ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth elsewhere in this Report and the risks discussed in our other
SEC filings. The following discussion should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto included in this
Report.
Although we refer in this Report to companies in which we have acquired a
convertible debt or an equity ownership interest as our "partner companies" and
indicate that we have a "partnership" with these companies, we do not act as an
agent or legal representative for any of our partner companies, we do not have
the power or authority to legally bind any of our partner companies, and we do
not have the types of liabilities in relation to our partner companies that a
general partner of a partnership would have.
The Consolidated Financial Statements include the consolidated accounts of
Internet Capital Group, Inc., a company incorporated in Delaware, and its
subsidiaries, both wholly-owned and consolidated (Internet Capital Group, Inc.
and all such subsidiaries are hereinafter referred to as "we," "us," "our,"
"ICG," the "Company" or "Internet Capital Group"), and have been prepared in
accordance with Generally Accepted Accounting Principles in the United States of
America ("GAAP").
Executive Summary
Since our inception in 1996, we have focused on acquiring and building Internet
software and services companies that improve the productivity and efficiency of
their business customers. We call these companies our "partner companies." As of
March 31, 2009 and the date of this Report, we hold ownership interests in
fourteen companies that we consider our partner companies. Additionally, we hold
marketable securities in other companies, which, as of March 31, 2009 and the
date of this Report, consist of Blackboard common stock. The results of
operations of our partner companies are reported within two segments: the "core"
reporting segment and the "other holdings" reporting segment. The core reporting
segment includes those partner companies in which ICG's management takes a very
active role in providing strategic direction and management assistance. We
devote significant expertise and capital to maximizing the success of these core
partner companies. The other holdings reporting segment includes partner
companies over which, in general, we have less influence because they are public
companies and/or we have a relatively small ownership stake in those partner
companies.
The various interests that we acquire in our partner companies are accounted for
under one of three accounting methods: the consolidation method, the equity
method or the cost method. The applicable accounting method is generally
determined based on our voting interest in a partner company. Generally, if we
own more than 50% of the outstanding voting securities of a partner company, and
other stockholders do not possess the right to affect the significant management
decisions of that partner company, the partner company's accounts are reflected
within our Consolidated Financial Statements. Generally, if we own between 20%
and 50% of the outstanding voting securities of a partner company, that partner
company's accounts are not reflected within our Consolidated Financial
Statements, but our share of the earnings or losses of the partner company is
reflected in the caption "Equity loss" in our consolidated statements of
operations. Partner companies not accounted for under either the consolidation
or the equity method of accounting are accounted for under the cost method of
accounting. Under this method, our share of the earnings or losses of these
companies is not included in our consolidated statements of operations.
Because we own significant interests in software and services companies, many of
which have generated net losses, we have experienced, and expect to continue to
experience, significant volatility in our quarterly results. While many of our
partner companies have consistently reported losses, we have recorded net income
in certain periods and experienced significant volatility from period-to-period
due to infrequently occurring transactions and other events relating to our
ownership interests in partner companies. These transactions and events are
described in more detail in our Notes to Consolidated Financial Statements
included hereto and include dispositions of, changes to and impairment of our
partner company ownership interests, dispositions of our holdings of marketable
securities and debt repurchases.
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Liquidity and Capital Resources
The following table summarizes our and our consolidated subsidiaries' cash and
cash equivalents, restricted cash, and marketable securities as of March 31,
2009 and December 31, 2008:
March 31, 2009 December 31, 2008
Consolidated Consolidated
Corporate Subsidiaries Total Corporate Subsidiaries Total
(in thousands)
Cash and cash equivalents $ 61,975 $ 14,388 $ 76,363 $ 73,208 $ 16,087 $ 89,295
Restricted cash 3,585 231 3,816 - 232 232
$ 65,560 $ 14,619 $ 80,179 $ 73,208 $ 16,319 $ 89,527
Marketable securities (1) $ 72,517 $ - $ 72,517 $ 63,918 $ - $ 63,918
|
(1) Includes a
contributing
asset of
$3.1 million
and
$6.5 million
at March 31,
2009 and
December 31,
2008,
respectively,
related to
derivative
instruments
associated
with the
Company's
marketable
securities.
We believe existing cash and cash equivalents and proceeds from the potential
sales of all or a portion of our interests in certain marketable securities and
partner companies to be sufficient to fund our cash requirements for the
foreseeable future, including any future commitments to partner companies, debt
obligations and general operating requirements. On February 3, 2009, we entered
into certain arrangements under which we guaranteed approximately $3.6 million
of debt for StarCite. Under these arrangements, we placed approximately
$3.6 million in a bank account to be used to repay the StarCite debt when it
matured or otherwise became due and payable. This amount was classified as
restricted cash as of March 31, 2009. In May 2009, the underlying debt was
repaid in full with funds being held in the bank account. As a result, we are
entitled to receive additional preferred ownership interests in StarCite. As of
the date of this filing, we were not obligated for any other material funding
and guarantee commitments to existing partner companies. We will continue to
evaluate acquisition opportunities and may acquire additional ownership
interests in new and existing partner companies in the next twelve months;
however, such acquisitions will generally be made at our discretion.
ICG Commerce, Investor Force and Vcommerce fund their operations through a
combination of cash flow from operations, borrowings and equity issuances. ICG
Commerce expects that its existing cash balance and cash flow from operations
will be sufficient to fund its operations through 2009, while Investor Force and
Vcommerce are expected to require additional borrowings and/or equity issuances
to fund their respective operations through 2009.
Consolidated working capital decreased by $3.5 million from December 31, 2008 to
March 31, 2009, primarily due to fundings to partner companies and the payment
of bonuses, offset by distributions from the sale of partner companies.
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