Attached files
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EX-31.2 - EXHIBIT 31.2 - Actua Corp | c16759exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - Actua Corp | c16759exv32w1.htm |
EX-31.1 - EXHIBIT 31.1 - Actua Corp | c16759exv31w1.htm |
EX-32.2 - EXHIBIT 32.2 - Actua Corp | c16759exv32w2.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 March 31, 2011.
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 (State or other jurisdiction of incorporation or organization) |
23-2996071 (I.R.S. Employer Identification Number) |
|
690 Lee Road, Suite 310, Wayne, PA (Address of principal executive offices) |
19087 (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
May 2, 2011 was 37,085,074 shares.
INTERNET CAPITAL GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTERLY REPORT ON FORM 10-Q
INDEX
ITEM | PAGE NO. | |||||||
PART I FINANCIAL INFORMATION |
||||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
8 | ||||||||
9 | ||||||||
30 | ||||||||
39 | ||||||||
40 | ||||||||
PART II OTHER INFORMATION |
||||||||
41 | ||||||||
42 | ||||||||
43 | ||||||||
43 | ||||||||
43 | ||||||||
43 | ||||||||
44 | ||||||||
45 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
Our Internet website address is www.icg.com. Unless this Quarterly Report on Form 10-Q (this
Report) explicitly states otherwise, neither the information on our website, nor the information
on the website of any of the companies in which we hold convertible debt or equity ownership
interests (these companies are hereinafter referred to as our companies or ICGs 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 100 F Street, N.E., 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 website (www.sec.gov) that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC.
1
Table of Contents
Forward-Looking Statements
Forward-looking statements made with respect to our financial condition, 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 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 our companies customers; |
| our companies collective ability to compete successfully against their respective
competitors; |
| developments in the respective markets in which our companies operate and our
companies collective ability to respond to such changes in a timely and effective manner; |
| our and our companies collective ability to retain key personnel; |
| our ability to deploy capital effectively and on acceptable terms; |
| our ability to successfully integrate any acquired businesses, and any other
difficulties related to the acquisition of businesses; |
| the impact of any potential acquisitions, dispositions or other strategic transactions,
which may impact our operations, financial condition, capitalization or indebtedness; |
| our ability to maximize value in connection with divestitures; and |
| our ability to have continued access to capital and to manage 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, 2010, as well as other reports and registration statements filed by us with
the SEC.
2
Table of Contents
PART I FINANCIAL INFORMATION
Our Companies
The results of operations of our companies are reported within two segments: the core reporting
segment and the venture reporting segment. Our core reporting segment includes the companies in
which our management takes a very active role in providing strategic direction and management
assistance. We own majority controlling equity positions in (and therefore consolidate the
financial results of) three of these core companies, which we call our consolidated core
companies. We generally own substantial minority equity positions (i.e., the largest equity
positions) in our other core companies, which we call our equity core companies. We expect to
devote relatively large initial amounts of capital to acquire stakes in core companies,
particularly consolidated core companies, since any such acquisition would entail the deployment of
cash and/or the issuance of ICG stock to purchase a large equity stake in a target with relatively
strong financial characteristics and growth potential.
Our venture reporting segment includes companies (our venture companies) to which we generally
devote less capital than we do to our core companies and, therefore, in which we hold relatively
smaller ownership stakes than we do in our core companies. As a result, we generally have less
influence over the strategic direction and management decisions of our venture companies than we do
over those of our core companies.
At March 31, 2011, our consolidated core companies consisted of:
GovDelivery Holdings, Inc. (GovDelivery)
GovDelivery is a provider of government-to-citizen communication solutions. GovDeliverys digital
subscription management software-as-a-service (SaaS) platform enables government organizations to
provide citizens with access to relevant information by delivering new information through e-mail,
mobile text alerts, RSS and social media channels from U.S. and U.K. government entities at the
national, state and local levels.
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. (InvestorForce)
InvestorForce is a financial software company specializing in the development of online
applications for the financial services industry. InvestorForce 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. InvestorForces 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.
At March 31, 2011, our equity core 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.
3
Table of Contents
Freeborders, Inc. (Freeborders)
Freeborders is a provider of technology solutions and outsourcing from China. Freeborders provides
industry expertise to North American and European companies specializing in financial services,
technology, retail/consumer goods, manufacturing and transportation and logistics. Freeborders
offerings help companies seeking cost-effective technology solutions.
StarCite, Inc. (StarCite)
StarCite provides a comprehensive suite of software applications and services to the meeting and
events industry, driving 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.
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 March 31, 2011, our venture companies consisted of:
Acquirgy, Inc. (Acquirgy)
Acquirgy specializes in direct response marketing services and technology that provides customers a
wide range of direct marketing products and services to help market their products and services on
the Internet and through traditional media channels such as television, radio, and print
advertising.
ClickEquations, 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.
SeaPass Solutions Inc. (SeaPass)
SeaPass develops and markets processing solutions that enable insurance carriers, agents and
brokers to transmit and receive data in real time by leveraging existing systems to interact
automatically. The companys technology allows access to information in real time, which increases
efficiency across all lines of the insurance business.
4
Table of Contents
Item 1. | Financial Statements |
INTERNET CAPITAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
(in thousands, except per share data) | ||||||||
Assets |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 133,557 | $ | 92,438 | ||||
Restricted cash |
168 | 201 | ||||||
Accounts receivable, net of allowance ($719-2011;$716-2010) |
27,419 | 25,832 | ||||||
Deferred tax assets |
6,793 | 4,830 | ||||||
Income tax receivable |
| 6,314 | ||||||
Prepaid expenses and other current assets |
2,512 | 2,528 | ||||||
Total current assets |
170,449 | 132,143 | ||||||
Fixed assets, net of accumulated depreciation and amortization
($14,801-2011; $14,009-2010) |
6,000 | 5,991 | ||||||
Ownership interests |
53,986 | 83,829 | ||||||
Goodwill |
20,317 | 20,317 | ||||||
Intangibles, net |
13,495 | 13,832 | ||||||
Deferred tax assets |
18,592 | 22,973 | ||||||
Other assets, net |
4,765 | 1,904 | ||||||
Total Assets |
$ | 287,604 | $ | 280,989 | ||||
Liabilities |
||||||||
Current Liabilities |
||||||||
Current maturities of long-term debt |
$ | 5,328 | $ | 4,623 | ||||
Accounts payable |
1,875 | 1,973 | ||||||
Accrued expenses |
2,810 | 2,777 | ||||||
Accrued compensation and benefits |
6,227 | 15,327 | ||||||
Deferred revenue |
10,036 | 10,293 | ||||||
Total current liabilities |
26,276 | 34,993 | ||||||
Long-term debt |
13,693 | 15,458 | ||||||
Deferred revenue |
| 60 | ||||||
Other liabilities |
808 | 867 | ||||||
Total Liabilities |
40,777 | 51,378 | ||||||
Redeemable noncontrolling interest (Note 15) |
1,229 | 1,182 | ||||||
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, 39,521
shares (2011) and 39,439 shares (2010) issued |
40 | 39 | ||||||
Additional paid-in capital |
3,541,462 | 3,541,044 | ||||||
Treasury Stock, at cost, 2,440 shares (2011) and 2,440 shares (2010) |
(12,031 | ) | (12,031 | ) | ||||
Accumulated deficit |
(3,289,409 | ) | (3,305,299 | ) | ||||
Accumulated other comprehensive income |
34 | 54 | ||||||
Total Internet Capital Group, Inc.s Stockholders Equity |
240,096 | 223,807 | ||||||
Noncontrolling Interest |
5,502 | 4,622 | ||||||
Total Equity |
245,598 | 228,429 | ||||||
Total Liabilities and Equity |
$ | 287,604 | $ | 280,989 | ||||
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 March 31, | ||||||||
2011 | 2010 | |||||||
(in thousands, except per share data) | ||||||||
Revenues |
$ | 33,954 | $ | 25,755 | ||||
Operating expenses |
||||||||
Cost of revenue |
20,990 | 16,682 | ||||||
Selling, general and administrative |
11,587 | 10,434 | ||||||
Research and development |
3,129 | 2,424 | ||||||
Amortization of intangible assets |
337 | 339 | ||||||
Impairment related and other |
37 | 72 | ||||||
Total operating expenses |
36,080 | 29,951 | ||||||
Operating income (loss) |
(2,126 | ) | (4,196 | ) | ||||
Other income (loss), net |
24,946 | 40,296 | ||||||
Interest income |
84 | 61 | ||||||
Interest expense |
(146 | ) | (44 | ) | ||||
Income (loss) from continuing operations before income taxes, equity loss
and noncontrolling interest |
22,758 | 36,117 | ||||||
Income tax (expense) benefit |
(2,940 | ) | (616 | ) | ||||
Equity loss |
(3,576 | ) | (6,335 | ) | ||||
Income (loss) from continuing operations |
16,242 | 29,166 | ||||||
Income (loss) from discontinued operations |
| (22 | ) | |||||
Net income (loss) |
16,242 | 29,144 | ||||||
Less: Net income attributable to the noncontrolling interest |
352 | 373 | ||||||
Net income (loss) attributable to Internet Capital Group, Inc. |
$ | 15,890 | $ | 28,771 | ||||
Amounts attributable to Internet Capital Group, Inc.: |
||||||||
Net income (loss) from continuing operations |
$ | 15,890 | $ | 28,802 | ||||
Net income (loss) from discontinued operations |
| (31 | ) | |||||
Net income (loss) |
$ | 15,890 | $ | 28,771 | ||||
Basic income (loss) per share attributable to Internet Capital Group, Inc.: |
||||||||
Income (loss) from continuing operations |
$ | 0.43 | $ | 0.79 | ||||
Income (loss) from discontinued operations |
| | ||||||
Net income (loss) |
$ | 0.43 | $ | 0.79 | ||||
Shares used in computation of basic income (loss) per share |
36,944 | 36,305 | ||||||
Diluted income (loss) per share attributable to Internet Capital Group,
Inc.: |
||||||||
Income (loss) from continuing operations |
$ | 0.42 | $ | 0.79 | ||||
Income (loss) from discontinued operations |
| | ||||||
Net income (loss) |
$ | 0.42 | $ | 0.79 | ||||
Shares used in computation of diluted income (loss) per share |
37,991 | 36,346 | ||||||
See accompanying Notes to Consolidated Financial Statements.
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Table of Contents
INTERNET CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
Internet Capital Group, Inc. Stockholders Equity | ||||||||||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||||||||
Treasury Stock, | Additional | Other | Non- | |||||||||||||||||||||||||||||||||||
Common Stock | at cost | Paid-In | Accumulated | Comprehensive | controlling | |||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Income | Interest | Total | ||||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2009 |
38,796 | $ | 39 | (2,440 | ) | $ | (12,031 | ) | $ | 3,573,347 | $ | (3,351,888 | ) | $ | 71,198 | $ | 21,077 | $ | 301,742 | |||||||||||||||||||
Equity-based compensation related to stock
appreciation rights and stock options |
| | | | 514 | | | | 514 | |||||||||||||||||||||||||||||
Equity-based compensation expense related to
deferred stock units |
| | | | 46 | | | | 46 | |||||||||||||||||||||||||||||
Equity-based compensation expense related to
restricted stock |
| | | | 38 | | | | 38 | |||||||||||||||||||||||||||||
Issuance of deferred stock units to directors |
43 | | | | 50 | | | | 50 | |||||||||||||||||||||||||||||
Issuance of restricted stock |
25 | | | | | | | | | |||||||||||||||||||||||||||||
Impact of redeemable noncontrolling interest
accretion |
| | | | (61 | ) | | | | (61 | ) | |||||||||||||||||||||||||||
Impact of subsidiary equity transactions |
| | | | 359 | | | (105 | ) | 254 | ||||||||||||||||||||||||||||
Noncontrolling owners share of AOCI of
consolidated subsidiary |
| | | | | | 37 | (37 | ) | | ||||||||||||||||||||||||||||
Net unrealized depreciation in marketable
securities and reclassification adjustments |
| | | | | | (37,717 | ) | | (37,717 | ) | |||||||||||||||||||||||||||
Net income (loss) |
| | | | | 28,771 | | 400 | 29,171 | |||||||||||||||||||||||||||||
Balance as of March 31, 2010 |
38,864 | $ | 39 | (2,440 | ) | $ | (12,031 | ) | $ | 3,574,293 | $ | (3,323,117 | ) | $ | 33,518 | $ | 21,335 | $ | 294,037 | |||||||||||||||||||
Balance as of December 31, 2010 |
39,439 | $ | 39 | (2,440 | ) | $ | (12,031 | ) | $ | 3,541,044 | $ | (3,305,299 | ) | $ | 54 | $ | 4,622 | $ | 228,429 | |||||||||||||||||||
Equity-based compensation related to stock
appreciation rights and stock options |
| | | | 508 | | | | 508 | |||||||||||||||||||||||||||||
Equity-based compensation expense related to
deferred stock units |
| | | | 85 | | | | 85 | |||||||||||||||||||||||||||||
Equity-based compensation expense related to
restricted stock |
| | | | 35 | | | | 35 | |||||||||||||||||||||||||||||
Issuance of deferred stock units to directors |
63 | | | | 49 | | | | 49 | |||||||||||||||||||||||||||||
Exercise of stock appreciation rights and stock
options, net of surrenders |
19 | 1 | | | (133 | ) | | | | (132 | ) | |||||||||||||||||||||||||||
Impact of redeemable noncontrolling interest
accretion |
| | | | (101 | ) | | | | (101 | ) | |||||||||||||||||||||||||||
Impact of subsidiary equity transactions |
| | | | (25 | ) | | | 452 | 427 | ||||||||||||||||||||||||||||
Noncontrolling owners share of AOCI of
consolidated subsidiary |
| | | | | | (20 | ) | 20 | | ||||||||||||||||||||||||||||
Net income (loss) |
| | | | | 15,890 | | 408 | 16,298 | |||||||||||||||||||||||||||||
Balance as of March 31, 2011 |
39,521 | $ | 40 | (2,440 | ) | $ | (12,031 | ) | $ | 3,541,462 | $ | (3,289,409 | ) | $ | 34 | $ | 5,502 | $ | 245,598 | |||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
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Table of Contents
INTERNET CAPITAL GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Operating Activities continuing operations |
||||||||
Net income (loss) |
$ | 16,242 | $ | 29,144 | ||||
(Income) loss from discontinued operations |
| 22 | ||||||
Adjustments to reconcile net loss to cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
1,126 | 890 | ||||||
Impairment related and other |
37 | 72 | ||||||
Equity-based compensation |
734 | 737 | ||||||
Equity loss |
3,576 | 6,335 | ||||||
Other (income) loss |
(24,946 | ) | (40,296 | ) | ||||
Deferred income taxes |
2,696 | 606 | ||||||
Changes in assets and liabilities, net of effect of acquisitions: |
||||||||
Accounts receivable, net |
(1,673 | ) | (774 | ) | ||||
Tax receivable |
6,314 | | ||||||
Prepaid expenses and other assets |
(186 | ) | (52 | ) | ||||
Accounts payable |
(4 | ) | 66 | |||||
Accrued expenses |
150 | 324 | ||||||
Accrued compensation and benefits |
(9,100 | ) | (7,980 | ) | ||||
Deferred revenue |
(293 | ) | 402 | |||||
Other liabilities |
(59 | ) | 94 | |||||
Cash flows provided by (used in) operating activities |
(5,386 | ) | (10,410 | ) | ||||
Investing Activities continuing operations |
||||||||
Capital expenditures, net |
(777 | ) | (1,134 | ) | ||||
Advanced deposits for acquisition of fixed assets |
31 | | ||||||
Change in restricted cash |
37 | (24 | ) | |||||
Proceeds from sales of marketable securities |
| 41,027 | ||||||
Proceeds from sales of ownership interests |
51,347 | 102 | ||||||
Ownership acquisitions |
(3,026 | ) | | |||||
Cash flows provided by (used in) investing activities |
47,612 | 39,971 | ||||||
Financing Activities continuing operations |
||||||||
Long-term debt and capital lease obligations, net |
(1,053 | ) | (277 | ) | ||||
Tax withholdings related to equity-based awards |
(134 | ) | | |||||
Cash received for stock option exercises |
2 | | ||||||
Other financing activities |
(16 | ) | 14 | |||||
Cash flows provided by (used in) financing activities |
(1,201 | ) | (263 | ) | ||||
Effect of exchange rates on cash |
94 | (115 | ) | |||||
Discontinued Operations |
||||||||
Cash flows provided by (used in) operating activities |
| 55 | ||||||
Cash flows provided by (used in) investing activities |
| (3 | ) | |||||
Cash flows provided by (used in) financing activities |
| | ||||||
Net increase (decrease) in cash and cash equivalents from discontinued operations |
| 52 | ||||||
Net increase (decrease) in cash and cash equivalents |
41,119 | 29,235 | ||||||
Cash and cash equivalents at beginning of period |
92,438 | 55,481 | ||||||
Cash and cash equivalents at the end of period |
$ | 133,557 | $ | 84,716 | ||||
See accompanying Notes to Consolidated Financial Statements.
8
Table of Contents
INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company
Description of the Company
Internet Capital Group, Inc. (together with its subsidiaries, ICG) acquires and builds SaaS and
technology-enabled business process outsourcing (BPO) companies that improve the productivity and
efficiency of their business customers. Founded in 1996, ICG devotes its expertise and capital to
maximizing the success of these companies.
2. Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements contained herein (the Consolidated Financial Statements)
include the accounts of Internet Capital Group, Inc. and its wholly-owned and wholly-controlled
subsidiaries. The Consolidated Financial Statements also include the financial position and results
of operations of Internet Capital Group, Inc.s majority-owned subsidiaries. The Consolidated
Balance Sheets as of March 31, 2011 and December 31, 2010 include the financial position of
GovDelivery, ICG Commerce and InvestorForce. The Consolidated Statements of Operations for the
three months ended March 31, 2011 and 2010 include the results of GovDelivery, ICG Commerce and
InvestorForce. The 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. The Consolidated Financial
Statements should be read in connection with the consolidated financial statements and notes
thereto included in ICGs Annual Report on Form 10-K for the year ended December 31, 2010. Results
of operations for the three-month period ended March 31, 2011 are not necessarily indicative of the
results of operations expected for the full year.
Principles of Accounting for Ownership Interests
The various interests that ICG acquires in its companies are accounted for using one of three
methods: the consolidation method, the equity method and the cost method. The applicable
accounting method is generally determined based on ICGs voting interest in a company.
Consolidation. Companies in which ICG 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 generally accounted for under the consolidation method of accounting.
Under this method, a subsidiarys balance sheet and results of operations are reflected within
ICGs Consolidated Financial Statements, and all significant intercompany accounts and transactions
have been eliminated. Participation of other stockholders in the net assets and in the earnings or
losses of a consolidated subsidiary is reflected in the caption Noncontrolling Interest in ICGs
Consolidated Balance Sheets and Statements of Operations. Noncontrolling interest adjusts ICGs
consolidated results of operations to reflect only ICGs share of the earnings or losses of the
consolidated subsidiary. The results of operations and cash flows of a consolidated subsidiary are
generally included through the latest interim period in which ICG owned a greater than 50% direct
or indirect voting interest for the entire interim period or otherwise exercised control over the
company. Upon a reduction of ICGs ownership interest to below 50% of the outstanding voting
securities, the accounting method is generally adjusted to the equity or cost method of accounting,
as appropriate, for subsequent periods.
Equity-based compensation activity at ICGs consolidated subsidiaries may result in changes to
ICGs equity ownership of these companies. This activity typically results in adjustments to ICGs
carrying value of the relevant consolidated company and ICGs additional paid-in capital. Any such
activity is included in the line item, Impact of subsidiary equity transactions in
ICGs Consolidated Statements of Changes in Equity in the relevant period.
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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)
Equity Method. Companies that are not consolidated, but over which ICG exercises significant
influence, are accounted for under the equity method of accounting (equity method companies).
Whether or not ICG exercises significant influence with respect to a company depends on an
evaluation of several factors, including, among others, representation on the companys board of
directors and equity ownership level, which is generally between a 20% and a 50% interest in the
voting securities of an equity method company, as well as voting rights associated with ICGs
holdings in common stock, preferred stock and other convertible instruments in that company. Under
the equity method of accounting, a companys accounts are not reflected in ICGs Consolidated
Balance Sheets and Statements of Operations. ICGs share of the earnings or losses of the company,
as well as any adjustments resulting from prior period finalizations of equity income/losses, are
reflected in the caption Equity loss in ICGs Consolidated Statements of Operations. For the
three months ended March 31, 2011, those prior period finalizations are not material. The carrying
values of ICGs equity method companies are reflected in Ownership interests in ICGs
Consolidated Balance Sheets.
When ICGs carrying value in an equity method company is reduced to zero, no further losses are
recorded in ICGs Consolidated Financial Statements, unless ICG has guaranteed obligations of the
equity method company or has committed to additional funding. When the equity method company
subsequently reports income, ICG will not record its share of such income until it equals the
amount of its share of losses not previously recognized.
Cost Method. Companies not accounted for under either the consolidation method or equity method of
accounting are accounted for under the cost method of accounting (cost method companies). ICGs
share of the earnings or losses of cost method companies is not included in ICGs Consolidated
Balance Sheets or Consolidated Statements of Operations. However, impairment charges related to
cost method companies are recognized in ICGs Consolidated Statements of Operations. If
circumstances suggest that the value of a cost method company has subsequently recovered, such
recovery is not recorded.
When a cost method company qualifies for use of the equity method, ICGs interest is adjusted
retroactively for its share of the past results of its operations. Therefore, prior losses could
significantly decrease ICGs carrying value balance at the time of any such retroactive adjustment.
ICG initially records its carrying value in companies accounted for under the cost method at cost,
unless the equity securities of a cost method company 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 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 ICGs convertible debt and equity holdings
in 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, such as the current economic environment, that 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 ICGs accounting estimates with respect
to the ultimate recoverability of ICGs ownership interests in convertible debt and equity
holdings, goodwill and the useful life of intangible assets could change in the near term and that
the effect of such changes on ICGs consolidated financial statements could be material. Management believes the
recorded amounts of ownership interests, goodwill, intangible assets and other assets are not
impaired at March 31, 2011.
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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)
Ownership Interests, Goodwill, Intangibles, net and Other Assets, net
ICG evaluates its carrying value in companies accounted for under the equity and cost methods of
accounting continuously to determine whether an other than temporary decline in the fair value of
any such company exists and should be recognized. In order to make this determination, ICG considers the achievement of business plan
objectives and milestones, the fair value of each ownership interest in those companies (which, in
the case of any company listed on a public stock exchange, is the quoted stock price of the
relevant ownership interest), the financial condition and prospects of each of those companies, and
other relevant factors. The business plan objectives and milestones ICG 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 ICGs carrying value of a company with its estimated fair value. Fair
value is determined by using a combination of estimating the cash flows related to the relevant
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. ICG concluded that
the carrying value of its equity and cost method companies was not impaired as of March 31, 2011.
During the three months ended March 31, 2010, ICG recorded an impairment charge in the amount of
$2.9 million related to a decline in the fair value of its equity holdings in GoIndustry that ICG
believed was other than temporary. See Note 5, Ownership Interests.
ICG tests goodwill for impairment annually during the fourth quarter of each year, 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. ICG concluded that its
goodwill and net intangible assets were not impaired as of March 31, 2011 or December 31, 2010.
See Note 3, Goodwill and Intangibles, net.
Revenue Recognition
During the three months ended March 31, 2011 and 2010, ICGs consolidated revenues were
attributable to ICG Commerce, GovDelivery and InvestorForce.
ICG Commerce generates revenue from strategic sourcing and procurement outsourcing services.
Procurement outsourcing services generally include a combination of services and technology
designed to help companies achieve unit cost savings and process efficiencies. ICG Commerce earns
fees for implementation services, start-up services, content and category management (which may
include sourcing as described below), hosting fees, buying center management fees, and certain
transaction fees. ICG Commerce estimates the total contract value under these arrangements and
generally recognizes revenue under these arrangements, excluding transaction fees and gain-share
fees, on a straight-line basis over the term of the contract, which approximates the life of the
customer relationship. Additionally, performance-based fees are deferred until the contingency is
achieved or it is determined from existing data and past experience that the savings will be
achieved and then generally recognized on a straight-line basis over the life of the contract,
which approximates the life of the customer relationship. Sourcing programs are engagements in
which ICG Commerce negotiates prices from certain suppliers on behalf of its customers in certain
categories in which ICG Commerce has sourcing expertise. Under sourcing programs, either the
customer pays a fixed fee or a gain-share amount for use of the negotiated rates. In fixed-fee
sourcing arrangements, revenue is recognized on a proportional performance basis, provided that
there is no uncertainty as to ICG Commerces ability to fulfill its obligations under the contract
or other services that are to be rendered under the contract.
GovDelivery revenues generally consist of nonrefundable setup fees and monthly maintenance and
hosting fees. These fees are deferred and recognized as the services are performed, which is
typically over the service term. Costs related to performing setup services are expensed as
incurred.
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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)
InvestorForce generates revenue from license fees earned in connection with hosted services, setup
fees and support and maintenance fees, as well as from professional services. Hosted services
primarily consist of data aggregation, performance calculation, real-time analysis and automated
production of performance reports for the institutional investment community. Generally,
InvestorForce charges its clients minimum quarterly base fees for hosted services. These minimum
fees are recognized on a pro rata basis over the service term. As the volume of client accounts
increases, additional fees apply. These additional fees are recognized in the period in which
account volumes exceed the contract minimum. Setup and support and maintenance fees are deferred
and recognized ratably over the service term. Revenue for professional services, which consist of
the creation of custom platform enhancements, is recognized when the platform is delivered to, and
can be used by, the customer.
Concentration of Customer Base and Credit Risk
For the three months ended March 31, 2011, one customer of ICG Commerce represented approximately
10% of ICGs consolidated revenue. For the three months ended March 31, 2010, two customers of ICG
Commerce represented approximately 11% and 12%, respectively, of ICGs consolidated revenue.
Reclassifications
Certain amounts in the prior-year financial statements have been reclassified to conform to the
current presentation. The impact of these changes is not material and did not affect net income
(loss).
Recent Accounting Pronouncements
In December 2010, the FASB issued accounting guidance related to the two-step approach for
impairment testing of reporting units with zero or negative carrying amounts. This guidance
requires companies to consider adverse qualitative factors, in addition to quantitative factors, in
its assessment of whether the carrying amount of a reporting unit exceeds its fair value if it is
more likely than not that a goodwill impairment exists for a reporting unit with a zero or negative
carrying amount, and to determine whether goodwill has been impaired and calculate the amount of
that impairment. This guidance is effective for ICG beginning on January 1, 2011 and did not
impact the Consolidated Financial Statements.
In December 2010, the FASB issued accounting guidance related to reporting pro forma information
for business combinations in the footnotes of a companys financial statements, and requires that
entities presenting comparative financial statements should disclose pro forma revenue and earnings
of the combined entity as though the business combination(s) that occurred during the current year
had occurred as of the beginning of the comparable prior annual reporting period and carry forward
any related adjustments through the current reporting period. This guidance also expands the
supplemental pro forma disclosures to include a description of the nature and amount of material,
nonrecurring pro forma adjustments directly attributable to the business combination(s) included in
the reported pro forma revenue and earnings. This guidance is effective for ICG beginning on
January 1, 2011 and will be applied to any acquisitions that occur on or after that date. This
guidance did not impact the Consolidated Financial Statements.
In October 2009, the FASB issued accounting guidance related to revenue recognition for
transactions with multiple deliverables, which impacts the determination of when the individual
deliverables included in a multiple-element arrangement may be treated as separate units of
accounting. This guidance became effective for ICG beginning on January 1, 2011 and did not impact
the Consolidated Financial Statements.
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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 October 2009, the FASB issued accounting guidance related to certain revenue arrangements that
include software elements, which amends the scope of pre-existing software revenue guidance. This
guidance became effective for ICG beginning on January 1, 2011 and did not impact the Consolidated
Financial Statements.
3. Goodwill and Intangibles, net
The following table summarizes the activity related to ICGs goodwill (in thousands):
Goodwill at December 31, 2010 |
$ | 20,317 | ||
Activity during the three months ended March 31, 2011 |
| |||
Goodwill at March 31, 2011 |
$ | 20,317 | ||
As of March 31, 2011 and December 31, 2010, all of ICGs goodwill was allocated to the core
segment.
The following table summarizes ICGs intangible assets from continuing operations (in thousands):
As of March 31, 2011 | ||||||||||||||||
Gross Carrying | ||||||||||||||||
Amount Related to | Accumulated | Net Carrying | ||||||||||||||
Intangible Assets | Useful Life | Continuing Operations | Amortization | Amount | ||||||||||||
Customer relationships |
11 years | $ | 12,759 | $ | (1,456 | ) | $ | 11,303 | ||||||||
Trademarks/trade names |
11 years | 1,320 | (150 | ) | 1,170 | |||||||||||
Technology |
10 years | 710 | (88 | ) | 622 | |||||||||||
14,789 | (1,694 | ) | 13,095 | |||||||||||||
Other intellectual property |
Indefinite | 400 | | 400 | ||||||||||||
$ | 15,189 | $ | (1,694 | ) | $ | 13,495 | ||||||||||
As of December 31, 2010 | ||||||||||||||||
Gross Carrying | ||||||||||||||||
Amount Related to | Accumulated | Net Carrying | ||||||||||||||
Intangible Assets | Useful Life | Continuing Operations | Amortization | Amount | ||||||||||||
Customer relationships |
11 years | $ | 12,759 | $ | (1,166 | ) | $ | 11,593 | ||||||||
Trademarks/trade names |
11 years | 1,320 | (120 | ) | 1,200 | |||||||||||
Technology |
10 years | 710 | (71 | ) | 639 | |||||||||||
14,789 | (1,357 | ) | 13,432 | |||||||||||||
Other intellectual property |
Indefinite | 400 | | 400 | ||||||||||||
$ | 15,189 | $ | (1,357 | ) | $ | 13,832 | ||||||||||
Amortization expense for intangible assets during each of the three months ended March 31,
2011 and 2010 was $0.3 million. ICG amortizes intangibles using the straight line method.
Remaining estimated amortization expense is as follows (in thousands):
2011 (remaining nine months) |
$ | 1,014 | ||
2012 |
1,351 | |||
2013 |
1,351 | |||
2014 |
1,351 | |||
2015 |
1,351 | |||
Thereafter |
6,677 | |||
Remaining amortization expense |
$ | 13,095 | ||
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Goodwill and Intangibles, net (Continued)
Impairments
ICG completes its annual impairment testing in the fourth quarter of each year, or more frequently
as conditions warrant. There were no impairment charges related to goodwill or intangible assets
associated with ICGs consolidated subsidiaries during the three months ended March 31, 2011 and
2010.
4. Consolidated Core Companies
ICG acquired a combined additional 17% equity ownership interest in ICG Commerce through separate
transactions in May and July 2010 for aggregate cash consideration of $49.7 million. Additionally,
stock option exercises at ICG Commerce that occurred during 2010 slightly reduced ICGs equity
ownership interest in ICG Commerce. As a result of these transactions, ICGs equity ownership
interest in ICG Commerce increased from 64% as of March 31, 2010 to 80% as of March 31, 2011.
On August 31, 2010, GovDelivery completed the sale of its GovDocs subsidiary for aggregate
consideration of $1.8 million, which consisted of a combination of cash ($0.7 million), the
redemption of shares of GovDeliverys Series AA Preferred Stock held by the purchaser (valued at
$0.8 million) and a secured promissory note (for $0.3 million, which was repaid during the three
months ended March 31, 2011). As a result of GovDeliverys redemption of shares of its Series AA
Preferred Stock in connection with the sale of GovDocs, ICGs equity ownership interest in
GovDelivery increased from 89% as of March 31, 2010 to 93% as of March 31, 2011.
The revenue and operating activities of GovDocs resulting in net income of $0.1 million have been
removed from the line items in which they were reported in 2010 and the resulting net income is
included in Income (loss) from discontinued operations on ICGs Consolidated Statements of
Operations for the three months ended March 31, 2010. To the extent it related to GovDocs,
amortization expense associated with intangible assets and purchase price adjustments related to
deferred revenue of $0.1 million have also been reclassified and are included in Income (loss)
from discontinued operations on ICGs Consolidated Statements of Operations for the three months
ended March 31, 2010.
Restricted stock awards granted and stock repurchases at InvestorForce during 2010 reduced ICGs
equity ownership interest in InvestorForce from 80% as of March 31, 2010 to 78% as of March 31,
2011.
Revenue, net income (loss) attributable to Internet Capital Group, Inc. and net income (loss) per
diluted share attributable to Internet Capital Group, Inc. would have been $25.8 million, $29.0
million and $0.80 per share, respectively, for the three months ended March 31, 2010, had ICG owned
80%, 93% and 78% of ICG Commerce, GovDelivery (excluding GovDocs), and InvestorForce, respectively,
during that period.
5. Ownership Interests
Equity Method Companies
The following unaudited summarized financial information relates to ICGs core and venture
companies accounted for under the equity method of accounting as of March 31, 2011 and December 31,
2010, and for the three months ended March 31, 2011 and 2010, and has been compiled from the
financial statements of those core and venture companies.
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Ownership Interests (Continued)
Balance Sheets (Unaudited)
March 31, 2011 (1) | December 31, 2010 (2) | |||||||
(in thousands) | ||||||||
Cash and cash equivalents |
$ | 30,102 | $ | 53,895 | ||||
Other current assets |
37,431 | 62,145 | ||||||
Non-current assets |
102,953 | 148,257 | ||||||
Total assets |
$ | 170,486 | $ | 264,297 | ||||
Current liabilities |
$ | 79,719 | $ | 118,260 | ||||
Non-current liabilities |
13,009 | 14,415 | ||||||
Long-term debt |
14,397 | 16,174 | ||||||
Stockholders equity |
63,361 | 115,448 | ||||||
Total liabilities and stockholders equity |
$ | 170,486 | $ | 264,297 | ||||
Total carrying value |
$ | 53,986 | $ | 83,829 | ||||
(1) | Includes (ICG voting ownership): Acquirgy (25%), Channel
Intelligence (50%), ClickEquations (33%), Freeborders
(31%), GoIndustry (26%), SeaPass (26%), StarCite (36%) and
WhiteFence (36%). |
|
(2) | Includes (ICG voting ownership): Acquirgy (25%), Channel
Intelligence (50%), ClickEquations (33%), Freeborders
(31%), GoIndustry (26%), Metastorm Inc. (Metastorm)
(33%), SeaPass (26%), StarCite (36%) and WhiteFence (36%). |
As of March 31, 2011, ICGs aggregate carrying value in its equity method companies exceeded
ICGs share of the net assets of those companies by approximately $33.5 million. Of this excess,
$22.7 million has been allocated to goodwill, which is not amortized, and $10.8 million has been
allocated to intangibles, which are generally being amortized over three to seven years. As of
December 31, 2010, this excess was $47.9 million, $36.5 million of which was allocated to goodwill,
and $11.4 million of which was allocated to intangibles. Amortization expense of $0.6 million and
$0.7 million associated with these intangibles for the three months ended March 31, 2011 and 2010,
respectively, is included in the table below in the line item Amortization of intangible assets
and is included in Equity loss on ICGs Consolidated Statements of Operations.
Results of Operations (Unaudited)
Three Months Ended March 31, | ||||||||
2011 (1) | 2010 (2) | |||||||
(in thousands) | ||||||||
Revenue |
$ | 50,141 | $ | 56,574 | ||||
Net income (loss) |
$ | (9,824 | ) | $ | (8,659 | ) | ||
Equity income (loss) excluding
impairments and amortization of
intangible assets |
$ | (2,990 | ) | $ | (2,714 | ) | ||
Impairment charge of GoIndustry |
| (2,914 | ) | |||||
Amortization of intangible assets |
(586 | ) | (707 | ) | ||||
Total equity income (loss) |
$ | (3,576 | ) | $ | (6,335 | ) | ||
(1) | Includes Acquirgy, Channel Intelligence, ClickEquations,
Freeborders, GoIndustry, Metastorm (to February 17, 2011,
the date of disposition), SeaPass, StarCite and WhiteFence. |
|
(2) | Includes Acquirgy, Channel Intelligence, ClickEquations,
Freeborders, GoIndustry, Metastorm, SeaPass, StarCite and
WhiteFence. |
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Ownership Interests (Continued)
Impairments Equity Companies
ICG performs ongoing business reviews of its equity and cost method companies to determine whether
ICGs carrying value in these companies is impaired. ICG determined its carrying value in its
equity and cost method companies was not impaired during the three months ended March 31, 2011.
During the three months ended March 31, 2010, ICG recorded impairment charges of $2.9 million to
reduce its basis in GoIndustry as a result of declines in the fair value of ICGs equity holdings
in that equity method venture company during the relative period. The carrying value of ICGs
ownership interest in GoIndustry was $1.5 million and $2.3 million as of March 31, 2011 and
December 31, 2010, respectively. The fair value of ICGs equity holdings in GoIndustry was $5.4
million and $3.5 million as of March 31, 2011 and December 31, 2010, based upon the per share
closing price for GoIndustrys common stock on those respective dates.
Other Equity Company Information
On February 17, 2011, the sale of Metastorm, an equity core company, to Open Text Corporation was
consummated. ICGs portion of the proceeds was $53.0 million; $51.3 million of these proceeds were
received at closing on February 17, 2011. The remainder was placed in escrow in connection with a
customary indemnification holdback. As a result of this transaction, ICG recorded a gain of $24.9
million during the three months ended March 31, 2011 that is included in Other income (loss) on
ICGs Consolidated Statements of Operations. ICG will record a gain in the amount of the escrowed
proceeds received, if any, in the period in which ICG is entitled to receive such proceeds, the
amount is fixed or determinable and realization is assured.
Other
ICGs carrying value of its holdings in cost method companies was $4.2 million and $1.3 million as
of March 31, 2011 and December 31, 2010, respectively. These amounts are reflected in Other
assets, net on ICGs Consolidated Balance Sheets in the relevant period.
ICG owns approximately 9% of Anthem Ventures Fund, L.P. (formerly eColony, Inc.) and Anthem
Ventures Annex Fund, L.P. (collectively, Anthem), which invest in technology companies. Anthem
was acquired by ICG in 2000. ICG currently has no carrying value in Anthem. Accordingly, the
receipt of distributions from Anthem, if any, by ICG would result in a gain at the time ICG
receives those distributions.
During the three months ended March 31, 2010, ICG also held shares of ICE common stock; all of
these shares were both obtained and sold during that three-month period. See Note 11, Other
Income (Loss).
Escrow Information
As of March 31, 2011, ICG had 13,069 outstanding shares of Intercontinental Exchange, Inc. (ICE)
common stock remaining in escrow; the stock was valued at $1.6 million based on the March 31, 2011
closing stock price of ICEs common stock. Additionally, ICG had outstanding aggregate cash
proceeds, subject to ongoing indemnity claims, of $2.8 million associated with escrowed proceeds
from sales of former equity method companies, including escrowed proceeds related to the Metastorm
sale. The release of additional escrowed proceeds, if any, to ICG would result in additional gains
at the time ICG is entitled to such proceeds, the amount is fixed or determinable and realization
is assured, which events are anticipated to occur at various times between May 2011 and August
2012.
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Financial Instruments
Derivative Financial Instruments
During the three months ended March 31, 2011 and 2010, ICG Commerce utilized average rate currency
options with quarterly expirations to mitigate the risk of currency fluctuations at ICG Commerces
operations in the United Kingdom, Europe, Asia and South America. The net mark-to-market
adjustments recognized by ICG Commerce are detailed in the table below and represent the premiums
paid for the options by ICG Commerce, as well as the change in value of the options related to the
fluctuation of exchange rates during the relevant period.
In 2010, ICG Commerce entered into an interest rate swap hedge agreement with PNC Bank to mitigate
the risk of fluctuations in the variable interest rate related to ICG Commerces term loan with PNC
Bank. The net mark-to-market adjustments recognized by ICG Commerce are detailed in the table
below and represent the change in value of the swap related to the fluctuations in the applicable
interest rates during the relevant period. This instrument is set to mature in 2015. See Note 7,
Debt.
From February 2006 to July 2010, ICG managed its exposure to and benefits from price fluctuations
of Blackboard common stock through the use of cashless collar contracts. Although these
instruments were derivative securities, their economic risks were similar to, and managed on the
same basis as, the risks associated with the Blackboard common stock held by ICG. The cashless
collar contracts were marked to market through earnings each period, which impact is detailed in
the below table. The income or loss was primarily driven by the change in the closing price of
Blackboard common stock from the beginning of the quarter to the end of the quarter. The
mark-to-market impact was generally expense if Blackboards stock price rose, or income if
Blackboards stock price declined, during the relevant quarter. During the three months ended
March 31, 2010, ICG terminated two cashless collar contracts underlying a total of 250,000 shares
of Blackboard common stock, and two other cashless collar contracts underlying a total of 375,000
shares of Blackboard common stock expired. There were no cashless collar contracts outstanding as
of March 31, 2011 or December 31, 2010.
The following table presents the classifications and fair values of our derivative instruments as
of March 31, 2011 and December 31, 2010:
Consolidated Balance Sheets | ||||||||||
March 31, | December 31, | |||||||||
Derivative | Classification | 2011 | 2010 | |||||||
(in thousands) | ||||||||||
Average rate currency options |
Other assets, net | $ | 47 | $ | | |||||
Interest rate swap |
Other assets, net (Accrued expenses) | $ | 11 | $ | (12 | ) |
The following table presents the mark-to-market impact on earnings resulting from ICGs
hedging activities for the three months ended March 31, 2011 and 2010:
Consolidated Statements of Operations | ||||||||||
Three months ended March 31, | ||||||||||
Derivatives | Classification | 2011 | 2010 | |||||||
(in thousands) | ||||||||||
Average rate currency options |
Other income (loss), net | $ | (148 | ) | $ | (48 | ) | |||
Interest rate swap |
Interest income | $ | 23 | $ | | |||||
Cashless collar contracts |
Other income (loss), net | $ | | $ | 702 |
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Financial Instruments (Continued)
Fair Value Measurements
Fair value is the price that would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. There are
three levels of inputs that may be used to measure fair value; they are as follows:
Level 1 Observable inputs such as quoted market prices for identical assets and liabilities in
active public markets.
Level 2 Observable inputs other than Level 1 prices based on quoted prices in markets with
insufficient volume or infrequent transactions, or valuations in which all significant inputs are
observable for substantially the full term of the asset or liability.
Level 3 Unobservable inputs to the valuation techniques that are significant to the fair value
of the asset or liability.
The fair values of ICGs financial assets measured at fair value on a recurring basis were as
follows:
Balance at | ||||||||||||||||
March 31, | ||||||||||||||||
2011 | Level 1 | Level 2 | Level 3 | |||||||||||||
(in thousands) | ||||||||||||||||
Cash equivalents (money market accounts) |
$ | 127,710 | $ | 127,710 | $ | | $ | | ||||||||
Hedges of foreign currency risk * |
47 | | 47 | | ||||||||||||
Hedges of interest rate risk * |
11 | | 11 | | ||||||||||||
$ | 127,768 | $ | 127,710 | $ | 58 | $ | | |||||||||
Balance at | ||||||||||||||||
December 31, | ||||||||||||||||
2010 | Level 1 | Level 2 | Level 3 | |||||||||||||
(in thousands) | ||||||||||||||||
Cash equivalents (money market accounts) |
$ | 81,205 | $ | 81,205 | $ | | $ | | ||||||||
Hedges of interest rate risk * |
(12 | ) | | (12 | ) | | ||||||||||
$ | 81,193 | $ | 81,205 | $ | (12 | ) | $ | | ||||||||
* | ICGs respective counterparties under these arrangements provide
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. |
7. Debt
Long-Term Debt
ICGs consolidated long-term debt of $19.0 million and $20.1 million as of March 31, 2011 and
December 31, 2010, respectively, related to its consolidated core companies and primarily consisted
of a term loan at ICG Commerce. The current maturities of long-term debt in the table below are
due within one year, and the remaining long-term debt at March 31, 2011 is due at various times
through 2015.
18
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Debt (Continued)
As of | |||||||||||||
March 31, | December 31, | ||||||||||||
Interest Rates | 2011 | 2010 | |||||||||||
(in thousands) | |||||||||||||
ICG Commerce term loan |
2.01-3.34 | % | $ | 17,667 | $ | 18,667 | |||||||
Capital leases |
2.25-12.98 | % | 289 | 503 | |||||||||
Other debt |
8.25-10.27 | % | 1,065 | 911 | |||||||||
19,021 | 20,081 | ||||||||||||
Current maturities |
(5,328 | ) | (4,623 | ) | |||||||||
Long-term debt |
$ | 13,693 | $ | 15,458 | |||||||||
Subsequent to March 31, 2011, GovDelivery repaid its term loan, of which $1.0 million was
outstanding as of March 31, 2011. Accordingly, this amount has been reflected in current
maturities of long-term debt as of March 31, 2011.
Loan and Credit Agreements
On August 3, 2010, ICG Commerce and a number of its wholly-owned subsidiaries entered into a
loan agreement with PNC Bank pursuant to which the company was able to borrow up to $15.0 million
under a revolving line of credit. The line of credit matures on August 2, 2013, and provides for
the issuance by the bank of up to $5.0 million of letters of credit, subject to specified fees and
other terms. The line of credit is also subject to a 0.25% per annum unused commitment fee that is
payable to the bank quarterly. Also on August 3, 2010, ICG Commerce and the other borrowing
companies under the line of credit borrowed $20.0 million under a term loan with PNC Bank. The
proceeds from the term loan were used to fund a cash dividend paid to certain stockholders of ICG
Commerce, including ICG, on August 4, 2010. ICG Commerce paid a nonrefundable $0.2 million
commitment fee to PNC Bank upon the consummation of the new line of credit and term loan.
Both the line of credit and the term loan are secured by a first priority lien on the assets of the
borrowing companies. The term loan and the line of credit both bear interest at either a base rate
equal to the highest of PNC Banks prime rate, the sum of the Federal Funds Open Rates plus 0.5%
and the sum of the daily LIBOR rate plus 1.0%, or a daily to six month LIBOR rate plus a margin
ranging from 1.75% to 2.5% depending on the then-current debt-to-EBITDA ratio of the borrowing
companies, at ICG Commerces option. On August 6, 2010, ICG Commerce entered into an interest rate
swap hedge agreement whereby 50% of the term loan was effectively converted to a fixed interest
rate by the hedge agreement. The fixed rate stipulated by the hedge agreement is 1.34%. ICG
Commerce will still be required to pay the aforementioned interest rate margin on this portion of
the term loan, which would result in a final interest rate of between 3.09% and 3.84%. The
termination date of the hedge agreement is August 1, 2015. ICG Commerce has the right, but not the
obligation, to terminate the hedge agreement, without cause and without penalty, on August 1, 2012.
At March 31, 2011, the effective interest rate being paid by ICG Commerce under the term loan,
including the applicable margin, was 2.01% for the portion of the loan tied to a floating LIBOR
rate and 3.09% for the portion of the loan covered by the interest rate swap hedge agreement. Any
outstanding principal and interest under the line of credit will become due and payable
periodically through August 2, 2013. The principal under the term loan is payable in $0.3 million
monthly installments through August 1, 2015, and any outstanding interest under the term loan will
become due and payable periodically through August 1, 2015. Both the line of credit and the term
loan are subject to a number of financial and other covenants that are specified in the loan
documents. There were no amounts outstanding under the PNC Bank line of credit agreement as of
March 31, 2011 or December 31, 2010.
19
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Debt (Continued)
On December 18, 2009, ICG entered into an amended and restated letter of credit agreement with
Comerica Bank (the LC Agreement) that provides for the issuance of letters of credit of up to
$10.0 million, subject to a cash-secured borrowing base as defined by the LC Agreement. On
December 17, 2010, the LC Agreement was extended to December 16, 2011. Under the LC Agreement, ICG
will pay Comerica Bank issuance fees of 0.50% per annum of the outstanding face amount of each
issued letter of credit. The LC Agreement is also subject to a 0.25% per annum unused commitment
fee payable to the bank on a quarterly basis. No amounts were outstanding under the LC Agreement
at March 31, 2011 or December 31, 2010.
8. Segment Information
ICG has two reporting segments: the core segment and the venture segment. Companies in which
ICG holds convertible debt or equity interests that are not deemed to be marketable securities are
included in either the core or venture segment, while companies in which ICG holds equity interests
that have been designated as marketable securities are considered corporate assets. At March 31,
2011, the core segment includes the results of ICGs consolidated core companies, records ICGs
share of earnings and losses of its equity core companies and captures ICGs carrying value in its
consolidated core companies and equity core companies. At March 31, 2011, the venture segment
records ICGs share of earnings and losses of venture companies accounted for under the equity
method of accounting and captures ICGs carrying value in its venture companies.
The core reporting segment includes companies in which ICGs management takes a very active role in
providing strategic direction and management assistance. ICG owns majority controlling equity
positions or substantial minority equity positions (i.e., the largest equity positions) in these
companies. ICG expects to devote relatively large initial amounts of capital to acquire stakes in
core companies, particularly consolidated core companies, since any such acquisition would entail
the deployment of cash and/or the issuance of ICG stock to purchase a large equity stake in a
target with relatively strong financial characteristics and growth potential. The venture
reporting segment includes companies to which ICG generally devotes less capital, holds relatively
smaller ownership stakes and generally has less influence over the strategic directions and
management decisions than core companies.
Approximately 7% and 8% of ICGs consolidated revenues for the three months ended March 31, 2011
and 2010, respectively, relates to sales generated in the United Kingdom primarily by ICG Commerce.
The remaining consolidated revenues for the three months ended March 31, 2011 and 2010 primarily
relate to sales generated in the United States. As of March 31, 2011 and December 31, 2010, ICGs
assets were located primarily in the United States.
On February 17, 2011, the sale of Metastorm was consummated. Metastorm had been an equity core
company, and ICGs portion of Metastorms net results was included in ICGs core segment.
Following the sale of Metastorm, the amount of equity loss related to Metastorm has been removed
from the core segment and reflected in Dispositions in the table below. In addition, ICGs basis
in Metastorm has been removed from core segment assets and reflected in Dispositions as of
December 31, 2010 in the table below. Also included in Dispositions in the table below are the
net results, including intangible asset amortization and purchase price adjustments, of
GovDeliverys GovDocs subsidiary, which was sold during 2010.
20
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Segment Information (Continued)
The following presentation summarizes selected information related to ICGs segments for the
periods indicated. All significant intersegment activity has been eliminated. Assets are owned or
allocated assets used by each reporting segment.
Segment Information | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Three Months Ended | Total | Reconciling Items | Consolidated | |||||||||||||||||||||||||
March 31, 2011 | Core | Venture | Segment | Dispositions | Corporate | Other(1) | Results | |||||||||||||||||||||
Revenues |
$ | 33,954 | $ | | $ | 33,954 | $ | | $ | | $ | | $ | 33,954 | ||||||||||||||
Net income (loss)
attributable to
Internet Capital
Group, Inc. |
$ | 617 | $ | (1,680 | ) | $ | (1,063 | ) | $ | (335 | ) | $ | (4,565 | ) | $ | 21,853 | $ | 15,890 | ||||||||||
Three Months Ended
March 31, 2010 |
||||||||||||||||||||||||||||
Revenues |
$ | 25,755 | $ | | $ | 25,755 | $ | | $ | | $ | | $ | 25,755 | ||||||||||||||
Net income (loss)
attributable to
Internet Capital
Group, Inc. |
$ | (2,263 | ) | $ | (1,179 | ) | $ | (3,442 | ) | $ | (667 | ) | $ | (4,472 | ) | $ | 37,352 | $ | 28,771 |
(1) | Components of Other |
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Corporate other income (loss) (Note 11) |
$ | 24,864 | $ | 40,639 | ||||
Noncontrolling interest |
(352 | ) | (373 | ) | ||||
Impairment of GoIndustry (Venture) (Note 5) |
| (2,914 | ) | |||||
Income tax benefit (expense) |
(2,659 | ) | | |||||
$ | 21,853 | $ | 37,352 | |||||
Total | Consolidated | |||||||||||||||||||||||||||
Core | Venture | Segment | Dispositions | Corporate | Other | Results | ||||||||||||||||||||||
Assets as of: |
||||||||||||||||||||||||||||
March 31, 2011 |
$ | 148,948 | $ | 13,709 | $ | 162,657 | $ | | $ | 124,947 | $ | | $ | 287,604 | ||||||||||||||
Assets as of: |
||||||||||||||||||||||||||||
December 31, 2010 |
$ | 157,273 | $ | 15,149 | $ | 172,422 | $ | 26,829 | $ | 81,738 | $ | | $ | 280,989 |
21
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Parent Company Financial Information
Parent company financial information is provided to present the financial position and results of
operations of Internet Capital Group, Inc. and its wholly-owned subsidiaries as if the consolidated
core companies were accounted for under the equity method of accounting for all applicable periods
presented. ICGs share of the consolidated core companies income or loss is included in Equity
loss in the Parent Company Statements of Operations for all periods presented based on ICGs
ownership percentage in each period. ICGs carrying value of the consolidated core companies as of
March 31, 2011 and December 31, 2010 is included in Ownership interests in the Parent Company
Balance Sheets set forth below.
Parent Company Balance Sheets
As of March 31, 2011 | As of December 31, 2010 | |||||||
(unaudited) | ||||||||
(in thousands) | ||||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 119,720 | $ | 72,915 | ||||
Income tax receivable |
| 6,314 | ||||||
Other current assets |
382 | 526 | ||||||
Current assets |
120,102 | 79,755 | ||||||
Ownership interests |
114,461 | 142,541 | ||||||
Intangible assets |
400 | 400 | ||||||
Other |
4,445 | 1,583 | ||||||
Total assets |
$ | 239,408 | $ | 224,279 | ||||
Liabilities and stockholders equity |
||||||||
Current liabilities |
$ | 2,212 | $ | 4,815 | ||||
Non-current liabilities |
294 | 294 | ||||||
Stockholders equity |
236,902 | 219,170 | ||||||
Total liabilities and stockholders equity |
$ | 239,408 | $ | 224,279 | ||||
Parent Company Statements of Operations (Unaudited)
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Revenues |
$ | | $ | | ||||
Operating expenses |
||||||||
General and administrative |
4,673 | 4,524 | ||||||
Total operating expenses |
4,673 | 4,524 | ||||||
Operating income (loss) |
(4,673 | ) | (4,524 | ) | ||||
Other income (loss), net |
24,864 | 40,639 | ||||||
Interest income (expense), net |
66 | 52 | ||||||
Income (loss) before income taxes and equity loss |
20,257 | 36,167 | ||||||
Equity loss |
(3,088 | ) | (7,396 | ) | ||||
Income tax benefit (expense) |
42 | | ||||||
Net income (loss) |
$ | 17,211 | $ | 28,771 | ||||
22
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Parent Company Financial Information (Continued)
Parent Company Statements of Cash Flows (Unaudited)
Three Months Ended March 31, | ||||||||
2010 | 2010 | |||||||
(in thousands) | ||||||||
Operating Activities |
||||||||
Net income (loss) |
$ | 17,211 | $ | 28,771 | ||||
Adjustments to reconcile net loss to cash used in operating activities: |
||||||||
Depreciation and amortization |
13 | 16 | ||||||
Equity-based compensation |
628 | 598 | ||||||
Equity loss |
3,088 | 7,396 | ||||||
Other (income) loss |
(24,864 | ) | (40,639 | ) | ||||
Changes in assets and liabilities, net of effect of acquisitions: |
||||||||
Income tax receivable |
6,314 | | ||||||
Prepaid expenses and other assets |
81 | 109 | ||||||
Accounts payable |
26 | 17 | ||||||
Accrued expenses |
123 | (8 | ) | |||||
Accrued compensation and benefits |
(2,704 | ) | (1,694 | ) | ||||
Cash provided by (used in) operating activities |
(84 | ) | (5,434 | ) | ||||
Investing Activities |
||||||||
Capital expenditures, net |
| (33 | ) | |||||
Proceeds from sales of marketable securities |
| 41,027 | ||||||
Proceeds from sales of ownership interests |
51,347 | 102 | ||||||
Acquisitions of ownership interests |
(4,326 | ) | (350 | ) | ||||
Cash provided by (used in) investing activities |
47,021 | 40,746 | ||||||
Financing Activities |
||||||||
Tax withholdings related to equity-based awards |
(134 | ) | | |||||
Cash received for stock option exercises |
2 | | ||||||
Cash provided by (used in) financing activities |
(132 | ) | | |||||
Net increase (decrease) in cash and cash equivalents |
46,805 | 35,312 | ||||||
Cash and cash equivalents at beginning of period |
72,915 | 29,443 | ||||||
Cash and cash equivalents at end of period |
$ | 119,720 | $ | 64,755 | ||||
23
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Equity-Based Compensation
Equity-based compensation for each of the three-month periods ended March 31, 2011 and 2010 was
$0.7 million. Equity-based compensation for these periods is primarily included in Selling,
general and administrative on ICGs Consolidated Statements of Operations. The following table
provides additional information related to ICGs equity-based compensation:
Weighted Average | ||||||||||||||||
Unrecognized | Years Remaining of | |||||||||||||||
Equity-Based | Equity-Based | |||||||||||||||
Three Months Ended March 31, | Compensation at | Compensation Expense | ||||||||||||||
2011 | 2010 | March 31, 2011 | at March 31, 2011 | |||||||||||||
(in thousands, except weighted average years) | ||||||||||||||||
Stock Appreciation Rights |
$ | 508 | $ | 514 | $ | 5,161 | 2.9 | |||||||||
Stock Options |
| | 1 | 1.7 | ||||||||||||
Restricted Stock |
35 | 38 | 401 | 3.2 | ||||||||||||
Deferred Stock Units |
85 | 46 | 748 | 0.9 | ||||||||||||
Equity-Based Compensation |
$ | 628 | $ | 598 | $ | 6,311 | ||||||||||
Equity-Based
Compensation for
Consolidated Core
Companies |
106 | 139 | 1,372 | 3.8 | ||||||||||||
Equity-Based Compensation |
$ | 734 | $ | 737 | $ | 7,683 | ||||||||||
Stock Appreciation Rights (SARs)
Each SAR represents the right of the holder to receive, upon exercise of that SAR, shares of ICG
Common Stock equal to the amount by which the fair market value of a share of that Common Stock on
the date of exercise of the SAR exceeds the base price of the SAR. The base price is determined by
the NASDAQ closing price of ICGs Common Stock on the date of grant (or the closing price on the
next trading day if there are no trades in ICGs stock on the date of grant). The fair value of
each SAR is estimated on the grant date using the Black-Scholes option-pricing model. SARs
generally vest over four years, with 25% vesting on the first anniversary of the grant date and the
remaining 75% vesting equally each month over the next 36 months.
There were no SAR grants during the three months ended March 31, 2011. During the three months
ended March 31, 2010, ICG granted 1,381,940 SARs to employees at a weighted-average base price of
$6.75 per share and a weighted-average fair value of $4.07 per share. During the three months
ended March 31, 2011, 80,869 SARs were exercised, which resulted in the issuance of 18,422 shares
of ICGs Common Stock. There were no SARs exercised in the three months ended March 31, 2010.
There were 3,891,016 and 3,971,885 SARs outstanding at March 31, 2011 and December 31,
2010, respectively. The aggregate intrinsic values of the SARs outstanding at March 31, 2011 and
December, 31, 2010 were $26.4 million and $27.0 million, respectively.
Stock Options
The fair value of each stock option is estimated on the grant date using the Black-Scholes
option-pricing model. Stock options generally vest over four years. There were no stock options
granted during the three months ended March 31, 2011 or 2010. During the three months ended March
31, 2011, 300 stock options were exercised. There were no stock options exercised during the three
months ended March 31, 2010. During the three months ended March 31, 2011 and 2010, 27,000 and
1,948 stock options expired, respectively. There were 283,869 and 311,169 stock options
outstanding as of March 31, 2011 and December 31, 2010, respectively.
24
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Equity-Based Compensation (Continued)
SARs and Stock Options Fair Value Assumptions
ICG estimates the grant date fair value of SARs and stock options using the Black-Scholes
option-pricing model, which requires the input of highly subjective assumptions. These assumptions
include estimating the expected life of the award and estimating volatility of ICGs stock price
over the expected term. Expected volatility approximates the historical volatility of ICGs Common
Stock over the period commensurate with the expected term of the award. The expected term
calculation is based on an average of the award vest term and the life of the award. The risk-free
interest rate is based on the U.S. Treasury yield in effect at the time of grant for an instrument
with a maturity that is commensurate with the expected term of the award. Changes in these
assumptions, the estimated forfeitures and the requisite service period can materially affect the
amount of equity-based compensation recognized in ICGs Consolidated Statements of Operations.
The following assumptions were used to determine the fair value of SARs granted to employees by ICG
during the three months ended March 31, 2010:
Expected volatility |
60% | |||
Average expected life of SAR (in years) |
2.75-6.25 years | |||
Risk-free interest rate |
1.55-2.92% | |||
Dividend yield |
0.0% |
Restricted Stock
There were no restricted stock grants during the three months ended March 31, 2011. During the
three months ended March 31, 2010, ICG granted 25,000 shares of restricted stock to one of its
employees. This award vests over four years and was valued at $0.2 million on the date of grant.
During the three months ended March 31, 2011, 6,250 shares of restricted stock vested. No shares
of restricted stock vested during the three months ended March 31, 2010. There were 54,250 and
60,500 restricted stock awards outstanding at March 31, 2011 and December 31, 2010, respectively.
Deferred Stock Units (DSUs)
Each DSU represents a share of Common Stock into which that DSU will be converted upon the
termination of the recipients service at ICG. During the three months ended March 31, 2011, ICG
issued 60,000 DSUs to its non-management directors under the Non-Management Director Compensation
Plan (the Director Plan); those DSUs will vest in the first quarter of 2012. These DSUs were
valued at $0.8 million. During the three months ended March 31, 2010, ICG issued 36,000 DSUs to
its non-management directors under the Non-management Director Compensation Plan, of which 31,500
DSUs vested during the three months ended March 31, 2011. Those DSUs were valued at $0.2 million.
ICG issues quarterly compensation payments to each non-management director for his service on the
Board of Directors and its committees under the Director Plan. Each director had the right to
elect to receive such payments in whole or in part in the form of DSUs in lieu of cash. Each
participating director receives DSUs representing shares of ICGs Common Stock with a fair market
value equal to the relevant cash fees (with such fair market value determined by reference to the
closing Common Stock price reported by NASDAQ on the date these cash fees otherwise would have been
paid). These DSUs vest immediately. The expense for these DSUs is recorded when the fees to which
the DSUs relate are earned.
During the three months ended March 31, 2011 and 2010, ICG issued 3,437 DSUs and 7,364 DSUs,
respectively, to ICGs non-management directors. The expense of less than $0.1 million and $0.1
million for the three months ended March 31, 2011 and 2010, associated with the quarterly grants
for service is included in Selling, General and Administrative on ICGs Consolidated Statements
of Operations (but is not reflected in the summarized Equity-Based Compensation table above).
25
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Equity-Based Compensation (Continued)
Consolidated Core Companies
ICGs consolidated core companies, primarily ICG Commerce, recorded $0.1 million of compensation
expense related to equity-based awards during the three-month periods ended each of March 31, 2011
and 2010. ICG Commerces stock options generally vest over four years, with 25% vesting on the
first anniversary of the grant date and the remaining 75% vesting equally each month over the next
36 months. The fair value of each of ICG Commerces option awards was estimated on the grant date
using the Black-Scholes option pricing model.
11. Other Income (Loss)
Other Income (Loss), net
Other income (loss), net consists of the effect of transactions and other events relating to ICGs
ownership interests in its companies and its operations in general.
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Gain on sale of Metastorm (Note 5) |
$ | 24,853 | $ | | ||||
Realized gains on marketable securities, net of hedge
termination costs of $0.2 million |
| 34,835 | ||||||
Unrealized gain (loss) on mark-to-market of hedges (Note 6) |
| 702 | ||||||
Gain on sale of Creditex |
| 5,053 | ||||||
Gains on sales/distributions of ownership interests |
| 102 | ||||||
Other |
11 | (53 | ) | |||||
24,864 | 40,639 | |||||||
Total other income (loss) for consolidated core companies |
82 | (343 | ) | |||||
$ | 24,946 | $ | 40,296 | |||||
Marketable securities represent ICGs holdings in publicly-traded equity securities accounted
for as available-for-sale securities. At March 31, 2011 and December 31, 2010, ICG did not hold
interests in any marketable securities. ICG did hold a noncontrolling interest in Blackboard, Inc.
(Blackboard), which is traded on the NASDAQ Global Select Market (NASDAQ: BBBB) throughout the
three months ended March 31, 2010. During the three months ended March 31, 2010, ICG sold 787,705
shares of Blackboard common stock at an average price of $45.82 per share. ICG received total
proceeds of $36.1 million and recognized a gain on the sale of these securities in the amount of
$34.9 million in the period, which is included in the line item Realized gains on marketable
securities, net of hedge termination costs of $0.2 million, in the table above.
During the three months ended March 31, 2010, 46,751 shares of ICE common stock were released from
an escrow account that had been established as part of ICEs acquisition of Creditex Group, Inc.
(Creditex); ICG had accounted for its equity ownership interest in Creditex under the cost method
of accounting. The value of these shares of common stock, based on the stocks closing price on
March 1, 2010, the date these shares were released to ICG, was $5.0 million. ICG recorded a gain
during the three months ended March 31, 2010 in this amount, which is reflected in the line item
Gain on the sale of Creditex in the table above. ICG sold the newly-acquired shares for $5.1
million and, accordingly, recorded an incremental gain on the sale of $0.1 million during the same
period, which is included in the table above, in the line item, Realized gains on marketable
securities, net of hedge termination costs of $0.2 million.
During the three months ended March 31, 2010, ICG received $0.1 million of escrow releases in
connection with the prior disposition of its ownership interests in certain other companies, and
recorded this amount as a gain, which is included in the line item, Gains on sales/distributions
of ownership interests in the above table.
26
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Other Income (Loss) (Continued)
During the three-month periods ended March 31, 2011 and 2010, ICG Commerce recorded foreign
currency gains of $0.1 million and foreign currency losses of $0.3 million, respectively, related
to changes in exchange rates associated with its operations in the United Kingdom, Europe, Asia and
South America. These foreign currency gains and losses, which include the mark-to-market
adjustments related to the average rate currency options utilized by ICG Commerce (discussed in
Note 6, Financial Instruments), comprise the majority of the other income (loss) for ICGs
consolidated core companies included in the above table.
12. Income Taxes
ICG, ICG Commerce, InvestorForce and GovDelivery file a consolidated federal income tax return.
For the three months ended March 31, 2011, the effective tax rate was -5.8%, excluding discrete
items. This differs from the statutory rate of 35%, primarily due to the valuation allowance that
is maintained on certain deferred tax assets. In the three months ended March 31, 2011, ICG
recorded net deferred tax expense of $2.6 million on discrete items, primarily the gain on the sale
of Metastorm. For the three months ended March 31, 2010, ICG Commerce did not join in the
consolidated federal income tax return with ICG. During that period, ICG Commerce recorded income
tax expense of $0.6 million representing an effective tax rate of 38.3%. This rate differed from
the federal rate of 35% due to foreign and state taxes.
As a result of a change in ownership of ICG under Internal Revenue Code Section 382 that occurred
in 2004, its net operating loss carryforwards and capital loss carryforwards are subject to an
annual limitation. The annual limitation on the utilization of these carryforwards is
approximately $14.5 million per year. This annual limitation can be carried forward if it is not
used in a particular year. The amount available for 2011 is $14.5 million and the total amount
available through 2023, when the losses subject to this limitation expire, is $188.8 million.
As a result of a change in ownership of ICG Commerce under Internal Revenue Code Section 382 that
occurred in 2003, ICG Commerces net operating loss carryforwards are subject to an annual
limitation. The annual limitation ICG Commerce has on the utilization of its net operating losses
is $3.1 million per year. The amount available in 2011 is $34.3 million and the total amount
available through 2022, when the losses subject to this limitation expire, is $68.8 million.
Additionally, ICG has $32.3 million of net operating loss carryforwards that are not subject to the
Section 382 annual limitation. These net operating losses expire between 2026 and 2029.
A valuation allowance has been provided for the portion of ICGs net deferred tax assets that ICG
believes, after evaluating all positive and negative evidence, both historical and prospective, is
more likely than not to not be realized.
As of December 31, 2010, ICG was entitled to an income tax refund of $6.3 million, which was
received during the three months ended March 31, 2011.
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Net Income (Loss) per Share
The calculations of net income (loss) per share were:
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(in thousands, | ||||||||
except per share data) | ||||||||
Basic and Diluted: |
||||||||
Income (loss) from continuing operations |
$ | 15,890 | $ | 28,802 | ||||
Income (loss) from discontinued operations |
| (31 | ) | |||||
Net income (loss) attributable to Internet Capital Group, Inc. |
$ | 15,890 | $ | 28,771 | ||||
Basic: |
||||||||
Income (loss) from continuing operations per share |
$ | 0.43 | $ | 0.79 | ||||
Income (loss from discontinued operations per share |
| | ||||||
Net income (loss) attributable to Internet Capital Group, Inc. per share |
$ | 0.43 | $ | 0.79 | ||||
Diluted: |
||||||||
Income (loss) from continuing operations per share |
$ | 0.42 | $ | 0.79 | ||||
Income (loss) from discontinued operations per share |
| | ||||||
Net income (loss) attributable to Internet Capital Group, Inc. per share |
$ | 0.42 | $ | 0.79 | ||||
Shares used in computation of basic income (loss) per share |
36,944 | 36,305 | ||||||
Stock options |
104 | 36 | ||||||
Restricted stock |
23 | 4 | ||||||
DSUs |
19 | | ||||||
SARs |
901 | 1 | ||||||
Shares used in the computation of diluted income (loss) per share |
37,991 | 36,346 | ||||||
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 | ||||||||
Three Months Ended March 31, 2011 | Shares | Price Per Share | ||||||
(in thousands) | ||||||||
Stock options |
84 | $ | 34.56 | |||||
Restricted stock |
| $ | | |||||
Deferred stock units |
60 | $ | | |||||
SARs |
1,576 | $ | 7.11 | |||||
Three Months Ended March 31, 2010 |
||||||||
Stock options |
405 | $ | 36.15 | |||||
Restricted stock |
33 | $ | | |||||
Deferred stock units |
36 | $ | | |||||
SARs |
5,339 | $ | 7.41 |
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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. 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, ICGs primary source of comprehensive loss was net unrealized holding gains (losses)
related to its marketable securities. The following table summarizes the components of
comprehensive loss:
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Net income (loss) |
$ | 16,242 | $ | 29,144 | ||||
Other comprehensive income (loss): |
||||||||
Unrealized holding gains (losses) in marketable securities |
| (2,701 | ) | |||||
Reclassification adjustments/realized net gains on marketable securities |
| (35,017 | ) | |||||
Other accumulated other comprehensive income (loss) |
(20 | ) | 38 | |||||
Comprehensive income (loss) |
16,222 | (8,536 | ) | |||||
Less: Comprehensive income attributable to the noncontrolling interest |
332 | 411 | ||||||
Comprehensive income (loss) attributable to Internet Capital Group, Inc. |
$ | 15,890 | $ | (8,947 | ) | |||
15. Redeemable Noncontrolling Interest
Certain GovDelivery Series AA Preferred stockholders have the ability to force GovDelivery to
redeem their Series AA Preferred shares beginning in 2013. Because this redemption is outside the
control of GovDelivery, ICG has classified this noncontrolling interest outside of equity and will
accrete to its estimated redemption value. This noncontrolling interest is classified as
Redeemable noncontrolling interest on ICGs Consolidated Balance Sheets.
The following reconciles the activity related to the redeemable noncontrolling interest during the
three months ended March 31, 2011 and 2010 (in thousands):
Balance at December 31, 2009 |
$ | 1,420 | ||
Redeemable noncontrolling interest portion of net subsidiary income/(loss) |
(27 | ) | ||
Accretion to estimated redemption value |
61 | |||
Balance at March 31, 2010 |
$ | 1,454 | ||
Balance at December 31, 2010 |
$ | 1,182 | ||
Redeemable noncontrolling interest portion of net subsidiary income/(loss) |
(56 | ) | ||
Accretion to estimated redemption value |
101 | |||
Impact of subsidiary equity transactions |
2 | |||
Balance at March 31, 2011 |
$ | 1,229 | ||
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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 our Consolidated Financial
Statements and related Notes thereto included in this Report.
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 collectively hereinafter referred to as
we, us, our, ICG, or the Company), and have been prepared in accordance with U.S.
generally accepted accounting principles (GAAP).
Executive Summary
We focus on acquiring and building SaaS and technology-enabled BPO companies that improve the
productivity and efficiency of their business customers. The results of operations of the
companies in which we hold convertible debt or equity interests are reported within two segments:
the core reporting segment and the venture reporting segment. Our core reporting segment
includes those companies in which our management takes a very active role in providing strategic
direction and management assistance. We own majority controlling equity positions in (and
therefore consolidate the financial results of) three of these core companies, which we call our
consolidated core companies. We own substantial minority equity positions (i.e., the largest
equity positions) in our other core companies, which we call our equity core companies. We
expect to devote relatively large initial amounts of capital to acquire stakes in our core
companies, particularly consolidated core companies, since any such acquisition would entail the
deployment of cash and/or issuance of ICG stock to purchase a large equity stake in a target with
relatively strong financial characteristics and growth potential. As of March 31, 2011 and the
date of this Report, we hold ownership interests in seven companies that we consider core
companies.
Our venture reporting segment includes companies (venture companies) to which we generally devote
less capital than we do to our core companies and, therefore, in which we hold relatively smaller
ownership stakes than we do in our core companies. As a result, we generally have less influence
over their strategic direction and management decisions of our venture companies than we do over
those of our core companies. As of March 31, 2011 and the date of this Report, we hold ownership
interests in four companies that we consider venture companies.
The convertible debt and equity interests that we acquire are accounted for under one of three
accounting methods: the consolidation method, the equity method and the cost method. The
applicable accounting method is generally determined based on our voting interest in a company.
Generally, if we own more than 50% of the outstanding voting securities of a company, and other
stockholders do not possess the right to affect the significant operational management decisions of
that company, the companys accounts are reflected in our Consolidated Financial Statements.
Generally, if we own between 20% and 50% of the outstanding voting securities of a company, that
companys accounts are not reflected in our Consolidated Financial Statements, but our share of the
earnings or losses of the company is reflected in the caption Equity loss in our Consolidated
Statements of Operations. 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 a number of companies that are in different stages of
profitability, we have experienced, and expect to continue to experience, significant volatility in
our quarterly results. While many of our core and venture 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
various ownership interests. 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 ownership interests and dispositions of our holdings of marketable
securities.
Liquidity and Capital Resources
The following table summarizes our and our consolidated subsidiaries cash and cash equivalents,
restricted cash, and long-term debt as of March 31, 2011 and December 31, 2010:
March 31, 2011 | December 31, 2010 | |||||||||||||||||||||||
Consolidated | Consolidated | |||||||||||||||||||||||
Corporate | Subsidiaries | Total | Corporate | Subsidiaries | Total | |||||||||||||||||||
Cash and cash equivalents |
$ | 119,720 | $ | 13,837 | $ | 133,557 | $ | 72,915 | $ | 19,523 | $ | 92,438 | ||||||||||||
Restricted cash |
| 168 | 168 | | 201 | 201 | ||||||||||||||||||
$ | 119,720 | $ | 14,005 | $ | 133,725 | $ | 72,915 | $ | 19,724 | $ | 92,639 | |||||||||||||
Long-term debt |
$ | | $ | (19,021 | ) | $ | (19,021 | ) | $ | | $ | (20,081 | ) | $ | (20,081 | ) |
We believe existing cash and cash equivalents, proceeds from the potential sales of all or a
portion of our equity ownership interests and equity issuances to be sufficient to fund our cash
requirements for the foreseeable future, including any future commitments to our companies, debt
obligations and general operating requirements. As of the date of this filing, we were not
obligated for any material funding or guarantee commitments to existing companies in which we hold
convertible debt or equity securities. We will continue to evaluate acquisition opportunities and
may acquire additional ownership interests in new and existing companies during 2011; however, such
acquisitions will generally be made at our discretion.
GovDelivery, ICG Commerce and InvestorForce have funded their operations through a combination of
cash flow from operations and borrowing. GovDelivery and ICG Commerce expect that their existing
cash balances and cash flow from operations, driven by an increasing customer base at ICG Commerce
and a customer renewal rate in excess of 95% at GovDelivery, will be sufficient to fund their
respective operations, including the payment of debt obligations, for the foreseeable future.
InvestorForce is expected to require additional borrowings, primarily from ICG, to fund its
operations through 2011. From time to time, GovDelivery, ICG Commerce and InvestorForce evaluate
various acquisition opportunities, any of which may require additional equity financing and/or
borrowings from ICG.
Our consolidated working capital increased $47.0 million, from $97.2 million as of December 31,
2010 to $144.2 million as of March 31, 2011. This increase is primarily attributable to the
increase in cash from December 31, 2010 to March 31, 2011 due to the receipt of $51.3 million in
proceeds related to the Metastorm disposition, slightly offset by payments of long-term debt,
including capital leases, and cash used in general operating activities at ICG and its consolidated
subsidiaries.
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Summary of Statements of Cash Flows from continuing operations
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Cash provided by (used in) operating activities |
$ | (5,386 | ) | $ | (10,410 | ) | ||
Cash provided by (used in) investing activities |
$ | 47,612 | $ | 39,971 | ||||
Cash provided by (used in) financing activities |
$ | (1,201 | ) | $ | (263 | ) |
Cash flows used in operating activities from continuing operations decreased $5.0 million during
the three months ended March 31, 2011 from the comparable 2010 period. The change primarily
relates to the cash received from the IRS of $6.3 million, which was
reflected as tax receivable at December 31, 2010.
Cash flows provided by investing activities from continuing operations increased $7.6 million from
$40.0 million during the three months ended March 31, 2010 to $47.6 million during the three months
ended March 31, 2011. This change primarily relates to a $51.3 million increase in proceeds from
sales of ownership interests, partially offset by a $3.0 million increase in cash paid to acquire
ownership interests and a $41.0 million decrease in proceeds from sales of marketable securities
from the comparable 2010 period.
Cash flows used in financing activities from continuing operations increased $0.9 million from $0.3
million during the three months ended March 31, 2010 to $1.2 million during the three months ended
March 31, 2011. The increase primarily relates to an increase in repayments of long-term debt as
well as the payment of tax withholdings related to exercises of equity-based awards.
From time to time, we and our consolidated subsidiaries are involved in various claims and legal
actions arising in the ordinary course of business. We do not expect any liability with respect to
any such actions that would 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
months ended March 31, 2011.
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,
expenses, results of operations, liquidity, capital expenditures or capital resources.
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Our Companies
As of March 31, 2011, we held equity interests in 11 companies that we consider part of our core
and venture segments. These companies are categorized below based on segment and method of
accounting.
CORE COMPANIES (% Voting Interest) | ||||
Consolidated | Equity | Cost | ||
GovDelivery (93%) |
Channel Intelligence (50%)(1) | (none) | ||
ICG Commerce (80%) |
Freeborders (31%) | |||
InvestorForce (78%) |
StarCite (36%) | |||
WhiteFence (36%) |
VENTURE COMPANIES (% Voting Interest) | ||||
Consolidated | Equity | Cost | ||
(none) |
Acquirgy (25%) | (none) | ||
ClickEquations (33%) | ||||
GoIndustry (26%)(2) | ||||
SeaPass (26%) |
(1) | Our ownership percentage of 49.5% rounds up to 50%. We do
not consolidate Channel Intelligence because we do not own a
majority interest, and additional factors support that we do
not exert control over Channel Intelligence. See Note 5,
Ownership Interests to our Consolidated Financial
Statements. |
|
(2) | As of March 31, 2011 and the date of this Report, we owned
2,546,743 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 5, Ownership Interests, 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 core companies and records our
share of the earnings and losses of core and venture companies accounted for under the equity
method of accounting. The companies included within the segments are consistent between periods,
with the exception of the disposition of Metastorm, an equity core company, that occurred during
the three months ended March 31, 2011. The method of accounting for any particular company may
change based on our ownership interest.
Dispositions refers to those companies that have been sold or ceased operations and are no longer
included in a segment for the periods presented. We consider dispositions to be either the sale of
a division, subsidiary or asset group of our consolidated core companies, typically classified as
discontinued operations for accounting purposes, or the disposition of our ownership interest in a
core or venture company accounted for under the equity method of accounting. The amount presented
as Dispositions below for the three months ended March 31, 2011 represents Metastorm, which was
sold on February 17, 2011. The amount presented as Dispositions below for the three months ended
March 31, 2010 represents a subsidiary of GovDelivery that was sold on August 31, 2010, as well as
Metastorm.
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Corporate expenses represent the general and administrative expenses of our business operations,
which include supporting our core and venture companies and operating as a public company. The
measure of segment net loss reviewed by us does not include items such as gains on the disposition
of ownership interests and marketable securities holdings and impairment charges, which are
reflected in Other reconciling items in the information that follows.
Segment Information | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Three Months Ended | Total | Reconciling Items | Consolidated | |||||||||||||||||||||||||
March 31, 2011 | Core | Venture | Segment | Dispositions | Corporate | Other | Results | |||||||||||||||||||||
Revenues |
$ | 33,954 | $ | | $ | 33,954 | $ | | $ | | $ | | $ | 33,954 | ||||||||||||||
Net income (loss)
attributable to
Internet Capital
Group, Inc. |
$ | 617 | $ | (1,680 | ) | $ | (1,063 | ) | $ | (335 | ) | $ | (4,565 | ) | $ | 21,853 | $ | 15,890 | ||||||||||
Three Months Ended
March 31, 2010 |
||||||||||||||||||||||||||||
Revenues |
$ | 25,755 | $ | | $ | 25,755 | $ | | $ | | $ | | $ | 25,755 | ||||||||||||||
Net income (loss)
attributable to
Internet Capital
Group, Inc. |
$ | (2,263 | ) | $ | (1,179 | ) | $ | (3,442 | ) | $ | (667 | ) | $ | (4,472 | ) | $ | 37,352 | $ | 28,771 |
For the Three Months Ended March 31, 2011 and 2010
Results of Operations Core Companies
The following presentation includes the results of our consolidated core companies and our share of
the results of our equity core companies.
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Selected data: |
||||||||
Revenues |
$ | 33,954 | $ | 25,755 | ||||
Cost of revenue |
(20,990 | ) | (16,682 | ) | ||||
Selling, general and administrative |
(6,914 | ) | (5,910 | ) | ||||
Research and development |
(3,129 | ) | (2,424 | ) | ||||
Amortization of intangible assets |
(337 | ) | (339 | ) | ||||
Impairment related and other |
(37 | ) | (72 | ) | ||||
Operating expenses |
(31,407 | ) | (25,427 | ) | ||||
Interest and other |
(46 | ) | (378 | ) | ||||
Income tax (expenses) benefit |
(323 | ) | (616 | ) | ||||
Equity loss |
(1,561 | ) | (1,597 | ) | ||||
Net income (loss) |
$ | 617 | $ | (2,263 | ) | |||
Revenue
Revenue increased $8.2 million, from $25.8 million during the three months ended March 31, 2010, to
$34.0 million during the three months ended March 31, 2011. This is due to increases in revenue
ranging between 27% and 31% at all three of our consolidated subsidiaries from new customers and
expanding business with existing customers. In addition, purchase price adjustments decreasing
revenue at GovDelivery for deferred revenue limitations (which amounted to $0.8 million for the
three months ended March 31, 2010) related to, and were recorded during, 2010 only.
Operating Expenses
Operating expenses increased $6.0 million, from $25.4 million during the three months ended March
31, 2010 to $31.4 million during the three months ended March 31, 2011. More than half of this
increase is related to an increase in cost of revenue at ICG Commerce and directly attributable to
the increase in revenue at that company. This increase is also due to costs associated with
increased sales efforts, primarily at GovDelivery, and increased product development at both
GovDelivery and InvestorForce.
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Interest and Other
The decrease in interest and other expenses primarily relates to changes in foreign currency gains
and losses at ICG Commerce.
Income Tax (Expense) Benefit
The decrease in income tax expense from the three months ended March 31, 2010 to the three months
ended March 31, 2011 relates to ICG Commerce. See subsection Income Tax Benefit (Expense) under the Other heading in Results of Operations-Reconciling Items.
Equity Loss
A portion of our net results from our core companies is derived from the results of those 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 March 31, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Selected data: |
||||||||
Total revenues |
$ | 29,006 | $ | 27,001 | ||||
Total net loss |
$ | (3,187 | ) | $ | (3,015 | ) | ||
Our share of total net loss |
$ | (1,159 | ) | $ | (1,172 | ) | ||
Amortization of intangible assets |
(402 | ) | (425 | ) | ||||
Equity loss |
$ | (1,561 | ) | $ | (1,597 | ) | ||
Aggregate revenue from our equity core companies increased $2.0 million during the three months
ended March 31, 2011 from the comparable 2010 period. This increase relates to an increase in
revenue at Freeborders from the 2010 period. Aggregate net loss and, accordingly, our share of
total net loss for the three months ended March 31, 2011 was largely consistent with the
corresponding 2010 period.
Results of Operations Venture Companies
The following presentation includes our share of the results of our venture companies accounted for under the equity method of accounting.
There are currently no consolidated companies that we consider to be part of our venture reporting
segment. Accordingly, our share of the results of those venture companies is recorded in our
Consolidated Statements of Operations under Equity loss.
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Selected data: |
||||||||
Our share of total net loss |
$ | (1,513 | ) | $ | (1,012 | ) | ||
Amortization of intangible assets |
(167 | ) | (167 | ) | ||||
Equity loss |
$ | (1,680 | ) | $ | (1,179 | ) | ||
Equity income (loss) for the three months ended March 31, 2011 and 2010 relates to our share of
Acquirgys, ClickEquations, GoIndustrys and SeaPass results. The decrease in equity loss
attributable to our venture companies from the 2010 period to the 2011 period is due primarily to a
decline in results at GoIndustry.
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Table of Contents
Results of Operations Reconciling Items
Dispositions
On February 17, 2011, the sale of Metastorm to Open Text was consummated. We recorded equity loss
related to our share of Metastorms results of $0.3 million and $0.5 million for the three months
ended March 31, 2011 and 2010. Additionally, we recorded less than $0.1 million and $0.1 million
of ICGs intangible asset amortization related to Metastorm for the respective periods. Since
Metastorm was an equity core company, our share of Metastorms results and the related ICG
intangible asset amortization has been removed from the results of our core segment and are
included in Dispositions in the Results of Operations segment information table above for both
periods presented.
On August 31, 2010, GovDelivery completed the sale of its GovDocs subsidiary for aggregate
consideration of $1.8 million. GovDocs had revenues of $0.5 million and net income, including
purchase price adjustments and intangible amortization, of less than $0.1 million, for the three
months ended March 31, 2010, which, prior to the sale, had been included in our core segment.
GovDocs revenue and operating results from that period have been separated from continuing
operations and are presented in the single line item, Income (loss) from discontinued operations,
on our Consolidated Statements of Operations; these net results are included in Dispositions in
the Results of Operations segment information table for the three months ended March 31, 2010.
Corporate
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
General and administrative |
$ | (4,673 | ) | $ | (4,524 | ) | ||
Interest income (expense), net |
66 | 52 | ||||||
Income tax benefit (expense) |
42 | | ||||||
Net loss |
$ | (4,565 | ) | $ | (4,472 | ) | ||
Corporate general and administrative expenses and interest income were generally consistent between
periods. The income tax benefit in the 2011 period relates to the receipt of an income tax refund
that exceeded the $6.3 million income tax receivable recorded by ICG as of December 31, 2010.
Other
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Corporate other income (loss) |
$ | 24,864 | $ | 40,639 | ||||
Noncontrolling interest |
(352 | ) | (373 | ) | ||||
Impairment of GoIndustry (Venture) |
| (2,914 | ) | |||||
Income tax benefit (expense) |
(2,659 | ) | | |||||
Net income |
$ | 21,853 | $ | 37,352 | ||||
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Corporate Other Income (Loss), Net
The other income of $24.9 million recorded during the three months ended March 31, 2011 primarily
relates to the gain on the sale of Metastorm, which occurred on February 17, 2011. The other
income of $40.6 million recorded during the three months ended March 31, 2010 consists of a gain on
the sale of marketable securities, primarily Blackboard common stock, of $34.8 million, a gain of
$0.7 million on the value of our Blackboard hedges during the period, a gain on the sale of
Creditex of $5.0 million related to the release of ICE common stock from escrow and a gain on the
sale of previous dispositions of ownership interests of $0.1 million.
Impairments
We recorded $2.9 million of impairment charges to decrease our basis in GoIndustry during the three
months ended March 31, 2010; these charges related to decreases in the fair market value of our
equity holdings in GoIndustry. See Note 5, Ownership Interests.
Income Tax Benefit (Expense)
During the three months ended March 31, 2011, we recorded consolidated income tax expense of $2.9
million, $2.6 million of which represents deferred taxes associated with the sale of Metastorm, and
$0.3 million of which relates to operations for the three months ended March 31, 2011 and is
reflected in the core segment.
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 ownership interests, 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.
Valuation of Goodwill, Intangible Assets and Ownership Interests
We test goodwill for impairment annually, or more frequently as conditions warrant, and test
intangible assets when events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Additionally, we perform ongoing business reviews to evaluate our
ownership interests in companies accounted for under the equity and cost methods of accounting to
determine whether an other-than-temporary decline in the value of any of these companies should be
recognized. We use quantitative and qualitative measures to assess the need to record impairment
losses on goodwill, intangible assets and ownership interests in our 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.
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Significant assumptions relating to future operating results must be made when estimating the
future cash flows associated with these companies. Significant assumptions relating to the
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.
GovDelivery revenues generally consist of nonrefundable setup fees and monthly maintenance and
hosting fees. These fees are deferred and recognized as the services are performed, which is
typically over the service term. Costs related to performing setup services are expensed as
incurred.
InvestorForce generates revenue from license fees earned in connection with hosted services, setup
fees and support and maintenance fees. Hosted services primarily consist of data aggregation,
performance calculation, real-time analysis and automated production of performance reports for the
institutional investment community. Generally, a minimum quarterly base fee is charged for hosted
services. These minimum fees are recognized on a pro rata basis over the service term. As the
volume of client accounts increases, additional fees apply. These additional fees are recognized
in the period in which account volumes exceed the contract minimum. Setup and support and
maintenance fees are deferred and recognized ratably over the service term.
Equity Income/Loss
We record our share of the net income or loss reported by our core and venture companies accounted
for under the equity method of accounting as equity income/loss. Since we do not control these
companies, this equity income/loss is based on unaudited results of operations of these companies
and may require adjustment in the future when the audits of the 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 those matters, as well as potential ranges of probable losses. A determination of the
amount of reserves required for those 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.
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Fair Value Measurements
Fair value is the price that would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. There are
three levels of inputs that may be used to measure fair value. Our marketable securities are
reported at fair value on our Consolidated Balance Sheets based on quoted prices in active markets
for identical or comparable assets.
Recent Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board (FASB) issued accounting guidance
related to the two-step approach for impairment testing of reporting units with zero or negative
carrying amounts. This guidance requires companies to consider adverse qualitative factors, in
addition to quantitative factors, in its assessment of whether the carrying amount of a reporting
unit exceeds its fair value if it is more likely than not that a goodwill impairment exists for a
reporting unit with a zero or negative carrying amount and to determine whether goodwill has been
impaired and calculate the amount of that impairment. This guidance is effective for us beginning
on January 1, 2011 and did not impact the Consolidated Financial Statements.
In December 2010, the FASB issued accounting guidance related to reporting pro forma information
for business combinations in the footnotes of a companys financial statements, and requires that
entities presenting comparative financial statements should disclose pro forma revenue and earnings
of the combined entity as though the business combination(s) that occurred during the current year
had occurred as of the beginning of the comparable prior annual reporting period and carry forward
any related adjustments through the current reporting period. This guidance also expands the
supplemental pro forma disclosures to include a description of the nature and amount of material,
nonrecurring pro forma adjustments directly attributable to the business combination(s) included in
the reported pro forma revenue and earnings. This guidance is effective for us beginning on
January 1, 2011 and will be applied to any acquisitions that occur on or after that date. This
guidance did not impact the Consolidated Financial Statements.
In October 2009, the FASB issued accounting guidance for recognition of revenue arrangements with
multiple deliverables, which impacts the determination of when the individual deliverables included
in a multiple-element arrangement may be treated as separate units of accounting. This guidance is
effective for us beginning on January 1, 2011, and did not impact the
Consolidated Financial Statements.
In October 2009, the FASB issued accounting guidance related to certain revenue arrangements that
include software elements, which amends the scope of pre-existing software revenue guidance. This
guidance is effective for us beginning on January 1, 2011, and did not impact the Consolidated Financial Statements.
ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk |
ICG Commerce conducts a portion of its business in several foreign currencies, and, from time to
time, 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. These
instruments are 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 allow ICG Commerce to minimize the risk of currency fluctuations. In determining the
use of its instruments, 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 March 31, 2011, ICG Commerce purchased average rate currency options to mitigate the
risk of currency fluctuations at ICG Commerces operations in the United Kingdom, Europe, Asia and
South America. These instruments net settle each quarter and mature on December 31, 2011. The use
of these instruments resulted in an immaterial loss in the three months ended March 31, 2011.
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ICG Commerce is party to a term loan agreement with PNC Bank in the amount of $20.0 million, the
interest rate for which is computed based on certain fixed and variable indices. During the year
ended December 31, 2010, ICG Commerce entered into a rate swap transaction to minimize the risk of
interest rate fluctuations. This rate swap transaction net settles each month and matures on
August 1, 2015. ICG Commerce recognized an immaterial gain during the three months ended March 31,
2011 related to this instrument.
We are exposed to equity price risks on the marketable portion of our equity securities. Our
public holdings at March 31, 2011 include an equity position in GoIndustry, which has experienced
significant historical volatility in its stock prices. A 20% adverse change in equity prices,
based on a sensitivity analysis of our holdings in GoIndustry as of March 31, 2011, would result in
a decrease in the fair value of our public holdings of approximately $1.1 million. Although a 20%
adverse change in equity prices would cause the fair value of our holdings in GoIndustry to
decrease to $4.3 million, the carrying value of our equity holdings in GoIndustry was $1.5 million
as of March 31, 2011. Accordingly, a 20% adverse change in equity prices of our public holdings at
March 31, 2011 would have no impact to our Consolidated Balance Sheets or Consolidated Statements
of Operations.
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, if any, 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 our 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, our 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 our 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 our 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, our internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. | Legal Proceedings |
In May and June 2001, certain of ICGs present directors, along with ICG, 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 ICG. 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 ICG 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 ICGs 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 ICGs stock by analysts employed by the underwriters.
In June and July 2002, defendants, including ICG defendants, filed motions to dismiss plaintiffs
complaints on numerous grounds. ICGs motion was denied in its entirety in an opinion dated
February 19, 2003. In July 2003, a committee of ICGs 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 ICG, the defendants moved for, and the Court granted, an order that would
apply the decision to all cases, including the consolidated action against ICG. 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 ICG, 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 ICG. The motion further seeks certification of
settlement classes as to each action against the defendants, including ICG. ICG has assented to
the proposed settlement, which does not require any monetary contribution from ICG and would be
funded by various underwriter defendants and the defendants insurers. On June 10, 2009, the
District Court granted preliminary approval of the proposed settlement and of 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 global 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,
ICG 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 ICG 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. On or before November 6, 2009, three notices of appeal were filed with
respect to the District Courts order granting final approval of the global settlement. On
December 14, 2009, the District Court entered a final judgment approving and giving effect to the
global settlement as it related to the consolidated actions against ICG. The final judgment
created a settlement class of plaintiffs comprised of persons who purchased or otherwise acquired
the common stock and call options of ICG during the period of August 4, 1999 through December 6,
2000, provided for the distribution of settlement proceeds to the members of the class and approval
of attorneys fees to class counsel consistent with the terms of the global settlement, barred
prosecution of all settled claims by members of the class and their representatives, released the
defendants and other protected persons from such claims and dismissed all claims against ICG and
other defendants in the consolidated amended action with prejudice.
The appeals referenced in the November 6, 2009 notices of appeal have been docketed in the Court of
Appeals for the Second Circuit. By order dated April 7, 2010, the District Court directed that the
appealing class members identify the specific class, by company, to which they purport to belong.
The District Courts order further directed the clerk of the court to enter the appealing class
members notices of appeal only in those cases as to which the appealing class members identify
themselves as members of the class certified. No such notice of appeal has been entered in the
action against ICG. Separately, on June 17, 2010, the District Court entered an order requiring
the appellants to post a bond in the amount of $25,000, jointly and severally, as a condition of
pursuing their appeals from the October 5, 2009 order approving the global settlement. The bond
was posted and a briefing schedule with respect to the appeals was set. The distribution of
settlement proceeds is currently being held in abeyance.
Since September 2010, four of the six individuals or groups that filed appeals from the class
settlement have dropped their appeals, leaving two, a pro se appeal by James Hayes and an appeal
filed by Theodore Bechtold, an attorney filing on his own behalf. Each filed opening briefs
challenging the settlement and/or class certification on a variety of grounds. Responsive briefs
from the appellees were due to be filed by December 17, 2010. On December 8, 2010, however, the
plaintiff-appellees (class counsel defending the class settlement) moved to dismiss the Bechtold
appeal on a variety of technical grounds. That motion is still pending before the Court of Appeals
for the Second Circuit. Its filing suspended the date by which the responsive briefs in both
appeals were to be filed. Accordingly, completion of briefing on the two remaining appeals will
await resolution of the motion to dismiss Mr. Bechtolds appeal.
ITEM 1A. | Risk Factors |
In addition to the other information set forth in this Report, you should carefully consider the
factors discussed in Item 1A Risk Factors in our Annual Report on Form 10-K for the year ended
December 31, 2010 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 and/or operating
results. There have been no material changes with respect to ICGs risk factors previously
disclosed in its Annual Report on Form 10-K for the year ended December 31, 2010.
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ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Issuer Purchases of Equity Securities
In 2008, we adopted a share repurchase program under which we may repurchase, from time to time, up
to $25.0 million of shares of our 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 our Common Stock
that occurred under the share repurchase 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 | |||||||||||||
Period | Shares Purchased(1) | per Share(2) | Program(1) | Program | ||||||||||||
Repurchased as of
12/31/10 |
2,440,400 | $ | 4.89 | 2,440,400 | $13.1 million | |||||||||||
1/1/11 to 1/31/11 |
0 | | 0 | $13.1 million | ||||||||||||
2/1/11 to 2/28/11 |
0 | | 0 | $13.1 million | ||||||||||||
3/1/11 to 3/31/11 |
0 | | 0 | $13.1 million | ||||||||||||
4/1/11 to 4/30/11 |
0 | | 0 | $13.1 million | ||||||||||||
5/1/11 to 5/9/11 |
0 | | 0 | $13.1 million | ||||||||||||
Total |
2,440,400 | $ | 4.89 | 2,440,400 | $13.1 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. | (Removed and Reserved) |
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 13 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: May 9, 2011 |
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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