors under the Non-Management Director Compensation Plan that will
vest in the first quarter of 2010. These DSUs were valued at $0.1 million.
During the three and nine months ended September 30, 2009, the Company issued 7,385 DSUs and 27,916
DSUs, respectively, in lieu of cash, which vested immediately to the Companys non-management
directors for services provided to the Companys Board of Directors and its committees. The
expense of $0.1 million and $0.2 million for the three and nine months ended September 30, 2009,
respectively, and the expense of $0.1 million and $0.2 million for the three and nine months ended
September 30, 2008, respectively, associated with the quarterly grants for service is included in
Selling, general and administrative on the Companys Consolidated Statements of Operations but is
not included in the Equity-Based Compensation table above.
26
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Net Income (Loss) per Share
The calculations of net income (loss) per share were:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Basic and Diluted: |
||||||||||||||||
Net income (loss) attributable to Internet Capital
Group, Inc. |
$ | 3,071 | $ | 22,498 | $ | (16,483 | ) | $ | 3,650 | |||||||
Basic: |
||||||||||||||||
Net income (loss) attributable to Internet Capital
Group, Inc. per share |
$ | 0.08 | $ | 0.59 | $ | (0.45 | ) | $ | 0.10 | |||||||
Diluted |
||||||||||||||||
Net income (loss) attributable to Internet Capital
Group, Inc. per share |
$ | 0.08 | $ | 0.58 | $ | (0.45 | ) | $ | 0.09 | |||||||
Shares used in computation of basic income (loss)
per share |
36,675,632 | 38,437,322 | 36,672,848 | 38,410,364 | ||||||||||||
Stock options |
39,221 | 53,184 | | 69,527 | ||||||||||||
Restricted stock |
138 | 273,932 | | 307,596 | ||||||||||||
DSUs |
25,204 | 15,890 | | 13,740 | ||||||||||||
Warrants |
| 3,582 | | 4,297 | ||||||||||||
SARs |
| | | 74,010 | ||||||||||||
Shares used in computation of diluted income (loss) per share |
36,740,195 | 38,783,910 | 36,672,848 | 38,879,534 | ||||||||||||
The following dilutive securities were not included in the computation of diluted net loss per
share because their effect would have been anti-dilutive:
Weighted Average | ||||||||
Shares | Price Per Share | |||||||
Three Months Ended September 30, 2009 |
||||||||
SARs |
3,870,370 | $ | 7.65 | |||||
Stock options |
490,183 | $ | 38.41 | |||||
Restricted stock |
14,137 | $ | | |||||
DSUs |
10,796 | $ | | |||||
Nine Months Ended September 30, 2009 |
||||||||
SARs |
3,870,370 | $ | 7.65 | |||||
Stock options |
529,404 | $ | 35.56 | |||||
Restricted stock |
14,275 | $ | | |||||
DSUs |
36,000 | $ | | |||||
Three Months Ended September 30, 2008 |
||||||||
SARs |
3,870,370 | $ | 7.65 | |||||
Stock options |
469,430 | $ | 35.59 | |||||
Nine Months Ended September 30, 2008 |
||||||||
SARs |
2,597,645 | $ | 8.45 | |||||
Stock options |
381,141 | $ | 34.36 |
27
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Comprehensive Income (Loss)
Comprehensive income (loss) is the change in equity of a business enterprise during a period
resulting from transactions and other events and circumstances from non-owner sources. Excluding
net loss, the Companys primary source of comprehensive loss is net unrealized holding gains
(losses) related to its marketable securities. The following table summarizes the components of
comprehensive loss:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(in thousands) | ||||||||||||||||
Net income (loss) attributable to Internet
Capital Group, Inc. |
$ | 3,071 | $ | 22,498 | $ | (16,483 | ) | $ | 3,650 | |||||||
Other comprehensive income (loss): |
||||||||||||||||
Unrealized holding gains (losses) in
marketable securities |
18,980 | 3,339 | 24,905 | (1,079 | ) | |||||||||||
Realized net gains on marketable
securities |
(14,004 | ) | (1,406 | ) | (14,178 | ) | (1,406 | ) | ||||||||
Other accumulated other comprehensive
income (loss) |
19 | 45 | (69 | ) | 37 | |||||||||||
Comprehensive income (loss) |
$ | 8,066 | $ | 24,476 | $ | (5,825 | ) | $ | 1,202 | |||||||
14. Share Repurchase Program
On July 31, 2008, the Company announced the approval by its Board of Directors of a share
repurchase program under which the Company could repurchase, from time to time, up to $20.0 million
of shares of Common Stock in the open market, in privately negotiated transactions or pursuant to
trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act. On December 12,
2008, the Board of Directors approved a $5.0 million expansion of this program, allowing the
Company to repurchase up to $25.0 million of shares of Common Stock. During the nine months ended
September 30, 2009, the Company repurchased a total of 92,242 shares of Common Stock at an average
purchase price of $3.97 per share. These repurchases are reflected in Treasury stock, at cost as
a reduction of Stockholders Equity on the Companys Consolidated Balance Sheets in the relevant
period. As of the date of the filing of this Report, the Company has repurchased a total of
2,040,400 shares of Common Stock for approximately $9.6 million under the program. See the
subsection of Part II, Item 2 entitled Issuer Purchases of Equity Securities for more information
regarding the repurchases of Company Common Stock that occurred during the nine months ended
September 30, 2009 and through the date of the filing of this Report.
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ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Introduction
The following Managements Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that involve risks and uncertainties. Our actual results could
differ materially from those anticipated in these forward-looking statements as a result of certain
factors, including those set forth elsewhere in this Report and the risks discussed in our other
SEC filings. The following discussion should be read in conjunction with the Consolidated Financial
Statements and related Notes thereto included in this Report.
Although we refer in this Report to companies in which we have acquired a convertible debt or an
equity ownership interest as our partner companies and indicate that we have a partnership with
these companies, we do not act as an agent or legal representative for any of our partner
companies, we do not have the power or authority to legally bind any of our partner companies, and
we do not have the types of liabilities in relation to our partner companies that a general partner
of a partnership would have.
The Consolidated Financial Statements include the consolidated accounts of Internet Capital Group,
Inc., a company incorporated in Delaware, and its subsidiaries, both wholly-owned and consolidated
(Internet Capital Group, Inc. and all such subsidiaries are hereinafter referred to as we, us,
our, ICG, the Company or Internet Capital Group), and have been prepared in accordance with
Generally Accepted Accounting Principles in the United States of America (GAAP).
Executive Summary
Since our inception in 1996, we have focused on acquiring and building Internet software and
services companies that improve the productivity and efficiency of their business customers. We
call these companies our partner companies. As of September 30, 2009 and the date of this
Report, we hold ownership interests in fourteen companies that we consider our partner companies.
Additionally, from time to time we hold marketable securities in other companies, which, as of
September 30, 2009 and the date of this Report, consist solely of Blackboard common stock. The
results of operations of our partner companies are reported within two segments: the core
reporting segment and the other holdings reporting segment. The core reporting segment includes
those partner companies in which ICGs management takes a very active role in providing strategic
direction and management assistance. We devote significant expertise and capital to maximizing the
success of these core partner companies. The other holdings reporting segment includes partner
companies over which, in general, we have less influence because they are public companies and/or
we have a relatively small ownership stake in those partner companies.
The various interests that we acquire in our partner companies are accounted for under one of three
accounting methods: the consolidation method, the equity method or the cost method. The applicable
accounting method is generally determined based on our voting interest in a partner company.
Generally, if we own more than 50% of the outstanding voting securities of a partner company, and
other stockholders do not possess the right to affect the significant management decisions of that
partner company, the partner companys accounts are reflected within our Consolidated Financial
Statements. Generally, if we own between 20% and 50% of the outstanding voting securities of a
partner company, that partner companys accounts are not reflected within our Consolidated
Financial Statements, but our share of the earnings or losses of the partner company is reflected
in the caption Equity loss in our consolidated statements of operations. Partner companies not
accounted for under either the consolidation or the equity method of accounting are accounted for
under the cost method of accounting. Under this method, our share of the earnings or losses of
these companies is not included in our consolidated statements of operations.
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Because we own significant interests in software and services companies, many of which have
generated net losses, we have experienced, and expect to continue to experience, significant
volatility in our quarterly results. While many of our partner companies have consistently
reported losses, we have recorded net income in certain periods and experienced significant
volatility from period-to-period due to infrequently occurring transactions and other events
relating to our ownership interests in partner companies. These transactions and events are
described in more detail in our Notes to Consolidated Financial Statements included hereto and
include dispositions of, changes to and impairment of our partner company ownership interests,
dispositions of our holdings of marketable securities and debt repurchases.
Liquidity and Capital Resources
The following table summarizes our and our consolidated subsidiaries cash and cash equivalents,
restricted cash, and marketable securities as of September 30, 2009 and December 31, 2008:
September 30, 2009 | December 31, 2008 | |||||||||||||||||||||||
Consolidated | Consolidated | |||||||||||||||||||||||
Corporate | Subsidiaries | Total | Corporate | Subsidiaries | Total | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Cash and cash equivalents |
$ | 56,243 | $ | 20,985 | $ | 77,228 | $ | 73,208 | $ | 16,087 | $ | 89,295 | ||||||||||||
Restricted cash |
| 240 | 240 | | 232 | 232 | ||||||||||||||||||
$ | 56,243 | $ | 21,225 | $ | 77,468 | $ | 73,208 | $ | 16,319 | $ | 89,527 | |||||||||||||
Marketable securities (1) |
$ | 68,116 | $ | | $ | 68,116 | $ | 63,918 | $ | | $ | 63,918 |
(1) | Includes a contributing asset of $0.6 million and $6.5 million at
September 30, 2009 and December 31, 2008, respectively, related to derivative instruments
associated with the Companys marketable securities. |
We believe existing cash and cash equivalents and proceeds from the potential sales of all or a
portion of our interests in certain marketable securities and partner companies to be sufficient to
fund our cash requirements for the foreseeable future, including any future commitments to partner
companies, debt obligations and general operating requirements. As of the date of this filing, we
were not obligated for any material funding and guarantee commitments to existing partner
companies. We will continue to evaluate acquisition opportunities and may acquire additional
ownership interests in new and existing partner companies in the next twelve months; however, such
acquisitions will generally be made at our discretion.
ICG Commerce and Investor Force fund their operations through a combination of cash flow from
operations, borrowings and equity issuances. ICG Commerce expects that its existing cash balance
and cash flow from operations will be sufficient to fund its operations for the next twelve months,
while Investor Force is likely to require additional borrowings and/or equity issuances to fund its
operations through the next twelve months.
Consolidated
working capital decreased by $3.6 million from December 31, 2008 to September 30,
2009, primarily due to fundings to partner companies and the payment of bonuses, offset by
distributions from sales of partner companies and sales of Blackboard common stock.
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Summary of Statements of Cash Flows
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
(in thousands) | ||||||||
Cash provided by (used in) operating activities |
$ | (8,566 | ) | $ | (14,376 | ) | ||
Cash provided by (used in) investing activities |
$ | (3,312 | ) | $ | 243 | |||
Cash provided by (used in) financing activities |
$ | (582 | ) | $ | 588 |
Cash used in operating activities during the nine months ended September 30, 2009, decreased from
the comparable nine months in 2008. The most significant difference was a net decrease in other
income by $25.3 million related to the sale of Creditex in 2008, partially offset by sales of
Blackboard common stock in 2009. Additionally, although equity loss decreased from the prior year,
the Company recognized higher impairments during the nine months ended September 30, 2009.
The change from cash provided by investing activities of $0.2 million for the nine months ended
September 30, 2008, to cash used in investing activities of $(3.3) million during the nine months
ended September 30, 2009, was related primarily to fewer cash proceeds received from sales of
marketable securities in 2009 than the 2008 period, partially offset by a decrease in funds used to
acquire ownership interests in partner companies during the nine months ended September 30, 2009.
The change from cash provided by financing activities for the nine months ended September 30, 2008,
to cash used in financing activities during the nine months ended September 30, 2009 is the result
of long-term debt borrowings in 2008.
We and our consolidated subsidiaries are involved in various claims and legal actions arising in
the ordinary course of business. We do not expect the ultimate liability with respect to these
actions to materially affect our financial position or cash flows.
Contractual Cash Obligations and Commercial Commitments
We had no material changes to contractual cash obligations and commercial commitments for the three
and nine months ended September 30, 2009.
Off-Balance Sheet Arrangements
We are not involved in any off-balance sheet arrangements that have or are reasonably likely to
have a material future effect on our financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources.
Our Partner Companies
As of September 30, 2009, we owned interests in 14 partner companies that are categorized below
based on segment and method of accounting.
CORE PARTNER COMPANIES (% Voting Interest) | ||||
Consolidated | Equity | Cost | ||
ICG Commerce (64%)
|
Channel Intelligence (50%) | (none) | ||
Investor Force (81%)
|
Freeborders (31%) | |||
Metastorm (33%) | ||||
StarCite (36%) | ||||
WhiteFence (36%) |
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OTHER HOLDINGS COMPANIES (% Voting Interest) | ||||
Consolidated | Equity | Cost | ||
(none)
|
Acquirgy (25%) | Anthem (9%) | ||
ClickEquations (33%) | Captive Capital (5%) | |||
GoIndustry (26%)(1) | Jamcracker (2%) | |||
Tibersoft (5%) |
(1) | As of September 30, 2009 and November 2, 2009, we owned 254,674,377 shares, or approximately 26% of the voting
securities,
of GoIndustry. GoIndustrys common stock is traded on the AIM market of the London Stock Exchange under ticker symbol
GOI. See Note 3 Ownership Interests in Partner Companies and Goodwill to our Consolidated Financial Statements. |
Results of Operations
The following table summarizes the unaudited selected financial information related to our
segments. Each segment includes the results of our consolidated partner companies and records our
share of the earnings and losses of partner companies accounted for under the equity method of
accounting. The partner companies included within the segments are the same 14 partner companies
for 2009 and 2008. The method of accounting for any particular partner company may change based on
our ownership interest.
Corporate expenses represent the general and administrative expenses of our business operations,
which include supporting the partner companies and operating as a public company. The Total
Segment net loss does not include items such as gains on the disposition of partner company
ownership interests and marketable securities holdings, losses on convertible note repurchases and
transactions, income taxes, accounting changes and impairment charges associated with partner
companies, which are reflected in Other reconciling items in the information that follows.
Segment Information | ||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Reconciling Items | ||||||||||||||||||||||||
Other | Total | Consolidated | ||||||||||||||||||||||
Core | Holdings | Segment | Corporate | Other | Results | |||||||||||||||||||
For the Three
Months Ended
September 30, 2009 |
||||||||||||||||||||||||
Revenues |
$ | 22,572 | $ | | $ | 22,572 | $ | | $ | | $ | 22,572 | ||||||||||||
Net income (loss) |
$ | (1,742 | ) | $ | (638 | ) | $ | (2,380 | ) | $ | (3,366 | ) | $ | 8,817 | $ | 3,071 | ||||||||
For the Three
Months Ended
September 30, 2008 |
||||||||||||||||||||||||
Revenues |
$ | 17,104 | $ | | $ | 17,104 | $ | | $ | | $ | 17,104 | ||||||||||||
Net income (loss) |
$ | (7,886 | ) | $ | (900 | ) | $ | (8,786 | ) | $ | (3,803 | ) | $ | 35,087 | $ | 22,498 | ||||||||
For the Nine
Months Ended
September 30, 2009 |
||||||||||||||||||||||||
Revenues |
$ | 66,301 | $ | | $ | 66,301 | $ | | $ | | $ | 66,301 | ||||||||||||
Net income (loss) |
$ | (6,040 | ) | $ | (2,398 | ) | $ | (8,438 | ) | $ | (12,057 | ) | $ | 4,012 | $ | (16,483 | ) | |||||||
For the Nine
Months Ended
September 30, 2008 |
||||||||||||||||||||||||
Revenues |
$ | 50,707 | $ | | $ | 50,707 | $ | | $ | | $ | 50,707 | ||||||||||||
Net income (loss) |
$ | (20,088 | ) | $ | (1,834 | ) | $ | (21,922 | ) | $ | (13,847 | ) | $ | 39,419 | $ | 3,650 |
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For the Three and Nine Months Ended September 30, 2009 and 2008
Results of Operations Core Companies
The following presentation of the Results of Operations Core Companies includes the results of
our consolidated core partner companies and our share of the results of our equity method core
partner companies.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(in thousands) | ||||||||||||||||
Selected data: | ||||||||||||||||
Revenues |
$ | 22,572 | $ | 17,104 | $ | 66,301 | $ | 50,707 | ||||||||
Cost of revenue |
(14,402 | ) | (11,580 | ) | (42,205 | ) | (34,526 | ) | ||||||||
Selling, general and
administrative |
(4,895 | ) | (4,271 | ) | (14,364 | ) | (11,614 | ) | ||||||||
Research and development |
(2,178 | ) | (3,219 | ) | (7,418 | ) | (7,455 | ) | ||||||||
Impairment related and other |
(169 | ) | (197 | ) | (393 | ) | (389 | ) | ||||||||
Operating expenses |
(21,644 | ) | (19,267 | ) | (64,380 | ) | (53,984 | ) | ||||||||
Interest and other |
(547 | ) | (603 | ) | (265 | ) | (803 | ) | ||||||||
Equity loss |
(2,123 | ) | (5,120 | ) | (7,696 | ) | (16,008 | ) | ||||||||
Net loss |
$ | (1,742 | ) | $ | (7,886 | ) | $ | (6,040 | ) | $ | (20,088 | ) | ||||
Revenue
Revenue increased $5.5 million to $22.6 million in the three months ended September 30, 2009 from
$17.1 million in the comparable period of 2008. This revenue increase was primarily driven by a
40% increase in revenues at ICG Commerce for the third quarter of 2009 from the comparable period
in 2008 from new and existing customers, as well as a lesser increase at Investor Force for the
three months ended September 30, 2009 compared to the 2008 period.
Revenue increased $15.6 million to $66.3 million in the nine months ended September 30, 2009 from
$50.7 million in the nine months ended September 30, 2008.
This increase relates primarily to a 27% increase in new and existing customer revenue at ICG Commerce for the nine months ended
September 30, 2009 from the comparable period of 2008, and also reflects the consolidation of
Vcommerce for eight months in the 2009 period compared with the consolidation of Vcommerce for only
five months in 2008.
Operating Expenses
Operating
expenses increased $2.4 million, from $19.3 million in the three months ended September
30, 2008, to $21.6 million in the three months ended September 30, 2009. This primarily relates to
the increase in cost of revenues and selling, general and administrative expenses. These costs at
ICG Commerce increased 30% from the 2008 period primarily due to an increase in headcount from the
2008 period needed to service new customers and an increase in
professional service fees in the three months ended
September 30, 2009. Selling, general and administrative expenses
increased at Investor Force in the 2009 period from the 2008 period; the increase related to the
hiring of certain additional key personnel in late 2008 and early 2009. The increases in cost of
revenues and selling, general and administrative were offset slightly by a decrease in research and
development costs, primarily related to cost reduction efforts at Vcommerce.
Operating expenses for the nine months ended September 30, 2009 increased $10.4 million to $64.4
million, from $54.0 million for the nine months ended September 30, 2008. Cost of revenues and
selling, general and administrative expenses increased by 23% at ICG Commerce in the nine months
ended September 30, 2009 compared with the 2008 period. These increases were primarily driven by
increased headcount needed to service new customers and increased
professional service fees. Additionally, an increase of approximately $0.8 million in selling, general and
administrative expenses
at Investor Force was the result of hiring certain additional key personnel in late 2008 and early
2009 as well as increased expenses associated with servicing new customers in the nine months ended September 30,
2009 compared with the same nine months of 2008.
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Equity Loss
A portion of our net results from our core partner companies is derived from those partner
companies in which we hold a substantial minority ownership interest. Our share of the income or
losses of these companies is recorded in our Consolidated Statement of Operations under Equity
loss.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(in thousands) | ||||||||||||||||
Selected data: |
||||||||||||||||
Total revenues |
$ | 45,457 | $ | 52,850 | $ | 138,181 | $ | 143,558 | ||||||||
Total net loss |
$ | (3,910 | ) | $ | (8,864 | ) | $ | (16,717 | ) | $ | (39,161 | ) | ||||
Our share of total
net loss (equity
loss) |
$ | (2,123 | ) | $ | (5,120 | ) | $ | (7,696 | ) | $ | (16,008 | ) |
Our share of net loss decreased in 2009 from 2008 due to aggregate improved results at our core
partner companies, many of which reported decreases in their net loss during the three and nine
months ended September 30, 2009 as compared to the three and nine months ended September 30, 2008.
Results of Operations Other Holdings Companies
The following presentation of the Results of Operations Other Holdings Companies includes the
results of our consolidated other holdings partner companies, if any, and our share of the results
of our equity method other holdings partner companies.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(in thousands) | ||||||||||||||||
Selected data: |
||||||||||||||||
Equity income (loss) |
$ | (638 | ) | $ | (900 | ) | $ | (2,398 | ) | $ | (1,834 | ) | ||||
Net loss |
$ | (638 | ) | $ | (900 | ) | $ | (2,398 | ) | $ | (1,834 | ) | ||||
Equity income (loss) primarily relates to our share of GoIndustrys and ClickEquations results.
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Results of Operations Reconciling Items
Corporate
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(in thousands) | ||||||||||||||||
General and administrative |
$ | (3,452 | ) | $ | (4,065 | ) | $ | (12,357 | ) | $ | (15,214 | ) | ||||
Interest income
(expense), net |
86 | 262 | 300 | 1,367 | ||||||||||||
Net loss |
$ | (3,366 | ) | $ | (3,803 | ) | $ | (12,057 | ) | $ | (13,847 | ) | ||||
General and Administrative
Our general and administrative expenses decreased $0.6 million for the three months ended September
30, 2009 from the comparable 2008 period, primarily due to a $1.0 million decrease in equity-based
compensation, a $0.1 million decrease in marketing costs and a $0.1 million decrease in insurance
premiums, partially offset by a $0.6 million increase in
employee-related expenses, primarily bonuses.
These
expenses decreased $2.9 million for the nine months ended September 30, 2009, to $12.4
million, from $15.2 million for the nine months ended September 30, 2008. This decrease is the
result of a $2.1 million decrease in equity-based compensation, a $0.3 million reduction in
employee travel expenses, a $0.2 million reduction in
professional service fees, and a $0.1 million decrease in both
insurance premiums and reporting costs.
Interest Income/Expense
The interest income, net, decreased $0.2 million and $1.1 million for the three and nine months
ended September 30, 2009, respectively, from the comparable 2008 periods. This decrease is
attributable to lower interest rate yields in the 2009 periods than those realized during the 2008
periods.
Other
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(in thousands) | ||||||||||||||||
Corporate other income (loss) |
$ | 10,220 | $ | 34,791 | $ | 10,438 | $ | 40,237 | ||||||||
Corporate income tax benefit (expense) |
| 330 | | 330 | ||||||||||||
Noncontrolling interest |
(277 | ) | (34 | ) | (1,006 | ) | (1,148 | ) | ||||||||
Impairment of GoIndustry (Other Holdings) |
| | (544 | ) | | |||||||||||
Impairment of Vcommerce (Core) |
(1,126 | ) | | (4,876 | ) | | ||||||||||
Net income (loss) |
$ | 8,817 | $ | 35,087 | $ | 4,012 | $ | 39,419 | ||||||||
Corporate Other Income (Loss), Net
Corporate other income in the three months ended September 30, 2009 of $10.2 million was the result
of the $14.0 million gain on the sale of Blackboard common stock, offset by a loss of
$3.4 million in the value of our Blackboard hedges during the quarter and the dilution loss
recognized for GoIndustry of $0.4 million resulting from the
GoIndustry financing transactions during the three-month period. Corporate other income of $34.8 million during the
three months ended
September 30, 2008 was primarily driven by the sale of Creditex to ICE, and the subsequent sale of
ICE common stock received in connection with the Creditex transaction.
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The $10.4 million corporate other income for the nine months ended September 30, 2009 relates to
the $14.2 million gain on the sales of marketable securities,
primarily Blackboard, and $2.6 million gain on proceeds from
the previous disposition of partner companies, offset by a $6.0 million year-to-date loss on the
value of our Blackboard hedges and a $0.4 million dilution loss resulting from the GoIndustry
financing transactions during the quarter ended September 30,
2009. Comparatively, year-to-date gains on the value
our Blackboard hedges during the 2008 nine month period were $0.6 million, coupled with gains of
$38.0 million from sales of partner companies for the period, including $34.8 million for the sale
of Creditex, and proceeds on the sale of ICE common stock in the amount of $1.4 million for the
nine months ended September 30, 2008.
Noncontrolling Interest
The change in noncontrolling interest, formerly minority interest, in the nine months ended
September 30, 2009 from the comparable 2008 period is primarily
related to the adoption of revised guidance regarding noncontrolling
interests on January 1, 2009, which amended existing guidance to require the noncontrolling interest to
recognize its share of losses even if the result is a deficit noncontrolling interest balance.
Previous guidance required the noncontrolling interest to reflect losses only up to the
noncontrolling interest in the equity capital of the subsidiary and any excess was charged against
the controlling interest. This guidance is being applied prospectively from our
adoption date, January 1, 2009.
Impairments
We recorded $1.1 million and $5.4 million of impairment charges related to our partner companies
during the three and nine months ended September 30, 2009, respectively. During the three months
ended June 30, 2009, the Company concluded that the estimated fair value of the partner company had
declined and recorded an impairment charge of $3.8 million to reduce the carrying amount of
Vcommerce to the amount of proceeds expected in a potential sale of Vcommerce at that time. In
August 2009, following Vcommerces sale of substantially all of its assets, the Company recorded an
impairment charge of $1.1 million to write off the remaining basis of Vcommerce. An impairment
charge of $0.5 million was recorded during the three months ended March 31, 2009 to the basis in
GoIndustry related to the current market value.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with GAAP. The
preparation of these financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those
related to our interests in our partner companies, marketable securities, revenues, income taxes
and commitments and contingencies. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities. Actual
results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies are important to the presentation of our
financial statements and require the most difficult, subjective and complex judgments.
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Valuation of Goodwill, Intangible Assets and Ownership Interests in Partner Companies
We perform ongoing business reviews and annual goodwill impairment tests in accordance with
accounting guidance for intangibles, goodwill and other, and other impairment tests in accordance
with guidance contained within the ASC for investments equity method and joint venture, as well
as property, plant, and equipment. We use quantitative and qualitative measures to assess the need
to record impairment losses on goodwill, intangible assets and ownership interests in our partner
companies when impairment indicators
are present. Where impairment indicators are present, we determine the amount of the
impairment charge as the excess of the carrying value over the fair value. We determine fair value using a
combination of the discounted cash flow methodology, which is based upon converting expected future
cash flows to present value, and the market approach, which includes analysis of market price
multiples of companies engaged in lines of business similar to the company being evaluated. The
market price multiples are selected and applied to the company based on relative performance,
future prospects and risk profile of the company in comparison to the guideline companies.
Significant assumptions relating to future operating results must be made when estimating the
future cash flows associated with these companies. Significant assumptions relating to achievement
of business plan objectives and milestones must be made when evaluating whether impairment
indicators are present. Should unforeseen events occur or should operating trends change
significantly, additional impairment losses could occur.
Revenue Recognition
ICG Commerce may assume all or a part of a customers procurement function as part of sourcing
arrangements. Typically, in these engagements, ICG Commerce is paid a fixed fee agreed upon in
advance and/or a fee based on a percentage of the amount spent by its customers respective
purchasing departments in the specified areas ICG Commerce manages. Additionally, in some cases,
ICG Commerce has the opportunity to earn additional fees based on the level of savings achieved for
customers. ICG Commerce recognizes revenue and any additional fees as earned, which is typically
over the life of the customer contract, which approximates the life of the customer relationship.
Initial direct costs, such as implementation expenses related to certain customer contracts, are
expensed as incurred.
Equity Income/Loss
We record our share of our partner companies net income/loss, which is accounted for under the
equity method of accounting as equity income/loss. This equity income/loss is based on unaudited
results of operations of our partner companies and may require adjustment in the future when the
audits of our partner companies are complete. The compilation and review of these results of
operations require significant judgment and estimates by management.
Deferred Income Taxes
We record a valuation allowance to reduce our net deferred tax assets to an amount that is more
likely than not to be realized. We consider future taxable income and prudent and feasible tax
planning strategies in determining the need for a valuation allowance. In the event that we
determine that we would not be able to realize all or part of our net deferred tax assets, an
adjustment to the deferred tax assets is charged to earnings in the period such determination is
made. Likewise, if we later determine that it is more likely than not that the net deferred tax
assets would be realized, the previously provided valuation allowance would be reversed.
Commitments and Contingencies
From time to time, we are a defendant or plaintiff in various legal actions that arise in the
normal course of business. From time to time, we are also a guarantor of various third-party
obligations and commitments. We are required to assess the likelihood of any adverse judgments or
outcomes to these matters, as well as potential ranges of probable losses. A determination of the
amount of reserves required for these contingencies, if any, which would be charged to earnings, is
made after careful analysis of each individual matter. The required reserves may change in the
future due to new developments in each matter or changes in circumstances, such as a change in
settlement strategy. Changes in required reserves could increase or decrease our earnings in the
period the changes are made.
Fair Value Measurements
In
September 2006, the FASB issued guidance for fair value
measurements that clarifies the definition of fair value, establishes a three-tier hierarchy framework for
measuring fair value and expands the disclosures on fair value
measurements. In accordance with this guidance, our
marketable securities are reported at fair value on our consolidated balance sheet based on quoted
prices in active markets for identical or comparable assets. See Note
5, Financial Instruments to our Consolidated
Financial Statements.
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Recent Accounting Pronouncements
The FASB released the ASC on July 1, 2009 as the single source of authoritative nongovernmental
GAAP, superseding existing FASB, AICPA, EITF, and related accounting literature. The ASC became
effective for the Company beginning with the interim period ending September 30, 2009. The
adoption of the ASC resulted in changes to all references to authoritative accounting literature
throughout our consolidated financial statements to be consistent with the ASC.
In December 2007, the FASB issued revised guidance for the accounting for business combinations.
The revised guidance, contained within ASC 805, Business Combinations, requires most identifiable
assets, liabilities, noncontrolling interests and goodwill acquired in a business combination to be
recorded at full fair value. At adoption on January 1, 2009, our consolidated financial
statements were not impacted by this guidance, which will be applied to business combinations
occurring on or after that date.
In December 2007, the FASB issued accounting guidance contained within ASC 810, Consolidation,
which requires noncontrolling interests (previously referred to as minority interests) to be
reported as a component of equity and changes the accounting for transactions with noncontrolling
interest holders. At adoption on January 1, 2009, our consolidated financial statements were not
materially impacted by this guidance, other than the presentation of noncontrolling interests in
our consolidated financial statements. This guidance is being applied prospectively to all
noncontrolling interests, including any that arose before the adoption date. See Other
Consolidated Company Information in Note 3, Ownership Interests in Partner Companies and
Goodwill.
In March 2008, the FASB issued new guidance on the disclosure of derivative instruments and hedging
activities. This guidance, included in ASC 815, Derivatives and Hedging Activities, requires
enhanced disclosures to enable financial statement users to better understand the effects of
derivatives and hedging on an entitys financial position, financial performance and cash flows.
At adoption on January 1, 2009, our consolidated financial statements were not materially impacted
by this guidance.
In June 2008, the FASB ratified guidance contained in ASC 815, Derivatives and Hedging, which
clarifies the determination of whether an instrument (or an embedded feature) is indexed to an
entitys own stock and would therefore qualify as a scope exception to derivative accounting. At
adoption on January 1, 2009, our consolidated financial statements were not materially impacted by
this guidance.
In November 2008, the FASB ratified guidance included in ASC 323, Investments Equity Method and
Joint Ventures, which clarifies how to account for certain transactions involving equity method
companies. Specifically, it addresses the initial measurement, decreases in value and changes in
the level of ownership of equity method companies. At adoption on January 1, 2009, our
consolidated financial statements were not materially impacted by this guidance.
In April 2009, the FASB issued guidance included in ASC 825, Financial Instruments. This
guidance requires disclosures about fair value of financial instruments for interim reporting
periods of publicly traded companies as well as in annual financial statements. At adoption
beginning with the interim period ended June 30, 2009, our consolidated financial statements were
not materially impacted by this guidance.
In April 2009, the FASB issued new guidance for the accounting of other-than-temporary impairments.
This guidance, which is included in ASC 320, Investments Debt and Equity Securities, is
intended to bring greater consistency to the timing of impairment recognition and provide greater
clarity to investors about the credit and noncredit components of impaired debt securities that are
not expected to be sold. This guidance also requires increased and timelier disclosures regarding
expected cash flows, credit losses, and an aging of securities with unrealized losses. At adoption
beginning with the interim period ended June 30, 2009, our consolidated financial statements were
not materially impacted by this guidance.
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In April 2009, the FASB issued additional guidance for fair value measurement, which is part of ASC
820, Fair Value Measurements and Disclosures and provides guidance on how to determine the fair
value of assets and liabilities when the volume and level of activity for the asset/liability has
significantly decreased. This guidance also identifies circumstances that indicate a transaction
is not orderly. In addition, this guidance requires disclosure in interim and annual periods of
the inputs and valuation techniques used to measure fair value and a discussion of changes in
valuation techniques. At adoption beginning with the interim period ended June 30, 2009, our
consolidated financial statements were not materially impacted by this guidance.
In May 2009, the FASB issued new guidance for accounting for subsequent events. This guidance,
included in ASC 855, Subsequent Events, establishes general standards of accounting for and
disclosures of events that occur after the balance sheet date but before financial statements are
issued or are available to be issued. In particular, this guidance establishes that entities must
evaluate subsequent events through the date the financial statements are issued, the circumstances
under which a subsequent event should be recognized, and the circumstances for which a subsequent
event should be disclosed. It also requires the Company to disclose the date through which
subsequent events were evaluated. At adoption beginning with the interim period ended June 30,
2009, our consolidated financial statements were not impacted by this guidance. We evaluated
subsequent events through November 6, 2009, the date the consolidated financial statements as of
and for the period ended September 30, 2009 were issued.
In June 2009, the FASB issued accounting guidance as SFAS No. 167, Amendments to FASB
Interpretation No. 46(R), which has not yet been adopted into the ASC. The revised guidance
requires former qualifying special-purpose entities to be evaluated for consolidation, changes
the approach to determining a variable interest entitys primary beneficiary and the frequency with
which reassessments of this determination should be made, and requires additional disclosures
related to these items. This guidance will become effective for the Company beginning on January
1, 2010. We are currently evaluating the impact this standard will have on its consolidated
financial statements.
ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to equity price risks on the marketable portion of our equity securities. Our
public holdings at September 30, 2009 include equity positions in companies in sectors that have
experienced significant historical volatility in their stock prices. A 20% adverse change in
equity prices, based on a sensitivity analysis of our public holdings as of September 30, 2009,
would result in a decrease of approximately $12.4 million in the fair value of our public holdings.
Through September 30, 2009, the Company has entered into cashless collar contracts with various
expiration dates in 2010 to hedge 1,625,000 shares of its total holdings of 1,787,060 shares of
Blackboard common stock at weighted average minimum and maximum prices per share of $24.27 and
$56.35, respectively. Each of these contracts limits the Companys exposure to price declines in
the underlying equity securities. Additionally, each of these contracts limits the Companys
maximum benefits from price increases in the underlying equity securities.
ICG Commerce conducts a portion of its business in foreign currencies, primarily those of European
countries and may utilize derivative financial instruments, specifically fair value hedges, to
manage foreign currency risks. In accordance with GAAP, gains and losses related to fair value
hedges are recognized in income along with adjustments of carrying amounts of the hedged items.
Therefore, its put option is marked to market, and unrealized gains and losses are included in
current period net income. These options provide a predetermined rate of exchange at the time the
option is purchased and allows ICG Commerce to minimize the risk of currency fluctuations. In
determining the use of its put option, ICG Commerce considers the amount of sales and purchases
made in local currencies, the type of currency and the costs associated with the contracts. During
the three months ended September 30, 2009, ICG Commerce purchased a put option to mitigate the risk of currency fluctuations at ICG Commerces
operations in the United Kingdom. This option is net settled quarterly, resulting in an immaterial
loss for the current quarter.
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Cash and cash equivalents, accounts receivable and accounts payable are carried at cost, which
approximates fair value due to the short-term maturity of these instruments. Marketable securities
are carried at fair value.
ITEM 4. | Controls and Procedures |
Controls and Procedures
Managements Quarterly Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of management,
including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period
covered in this Report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of the end of the period covered in this Report, our
disclosure controls and procedures have been designed and are effective to provide reasonable
assurance that information required to be disclosed in the Companys periodic SEC reports is
recorded, processed, summarized and reported within the time periods specified in the relevant SEC
rules and forms and is accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding require
disclosure.
Inherent Limitations on Effectiveness of Controls
The design of any system of control is based upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in achieving its stated
objectives under all future events, no matter how remote, that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures
may not deteriorate. Because of their inherent limitations, systems of control may not prevent or
detect all misstatements. Accordingly, even effective systems of control can provide only
reasonable assurance of achieving their control objectives.
Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred during the
quarter covered by this Report that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. | Legal Proceedings |
In May and June 2001, certain of the Companys present directors, along with the Company, certain
of its former directors, certain of its present and former officers and its underwriters, were
named as defendants in nine class action complaints filed in the United States District Court for
the Southern District of New York. The plaintiffs and the putative classes they seek to represent
include present and former stockholders of the Company. The complaints generally allege violations
of Sections 11 and 12 of the Securities Act of 1933, as amended (the Securities Act), and
Rule 10b-5 promulgated under the Exchange Act, based on, among other things, the dissemination of
statements allegedly containing material misstatements and/or omissions concerning the commissions
received by the underwriters of the initial public offering and follow-on public offering of the
Company as well as failure to disclose the existence of purported agreements by the underwriters
with some of the purchasers in these offerings to buy additional shares of the Companys stock
subsequently in the open market at pre-determined prices above the initial offering prices. The
plaintiffs seek for themselves and the alleged class members an award of damages and litigation
costs and expenses. The claims in these cases have been consolidated for pre-trial purposes
(together with claims against other issuers and underwriters) before one judge in the Southern
District of New York federal court. In April 2002, a consolidated, amended complaint was filed
against these defendants which generally alleges the same violations and also refers to alleged
misstatements or omissions that relate to the recommendations regarding the Companys stock by
analysts employed by the underwriters. In June and July 2002, defendants, including the Company
defendants, filed motions to dismiss plaintiffs complaints on numerous grounds. The Companys
motion was denied in its entirety in an opinion dated February 19, 2003. In July 2003, a committee
of the Companys Board of Directors approved a proposed settlement with the plaintiffs in this
matter, which was preliminarily approved by the District Court overseeing the litigation in
February 2005. A final fairness hearing on the settlement was held on April 24, 2006. On December
5, 2006, however, the Second Circuit Court of Appeals reversed the certification of plaintiff
classes in six actions related to other issuers that had been designated as test cases with respect
to the non-settling defendants in those matters (the Focus Cases) and made other rulings that
drew into question the legal viability of the claims in the Focus Cases. The Court of Appeals
later rejected the plaintiffs request that it reconsider that decision. As a result, on June 25,
2007, the District Court approved a stipulation and order terminating the proposed settlement.
While the Court of Appeals decision did not automatically apply to the case against the Company,
the defendants moved for, and the Court granted, an order that would apply the decision to all
cases, including the consolidated action against the Company. On August 14, 2007, the plaintiffs
filed an amended master complaint containing allegations purportedly common to all defendants in
all actions and filed amended complaints containing specific allegations against the six issuer
defendants in the Focus Cases. In addition, on September 27, 2007, the plaintiffs again moved to
certify classes in each of the Focus Cases. The defendants in the Focus Cases moved to dismiss the
amended complaints. Rulings on both the motion to certify the Focus Cases as class actions and to
dismiss those cases remain outstanding. The District Court has approved a stipulation extending the
time within which the plaintiffs must file amended pleadings containing specific allegations
against the other issuer defendants, including the Company, and the time within which those
defendants must move, answer or otherwise respond to those specific allegations.
On April 2, 2009, the plaintiffs filed a motion for preliminary approval of a proposed global
settlement of all claims asserted in the coordinated class action securities litigation on behalf
of the class plaintiffs in the respective actions against the various issuer and underwriter
defendants, including all claims asserted against the Company. The motion further seeks
certification of settlement classes as to each action against the defendants, including the
Company. The Company has assented to the proposed settlement, which does not require any monetary
contribution from the Company and would be funded by various underwriter defendants and
the defendants insurers. On June 10, 2009, the District Court granted preliminary approval to the
proposed settlement and to the form of notice of the proposed settlement to be provided to members
of the proposed settlement class. The District Court scheduled a hearing for September 10,
2009 to determine whether to approve the proposed settlement.
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The final hearing was held on September 10, 2009. On October 5, 2009, the District Court granted
final approval of the proposed settlement, subject to the rights of the parties to appeal the
settlement within 30 days of such approval. Pursuant to the terms of the approved settlement, the
Company is not required to make any monetary contribution to fund the required settlement payments,
which are being funded by various underwriter defendants and the defendants insurers. On or about
October 23, 2009, three members of the settlement class who had been shareholders of an issuer
other than the Company filed a petition seeking leave to appeal the District Courts final approval
to the Second Circuit Court of Appeals on an interlocutory basis. No judicial ruling or action has
been taken on the motion.
ITEM 1A. | Risk Factors |
In addition to the other information set forth in this Report, you should carefully consider the
factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year
ended December 31, 2008, which could materially affect our business, financial condition or future
results. The risks described in our Annual Report on Form 10-K are not the only risks facing us.
Additional risks and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial condition or operating
results. There have been no material changes with respect to the Companys risk factors previously
disclosed in its Annual Report on Form 10-K for the year ended December 31, 2008.
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ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Issuer Purchases of Equity Securities
During 2008, the Company announced the approval by its Board of Directors of a share repurchase
program under which the Company could repurchase, from time to time, up to $25.0 million of shares
of its Common Stock in the open market, in privately negotiated transactions or pursuant to trading
plans meeting the requirements of Rule 10b5-1 under the Exchange Act. The table below contains
information relating to the repurchases of Company Common Stock that occurred from commencement of
this program through the date of the filing of this Report.
Total Number of | Approximate Dollar | |||||||||||||||
Shares Purchased as | Value That May Yet | |||||||||||||||
Part of Publicly | Be Purchased | |||||||||||||||
Total Number of | Average Price Paid | Announced | Under the | |||||||||||||
Monthly Period | Shares Purchased(1) | per Share(2) | Program(1) | Program | ||||||||||||
7/25/08 to 7/31/08 |
0 | | 0 | $ | 20.0 million | |||||||||||
8/1/08 to 8/31/08 |
0 | | 0 | $ | 20.0 million | |||||||||||
9/1/08 to 9/30/08 |
29,800 | $ | 7.96 | 29,800 | $ | 19.8 million | ||||||||||
10/1/08 to 10/31/08 |
468,993 | $ | 6.36 | 468,993 | $ | 16.8 million | ||||||||||
11/1/08 to 11/30/08 |
1,398,250 | $ | 4.18 | 1,398,250 | $ | 10.9 million | ||||||||||
12/1/08 to 12/31/08 |
51,115 | $ | 3.82 | 51,115 | $ | 15.7 million | ||||||||||
1/1/09 to 1/31/09 |
25,042 | $ | 3.98 | 25,042 | $ | 15.6 million | ||||||||||
2/1/09 to 2/28/09 |
67,200 | $ | 3.96 | 67,200 | $ | 15.4 million | ||||||||||
3/1/09 to 3/31/09 |
0 | | 0 | $ | 15.4 million | |||||||||||
4/1/09 to 4/30/09 |
0 | | 0 | $ | 15.4 million | |||||||||||
5/1/09 to 5/31/09 |
0 | | 0 | $ | 15.4 million | |||||||||||
6/1/09 to 6/30/09 |
0 | | 0 | $ | 15.4 million | |||||||||||
7/1/09 to 7/31/09 |
0 | | 0 | $ | 15.4 million | |||||||||||
8/1/09 to 8/31/09 |
0 | | 0 | $ | 15.4 million | |||||||||||
9/1/09 to 9/30/09 |
0 | | 0 | $ | 15.4 million | |||||||||||
10/1/09 to 10/31/09 |
0 | | 0 | $ | 15.4 million | |||||||||||
11/1/09 to 11/9/09 |
0 | | 0 | $ | 15.4 million | |||||||||||
Total |
2,040,400 | $ | 4.71 | 2,040,400 | $ | 15.4 million |
(1) | All shares purchased in open market transactions. |
|
(2) | Average price paid per share excludes commissions. |
ITEM 3. | Defaults Upon Senior Securities |
None.
ITEM 4. | Submission of Matters to a Vote of Security Holders |
None.
ITEM 5. | Other Information |
None.
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ITEM 6. | Exhibits |
Exhibit Index
Exhibit Number | Document | |||
11.1 | Statement Regarding Computation of Per Share Earnings
(included herein at Note 12 Net Income (Loss) per Share
to the Consolidated Financial Statements). |
|||
31.1 | Certification of Chief Executive Officer required by
Section 302 of the Sarbanes-Oxley Act of 2002, as amended. |
|||
31.2 | Certification of Chief Financial Officer required by
Section 302 of the Sarbanes-Oxley Act of 2002, as amended. |
|||
32.1 | Certification of the Chief Executive Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002, as amended. |
|||
32.2 | Certification of the Chief Financial Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002, as amended. |
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SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, the Company has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 9, 2009 | INTERNET CAPITAL GROUP, INC. |
|||
By: | /s/ R. Kirk Morgan | |||
Name: | R. Kirk Morgan | |||
Title: | Chief Financial Officer (Principal Financial and Accounting Officer) |
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EXHIBIT INDEX
Exhibit Number | Document | |||
11.1 | Statement Regarding Computation of Per Share Earnings
(included herein at Note 12 Net Income (Loss) per Share
to the Consolidated Financial Statements). |
|||
31.1 | Certification of Chief Executive Officer required by
Section 302 of the Sarbanes-Oxley Act of 2002, as amended. |
|||
31.2 | Certification of Chief Financial Officer required by
Section 302 of the Sarbanes-Oxley Act of 2002, as amended. |
|||
32.1 | Certification of the Chief Executive Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002, as amended. |
|||
32.2 | Certification of the Chief Financial Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002, as amended. |
46