10-K 1 d444062d10k.htm FORM 10-K Form 10-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-K

 

 

(Mark One)

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For Fiscal Year Ended December 31, 2012.

or

 

¨

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

 

 

ICG GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   23-2996071

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

555 East Lancaster Ave., Suite 640, Radnor, PA   19087
(Address of Principal Executive Offices)   (Zip Code)

(610) 727-6900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Common stock, par value $.001 per share

(Title of Each Class)

  The NASDAQ Stock Market LLC
  (The NASDAQ Global Select Market)
  (Name of Each Exchange on Which Registered)

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  x

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

¨

  

Accelerated filer

 

x

Non-accelerated filer

 

¨

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the 35,724,821 shares of Common Stock held by non-affiliates of the registrant as of March 11, 2013 was $330.5 million, based upon the closing price of $9.25 on The NASDAQ Global Select Market on June 29, 2012. (For this computation, the registrant has excluded the market value of all shares of its Common Stock held by its executive officers and directors; such exclusion shall not be deemed to constitute an admission that any such person is an “affiliate” of the Registrant.)

As of March 11, 2013, there were 38,068,394 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement to be filed with the U.S. Securities and Exchange Commission (the “SEC”) relative to the Company’s 2013 Annual Meeting of Stockholders (the “Definitive Proxy Statement”) are incorporated by reference into Part III of this Report.

 

 

 


Table of Contents

ICG GROUP, INC.

FORM 10-K

DECEMBER 31, 2012

INDEX

 

         Page
Number
 

PART I

     2   

ITEM 1.

 

Business

     2   

ITEM 1A.

 

Risk Factors

     8   

ITEM 1B.

 

Unresolved Staff Comments

     16   

ITEM 2.

 

Properties

     16   

ITEM 3.

 

Legal Proceedings

     16   

ITEM 4.

 

Mine Safety Disclosures

     16   

PART II

     16   

ITEM 5.

 

Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     16   

ITEM 6.

 

Selected Financial Data

     19   

ITEM 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     20   

ITEM 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

     33   

ITEM 8.

 

Financial Statements and Supplementary Data

     35   

ITEM 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

     77   

ITEM 9A.

 

Controls and Procedures

     78   

ITEM 9B.

 

Other Information

     80   

PART III

     80   

ITEM 10.

 

Directors, Executive Officers and Corporate Governance

     80   

ITEM 11.

 

Executive Compensation

     80   

ITEM 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     80   

ITEM 13.

 

Certain Relationships and Related Transactions, and Director Independence

     80   

ITEM 14.

 

Principal Accountant Fees and Services

     80   

PART IV

     81   

ITEM 15.

 

Exhibits and Financial Statement Schedules

     81   

SIGNATURES

  

 

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Forward-Looking Statements

Forward-looking statements made with respect to our financial condition, results of operations and business in this Annual Report on Form 10-K (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. Those 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 those 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, factors discussed elsewhere in this Report and include, among other things:

 

   

our businesses’ collective ability to compete successfully against their respective competitors and against alternative solutions;

 

   

economic conditions generally;

 

   

capital spending by the customers of our businesses;

 

   

our businesses’ collective ability to retain existing customer relationships (particularly significant customer relationships) and secure new ones;

 

   

developments in the respective markets in which our businesses operate, and our businesses’ collective ability to respond to such changes in a timely and effective manner;

 

   

our ability to retain the key personnel of our businesses;

 

   

our ability to deploy capital effectively and on acceptable terms;

 

   

our ability to successfully integrate any acquired business, 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 execute strategic divestitures and maximize value in connection with those divestitures; and

 

   

our ability to have continued access to capital and to manage capital resources effectively.

During the years presented in this Report, Procurian Inc.’s (“Procurian’s”) consolidated revenue represented a sizable majority of our consolidated revenue. Accordingly, the occurrence of any of the above factors at Procurian could have a disproportionately adverse effect on our results, levels of activity, performance or achievements.

In light of those risks, uncertainties and assumptions, the forward-looking events discussed in this Report might not occur. 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.

 

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PART I

ITEM 1. Business

Overview

ICG Group, Inc. (referred to in this Report as “ICG,” the “Company,” “we,” “our,” or “us”) was formed on March 4, 1996 and is headquartered in Radnor, Pennsylvania. We focus on owning and operating cloud-based software and services businesses with recurring revenue streams that improve the productivity and efficiency of their business (i.e., B2B) customers.

The results of operations of our businesses are reported in two segments: the “core” reporting segment and the “venture” reporting segment. Our core reporting segment includes those businesses (1) in which our management takes a very active role in providing strategic direction and operational support and (2) towards which we expect to devote relatively large proportions of our personnel, financial capital and other resources. We focus on the aggregate results of the companies in our core segment given our business strategy to own and operate companies with the following common characteristics: recurring revenue models, significant research and development and sales and marketing initiatives designed to grow their businesses and customers which consist exclusively of businesses and government entities. As of the date of this Report, we own majority controlling equity positions in (and therefore consolidate the financial results of) four 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.” In this Report, we refer to our consolidated core companies and equity core companies collectively as our “core companies.” Our venture reporting segment includes companies in which we take a less active role in terms of strategic direction and operational support, and, accordingly, towards which we devote relatively small amounts of personnel, financial capital and other resources. Whenever we complete an acquisition or disposition, we evaluate the impact of the relevant transaction on our reportable segments. For information regarding the results of operations of our reporting segments, as well as their respective contributions to our consolidated results of operations, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8—Financial Statements and Supplementary Data,” including Note 9, “Segment Information,” to our Consolidated Financial Statements; that information is incorporated herein by reference.

As previously disclosed, we have, in recent years, adopted and worked to implement a shift in our business strategy, which called for us to devote an increasing proportion of our capital and other resources towards (and to hold an increasing portion of our assets in the form of) majority-owned companies. The intent of the refined strategy was to provide us with some of the benefits enjoyed by traditional operating companies, such as (1) increased transparency for our investors and prospective investors with respect to our companies’ collective financial performance, (2) increased control by us over the operations and strategic decisions of our companies and (3) increased access for us to the cash of our companies.

Over the past few years, we have made significant strides, both strategically (in part through (1) the disposition of a number of our minority stakes, (2) the increase of other minority stakes to majority stakes and (3) the acquisition of new majority stakes) and operationally, in executing against our refined strategy. In particular, 2012 saw us complete, or make great progress towards completing, a number of initiatives in furtherance of our strategy, including the following:

 

   

the acquisition of an approximately 96% equity stake in MSDSonline Holdings, Inc. (“MSDSonline”), a cloud-based safety and compliance company with a strong recurring revenue base;

 

   

the acquisition of additional shares of Procurian through a tender offer that increased our equity ownership stake in our most significant company to approximately 85%;

 

   

the execution by Procurian of a number of strategic initiatives, such as a re-branding campaign, the acquisitions of Media IQ, LLC (“Media IQ”) and Utilities Analyses, Incorporated (“UAI”), and a global expansion plan;

 

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the acquisition of additional equity interests in SeaPass Solutions, Inc. (“SeaPass”), a cloud-based insurance business with a recurring revenue business model, that increased our stake in the company to a majority position; and

 

   

the sales of Channel Intelligence, Inc. (“Channel Intelligence”) to Google Inc. (“Google”) and InvestorForce Holdings, Inc. (“InvestorForce”) to MSCI Inc. (“MSCI”), which were consummated in early 2013 and which generated a total of approximately $81 million of cash for ICG.

Following the consummation of the Channel Intelligence and InvestorForce transactions in early 2013, ICG holds controlling majority equity stakes in four cloud-based, B2B recurring revenue companies that it believes will, over the long term, generate sustained, meaningful returns for its stockholders through consistent revenue and earnings growth. Our business strategy currently revolves around driving growth at those companies through strategic and operational support, as well as providing financial capital, as described in more detail below.

In today’s hypercompetitive business environment, businesses of all sizes are, by necessity, seeking increased productivity and efficiency through cloud-based software and services that streamline, automate or otherwise improve their business processes. Companies were historically required to buy and/or build and maintain their own information technology (IT) infrastructures and internal organizations to support their industry-specific business processes and services needs, even in the face of exploding costs. Cloud-based, B2B software and services businesses, such as those we own and operate, provide their business customers with a compelling alternative by offering software and services that:

 

   

are delivered through recurring subscription-based, fixed fee-based or transaction-based business models that allow those business customers to avoid up-front IT infrastructure and staff investment;

 

   

allow those business customers to focus on their core competencies and outsource their non-core, non-strategic processes;

 

   

ideally allow those business customers to optimize the value of every dollar they spend, achieve measurable savings and fuel business growth;

 

   

provide those business customers with flexibility to accommodate growth and reductions in times of economic uncertainty (as we saw during the challenging global economic environment in recent years);

 

   

create a powerful network of business customers that can be leveraged to cultivate unique market intelligence and seamless interaction between those customers; and

 

   

may be used by a concentrated set of business customers from a specific industry, resulting in deep business-process expertise and business practices that can be leveraged by those customers.

In particular, we favor cloud-based, B2B software and services businesses that address large market opportunities that are early in the adoption of new solutions, have the potential to be clear leaders in their specific industry segments, provide differentiated software, services, data or ecosystem offerings and have extremely high customer renewal rates, as well as efficient customer acquisition costs. We believe that each of our four consolidated core companies, Procurian, GovDelivery Holdings, Inc. (“GovDelivery”), MSDSonline and SeaPass, which operate in the procurement, government, compliance and insurance industries, respectively, embodies all of those features and is therefore particularly well-situated to generate sustained, meaningful long-term returns for our stockholders.

We feel that the expertise we have developed in connection with our seventeen-year active involvement with cloud-based, B2B software and services companies allows us not only to identify companies that are positioned to succeed but also to accelerate the growth of those companies through strategic guidance, operational support and growth capital. We manage our companies with a uniform set of industry-standard recurring revenue metrics and specifically look to drive growth at our companies by:

 

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continuously creating compelling, differentiated cloud-based products and services through investment in research and development;

 

   

driving efficient long-term growth in recurring revenue through aggressive reinvestment in B2B lead generation, marketing and sales;

 

   

identifying, structuring and executing accretive tuck-in acquisitions that accelerate our strategic plans, increase revenue growth and, over time, improve margins;

 

   

investing in and cultivating deep, industry-expert management teams; and

 

   

implementing strategies to obtain operational leverage and increased profitability while maintaining high revenue growth, particularly as our companies scale.

We believe that through those and other measures, we are developing a set of market-leading businesses that possess unique assets that are hard to replicate and provide competitive differentiation.

 

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Our Companies

As of the date of this Report, our consolidated core companies consisted of:

GovDelivery

GovDelivery is a provider of government-to-citizen communication solutions. GovDelivery’s digital communication management software-as-a-service (SaaS) platform enables government organizations to provide citizens with access to relevant information by delivering new information through email, mobile text alerts, RSS and social media channels from U.S. and U.K. government entities at the national, state and local levels.

MSDSonline

MSDSonline offers an integrated suite of on-demand solutions that help companies manage a variety of global environmental, health and safety regulatory compliance requirements. MSDSonline’s products and services help businesses create safer work environments by identifying, managing and reducing potential workplace and environmental hazards that save time, lower costs and reduce the risk and liability associated with meeting compliance requirements.

Procurian

Procurian is a specialist in comprehensive procurement solutions that work with transformational business leaders to drive sustainable changes to their cost structures on an accelerated basis. Procurian integrates superior market intelligence with its customers’ businesses to optimize spending and deliver savings.

SeaPass

SeaPass develops and markets processing solutions that enable insurance agents, brokers, wholesalers and carriers to interact seamlessly in real-time quoting, issuance, endorsements and other client service and acquisition activities without cumbersome and costly system integration.

As of the date of this report, our other core companies consisted of:

Freeborders, Inc. (“Freeborders”)

Freeborders is a provider of consulting, technology and outsourcing solutions. Freeborders provides industry expertise to North American and European companies specializing in financial services, travel and internet e-commerce industries. Freeborders’ offerings help companies seeking cost-effective technology solutions for businesses to adapt to market opportunities and changes.

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.

As of the date of this report, our venture companies consisted of:

Acquirgy, Inc. (“Acquirgy”)

Acquirgy specializes in integrated direct response marketing services and technology that provides customers with a wide range of direct marketing products and services to help market their products and services on the Internet and through other media channels such as television, radio, and print advertising.

 

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CIML, LLC (“CIML”)

CIML holds MyList Corporation (“mylist”), is a publishing platform that allows manufacturers and retailers to share their products in a connected, contextual way among the more than 1.2 billion Facebook users, and its subsidiaries. Following an internal corporate reorganization transaction that occurred in May 2012, CIML held Channel Intelligence, mylist and their respective subsidiaries. We consolidated CIML’s results with ours from July 11, 2012, when our equity ownership stake in CIML and our involvement in Channel Intelligence and mylist increased, until February 20, 2013, when Channel Intelligence was sold to Google and our equity ownership stake in CIML decreased; we now account for CIML under the equity method. As a result of the sale of Channel Intelligence to Google, we have presented the financial results of Channel Intelligence as discontinued operations in our consolidated financial statements and, accordingly, Channel Intelligence’s results are not included in CIML’s results for the period during which CIML’s results are consolidated with ours.

In addition, we hold various small ownerships in other companies which we collectively refer to as “cost method companies.” The cost method companies are included as assets of our venture segment.

We also owned InvestorForce at December 31, 2012; however, InvestorForce was sold in early 2013 to MSCI and is presented as discontinued operations for all periods presented. InvestorForce was a consolidated company from 2005 until January 29, 2013.

Concentration of Customer Base and Credit Risk

Our businesses have significant individual customer relationships. Procurian in particular has a number of customers that individually represent a significant amount of our consolidated revenues. If any of our businesses are unable to retain one or more of their significant customers, or if their customers collectively reduce by a significant amount the products or services that they purchase from our companies, we could fail to achieve our internal financial forecasts and related earnings guidance, and our results of operations and financial condition could be negatively impacted.

In the year ended December 31, 2012, Zurich Insurance Company Ltd (“Zurich”), a customer of Procurian, represented approximately 17% of our consolidated revenue. None of our companies’ customers individually represented 10% or more of our consolidated revenues for the year ended December 31, 2011. In the year ended December 31, 2010, The Hertz Corporation and Kimberly-Clark Corporation, customers of Procurian, represented approximately 11% and 11%, respectively, of our consolidated revenue. Accounts receivable, including unbilled amounts, from Zurich as of December 31, 2012 were $15.8 million and included $12.4 million of unbilled accounts receivable. $2.9 million of accounts receivable was collected after December 31, 2012 and approximately $12.4 million of the unbilled accounts receivable is expected to be billed in 2013.

GovDelivery’s customers are government entities, which generally have the right to terminate contracts at their election. Moreover, GovDelivery derives and will continue to derive the majority of its revenue from work performed under federal U.S. government contracts.

Competition Facing Our Companies

Our businesses compete in rapidly evolving and intensely competitive cloud-based, B2B software and services markets and are subject to changing technology, shifting customer needs and preferences and frequent introduction of products and services; that competition is expected to intensify in the coming years, particularly in the outsourced procurement market in which Procurian operates. Our businesses’ current and potential competitors range from large and established companies to emerging start-ups. Established companies, on the one hand, have longer operating histories and more established relationships with customers, and they can use their experience and resources against our companies in a variety of competitive ways, including by making acquisitions, investing aggressively in research and development, and competing aggressively for customers, service providers and other strategic partners. Emerging start-ups,

 

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on the other hand, may be able to innovate and provide products and services faster than our companies can. If our companies’ competitors are collectively more successful than our companies are in developing compelling products or in attracting and retaining B2B customers, our consolidated revenues and growth rates could decline.

Our companies’ customers face budget pressures and constraints that may cause them to (1) purchase a reduced amount of products and services from our companies, (2) purchase products and services that are offered for a cheaper price (without regard to quality) to replace our companies’ products and services, (3) internally develop a solution to replace our companies’ products and services or (4) do without the types of products and services offered by our companies.

Employees

Corporate headcount at ICG as of March 1, 2013 was 25. Headcount at our consolidated core companies as of March 1, 2013 was approximately 1,100 employees.

Financial Information About Geographic Areas

Financial information regarding geographic areas is contained in the notes to our Consolidated Financial Statements. See Note 9, “Segment Information,” in “Item 8—Financial Statements and Supplementary Data.”

Availability of Reports and Other Information

Our Internet website address is www.icg.com. Unless this Report explicitly states otherwise, neither the information on our website, nor the information on the website of any of our 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 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 SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 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.

 

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ITEM 1A. Risk Factors

Our businesses involve a number of risks, some of which are beyond our control. You should carefully consider each of the risks and uncertainties we describe below and all of the other information in this Report before deciding to invest in our stock. The risks and uncertainties we describe below are not the only ones we face. Additional risks and uncertainties about which we currently do not know or that we currently believe to be immaterial may also adversely affect our businesses, financial condition or operating results.

Our businesses face intense competition and may not be able to compete successfully.

Our businesses compete in rapidly evolving and intensely competitive cloud-based, B2B software and services markets and are subject to changing technology, shifting customer needs and preferences and frequent introduction of products and services; that competition is expected to intensify in the coming years, particularly in the outsourced procurement market in which Procurian operates. Our businesses’ current and potential competitors range from large and established companies to emerging start-ups. Established companies, on the one hand, have greater resources, more comprehensive and complementary product and service offerings, longer operating histories and more established relationships with customers. These companies can use their experience and resources to compete with our companies in a variety of ways, including by making acquisitions, investing aggressively in research and development, and offering more attractive commercial terms to customers, service providers and other strategic partners. Emerging start-ups, on the other hand, may be able to innovate and provide products and services faster than our companies can. If our companies’ competitors are collectively more successful than our companies are in developing compelling products and services or in attracting and retaining customers, our consolidated revenues and growth rates could decline.

The inability of our businesses to attract new customers or retain customers, including certain significant customers, could negatively affect our results of operations and our financial condition.

Our businesses may not be able to attract or retain customers due to a variety of reasons, including increased competition, the unwillingness of customers and potential customers to spend money on non-core products and services during periods of economic uncertainty, customer insolvency and the unavailability of credit for customers. If our businesses are unable to attract new customers or retain existing customers, our results of operations and our financial condition could be negatively affected.

The loss of or reduction in business from one or more significant customers could have a materially negative impact on our results of operations and financial condition.

Our businesses have significant individual customer relationships. Procurian in particular has a number of customers that individually represent a significant amount of our consolidated revenues. Some of our businesses’ customer contracts are subject to customer termination rights or customer rights to reduce the products or services purchased. If any of our businesses are unable to retain one or more of their significant customers, or if their customers collectively reduce by a significant amount the products or services that they purchase from our companies, we could fail to achieve our internal financial forecasts and related earnings guidance, and our results of operations and financial condition could be negatively impacted.

Our businesses often incur significant business development expenses as a result of long selling cycles which will not be recovered if they are unsuccessful in securing new customer contracts.

Our businesses, particularly Procurian, often face long selling cycles to secure new contracts and typically incur significant business development expenses during the selling cycle. Our businesses may not succeed in securing contractual relationships with prospective clients, in which case they would receive no revenues or other compensation or reimbursement for those expenses. Therefore, the failure of our companies to obtain contractual commitments from customers could have a particularly acute adverse effect on our results of operations and financial condition.

 

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Our businesses’ long and varying selling cycles make it difficult for us to prepare internal financial forecasts.

Long and varying selling cycles for our businesses, particularly Procurian, may make it difficult for us to accurately predict whether and when prospective customers will enter into contracts to purchase products or services and when our companies will recognize revenue from those contracts. As a result, it is difficult for us to create precise internal financial forecasts, our actual results may vary from our internal financial forecasts, and our operating results in future reporting periods may be significantly below the expectations of the public market, securities analysts or investors.

Potential customers of our businesses may be unwilling to implement the business changes attendant to the use of some of our cloud-based software and services.

The use of our businesses’ cloud-based software and services often requires customers to implement changes to their existing method of conducting an aspect of their businesses. For example, in the case of Procurian, the purchase of outsourced procurement solutions may require customers to fundamentally change the way they purchase certain products and services used in their businesses. Some of our businesses’ potential customers may continue to rely on existing internal solutions or other non-cloud-based solutions rather than implement the business changes called for by our solutions.

The loss of key personnel, or our businesses’ collective inability to attract additional key personnel, could significantly disrupt our businesses and harm our results of operations and financial condition.

The success of our businesses is dependent upon their ability to attract and retain exceptional key personnel. Procurian’s business, in particular, is highly dependent upon its ability to attract and retain qualified professionals with unique experience and skills in the specific practice areas that Procurian addresses through its outsourced procurement services. If our key personnel, or the key personnel of one or more of our companies, particularly the chief executives at those companies, were unable or unwilling to continue in their present positions, or if we or our companies were unable to continue to hire exceptional personnel, our businesses and operations could be disrupted, and our operating results and financial condition could be seriously harmed.

Interruption of our businesses’ operations, infrastructures or systems upon which they rely could prevent them from delivering their products and services to their customers, which could significantly harm our business.

Because our businesses are primarily conducted over the Internet, they depend on their abilities to protect computer equipment and the information stored in computer equipment, offices and hosting facilities against damage from earthquake, floods, fires, power loss, telecommunications failures, unauthorized intrusion and other events. There can be no assurance that our companies’ disaster preparedness will prevent significant interruption of their operations. In addition, our companies engage third-party facility providers for their hosting facilities and related infrastructure that is essential for their subscription services. Service to our company’s customers could be interrupted in the event of a natural disaster, by a hosting provider decision to close a facility or terminate operations, or by other unanticipated problems. Similarly, our companies use third-party telecommunications providers for Internet and other telecommunication services. Any of those third-party providers may fail to perform their obligations adequately, and any third-party systems may fail to operate properly or become disabled for varying periods of time, causing business interruption, system damage, or inability to process funds on behalf of customers, which could reduce our companies’ revenues, cause them to issue credits or pay penalties, cause customers to terminate their subscriptions, cause other liability to customers, or cause regulatory intervention or reputational damage.

Our businesses may become liable to their customers and lose customers if they have errors, defects or disruptions in their service or if they provide poor service.

Our businesses deliver cloud-based software and services. Errors or defects in the software applications underlying those services, failures of the hosting infrastructures of our businesses, or errors in the delivery of services may make our businesses’ services unavailable to their customers, may cause disruptions in

 

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such customers’ operations and may cause such customers to suffer other harm. Because those customers use our companies’ services to manage important aspects of their business, any errors, defects, disruptions in service or other performance problems with our companies’ services could adversely impact our companies’ customers’ businesses. If there are any errors, defects, disruptions in service or other performance problems with our companies’ services, our companies’ customers could elect not to renew or delay or withhold payment, our companies could lose future sales, or their customers could make warranty claims against them, which could result in an increase in our provision for doubtful accounts, an increase in collection cycles for accounts receivable, or costly litigation or the payment of damages.

Third-party attempts to breach our businesses’ networks or data security, or the existence of any other security vulnerabilities, could damage the reputation of our businesses and adversely affect our financial condition and operating results.

Network and data security is particularly important for cloud-based software businesses, such as those we operate, which use Internet-based computing, storage, and connectivity technology to deliver their software products and services. Customers using our businesses’ products and services rely on the security of computer networks and infrastructure for achieving reliable service and the protection of their data. As part of our businesses’ subscription services, our companies receive sensitive data. There can be no assurance that this information will not be subject to computer break-ins, theft and other improper activity that could jeopardize the security of information handled by our businesses’ products and services or cause interruptions in the operations of our businesses. Any such breach in security could expose us or our companies to litigation, loss of customers, reputational damage and other business harm.

We and our companies devote resources and incur costs to protect against security threats. Despite those efforts, actual or perceived security vulnerabilities could cause us and our companies to incur significant additional costs to alleviate problems caused by any such actual or perceived vulnerabilities. Those costs could reduce our operating margins and expose us and our companies to litigation, loss of customers, reputational damage and other business harm.

Our GovDelivery business depends heavily on contracts with the United States federal government. Those contracts could be materially reduced, extended, or terminated as a result of the government’s continuing assessment of priorities, changes in government priorities or budget cuts. Those matters and/or delays in the budget process, including a continuing resolution, could adversely affect our results of operations or financial condition.

Our GovDelivery business derived the majority of its revenue from U.S. federal government customers in 2012; we expect that the business will continue to derive most of its sales from work performed under U.S. government contracts, which are conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates funds on a fiscal-year basis even though contract performance may extend over many years. The programs in which our GovDelivery business participates must compete with other programs and policy imperatives for consideration during the budget and appropriation process. Concerns about increased deficit spending, along with continued economic challenges, continue to place pressure on U.S. and international government-customer budgets. While we believe that our GovDelivery business’ programs are well aligned with the missions of our U.S. government customers, shifts in domestic spending, the affordability of GovDelivery’s products and services, general economic conditions and developments, and other factors may affect a decision to fund, or the level of funding, for existing or proposed contracts between GovDelivery and its U.S. federal government customers.

Our businesses are experiencing relatively rapid growth. If we fail to effectively manage that growth, our businesses and operating results could be harmed.

As a general matter, our businesses have experienced relatively rapid growth in terms of headcount and operations, which has placed, and will continue to place, significant demands on our and our companies’ combined management, operational and financial infrastructure. If we and our companies do not effectively manage that growth, the quality of our businesses’ products and services could suffer, which

 

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could negatively affect our brands and operating results. The expansion of some of our businesses, particularly Procurian, into international markets heightens those risks as a result of the particular challenges of supporting businesses in an environment of multiple languages, cultures, customs, legal systems, alternative dispute resolution systems, regulatory systems and commercial infrastructures. To effectively manage growth, we and our companies will need to continue to improve our operational, financial and management processes. Those systems enhancements and improvements may require additional capital expenditures and management resources. Failure to implement those improvements could hurt our ability to manage the growth of our businesses and our financial position.

Fluctuations in our quarterly results and our inability to meet financial guidance may adversely affect our stock price.

Our investors are increasingly evaluating our company based on our quarterly performance against financial targets. If our operating results in one or more quarters do not meet our stated financial guidance or our securities analysts’ or investors’ expectations, the price of our stock could decrease.

We expect that our quarterly results could fluctuate significantly due to many factors, including:

 

   

general economic conditions, including economic downturns or uncertainty;

 

   

the timing of customer signings at our businesses;

 

   

our acquisition of interests in new businesses;

 

   

the operating results, including growth rates, of our businesses;

 

   

dispositions of our ownership interests in businesses, which could cause us to recognize gains or losses under applicable accounting rules;

 

   

significant fluctuations in the financial results of cloud-based, B2B software and services businesses generally;

 

   

changes in our estimated quarterly revenue, earnings and other performance metrics;

 

   

changes in the accounting methods that we use to account for our interests in companies that may result from changes in our ownership percentages in those companies;

 

   

the pace of development or a decline in growth of cloud-based software and services markets; and

 

   

competition for the products and services offered by our companies.

If we are not able to consummate acquisitions on acceptable terms, we may not be able to execute our business strategy.

Our business strategy of owning and operating majority-owned, cloud-based B2B software and services businesses may, from time to time, require (1) the ability to strategically acquire new businesses on favorable terms and (2) the ability to strategically consummate “tuck-in” acquisitions at our existing businesses on favorable terms. We may not be able to identify attractive acquisition candidates that fit our business strategies. Furthermore, even if we are able to identify suitable acquisition candidates, it may not be possible to acquire interests in those companies due to an inability to reach mutually acceptable financial or other terms with those companies, or due to competition from other potential acquirers that may have greater resources, brand name recognition, industry contacts or flexibility of structure than we do. If we are unable to effectively deploy capital for acquisitions on acceptable terms, we may not be able to execute on our strategy, and our business may be adversely impacted.

Acquisitions and investments could result in operating difficulties, dilution and other harmful consequences that may adversely impact our businesses, financial condition and results of operations.

As part of our business growth strategies, our existing businesses have and may continue to strategically acquire other companies, businesses and technologies. The process of integrating an acquired company, business or technology involves numerous risks, including difficulties in the integration of the operations,

 

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administrative systems, technologies, services and products of the acquired company or business and the diversion of management’s attention from other business concerns. Although we will endeavor to evaluate the risks inherent in any particular acquisition transaction, there can be no assurance that we will properly ascertain all such risks. In addition, acquisitions may result in the incurrence of additional indebtedness and other expenses for our companies; they may also result in potentially dilutive issuances of a company’s equity securities. Accordingly, difficulties encountered with acquisitions may have a material adverse effect on our businesses, financial condition and results of operations.

The operations and growth of our businesses could be impaired by the inability to raise capital or borrow money on favorable terms.

The operations and growth (both organic and acquisitions-based) of our businesses may require additional capital. If we or our companies are unable to raise capital or obtain credit on favorable terms, the ability of our businesses to operate and grow may be impaired. This may require us to take other actions, such as borrowing money on terms that may be unfavorable, or divesting of assets prematurely to raise capital. If we need capital for our businesses and are unable to raise it, our businesses may need to limit or cease operations.

Our business strategy, which calls for the ownership and operation of a concentrated group of majority-owned businesses, may subject us to additional risks.

In recent years, we have strategically refined our equity holdings, disposing of our interests in a number of companies and focusing our human and financial capital on a smaller number of majority-owned businesses. We currently hold and operate four majority-owned businesses, each of which offers cloud-based, B2B software and services. Because we have reduced the extent to which our holdings are diversified, we have concentrated the risk on our majority-owned companies. Procurian represents a sizeable majority of our consolidated revenue for the years presented in this Report, and we expect Procurian to continue to represent a sizeable majority of our consolidated revenue. Accordingly, any negative development at Procurian could have a significant negative impact on our financial results and our business. Moreover, because Procurian’s results constitute such a large portion of our consolidated results (with respect to which we provide the investment community with periodic guidance), any failure by Procurian to meet its expected results could cause us to fail to meet our overall expected results and, accordingly, could negatively impact our stock price.

Our strategy may, from time to time, call for us to acquire new cloud-based, B2B software and services businesses. Acquiring a controlling equity stake in a cloud-based software or services company with the strong financial characteristics and growth potential necessitated by our strategy would likely require a significant amount of capital. Deploying large amounts of capital to acquire one or more companies could lead to a depletion of our available cash and could require us to borrow money, issue stock or otherwise raise additional capital, which we may not be able to do on favorable terms or at all.

Our inability to maintain the sizeable ownership stakes we hold in our consolidated businesses could negatively impact our ability to execute our strategy.

One aim of our business strategy is to maintain or increase our ownership in our consolidated businesses; our limited financial resources may prevent us from achieving that goal. Certain transactional growth opportunities, such as mergers, acquisitions and consolidations, may arise with respect to any of our consolidated companies that would result in potentially dilutive issuances of such companies’ equity securities. In the event that any of our consolidated companies enters into such a transaction, we may have a decreased ability to direct the policies and affairs of or extract cash from the company or the surviving entity following the consummation of the transaction. In addition, we believe that it is important to incent the managers of our businesses by granting them equity in their respective companies from time to time. The grant of equity awards to the managers of our businesses dilutes our equity stakes in those businesses, which could have a negative impact on our ability to execute our business strategy.

 

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Our businesses, which are not wholly-owned, could make financial or other business decisions that are not in our best interests or that we do not agree with, and which could impair the value of the securities we hold.

Management or other stockholders of our operating companies, which are not wholly-owned, could have economic or business interests or objectives that are different from ours or disagree with our advice regarding financial or operating decisions, which could impair the value of our interests in those companies, prevent us from monetizing our interests in those companies at a time or at a price that is favorable to us or negatively affect our operating results. In addition, although we generally seek to acquire controlling equity interests in, and to participate in the management of, our businesses, we may not acquire or maintain a controlling stake in each business. If we lack control or share control in a company, we may not be able to control significant financial or other business decisions of that company, including whether to dispose of that company or raise capital at that company.

We may not be able to extract cash from our businesses and may need to continue to rely on existing cash, liquidity events and additional capital raises to fund our operations.

We currently rely on existing cash, liquidity events and dividends related to our companies and the issuance and sale of additional securities in order to fund our operations. One of our goals is to help each of our businesses achieve profitability so that we can access the cash flow of those businesses. All of our businesses may not meet that goal; even if they do, we may not be able to access the cash generated by those businesses to fund our operations due to a number of factors, including the needs of those businesses to reinvest in their own operations or to acquire other businesses. Our inability to access the cash of our businesses could have a negative impact on our operations.

We may be unable to obtain maximum value in the divesture of the businesses and securities that we hold.

From time to time, we may divest interests in our businesses to generate cash, for strategic reasons or to take advantage of limited market opportunities. The timing of those divestitures may not be within our control. Any need to quickly divest of businesses or securities that we hold to satisfy immediate cash requirements or to avoid registration as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”), may require us to do so prior to canvassing the market or at a time when market conditions are unfavorable. We also may look to sell a company earlier than we originally anticipated in response to expected market consolidation or other market-specific dynamics. Further, we may not be able to identify a buyer or agree to terms with a buyer for one or more assets that we wish to divest.

If we sell a business or securities that we hold, we may not receive the full amount of proceeds to which we would otherwise be entitled if additional payments to management and/or other stockholders are made to secure the approval and/or execution of the sale. In addition, a percentage of the consideration in acquisition transactions often consists of earn-outs, holdbacks, escrows and other contingent consideration, some of which may never be realized by a seller; in times of economic uncertainty, a greater percentage of acquisition consideration tends to be contingent. Registration and other requirements under applicable securities laws may also adversely affect our ability to dispose of our interests on a timely basis. Accordingly, we may not receive maximum value in the divesture of a business or securities that we hold, and the value we actually realize may ultimately be lower than the carrying value currently reflected in our consolidated financial statements and/or the expectations of our investors or securities analysts.

Our accounting estimates with respect to the ultimate recoverability of our carrying basis in our companies could change materially in the near term.

Our accounting estimates with respect to the ultimate recoverability of our carrying basis, including goodwill, in our companies could change in the near term, and the effect of those changes on our consolidated financial statements could be significant. It is possible that a significant write-down or write-off of our carrying basis in our companies, including goodwill, may be required in the future, or that a significant loss will be recorded in the future upon the sale of one or more companies. Any write-down or write-off of this type could cause a decline in the price of our stock.

 

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Numerous external forces, including generally weak and/or uncertain economic and political conditions, have negatively affected our businesses, results of operations and financial condition in recent years, and future uncertain economic and political conditions could result in declines in our revenue and operating results.

Numerous external forces, such as the global economic downturn that began in 2008, have negatively affected our businesses, results of operations and financial condition in the relatively recent past. The global economy is still in a period of economic uncertainty, with continued high unemployment rates. Economic uncertainty, as well as political conditions beyond our control, could result in future declines in our revenue and operating results. Adverse or uncertain financial and political conditions could cause customers and potential customers of our businesses to forgo, delay or reduce the amount of products and services that they purchase, extend our business sales cycles, create difficulties in collecting (or the inability to collect) accounts receivable, lead to slower adoption of new technologies, result in increased price competition and/or make it difficult or impossible for our businesses to obtain financing.

Our stock price has been volatile in the past and may continue to be volatile in the future.

Our stock price has historically been volatile. This volatility may continue in the future, particularly in light of the uncertainty that has characterized the global economy in recent years.

The following factors, among others, may add to the volatility in the price of our stock:

 

   

general economic conditions, including economic downturns or uncertainty;

 

   

the reluctance of potential customers to spend on non-core products and services;

 

   

actual or anticipated variations in our quarterly results;

 

   

changes in the market valuations of our companies and other cloud-based, B2B software and services businesses;

 

   

conditions or trends related to cloud-based, B2B software and services businesses;

 

   

changes in our financial estimates by securities analysts;

 

   

new products or services offered by our businesses and their competitors;

 

   

announcements by our businesses or their competitors of technological innovations;

 

   

announcements by us, our businesses or our businesses’ competitors of significant acquisitions, strategic partnerships or joint ventures;

 

   

additional sales or repurchases of our securities or the securities of our companies; and

 

   

additions to or departures of our key personnel.

Many of these factors are beyond our control. Any of these factors may decrease the price of our stock.

We have had a general history of operating losses and may experience operating losses in the future.

Historically we have had significant operating losses, excluding the effect of any non-operating gains, such as from the sale of interests in our companies. We can give no assurances as to whether we will achieve profitability and, even if we do have profits, we may not be able to sustain them in the future.

Some of our companies have limited operating histories and may never be profitable.

Some of our companies have only limited operating histories to aid in assessing future prospects. Further, some of our companies have significant historical losses and may never be profitable. Many of our companies have incurred substantial costs to develop and market their products and expand operations, have incurred net losses and cannot presently fund their cash needs from operations. The operating

 

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expenses of these companies could increase in the foreseeable future as they continue to develop products, increase sales and marketing efforts and expand operations.

We and our businesses may be subject to litigation proceedings or government regulation that could disrupt and harm our businesses.

We and our companies may be subject to legal claims involving stockholder, consumer, competition and other matters. Litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or, in cases for which injunctive relief is sought, an injunction prohibiting one or more of our companies from performing a critical activity, such as selling its software and services. If we or one of our companies were to receive an unfavorable ruling in a litigation matter, our businesses, financial condition and results of operations could be materially harmed. Even if legal claims brought against us or our companies are without merit, defending lawsuits could be time-consuming and expensive and could divert our or our companies’ management attention from other business concerns.

The software and services offerings of our businesses are subject to government regulation domestically and internationally in many areas, including regulation of the Internet regarding user privacy, telecommunications, data protection and online content. The application of those laws and regulations to our businesses is often unclear and sometimes may conflict. Compliance with those laws and regulations may involve significant costs or require changes in business practices that result in reduced revenue. Noncompliance could result in monetary penalties being imposed on our companies or orders that our companies cease performing a critical activity, such as selling their software and services.

We may have to buy, sell or retain assets when we would otherwise choose not to buy, sell or retain in order to avoid registration under the Investment Company Act, which would adversely impact our business strategy.

Under the Investment Company Act, a company is considered to be an investment company if, among other things, it is primarily engaged in the business of investing, reinvesting, owning, holding or trading in securities. It is not feasible for us to be regulated as an investment company because the Investment Company Act rules are inconsistent with our strategy of actively managing, operating and promoting collaboration among our network of companies. On August 23, 1999, the SEC granted our request for an exemption under Section 3(b)(2) of the Investment Company Act, declaring us to be primarily engaged in a business other than that of investing, reinvesting, owning, holding or trading in securities. This exemptive order reduces, but does not eliminate, the risk that we may have to take action to avoid registration as an investment company. For example, we might be considered to be in violation of our exemptive order if more than a certain percentage of our total assets consist of, or more than certain percentages of our income/loss and revenue over the most recently completed four quarters is derived from, ownership interests in companies that we do not primarily control. In the event that we cease to maintain primary control of a significant portion of our companies in the future, we may need to take steps to ensure that we do not become subject to regulation under the Investment Company Act, including buying, selling or retaining assets that we would not otherwise choose to buy, sell or retain.

We have implemented certain anti-takeover provisions that could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders.

Provisions of our amended certificate of incorporation and bylaws, including supermajority voting requirements and the inability of our stockholders to call stockholder meetings or act by written consent, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. Our amended certificate of incorporation provides that our board of directors may issue preferred stock without stockholder approval and also provides for a staggered board of directors. We are subject to the provisions of Section 203 of the Delaware General Corporation Law, which restricts certain business combinations with interested stockholders. The combination of these provisions may inhibit a non-negotiated merger or other business combination.

 

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ITEM 1B. Unresolved Staff Comments

None.

 

ITEM 2. Properties

The location and general description of our properties as of March 1, 2013 are as follows: Our corporate headquarters is located at 555 East Lancaster Avenue, Suite 640 in an office facility located in Radnor, Pennsylvania, where we lease approximately 10,674 square feet. Our consolidated core companies lease approximately 192,816 square feet of office, administrative, sales and marketing, operations and data center space in the United States, principally in Connecticut, Florida, Georgia, Illinois, Minnesota, New York, Pennsylvania, Texas and Washington, D.C., and administrative office space in Brazil, China, Czech Republic, Europe, India, Israel and the United Kingdom.

 

ITEM 3. Legal Proceedings

None.

 

ITEM 4. Mine Safety Disclosures

None.

PART II

ITEM 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information. Our Common Stock is currently traded on The NASDAQ Global Select Market under the symbol “ICGE.” The price range per share reflected in the table below is the highest and lowest sale price for our Common Stock, as reported by The NASDAQ Global Market and The NASDAQ Global Select Market during each quarterly period of the years ended December 31, 2011 and 2012, respectively.

 

     2011      2012  
Quarter Ended    Mar. 31      June 30      Sept. 30      Dec. 31      Mar. 31      June 30      Sept. 30      Dec. 31  

High

   $ 14.50       $ 14.44       $ 13.15       $ 11.85       $ 10.65       $ 9.84       $ 10.67       $ 11.78   

Low

   $ 11.32       $ 10.48       $ 8.55       $ 7.22       $ 7.90       $ 8.25       $ 8.16       $ 9.60   

 

Holders. As of March 1, 2013, there were approximately 630 holders of record of our Common Stock; there is a much larger number of beneficial owners of our Common Stock.

Dividends. We have never declared or paid cash dividends on our capital stock, and we do not intend to pay cash dividends in the foreseeable future. We plan to retain any earnings for use in the operation of our businesses and to fund future growth.

Stock Performance Graph. The following graph presents a comparison of the performance of our Common Stock with that of the NASDAQ Composite Index and the Goldman Sachs Technology Internet Index from December 31, 2007 to December 31, 2012. The graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act or the Exchange Act.

 

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COMPARISON OF CUMULATIVE TOTAL RETURN** SINCE DECEMBER 31, 2007

AMONG ICG GROUP, INC.,

THE NASDAQ COMPOSITE INDEX AND THE GSTI INTERNET INDEX

 

 

LOGO

 

**

$100 invested at closing prices on December 31, 2007 in our Common Stock or in a stock index, including reinvestment of dividends.

 

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Securities Authorized for Issuance Under Equity Compensation Plans

For certain information concerning securities authorized for issuance under our equity compensation plan, see Item 12—Security Ownership of Certain Beneficial Owners and management and Related Stockholder Matters.

Issuer Purchases of Equity Securities

We maintain a share repurchase program under which we may repurchase, from time to time, up to $50.0 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 from the program’s inception in 2008 through the date of the filing of this Report.

 

Period   Total Number of
Shares  Purchased(1)
    Average Price Paid
per Share(2)
    Total Number of
Shares Purchased as
Part of Publicly
Announced
Program(1)
    Approximate Dollar
Value That May Yet
Be Purchased
Under the
Program
 

Repurchased during the year ended 12/31/08

    1,948,158      $ 4.75        1,948,158      $ 15.7 million   

Repurchased during the year ended 12/31/09

    492,242      $ 5.45        492,242      $ 13.1 million   

Repurchased during the year ended 12/31/10

    0        —          0      $ 13.1 million   

Repurchased during the year ended 12/31/11

    841,027        10.17        841,027      $ 29.5 million   

1/12/12 to 1/31/12

    0        —          0      $ 29.5 million   

2/1/12 to 2/29/12

    0        —          0      $ 29.5 million   

3/1/12 to 3/31/12

    302,800        8.75        302,800      $ 26.9 million   

4/1/12 to 4/30/12

    0        —          0      $ 26.9 million   

5/1/12 to 5/31/12

    128,788        8.75        128,788      $ 25.7 million   

6/1/12 to 6/30/12

    35,850        8.95        35,850      $ 25.4 million   

7/1/12 to 7/31/12

    158,100        9.05        158,100      $ 24.0 million   

8/1/12 to 8/31/12

    187,031        9.27        187,031      $ 22.2 million   

9/1/12 to 9/30/12

    117,656        8.95        117,656      $ 21.1 million   

10/1/12 to 10/31/12

    0        —          0      $ 21.1 million   

11/1/12 to 11/30/12

    0        —          0      $ 21.1 million   

12/1/12 to 12/31/12

    0        —          0      $ 21.1 million   

1/1/13 to 1/31/13

    0        —          0      $ 21.1 million   

2/1/13 to 2/28/13

    40,000      $ 12.96        40,000      $ 20.6 million   

3/1/13 to 3/15/13

    101,200      $ 13.11        101,200      $ 19.4 million   

Total

    4,352,852      $ 7.02        4,352,852      $ 19.4 million   

 

(1)

All shares purchased in open market transactions.

(2)

Average price paid per share excludes commissions.

 

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ITEM 6. Selected Financial Data

The following table summarizes certain selected historical consolidated financial information that has been derived from our audited Consolidated Financial Statements for the years ended December 31, 2012, 2011, 2010, 2009 and 2008. The financial information may not be indicative of our future performance and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and the related Notes thereto included in this Report.

 

     Year Ended December 31,  
     2012     2011     2010     2009     2008  
     (in thousands, except per share data)  

Consolidated Statements of Operations and Comprehensive Income (Loss) Data:

          

Revenue

   $ 166,593      $ 133,437      $ 109,213      $ 86,073      $ 69,265   

Operating expenses

          

Cost of revenue

     105,762        81,281        67,785        53,492        42,622   

Sales and marketing

     21,920        13,466        10,367        7,183        6,111   

General and administrative

     38,805        29,228        28,345        24,602        28,518   

Research and development

     14,175        9,157        7,870        6,934        7,998   

Amortization of intangible assets

     5,590        1,412        1,357        376        205   

Impairment related and other

     1,548        753        1,182        5,021        9,837   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     187,800        135,297        116,906        97,608        95,291   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (21,207     (1,860     (7,693     (11,535     (26,026

Other income (loss), net

     57,879        42,624        74,147        16,578        43,225   

Interest income (expense), net

     (84     (184     (36     231        1,521   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes and equity loss

     36,588        40,580        66,418        5,274        18,720   

Income tax benefit (expense)

     (1,336     4,287        (362     39,510        (357

Equity loss

     (8,672     (11,964     (16,022     (13,801     (33,702
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     26,580        32,903        50,034        30,983        (15,339

Income (loss) on discontinued operations

     (2,999     (3,102     (2,126     (4,124     (5,627
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     23,581        29,801        47,908        26,859        (20,966

Less: Net income (loss) attributable to non-controlling interest

     592        2,235        1,319        11,325        1,960   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ICG Group, Inc.

   $ 22,989      $ 27,566      $ 46,589      $ 15,534      $ (22,926
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic Income (loss) Per Share Attributable to ICG Group, Inc.:

          

Income (loss) from continuing operations

   $ 0.73      $ 0.82      $ 1.33      $ 0.51      $ (0.45

Income (loss) on discontinued operations

     (0.09     (0.07     (0.05     (0.09     (0.15
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic income (loss) per share

   $ 0.64      $ 0.75      $ 1.28      $ 0.42      $ (0.60
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computation of basic income (loss) per share

     35,890        36,656        36,427        36,660        38,106   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

   $ 0.72      $ 0.80      $ 1.30      $ 0.51      $ (0.45

Income (loss) on discontinued operations

     (0.09     (0.06     (0.04     (0.09     (0.15
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted income (loss) per share

   $ 0.63      $ 0.74      $ 1.26      $ 0.42      $ (0.60
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computation of diluted income (loss) per share

     36,543        37,460        37,064        36,705        38,106   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated Balance Sheet Data:

          

Cash, cash equivalents and short-term investments

   $ 46,469      $ 122,004      $ 92,573      $ 55,248      $ 89,100   

Working capital

   $ 112,609      $ 143,046      $ 114,666      $ 72,853      $ 84,732   

Total assets

   $ 447,759      $ 306,820      $ 280,989      $ 330,087      $ 285,580   

Other long-term debt, net of current portion

   $ 27,978      $ 10,681      $ 15,458      $ 645      $ 3,887   

Total ICG Group, Inc. stockholders’ equity

   $ 265,898      $ 245,884      $ 223,807      $ 280,665      $ 247,509   

 

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ITEM 7. 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 discussed in our other SEC filings. The following discussion should be read in conjunction with our audited Consolidated Financial Statements and the related Notes thereto included in this Report.

The Consolidated Financial Statements include the consolidated accounts of ICG Group, Inc., a company incorporated in Delaware, and its subsidiaries, both wholly-owned and consolidated (ICG Group, Inc. and all such subsidiaries are collectively hereinafter referred to as “ICG,” the “Company,” “we,” “our,” or “us”), and have been prepared in accordance with U.S. generally accepted accounting principles (GAAP).

Executive Summary

We focus on acquiring and operating cloud-based software and services businesses with recurring revenue streams that improve the productivity and efficiency of their business (i.e., B2B) customers.

The results of operations of our businesses are reported in two segments: the “core” reporting segment and the “venture” reporting segment. Our core reporting segment includes those businesses (1) in which our management takes a very active role in providing strategic direction and operational support and (2) towards which we expect to devote relatively large proportions of our personnel, financial capital and other resources. We focus on the aggregate results of the companies in our core segment given our business strategy to own and operate companies with the following common characteristics: recurring revenue models, significant research and development and sales and marketing initiatives designed to grow their businesses and customers, which consist exclusively of businesses and government entities. As of the date of this Report, we own majority controlling equity positions in (and therefore consolidate the financial results of) four 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.” Our venture reporting segment includes companies in which we take a less active role in terms of strategic direction and operational support, and, accordingly, towards which we devote relatively small amounts of personnel, financial capital and other resources. Whenever we complete an acquisition or disposition, we evaluate the impact of the relevant transaction on our reportable segments.

The various interests that we acquire in our companies 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 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 company, that company’s accounts are not reflected within 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 and Comprehensive Income (Loss). 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 and Comprehensive Income (Loss).

Because we own significant interests in a number of separate businesses which may be in different stages of profitability and/or have different growth strategies, we have experienced, and expect to continue to experience, significant volatility in our results. We have experienced significant volatility from period-to-period due to infrequently occurring transactions and other events relating to our ownership interests in companies. Those transactions and events are described in more detail in the notes to our Consolidated Financial Statements contained herein and include dispositions

 

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of, changes to and impairment of our ownership interests in companies and dispositions of our holdings of marketable securities.

Liquidity and Capital Resources

The following table summarizes our cash and cash equivalents, restricted cash and long-term debt, including the current portion as of December 31, 2012 and 2011:

 

     December 31,  
     2012      2011  
     (in thousands)  

Cash and cash equivalents

   $ 45,642       $ 121,871   

Restricted cash

     827         133   
  

 

 

    

 

 

 
   $ 46,469       $ 122,004   
  

 

 

    

 

 

 

Long-term debt, including current portion

   $ 33,314       $ 15,297   

We believe that our existing cash and cash equivalents, after giving effect to the approximately $73 million in cash received related to sales of InvestorForce and Channel Intelligence in early 2013, are sufficient to fund our cash requirements for the foreseeable future, including any future commitments to our companies, debt obligations and general operating requirements equivalents. As of the date of this Report, we were not obligated for any material funding and guarantee commitments to existing companies or potential acquisition candidates. As a part of our capital allocation program, we may continue to evaluate acquisition opportunities and may acquire additional ownership interests in new and existing companies in the next twelve months. We may also use cash to repurchase shares of our common stock.

GovDelivery, MSDSonline, Procurian and SeaPass, our consolidated core companies, have funded their operations through a combination of cash flow from operations and borrowings. It is expected that Procurian’s and MSDSonline’s existing cash balances, cash flow from operations, and, in the case of Procurian, a recent increase in debt borrowings, will be sufficient to fund their respective operations, including the payment of debt obligations, for the foreseeable future. We expect each of our consolidated core companies to invest in significant sales and marketing and research and development initiatives. GovDelivery is expected to require additional borrowings and/or equity financings for capital expenditures for the foreseeable future. SeaPass is expected to require additional borrowings and/or equity financings to fund its operations and capital expenditures for the foreseeable future. From time to time, our consolidated core companies pursue acquisition opportunities, using either cash or stock as consideration. In connection with such acquisitions, and as a part of our capital allocation program, ICG may purchase additional debt or equity securities from its consolidated core companies.

From time to time, one or more of our consolidated core companies may pay a dividend. As we do not own 100% of our consolidated core companies, when one of our consolidated core companies pays a dividend, the noncontrolling interest holders may receive a portion of that dividend. From time to time, we may seek, or be required to, (See Note 16—“Redeemable Noncontrolling Interest”), increase our ownership in one or more of our consolidated companies, that may include, as a result of certain members of our companies’ management teams exercising put rights (See Note 16— “Redeemable Noncontrolling Interest”).

Our consolidated core companies may issue additional shares or repurchase outstanding shares. Equity issuances or repurchases by one of these subsidiaries, including dilution associated with management equity grants, may change the ownership split that ICG and the noncontrolling interest holders have in that subsidiary. Any change in the ownership of a consolidated subsidiary would result in an adjustment to ICG’s additional paid-in capital.

In 2012, our consolidated working capital decreased to $112.6 million as of December 31, 2012 from $143.0 million as of December 31, 2011, a decrease of $30.4 million. This decrease to working capital was primarily due to our acquisition of MSDSonline and the acquisition of SeaPass ownership interests from existing shareholders in 2012, as well as increases in deferred revenues and accrued expenses. This decrease was partially offset by an increase in customer receivables at all of our consolidated core companies.

 

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Summary of Statements of Cash Flows

 

     Year Ended December 31,  
     2012     2011     2010  
     (in thousands)  

Cash provided by (used in) operating activities

   $ (6,336   $ 6,739      $ 944   

Cash provided by (used in) investing activities

   $ (70,422   $ 38,504      $ 70,249   

Cash used in financing activities

   $ (3,093   $ (14,706   $ (34,436

The decrease in cash provided by (used in) operating activities from 2011 to 2012 was primarily related to an increase in accounts receivable principally as a result of an increase in accounts receivable relating to Procurian’s contract with Zurich, including unbilled accounts receivable We expect unbilled accounts receivable to decrease in 2013 per the terms of the Zurich contract.

The increase in cash provided by (used in) operating activities from 2010 to cash 2011 was primarily related to an improvement in operating results in 2011 compared to 2010.

The decrease in cash provided by (used in) investing activities from 2011 to 2012 primarily related to increases in acquisitions of ownership interests in new and existing core companies, acquisitions by our core companies and decreases in proceeds from sales of ownership interests.

The decrease in cash provided by (used in) investing activities from 2010 to 2011 primarily relates to a decrease in proceeds received from the sale of marketable securities, an increase in advances to our companies during 2011 and acquisitions by our consolidated core companies during the 2011 period, partially offset by an increase in proceeds received from the sale of ownership interests in our companies during 2011.

Cash used in financing activities decreased from 2011 to 2012, primarily due to an expansion of debt financing partially offset by an increase in cash used to increase our ownership in Procurian.

Cash used in financing activities of $(14.7) million during 2011 related primarily to $8.6 million in ICG common stock repurchases, $5.0 million of repayments of debt and capital leases at our consolidated core companies and $1.3 million to acquire an additional ownership interest in Procurian. Comparatively, the $(34.4) million of cash used in financing activities during 2010 relates primarily to ICG’s acquisition of an additional 17% ownership interest in Procurian for $49.7 million of aggregate consideration, $3.2 million of dividend payments by Procurian to its minority stockholders and $2.6 million in debt repayments at our consolidated core companies, partially offset by $21.1 million of borrowings of long-term debt (most significantly the $20.0 million term loan at Procurian at that time).

From time to time, we and our companies 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 legal claims or actions that would materially affect our financial position or cash flows.

 

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Contractual Cash Obligations and Commercial Commitments

The following table summarizes our and our consolidated subsidiaries contractual cash obligations and commercial commitments as of December 31, 2012:

 

     Payments due by period  
     Total      Less than
1 year
     1-3
years
     3-5
years
     More than
5 years
 
     (in thousands)  

Procurian term loan

   $ 23,333       $ 5,000       $ 10,000       $ 8,333         —     

Operating leases

     14,567         4,090         6,546         3,931         —     

SeaPass term loan

     9,873         289         7,837         1,747         —     

Other debt

     108         47         61         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 47,881       $ 9,426       $ 24,444       $ 14,011         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

Our Companies

As of December 31, 2012, within our continuing operations, we owned interests in 9 companies that are categorized below based on segment and method of accounting. Channel Intelligence, as a subsidiary of CIML, and InvestorForce were previously core companies but given the respective sales of those companies in the first quarter of 2013, they are presented as discontinued operations in our consolidated financial statements and not included in the following two paragraphs.

Our core companies (% voting ownership interest) are CIML (52%), GovDelivery (92%), MSDSonline (96%), Procurian (85%) and SeaPass (53%).

Our venture companies (% voting ownership interest) are Acquirgy (25%) and various cost method companies (ranging from 2-15%).

 

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Results of Operations

The following table contains selected unaudited financial information related to our segments. Each segment includes the results of our consolidated companies and records our share of the earnings and losses of companies accounted for under the equity method of accounting. The companies included in each segment are consistent between periods, with the exception of certain company acquisitions and dispositions. The method of accounting for any particular company may change based upon, among other things, a change in our ownership interest. Given our increased involvement and ownership (from 26% to 53%) of SeaPass in 2012, SeaPass has been moved to our core segement from our venture segment. SeaPass’ results are included in the core segment for all periods presented.

“Dispositions” includes the results of those companies that have been sold or ceased operations and are no longer included in a segment for the periods presented. A disposition could be the sale of a division, subsidiary or asset group of one of our consolidated 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. “Corporate” expenses represent the general and administrative expenses of ICG’s business operations, which include providing operational support to our companies and operating as a public company. “Other” includes gains on the disposition of company ownership interests and marketable securities holdings and impairment charges associated with companies.

 

Segment Information

 
(in thousands)  
                       Reconciling Items         
     Core     Venture     Total
Segment
    Dispositions     Corporate     Other      Consolidated
Results
 

For the Year Ended December 31, 2012

               

Revenue

   $ 166,593      $ —        $ 166,593      $ —        $ —        $ —         $ 166,593   

Net income (loss) attributable to ICG Group, Inc.

   $ (9,312   $ (1   $ (9,313   $ (4,890   $ (20,042   $ 57,234       $ 22,989   

For the Year Ended December 31, 2011

               

Revenue

   $ 133,437      $ —        $ 133,437      $ —        $ —        $ —         $ 133,437   

Net income (loss) attributable to ICG Group, Inc.

   $ 10,951      $ (699   $ 10,252      $ (10,121   $ (13,537   $ 40,972       $ 27,566   

For the Year Ended December 31, 2010

               

Revenue

   $ 109,213      $ —        $ 109,213      $ —        $ —        $ —         $ 109,213   

Net income (loss) attributable to ICG Group, Inc.

   $ 330      $ (572   $ (242   $ (13,856   $ (12,501   $ 73,188       $ 46,589   

 

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For the Years Ended December 31, 2012, 2011 and 2010

Results of Operations – Core Companies

The following presentation includes the consolidated results of the following three of our four consolidated core companies: GovDelivery, MSDSonline and Procurian. SeaPass became a consolidated core company on December 27, 2012 but was previously an equity method company. Given that SeaPass’ results for those four days in 2012 are immaterial, SeaPass’s results are reported below as a component of equity loss in 2012, 2011 and 2010.

 

2012 vs 2011:    Year ended December 31,     Annual Change  
     2012     2011     (in thousands)     (Percentage)  
     (in thousands)              

Selected data:

        

Revenue

   $ 166,593      $ 133,437      $ 33,156        25
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue

     (105,762     (81,281     (24,481     (30 %) 

Sales and marketing

     (21,920     (13,466     (8,454     (63 %) 

General and administrative

     (15,693     (12,142     (3,551     (29 %) 

Research and development

     (14,175     (9,157     (5,018     (55 %) 

Amortization of intangible assets

     (5,590     (1,412     (4,178     (296 %) 

Impairment related and other

     (683     (779     96        12
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     (163,823     (118,237   $ (45,586     (39 %) 

Interest and other

     (402     (1,115     713        64

Income tax benefit (expense)

     (4,900     1,112        (6,012     NM   

Equity loss

     (6,780     (4,246     (2,534     (60 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (9,312   $ 10,951      $ (20,263     NM   
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue

The increase in revenue from 2011 to 2012 was due primarily to revenue growth at Procurian. Procurian experienced revenue growth of 16% (from $120.6 million to $140.0 million) for the year ended December 31, 2012 compared to the year ended December 31, 2011. Procurian’s revenue increase was due to new business, principally pursuant to its relationship with Zurich, offset by lower revenue from a number of customers due to reduced spend levels by these customers compared to prior periods. Of the residual increase in revenue, the acquisition of MSDSonline contributed $7.8 million to the increase in revenue.

Operating Expenses

Procurian’s operating expenses increased $22.0 million, from $100.8 million in 2011 to $122.8 million in 2012, an increase of 22%. Procurian’s cost of revenue increased $18.7 million, or 24%, from $76.7 million in 2011 to $95.4 million in 2012 due to the increase in revenue and increase in costs associated with the Zurich contract. We expect costs associated with the Zurich contract to increase in 2013 as a percentage of revenue due to the size and global nature of the contract. Procurian’s sales and marketing expenses increased $1.6 million, or 20%, from $8.2 million in 2011 to $9.8 million in 2012 as a result of global expansion efforts and marketing expenses associated with a rebranding campaign. We expect to continue to increase sales and marketing expenses at Procurian and our other consolidated companies in 2013 compared to prior periods. Procurian’s general and administrative expenses increased $0.6 million, or 7%, from $9.1 million in 2011 to $9.7 million in 2012. Procurian’s research and development expenses increased $0.6 million, or 10%, from $6.2 million in 2011 to $6.8 million in 2012. We expect general and administrative and research and development expenses to continue to increase but at lower growth rates in 2013 relative to revenue growth rates. Procurian’s amortization of intangible asset expense increased from $0.1 million in 2011 to $0.7 million in 2012 as a result of the 2012 acquisitions of Media IQ and UAI. Procurian’s impairment related and other expense decreased from $0.6 million in 2011 to $0.4 million in 2012.

 

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The residual operating expense increase of $23.7 million in 2012 compared to 2011 primarily relates to an increase of $3.3 million in amortization expense related to the MSDSonline acquisition, and $12.0 million related to MSDSonline’s results being consolidated from April 1, 2012 forward and $4.0 million of the increase related to GovDelivery.

Interest and Other

The decrease in interest and other expenses from 2011 to 2012 related to a decrease in foreign currency losses at Procurian, which was partially offset by an increase in interest expense at Procurian related to the increase in its debt borrowings.

Income Tax Benefit (Expense)

The increase in income tax expense in the year ended December 31, 2012 from the same period in 2011 primarily relates to the benefit recorded due to the release of the valuation allowance related to certain state net operating loss (NOL) deferred tax assets at Procurian in 2011. The income tax expense for 2012 is partially offset by a benefit of $0.8 million related to the result of reconciliation of tax depreciation expense on fixed assets, which relates to periods prior to Procurian being a consolidating member of our consolidated tax return. We have determined that this amount is immaterial to all applicable periods, which encompasses the years of 2009 to 2012.

Equity Loss

 

     Year ended. December 31,     Annual Change  
     2012     2011     (in thousands)     (percentage)  
     (in thousands)              

Selected data:

        

Our share of total net loss

   $ (5,794   $ (3,646   $ (2,148     (59 %) 

Amortization of intangible assets

     (986     (600     (386     (64 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Equity loss

   $ (6,780   $ (4,246   $ (2,534     (60 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Our share of the results of our equity core companies increased from 2011 to 2012 primarily as a result of an increase in net loss at SeaPass. SeaPass’ operating expenses increased more than revenue as the company is increasing sales and marketing and expenses associated with implementing a new contract.

 

2011 vs 2010:    Year ended December 31,     Annual Change  
     2011     2010     ($ in thousands)     (Percentage)  
     (in thousands)              

Selected data:

        

Revenue

   $ 133,437      $ 109,213      $ 24,224        22
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue

     (81,281     (67,785     (13,496     (20 %) 

Sales and marketing

     (13,466     (10,367     (3,099     (30 %) 

General and administrative

     (12,142     (11,176     (966     (9 %) 

Research and development

     (9,157     (7,870     (1,287     (16 %) 

Amortization of intangible assets

     (1,412     (1,357     (55     (4 %) 

Impairment related and other

     (779     (386     (393     (102 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     (118,237     (98,941     (19,296     (20 %) 

Interest and other

     (1,115     (677     (438     (66 %) 

Income tax (expense) benefit

     1,112        (5,545     6,657        NM   

Equity loss

     (4,246     (3,720     (526     (14 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 10,951      $ 330      $ 10,621        >200
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue

The increase in revenue from 2010 to 2011 was due to revenue growth at Procurian and GovDelvery arising primarily from new customers. Procurian, which experienced 19% revenue growth in 2011, was the largest contributor to the increase, despite lower than expected revenue growth during the second half of 2011 as compared to 2010. Slower revenue growth at Procurian in the latter half of 2011 was largely the result of reduced spend at a small number of Procurian’s customers. In addition, purchase price adjustments for deferred revenue

 

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limitations, which decreased revenue included in our consolidated results for GovDelivery by $1.9 million during 2010, related to, and were recorded during, 2010 only. Excluding the impact of those adjustments, GovDelivery experienced revenue growth of 28% in 2011.

Operating Expenses

The increase in operating expenses from the year ended December 31, 2010 to the year ended December 31, 2011 was primarily due to increases in costs of revenue at Procurian, which increased 18% from 2010, from $64.9 million to $76.7 million. The increase at Procurian is largely attributable to costs associated with new customer contracts in 2011. In addition, the increase in operating expenses at Procurian was driven by increased sales and marketing efforts, which increased 26%, from $6.5 million to $8.2 million, primarily related to investments being made to enter into new global markets associated with facilitating new customer wins, and the continued technology investments related to Procurian’s platform. GovDelivery also saw an overall increase in cost of revenue from $2.9 million in 2010 to $4.6 million in 2011, which was largely attributable to the increase in GovDelivery’s revenues.

Interest and Other

The increase in interest and other expenses from 2010 to 2011 related to an increase in foreign currency charges at Procurian, as well as increased interest expense associated with Procurian’s term loan.

Income Tax Expense

Income tax expense of $5.5 million in 2010 improved to an income tax benefit of $1.1 million in 2011 due primarily to the release of the valuation allowance related to certain state NOL deferred tax assets at Procurian in 2011. This occurred as the company believes it is more likely than not that the benefit of those state NOL deferred tax assets will be realized, as well as income tax benefit related to GovDelivery’s current year operating losses that were realized in consolidation (see the “Corporate” subsection below).

Equity Loss

 

     Year ended. December 31,     Annual Change  
     2011     2010     (in thousands)     (percentage)  
     (in thousands)              

Selected data:

        

Our share of total net loss

   $ (3,646   $ (3,080   $ (566     (18 )% 

Amortization of intangible assets

     (600     (640     40        6
  

 

 

   

 

 

   

 

 

   

 

 

 

Equity loss

   $ (4,246   $ (3,720   $ (526     (14 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Equity loss increased due to moderately increased aggregate net losses at CIML, Freeborders, SeaPass and WhiteFence.

Results of Operations – Venture Companies

There are currently no consolidated companies that we consider to be part of our venture reporting segment. Acquirgy is our only equity method company in our venture segment. We also consider certain interests we hold in companies accounted for under the cost method of accounting to be part of our venture segment. These companies are carried at cost and we do not record our share of the results of operations of these companies in our results of operations. Accordingly, the following presentation includes our share of the results of our venture companies accounted for under the equity method of accounting, which is also recorded in our Consolidated Statements of Operations and Comprehensive Income (Loss) in the line item “Equity loss.”

 

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     Year ended. December 31,     Annual Change  
     2012     2011     (in thousands)      (percentage)  
     (in thousands)               

Selected data:

         

Our share of total net loss

   $ (1   $ (631   $ 630         100

Amortization of intangible assets

     —          (68     68         100
  

 

 

   

 

 

   

 

 

    

 

 

 

Equity loss

   $ (1   $ (699   $ 698         100
  

 

 

   

 

 

   

 

 

    

 

 

 

Equity loss related to our venture companies improved from 2011 to 2012, primarily related to decreased losses and our basis in Acquirgy being reduced to zero in early 2012.

 

     Year ended. December 31,     Annual Change  
     2011     2010     (in thousands)     (percentage)  
     (in thousands)              

Selected data:

        

Our share of total net loss

   $ (631   $ (504   $ (127     (25 )% 

Amortization of intangible assets

     (68     (68     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Equity loss

   $ (699   $ (572   $ (127     (22 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Equity loss related to our venture companies decreased from 2010 to 2011, primarily related to increased losses at Acquirgy.

Results of Operations – Reconciling Items

The amounts presented as “Dispositions” in the following table represent (1) GovDocs, Inc. (“GovDocs”), a subsidiary of GovDelivery, which was sold on August 31, 2010, (2) our share of the results of Metastorm Inc. (“Metastorm”), which was sold on February 17, 2011, (3) our share of the results of ClickEquations, Inc. which was sold on June 11, 2011, (4) our share of the results of StarCite, Inc.(“StarCite”), which was sold on December 30, 2011, (5) GoIndustry, which was sold on July 5, 2012, (6) InvestorForce, which was sold on January 29, 2013 and (7) Channel Intelligence, which was sold on February 20, 2013.

Dispositions

Equity Loss and Discontinued Operations

 

     Year ended. December 31,     Annual Change  
     2012     2011     (in thousands)      (percentage)  
     (in thousands)               

Selected data:

         

Our share of total net loss

   $ (1,791   $ (5,669   $ 3,878         68

Amortization of intangible assets

     (100     (1,350     1,250         93
  

 

 

   

 

 

   

 

 

    

 

 

 

Equity loss

   $ (1,891   $ (7,019   $ 5,128         73

Discontinued operations

     (2,999     (3,102     103         3
  

 

 

   

 

 

   

 

 

    

 

 

 
   $ (4,890   $ (10,121   $ 5,231         52
  

 

 

   

 

 

   

 

 

    

 

 

 

 

     Year ended. December 31,     Annual Change  
     2011     2010     (in thousands)     (percentage)  
     (in thousands)              

Selected data:

        

Our share of total net loss

   $ (5,669   $ (6,868   $ 1,199        17

Amortization of intangible assets

     (1,350     (1,948     598        30

Impairment of carrying value of GoIndustry

     —          (2,914     2,914        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Equity loss

   $ (7,019   $ (11,730   $ 4,711        40

Discontinued operations

     (3,102     (2,126     (976     (46 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (10,121   $ (13,856   $ 3,735        27
  

 

 

   

 

 

   

 

 

   

 

 

 

We recorded an impairment charge of $2.9 million in 2010 to our carrying value of GoIndustry-DoveBid plc (“GoIndustry”) related to a decrease in the fair market value of our equity holdings in GoIndustry during 2010. See Note 3, “Goodwill and Intangibles, net,” and Note 5, “Ownership Interests and Cost Method Companies,” to our Consolidated Financial Statements. Our share of GoIndustry’s results were losses of $0.7 million, $1.5 million and $0.5 million for the years ended 2012, 2011 and 2010, respectively.

 

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On February 20, 2013, the sale of Channel Intelligence to Google was consummated. Channel Intelligance’s results have been removed from the results of our segments and are included in “Dispositions” in the “Results of Operations” segment information table above for all periods presented. From July 11, 2012 to December 31, 2012, the period that Channel Intelligence was consolidated, we recorded $10.5 million of revenue and our share of their net losses of $1.2 million. The net loss included our amortization expense related to intangible assets of $1.5 million that were recorded in connection with the acquisition accounting upon the consolidation of Channel Intelligence. For periods where Channel Intelligence was an equity method company in 2012, as well as 2011 and 2010, we recorded equity loss based on their operations of $1.0 million, $1.2 million and $1.1 million, respectively. Additionally, we recorded equity loss of $0.1 million, $0.2 million and $0.2 million of ICG’s intangible asset amortization related to Channel Intelligence for those same periods. Our share of Channel Intelligence’s results and the related ICG intangible asset amortization have been removed from the results of our segments and are included in “Dispositions” in the “Results of Operations” segment information table above for all periods presented.

On January 29, 2013, the sale of InvestorForce to MSCI was consummated. InvestorForce’s results have been removed from the results of our segments and are included in “Dispositions” in the “Results of Operations” segment information table above for all periods presented. InvestorForce’s revenues were $8.6 million, $7.1 million and $6.5 million, respectively, for 2012, 2011 and 2010. Our share of InvestorForce’s net loss was $1.4 million, $2.5 million and $2.3 million, respectively for 2012, 2011 and 2010.

On December 30, 2011, the sale of StarCite to The Active Network, Inc. (“Active”) was completed. We recorded equity loss related to our share of StarCite’s results of $1.9 million and $1.8 million for the years ended December 31, 2011 and 2010, respectively. Additionally, we recorded $1.2 million and $1.5 million of ICG’s intangible asset amortization related to StarCite for the years ended December 31, 2011, and 2010, respectively. Our share of StarCite’s results and the related ICG intangible asset amortization have been removed from the results of our segments and are included in “Dispositions” in the “Results of Operations” segment information table above for all periods presented.

On June 14, 2011, substantially all of the assets of ClickEquations, Inc. (“ClickEquations”) were sold to Channel Intelligence. We recorded equity loss related to our share of ClickEquations’ results of $0.7 million and $0.9 million for the years ended December 31, 2011 and 2010, respectively. Prior to the sale, ClickEquations was a venture company accounted for under the equity method; following the sale, our share of ClickEquations’ results was removed from the results of our venture segment and are included in “Dispositions” in the “Results of Operations” segment information table above for all periods presented.

On February 17, 2011, Metastorm was sold to Open Text Corporation (“Open Text”). We recorded equity loss related to our share of Metastorm’s results of $0.3 million and $2.6 million for the years ended December 31, 2011 and 2010 respectively. Additionally, we recorded $0.3 million of ICG’s intangible asset amortization related to Metastorm for the year ended December 31, 2010. Our share of Metastorm’s results and the related ICG intangible asset amortization have been removed from the results of our segments and are included in “Dispositions” in the “Results of Operations” segment information table above for all periods presented.

On August 31, 2010, GovDelivery completed the sale of one of its subsidiaries, GovDocs to a former executive of GovDelivery for aggregate consideration of $1.8 million. We recognized a net gain of $0.6 million on the sale. GovDocs had revenue and net income of $1.4 million and $0.2 million, respectively, from January 1, 2010 through August 31, 2010, which were included in our core segment. GovDocs’ revenue and operating results from that period have been separated from continuing operations, and its net results, along with the net gain on the sale of GovDocs, are presented in the single line item “Income (loss) from discontinued operations, including gain on sale” on our Consolidated Statements of Operations and Comprehensive Income (Loss) and are included in “Dispositions” in the “Results of Operations” segment information table.

 

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Corporate

 

     Year ended December 31,     Annual Change  
     2012     2011     (in thousands)     (Percentage)  
     (in thousands)              

General and administrative

   $ (23,112   $ (17,086   $ (6,026     (35 %) 

Impairment related and other

     (865     26        (891     NM   

Interest income

     373        348        25        7

Income tax benefit

     3,564        3,175        389        12
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (20,042   $ (13,537   $ (6,505     (48 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

The increase in general and administrative expenses in the year ended December 31, 2012 from the year ended December 31, 2011 was primarily associated with an increase in equity-based compensation expense in 2012, which primarily related to shares of restricted stock granted to ICG’s chief executive officer and ICG’s president during the fourth quarter of 2011 as well as increased expense in 2012 compared to 2011 with respect to our performance incentive programs. The increase in impairment related and other expenses primarily relates to severance costs for employees whose employment with ICG was terminated during 2012.

The income tax benefit in the year ended December 31, 2012 relates primarily to the tax benefit for losses at corporate, which offset income at our core companies within the consolidated tax return. The income tax benefit in the year ended December 31, 2011 relates to deferred tax expense associated with the sale of Metastorm, which was more than offset by the deferred tax benefit associated with the sale of ClickEquations and the tax benefit related to the losses at corporate, which offset income at our core companies within the consolidated tax return.

 

     Year ended December 31,     Annual Change  
     2011     2010     (in thousands)     (Percentage)  
     (in thousands)              

General and administrative

   $ (17,086   $ (17,169   $ 83        <1

Impairment related and other

     26        (796     822        NM   

Interest income

     348        281        67        24

Income tax benefit

     3,175        5,183        (2,008     (39 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (13,537   $ (12,501   $ (1,036     (8 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

The decrease in general and administrative expenses from 2010 to 2011 was due primarily to a $1.6 million decrease in employee related expenses (principally annual bonuses), partially offset by a $1.4 million increase in equity based compensation charges and a $0.1 million increase in other outside services costs. Impairment-related and other expenses in 2010 related to severance costs for employees whose employment with ICG was terminated during 2010. Interest income increased slightly from 2010 to 2011 due to higher cash balances in 2011; this increase was offset partially by slightly lower average interest rate yields in 2011 than in 2010.

The income tax benefit in both 2011 and 2010 was due to income tax refunds and interest related to each of those years, as well as income tax benefit related to the current year operating loss recognized in consolidation. The income tax benefit for ICG Corporate, InvestorForce and GovDelivery in 2011, as well as the income tax benefit for ICG Corporate and InvestorForce in 2010, was limited to the current federal expense recorded by Procurian since management has not concluded that it is not more likely than not that losses in excess of that amount will be realized.

 

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Other

 

     Year ended December 31,     Annual Change  
     2012     2011     (in thousands)      (Percentage)  
     (in thousands)               

Corporate other income (loss), net

   $ 57,826      $ 43,207      $ 14,619         34

Noncontrolling interest

     (592     (2,235     1,643         74
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income

   $ 57,234      $ 40,972      $ 16,262         40
  

 

 

   

 

 

   

 

 

    

 

 

 

Corporate Other Income (Loss), Net

Corporate other income (loss), net for the year ended December 31, 2012 related primarily to ICG’s recognized gain related to the fair value purchase accounting adjustment to the previously held equity interest upon the consolidation of CIML, for approximately $26.2 million in 2012, and SeaPass, for $24.5 million in 2012, as well as gains on the sale of companies (see Note 5, “Ownership Interests and Cost Method Companies,” and Note 13, “Other Income (Loss),” to our Consolidated Financial Statements).

Corporate other income (loss), net for 2011, was primarily comprised of gains of $26.0 million (including $1.1 million of escrowed proceeds received during the year) and $14.1 million on the sales of Metastorm and StarCite, respectively, and a gain of $1.9 million related to distributions from one of our companies, a gain of $1.6 million associated with the receipt of other escrowed proceeds and distributions from former companies in which we held equity ownership interests. See Note 13, “Other Income (Loss),” to our Consolidated Financial Statements.

 

     Year ended December 31,     Annual Change  
     2011     2010     (in thousands)     (Percentage)  
     (in thousands)              

Corporate other income (loss), net

   $ 43,207      $ 74,507      $ (31,300     (42 %) 

Noncontrolling interest

     (2,235     (1,319     (916     (69 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 40,972      $ 73,188      $ (32,216     (44 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Corporate other income (loss), net for 2010 primarily related to $67.0 million of gains on sales of marketable securities, primarily Blackboard Inc. (“Blackboard”) common stock and $7.0 million of gains related to escrow releases and other distributions in connection with former ownership interests in companies.

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 our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to our interests in our companies, marketable securities, revenue, 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 those estimates under different assumptions or conditions.

We believe the following critical accounting policies are important to the presentation of our financial statements and often require difficult, subjective and complex judgments.

 

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Valuation of Goodwill, Intangible Assets and Ownership Interests in Companies

We test goodwill for impairment annually, or more frequently as conditions warrant, and intangible assets when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. 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 a company 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. 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

GovDelivery revenue consists of nonrefundable setup fees and monthly maintenance 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.

MSDSonline derives revenue from three sources: (1) subscription fees, (2) professional services fees and (3) compliance solutions project fees. The vast majority of MSDSonline’s revenue is derived from subscription fees from customers accessing the company’s database and web-based tools; such revenue is recognized ratably over the applicable contract term, beginning on the contract implementation date. MSDSonline also generates (a) professional services fees from authoring and/or compiling its customers’ online libraries of material safety data sheet documents and indexing those documents for the customers’ use and (b) fees from training and compliance services projects; the revenue derived from those fees is recognized on a percentage of completion basis over the applicable project’s timeline.

Procurian may perform services relating to all or a part of a customer’s procurement function as part of its engagement by a customer. Typically, in those engagements, Procurian is paid a fixed fee agreed upon in advance and in some cases a fee that is subject to variability based on the number of purchasing transactions processed or the amount of capital spend sourced by Procurian. Additionally, in some cases, Procurian has the opportunity to earn additional fees based on the level of savings achieved for customers. Procurian recognizes revenue and any additional fees as earned, which is typically over the life of a customer contract (which approximates the life of the relevant customer relationship).

Equity Income/Loss

We record our share of our companies’ net income/loss, which is 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 our companies and may require adjustment in the future when the audits of our 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 the 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

 

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to realize all or part of our net deferred tax assets, an adjustment to the deferred tax assets would be charged to earnings in the period such determination is made. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, the previously provided valuation allowance would be reversed.

Commitments and Contingencies

From time to time, we are a defendant or plaintiff in various legal actions that arise in the normal course of business. From time to time, we are also a guarantor of various third-party obligations and commitments. We are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. A determination of the amount of reserves required for these contingencies, if any, which would be charged to earnings, is made after careful analysis of each individual matter. The required reserves may change in the future due to new developments in each matter or changes in circumstances, such as a change in settlement strategy. Changes in required reserves could increase or decrease our earnings in the period the changes are made.

Fair Value Measurements

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. Any marketable securities we hold 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 September 2011, the FASB issued accounting guidance that permits an entity to first assess qualitative factors regarding whether it is more likely than not that an impairment to the entity’s goodwill exists as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Previous accounting guidance required an entity to test goodwill for impairment on at least an annual basis by comparing the fair value of a reporting unit with its carrying amount including goodwill before performing the second step of the test to measure the amount of the impairment loss, if any. That guidance became effective for ICG on January 1, 2012 and did not have a significant impact on our Consolidated Financial Statements.

In June 2011, the FASB issued accounting guidance related to the presentation of other comprehensive income and its components in the financial statements. That guidance provides two options for presenting the total of comprehensive income, the components of net income and the components of other comprehensive income. That guidance became effective for ICG on January 1, 2012 and did not have a significant impact on our Consolidated Financial Statements. We have revised our presentation of our Consolidated Financial Statements contained in this Report to conform to the guidance.

In May 2011, the FASB issued accounting guidance that results in common fair value measurement and disclosure requirements in financial statements governed by GAAP and International Financial Reporting Standards. The guidance changes the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements, and clarifies the FASB’s intent about the application of existing fair value measurement requirements. That guidance became effective for ICG on January 1, 2012 and did not have a significant impact on our Consolidated Financial Statements.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

Procurian conducts a portion of its business in 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. Those instruments are marked to market, and unrealized gains and losses are included in current period net income. Those options provide a predetermined rate of exchange at the time the option is purchased and allow Procurian to minimize the risk of currency fluctuations. In determining the use of its instruments, Procurian considers the amount of sales and purchases made in local currencies, the type of currency and the costs associated with the contracts.

 

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During the years ended December 31, 2012 and 2011, Procurian purchased average rate currency options to mitigate the risk of currency fluctuations at Procurian’s operations in the United Kingdom, Europe, Asia and South America. Those instruments net settled each quarter and matured on or before the end of each of those years, resulting in an immaterial loss in the period.

Procurian is party to a term loan agreement with PNC Bank in the amount of $25.0 million, the interest rate for which is computed based on certain fixed and variable indices. During the year ended December 31, 2010, Procurian entered into a rate swap transaction to minimize the risk of interest rate fluctuations. This rate swap transaction was terminated by Procurian in August 2012. Procurian recognized an immaterial loss in the period related to this instrument.

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.

 

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ITEM 8. Financial Statements and Supplementary Data

The following Consolidated Financial Statements, and the related Notes thereto, of ICG Group, Inc. and the Report of Independent Registered Public Accounting Firm are filed as a part of this Report.

 

     Page
Number
 

Report of Independent Registered Public Accounting Firm

     36   

Consolidated Balance Sheets as of December 31, 2012 and 2011

     37   

Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December  31, 2012, 2011 and 2010

     38   

Consolidated Statements of Changes in Equity for the years ended December 31, 2012, 2011 and 2010

     39   

Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010

     40   

Notes to Consolidated Financial Statements

     41   

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ICG GROUP, INC.

The Board of Directors and Stockholders

ICG Group, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of ICG Group, Inc. and Subsidiaries (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of operations and comprehensive income (loss), changes in equity and cash flows for each of the years in the three-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ICG Group, Inc. and Subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U. S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), ICG Group, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 18, 2013 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

 

/s/ KPMG LLP

Philadelphia, Pennsylvania

March 18, 2013

 

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ICG GROUP, INC.

CONSOLIDATED BALANCE SHEETS

 

     December 31,
2012
    December 31,
2011
 
     (in thousands, except per share data)  

Assets

    

Current Assets

    

Cash and cash equivalents

   $ 45,642      $ 121,871   

Restricted cash

     827        133   

Other receivables

     405        22,679   

Accounts receivable, net of allowance ($691-2012;$616-2011)

     47,405        30,384   

Deferred tax assets

     348        613   

Prepaid expenses and other current assets

     6,098        2,509   

Assets of discontinued operations

     82,505        3,866   
  

 

 

   

 

 

 

Total current assets

     183,230        182,055   

Fixed assets, net

     13,786        5,682   

Marketable securities

     327        —     

Ownership interests

     13,333        39,052   

Goodwill

     107,794        21,843   

Intangibles, net

     84,715        14,431   

Deferred tax assets

     29,770        31,940   

Cost method companies

     13,007        10,820   

Other assets, net

     1,797        997   
  

 

 

   

 

 

 

Total Assets

   $ 447,759      $ 306,820   
  

 

 

   

 

 

 

Liabilities

    

Current Liabilities

    

Current maturities of long-term debt

   $ 5,336      $ 4,616   

Accounts payable

     7,023        2,116   

Accrued expenses

     8,428        5,786   

Accrued compensation and benefits

     19,721        11,737   

Deferred revenue

     19,680        11,425   

Liabilities of discontinued operations

     10,433        3,329   
  

 

 

   

 

 

 

Total current liabilities

     70,621        39,009   

Long-term debt )

     27,978        10,681   

Deferred revenue

     179        61   

Other liabilities

     6,566        2,194   
  

 

 

   

 

 

 

Total Liabilities

     105,344        51,945   
  

 

 

   

 

 

 

Redeemable noncontrolling interest (Note 16)

     3,383        1,378   
  

 

 

   

 

 

 

Equity

    

ICG Group, Inc.’s Stockholders’ Equity

    

Preferred stock, $0.01 par value; 10,000 shares authorized, none issued or outstanding

     —          —     

Common stock, $0.01 par value; 2,000,000 shares authorized, 42,155 shares (2012) and 40,729 shares (2011) issued

     42        41   

Treasury stock, at cost, 4,211 shares (2012) and 3,281 shares (2011)

     (28,973     (20,619

Additional paid-in capital

     3,549,533        3,544,121   

Accumulated deficit

     (3,254,744     (3,277,733

Accumulated other comprehensive income

     40        74   
  

 

 

   

 

 

 

Total ICG Group, Inc.’s Stockholders’ Equity

     265,898        245,884   

Noncontrolling Interest

     73,134        7,613   
  

 

 

   

 

 

 

Total Equity

     339,032        253,497   
  

 

 

   

 

 

 

Total Liabilities, Redeemable noncontrolling interest and Equity

   $ 447,759      $ 306,820   
  

 

 

   

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

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ICG GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

 

     Year Ended December 31,  
     2012     2011     2010  
     (in thousands, except per share data)  

Revenue

   $ 166,593      $ 133,437      $ 109,213   
  

 

 

   

 

 

   

 

 

 

Operating expenses

      

Cost of revenue

     105,762        81,281        67,785   

Sales and marketing

     21,920        13,466        10,367   

General and administrative

     38,805        29,228        28,345   

Research and development

     14,175        9,157        7,870   

Amortization of intangible assets

     5,590        1,412        1,357   

Impairment related and other

     1,548        753        1,182   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     187,800        135,297        116,906   
  

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (21,207     (1,860     (7,693

Other income (loss), net

     57,879        42,624        74,147   

Interest income

     442        393        330   

Interest expense

     (526     (577     (366
  

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes and equity loss

     36,588        40,580        66,418   

Income tax benefit (expense)

     (1,336     4,287        (362

Equity loss

     (8,672     (11,964     (16,022
  

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     26,580        32,903        50,034   

Income (loss) from discontinued operations, including gain on sale

     (2,999     (3,102     (2,126
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     23,581        29,801        47,908   

Less: Net income attributable to the noncontrolling interest

     592        2,235        1,319   
  

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ICG Group, Inc.

   $ 22,989      $ 27,566      $ 46,589   
  

 

 

   

 

 

   

 

 

 

Amounts attributable to ICG Group, Inc.:

      

Net income (loss) from continuing operations

   $ 26,212      $ 30,013      $ 48,254   

Net income (loss) from discontinued operations

     (3,223     (2,447     (1,665
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 22,989      $ 27,566      $ 46,589   
  

 

 

   

 

 

   

 

 

 

Basic income (loss) per share attributable to ICG Group, Inc.:

      

Income (loss) from continuing operations

   $ 0.73      $ 0.82      $ 1.33   

Income (loss) on discontinued operations

     (0.09     (0.07     (0.05
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 0.64      $ 0.75      $ 1.28   
  

 

 

   

 

 

   

 

 

 

Shares used in computation of basic income (loss) per share

     35,890        36,656        36,427   
  

 

 

   

 

 

   

 

 

 

Diluted income (loss) per share attributable to ICG Group, Inc.:

      

Income (loss) from continuing operations

   $ 0.72      $ 0.80      $ 1.30   

Income (loss) on discontinued operations

     (0.09     (0.06     (0.04
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 0.63      $ 0.74      $ 1.26   
  

 

 

   

 

 

   

 

 

 

Shares used in computation of diluted income (loss) per share

     36,543        37,460        37,064   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 23,581      $ 29,801      $ 47,908   

Other comprehensive income (loss)

      

Unrealized holding gains (losses) in marketable securities

     1,552        —          (4,055

Reclassification adjustments/realized net (gains) loss on marketable securities

     (1,552     —          (67,115

Other accumulated other comprehensive income (loss)

     (34     20        26   
  

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     23,547        29,821        (23,236

Less: Comprehensive income attributable to the noncontrolling interest

     558        2,255        1,318   
  

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to ICG Group, Inc.

   $ 22,989      $ 27,566      $ (24,554
  

 

 

   

 

 

   

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

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Table of Contents

ICG GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

    ICG Group, Inc. Stockholders’ Equity              
    Common Stock    

Treasury Stock,

at cost

    Additional
Paid-In
Capital
    Accumulated     Accumulated
Other
Comprehensive
    Non-
Controlling
       
  Shares     Amount     Shares     Amount       Deficit     Income (AOCI)     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 (SARs) and stock options

    —         —         —         —         2,038        —         —         —         2,038   

Equity-based compensation related to Deferred Stock Units (DSUs)

    —         —         —         —         204        —         —         —         204   

Equity-based compensation related to Restricted Stock (RS)

    —         —         —         —         103        —         —         —         103   

Issuance of DSUs to directors, net of forfeitures

    58        —         —         —         212        —         —         —         212   

Issuance of RS, net of forfeitures

    32        —         —         —         (29     —         —         —         (29

Exercise of SARs and stock options, net of surrenders

    553        —         —         —         117        —         —         —         117   

Impact of redeemable noncontrolling interest accretion

    —         —         —         —         (197     —         —         —         (197

Impact of incremental acquisition of Procurian

    —         —         —         —         (38,889     —         27       (10,796     (49,658

Impact of subsidiary equity transactions

    —         —         —         —         4,092        —         —         (6,924     (2,832

Noncontrolling owners share of AOCI of consolidated subsidiaries

    —         —         —         —         —         —         (1     1        —    

Net unrealized depreciation in marketable securities and reclassification adjustments

    —         —         —         —         —         —         (71,170     —         (71,170

Net income (loss)

    —         —         —         —         —         46,589        —         1,264        47,853   

Other activity

    —         —         —         —         46        —         —         —         46   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 SARs and stock options

    —         —         —         —         2,252        —         —         —         2,252   

Equity-based compensation related to DSUs

    —         —         —         —         703        —         —         —         703   

Equity-based compensation related to RS

    —         —         —         —         851        —         —         —         851   

Issuance of DSUs to directors

    73        —          —          —         165        —          —          —          165   

Issuance of RS, net of forfeitures

    1,178        1        —          —         (32     —          —          —          (31

Exercise of SARs and stock options, net of surrenders

    39        1        —          —         2        —          —          —          3   

Impact of redeemable noncontrolling interest accretion

    —          —          —          —         (509     —          —          —          (509

Impact of incremental acquisition of Procurian

    —          —          —          —         (1,059     —          —          (261     (1,320

Impact of subsidiary equity transactions

    —          —          —          —         704        —          —          816        1,520   

Repurchase of common stock

    —          —         (841     (8,588     —         —         —         —         (8,588

Noncontrolling owners share of AOCI of consolidated subsidiaries

    —          —          —          —         —          —          20        (20     —    

Net income (loss)

    —          —          —          —         —          27,566        —          2,456        30,022   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2011

    40,729      $ 41        (3,281   $ (20,619   $ 3,544,121      $ (3,277,733   $ 74      $ 7,613      $ 253,497   

Equity-based compensation related to SARs and stock options

    —          —          —          —          2,488        —          —          —          2,488   

Equity-based compensation related to DSUs

    —          —          —          —          419        —          —          —          419   

Equity-based compensation related to RS

    —          —          —          —          3,155        —          —          —          3,155   

Issuance of DSUs and RS to directors

    74        —          —          —          107        —          —          —          107   

Issuance of RS, net of forfeitures

    77        —          —          —          (188     —          —          —          (188

Exercise of SARs and stock options, net of surrenders

    183        —          —          —          1,003        —          —          —          1,003   

Impact of redeemable noncontrolling interest accretion

    —          —          —          —          (839     —          —          —          (839

Impact of subsidiary equity transactions

    1,092        1        —          —          (733     —          13        64,733        64,014   

Repurchase of common stock

    —          —          (930     (8,354     —          —          —          —          (8,354

Net unrealized appreciation in marketable securities and reclassification adjustments

    —          —          —          —          —          —          —          —          —     

Noncontrolling owners share of AOCI of consolidated subsidiaries

    —          —          —          —          —          —          (47     47        —     

Net income (loss)

    —          —          —          —          —          22,989        —          741        23,730   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2012

    42,155      $ 42        (4,211   $ (28,973   $ 3,549,533      $ (3,254,744   $ 40      $ 73,134      $ 339,032   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying Notes to Consolidated Financial Statements

 

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Table of Contents

ICG GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Year Ended December 31  
     2012     2011     2010  
     (in thousands)  

Operating Activities – continuing operations

      

Net income (loss)

   $ 26,580      $ 32,903      $ 50,034   

(Income) loss from discontinued operations

     (2,999     (3,102     (2,126

Adjustments to reconcile net loss to cash provided by (used in) operating activities:

      

Depreciation and amortization

     9,809        4,412        3,648   

Impairment related and other

     1,548        753        1,182   

Equity-based compensation

     6,634        4,260        3,067   

Equity loss

     8,672        11,964        16,022   

Other (income) loss

     (57,879     (42,624     (74,147

Deferred income taxes

     133        (4,750     791   

Changes in assets and liabilities, net of effect of acquisitions:

      

Accounts receivable, net

     (12,402     (5,458     (6,544

Tax receivable

     —          6,314        4,757   

Prepaid expenses and other assets

     (2,965     (51     —     

Accounts payable

     3,751        370        (123

Accrued expenses

     3,119        2,429        (1,883

Accrued compensation and benefits

     3,762        (3,447     2,179   

Deferred revenue

     6,286        2,188        4,140   

Other liabilities

     (385     578        (53
  

 

 

   

 

 

   

 

 

 

Cash flows provided by (used in) operating activities

     (6,336     6,739        944   

Investing Activities – continuing operations

      

Capital expenditures, net

     (10,866     (3,115     (3,712

Advanced deposits for acquisition of fixed assets

     (62     (115     (30

Change in restricted cash

     (694     68        (154

Proceeds from sales of marketable securities

     7,632        —          74,383   

Proceeds from sales/distributions of ownership interests

     20,525        54,116        1,878   

Proceeds from other distributions

     —          1,855        —     

Ownership acquisitions, net of cash acquired

     (68,961     (12,090     (2,786

Acquisitions by subsidiaries, net of cash acquired

     (17,996     (2,215     —     

Proceeds from sale of discontinued operations

     —          —          670   
  

 

 

   

 

 

   

 

 

 

Cash flows provided by (used in) investing activities

     (70,422     38,504        70,249   

Financing Activities – continuing operations

      

Acquisition of noncontrolling interest in subsidiaries equity

     (5,080     (1,320     (49,658

Borrowings of long-term debt

     13,000        238        21,062   

Long-term debt repayments and capital lease obligations, net

     (4,547     (5,016     (2,545

Purchase of treasury stock

     (8,354     (8,588     —     

Payment of dividend by Procurian

     —          —          (3,206

Tax withholdings related to equity-based awards

     (237     (147     (1,777

Cash received for stock options exercised

     1,045        151        1,894   

Debt commitment fee

     —          —          (175

Other financing activities

     1,080        (24     (31
  

 

 

   

 

 

   

 

 

 

Cash flows provided by (used in) financing activities

     (3,093     (14,706     (34,436

Effect of exchange rates on cash

     251        (312     (151

Discontinued Operations

      

Cash flows provided by (used in) operating activities

     (744     (467     793   

Cash flows provided by (used in) investing activities

     4,883        (259     (467

Cash flows provided by (used in) financing activities

     (768     —          (41
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents from discontinued operations

     3,371        (726     285   

Net increase (decrease) in cash and cash equivalents

     (76,229     29,499        36,891   

Cash and cash equivalents at beginning of period

     121,871        92,372        55,481   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of period

   $ 45,642      $ 121,871      $ 92,372   
  

 

 

   

 

 

   

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

40


Table of Contents

ICG GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. The Company

Description of the Company

ICG Group, Inc. (together with its subsidiaries, “ICG”) owns and operates cloud-based software and services businesses with recurring revenue streams that improve the productivity and efficiency of their business (i.e. B2B) customers. Founded in 1996, ICG works to drive growth at those companies through strategic and operational support, as well as providing financial capital.

Basis of Presentation

The Consolidated Financial Statements contained herein (the “Consolidated Financial Statements”) include the accounts of ICG Group, Inc. and its wholly-owned subsidiaries, wholly-controlled subsidiaries and majority-owned subsidiaries. Channel Intelligence, as a subsidiary of CIML, and InvestorForce were previously consolidated core companies but given the respective sales of those companies, they are presented as discontinued operations in the consolidated financial statements and not included in the tables below.

ICG’s Consolidated Balance Sheets included the financial position of the following majority-owned subsidiaries:

 

Year Ended December 31,

2012

  

2011

CIML (2)

  

GovDelivery

GovDelivery

  

Procurian

MSDSonline (3)

  

Procurian

  

SeaPass (1)

  

ICG’s Consolidated Statements of Operations and Comprehensive Income (Loss) (its “Consolidated Statements of Operations”) for the years ended December 31, 2012, 2011 and 2010 included the results of the following majority-owned subsidiaries:

 

Year Ended December 31,

2012

  

2011

  

2010

CIML (2)

  

GovDelivery

  

GovDelivery

GovDelivery

  

Procurian

  

Procurian

MSDSonline (3)

     

Procurian

     

 

(1) 

On December 27, 2012, ICG acquired additional equity ownership interests in SeaPass that increased ICG’s ownership in that company to 53%. ICG began consolidating the financial position of SeaPass as of that date. The results of operations of SeaPass from the date of acquisition through December 31, 2012 were immaterial. The results of operations of SeaPass will be included in ICG’s Consolidated Statements of Operations beginning January 1, 2013. See Note 4, “Consolidated Core Companies,” for additional information regarding ICG’s consolidation of SeaPass.

(2) 

CIML includes the assets and results of operations of mylist and its subsidiaries as continuing operations at December 31, 2012.

(3) 

On March 30, 2012, ICG acquired 96% of MSDSonline and began consolidating the financial position of that company as of that date. The results of operations of MSDSonline from the date of acquisition through March 31, 2012 were immaterial; the results of operations of MSDSonline are included in ICG’s Consolidated Statements of Operations beginning on April 1, 2012. See Note 4, “Consolidated Core Companies,” for additional information regarding ICG’s acquisition of MSDSonline.

 

41


Table of Contents

ICG GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

2. Significant Accounting Policies

Principles of Accounting for Ownership Interests

The various interests that ICG acquires in its companies are accounted for under one of three methods: the consolidation method, the equity method and the cost method. The applicable accounting method is generally determined based on ICG’s 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. Participation of other stockholders in the net assets and in the earnings or losses of a consolidated subsidiary is reflected in the line items “Noncontrolling Interest” in ICG’s Consolidated Balance Sheets and “Net income attributable to the noncontrolling interest” in ICG’s Consolidated Statements of Operations. Noncontrolling interest adjusts ICG’s consolidated results of operations to reflect only ICG’s share of the earnings or losses of the consolidated subsidiary.

Any changes in ICG’s ownership interest in a consolidated subsidiary, through additional equity issuances by the consolidated subsidiary or from ICG acquiring the shares from existing shareholders, in which ICG maintains control is recognized as an equity transaction, with appropriate adjustments to both ICG’s additional paid-in capital and the corresponding noncontrolling interests. The difference between the carrying amount of ICG’s ownership interest in the company and the underlying net book value of the company after the issuance of stock by the company is reflected as an equity transaction in ICG’s Consolidated Statements of Changes in Equity.

Equity Method. Companies that are not consolidated, but over which ICG exercises significant influence, are accounted for under the equity method of accounting and are referred to in the Notes to Consolidated Financial Statements as “equity method companies.” The determination as to 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 company’s 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 ICG’s holdings in common stock, preferred stock and other convertible instruments in that company. ICG’s share of the earnings and/or losses of the company, as well as any adjustments resulting from prior period finalizations of equity income/losses, are reflected in the line item “Equity loss” in ICG’s Consolidated Statements of Operations.

An increase in ICG’s ownership interest in an equity method company over which ICG maintains significant influence is accounted for as a step acquisition, with an allocation of the excess purchase price to the fair value of the net assets acquired. A decrease in ICG’s ownership interest in an equity method company over which ICG maintains significant influence is accounted for as a dilution gain or loss in ICG’s Consolidated Statements of Operations and reflects the difference between ICG’s share of the underlying net assets of that company prior to the relevant change in ownership and ICG’s share of the underlying net assets of that company subsequent to the relevant change in ownership. An increase in ICG’s ownership interest in an equity method company in which ICG obtains a controlling financial interest is also accounted for as a step acquisition, with an allocation of the purchase price to the fair value of the net assets acquired. In addition, ICG remeasures its previously held ownership interest in a company that was previously not consolidated at the acquisition date fair value; any gain or loss resulting from this remeasurement is recognized in ICG’s Consolidated Statements of Operations at that time. ICG begins to include the financial position and operating results of the newly-consolidated subsidiary in its Consolidated Financial Statements from the date ICG obtains the controlling financial interest in that subsidiary. If control is lost, any retained interest is measured at fair value, and a gain or loss is recognized in ICG’s Consolidated Statements of Operations at that time. In addition, to the extent ICG maintains a smaller equity ownership, the accounting method used for that company is adjusted to the equity or cost method of accounting, as appropriate, for subsequent periods.

 

42


Table of Contents

ICG GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

2. Significant Accounting Policies – (Continued)

 

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 and are referred to as “cost method companies” in ICG’s Consolidated Balance Sheets and in these Notes to Consolidated Financial Statements. 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 the 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. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Those estimates include evaluation of ICG’s convertible debt and equity holdings in companies, holdings in marketable securities, asset impairment, revenue recognition, income taxes and commitments and contingencies. Those estimates and assumptions are based on management’s 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 those estimates and assumptions when facts and circumstances dictate that it is necessary or appropriate to do so. It is reasonably possible that ICG’s accounting estimates with respect to the ultimate recoverability of ICG’s ownership interests in convertible debt and equity holdings, goodwill and the useful lives of intangible assets could change in the near term and that the effect of such changes on ICG’s consolidated financial statements could be material. Management believes the recorded amounts of ownership interests, goodwill, intangible assets and cost method investments were not impaired at December 31, 2012.

Ownership Interests, Goodwill, Intangibles, net and Cost Method Investments

ICG evaluates its carrying value in equity method companies and cost method companies 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 each such company’s achievement of its business plan objectives and milestones, the fair value of its ownership interest in each such company (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 such company, 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 ICG’s 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 at any time during the years ended December 31, 2012 and 2011. ICG recorded impairment charges in the amount of $2.9 million during the year ended December 31, 2010, related to a decline in the

 

43


Table of Contents

ICG GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

2.

Significant Accounting Policies – (Continued)

 

fair value of its equity holdings in GoIndustry that ICG believed was other-than-temporary. See Note 5, “Ownership Interests and Cost Method Companies.”

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. Certain triggering events identified during the year ended December 31, 2012 resulted in impairment testing at GovDelivery during the period. GovDelivery determined that certain contingent consideration payments related to a recent acquisition would not be received since the related performance targets would not be achieved. As such, GovDelivery recorded impairment charges related to its intangible assets of $0.4 million and $0.3 million of goodwill that were recorded in connection with the acquisition. It is also noted that GovDelivery also recorded a gain of $0.7 million associated with that certain contingent consideration write-off. ICG concluded that its remaining goodwill and net intangible assets were not impaired as of December 31, 2012 and 2011. See Note 4, “Consolidated Core Companies.”

Revenue Recognition

During 2012, ICG’s consolidated revenue was primarily attributable to GovDelivery, MSDSonline and Procurian (primarily Procurian). ICG increased its ownership in SeaPass to greater than 50% on December 27, 2012, and the company’s results of operations for the period from December 27, 2012 through December 31, 2012 were immaterial to ICG; accordingly, revenue related to SeaPass will be included in ICG’s consolidated revenue beginning January 1, 2013. MSDSonline was acquired on March 30, 2012, and the company’s results of operations for the two-day period from March 30, 2012 through March 31, 2012 were immaterial to ICG; accordingly, revenue related to MSDSonline has been included in ICG’s consolidated revenue beginning on April 1, 2012. During 2011 and 2010, ICG’s consolidated revenue was attributable to GovDelivery and Procurian (primarily Procurian).

GovDelivery revenue consists of nonrefundable setup fees and monthly maintenance and hosting fees. These fees generally 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.

MSDSonline derives revenue from three sources: (1) subscription fees, (2) professional services fees and (3) compliance solutions project fees. The vast majority of MSDSonline’s revenue is derived from subscription fees from customers accessing the company’s database and web-based tools; such revenue is recognized ratably over the applicable contract term, beginning on the contract implementation date. MSDSonline also generates (a) professional services fees from authoring and/or compiling its customers’ online libraries of material safety data sheet documents and indexing those documents for the customers’ use and (b) fees from training and compliance services projects; the revenue derived from those fees is recognized on a percentage of completion basis over the applicable project’s timeline.

Procurian primarily generates revenue from procurement management services. Procurian also generates a portion of its revenue from consulting projects. Procurement management services include services and technology designed to help companies achieve unit cost savings and process efficiencies. Procurian earns fees for transition services, sourcing, category management and transaction management services. Procurian estimates the total contract value (excluding performance bonus fees) under the contractual arrangements it has with its customers and recognizes revenue under those arrangements on a straight-line basis over the term of the relevant contract, which approximates the life of the customer relationship. Performance bonus fees are deferred until the contingency is achieved or it is determined from existing data and past experience that the savings will be achieved. The portion of those fees related to the portion of the contract that has been performed are then recognized, and the remaining performance bonus fees are recognized on a straight-line basis over the remaining life of the contract, which approximates the life of the customer relationship. Consulting projects typically are engagements in which Procurian negotiates prices from certain suppliers on behalf of its customers in certain categories in which Procurian has sourcing expertise. Under those projects, the customer generally pays a fixed fee for the project (and Procurian may in some cases be eligible to receive a performance bonus), in fixed-fee sourcing arrangements, revenue is recognized

 

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ICG GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

2.

Significant Accounting Policies – (Continued)

 

on a proportional performance basis, provided that there is no uncertainty as to Procurian’s ability to fulfill its obligations under the contract or other services that are to be rendered under the contract.

Deferred Revenue

Deferred revenue consists primarily of payments received in advance of revenue being earned under procurement sourcing arrangements and future implementation, professional services and transaction fees.

Cash and Cash Equivalents

ICG considers all highly liquid instruments with an original maturity of approximately three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents at December 31, 2012 and 2011 were invested principally in money market accounts and commercial paper.

Restricted Cash

ICG considers cash that is legally restricted and cash that is held as a compensating balance for letter of credit arrangements as restricted cash. ICG had no long-term restricted cash at December 31, 2012 or 2011.

Marketable Securities

Marketable securities are reported at fair value, based on quoted market prices, with the net unrealized gain or loss reported as a component of “Accumulated Other Comprehensive Income” in ICG Group, Inc. Stockholders’ Equity on ICG’s Consolidated Statements of Changes in Equity.

Financial Instruments

Cash and cash equivalents, accounts receivable and accounts payable are carried at cost, which approximates fair value due to the short-term maturity of these instruments. Marketable securities are carried at fair value.

Research and Development

Research and development costs are charged to expense as incurred.

Income Taxes

Income taxes are accounted for under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Net Income (Loss) Per Share

Basic net income (loss) per share (EPS) is computed using the weighted average number of common shares outstanding during a given period. Diluted EPS includes shares, unless anti-dilutive, that would arise from the exercise of stock options and conversion of other convertible securities and is adjusted, if applicable, for the effect on net income (loss) of such transactions. In each of 2012, 2011 and 2010, ICG included all quarters for purposes of the year to date net income included in the diluted EPS calculation. See Note 15, “Net Income (Loss) per Share.”

 

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ICG GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

2.

Significant Accounting Policies – (Continued)

 

Escrowed Proceeds

When an interest in one of ICG’s companies is sold, a portion of the sale consideration may be held in escrow primarily to satisfy purchase price adjustments and/or indemnity claims. ICG records gains on escrowed proceeds at the time ICG is entitled to such proceeds, the amount is fixed or determinable and realization is assured. At December 31, 2012, ICG had aggregate contingent gains of $0.1 million associated with these outstanding escrows, which are scheduled to expire at various dates within the next two years, subject to indemnity claims pursuant to the terms of the specific sale agreements.

Concentration of Customer Base and Credit Risk

For the year ended December 31, 2012, Zurich, a customer of Procurian, represented 17% of ICG’s consolidated revenue. For the year ended December 31, 2011, none of ICG’s companies’ customers represented more than 10% of ICG’s consolidated revenue. For the year ended December 31, 2010, two customers of Procurian, The Hertz Corporation and Kimberly-Clark Corporation, represented approximately 11% and 11%, respectively, of ICG’s consolidated revenue. Accounts receivable from Zurich as of December 31, 2012 was $15.8 million. The accounts receivable balance includes $12.4 million of unbilled accounts receivable for Zurich at December 31, 2012. $2.9 million of the accounts receivable was collected after December 31, 2012 and approximately $12.4 million of the unbilled accounts receivable is expected to be billed in 2013.

Equity-Based Compensation

ICG recognizes equity-based compensation expense in the Consolidated Financial Statements for all share options and other equity-based arrangements that are expected to vest. Equity-based compensation expense is measured at the date of grant, based on the fair value of the award, and is recognized using the straight-line method over the employee’s requisite service period. Equity-based awards with vesting conditions other than service are recognized based on the probability that those conditions will be achieved.

Comprehensive Income (Loss)

ICG reports and displays comprehensive income (loss) and its components in the Consolidated Statements of Comprehensive Income (loss). Comprehensive income (loss) is the change in equity of a business enterprise during a period from non-owner sources. In addition to net income (loss), ICG’s sources of comprehensive income (loss) are from net unrealized appreciation on its marketable securities and foreign currency translation adjustments. Reclassification adjustments result from the recognition of gains or losses in net income that were included in comprehensive income (loss) in prior periods.

Supplemental Cash Flow Disclosures

In 2012, 2011 and 2010, ICG paid interest of $0.6 million, $0.5 million and $0.3 million, respectively. ICG made income tax payments of $1.0 million, $0.7 million and $0.5 million in 2012, 2011 and 2010, respectively. In addition, ICG received income tax refunds of $0.1 million, $6.5 million and $5.3 million in 2012, 2011 and 2010, respectively. A capital lease obligation of $0.6 million was incurred when Procurian entered into a lease for computer software equipment during 2010. In 2012, ICG, pursuant to a tender offer, issued and exchanged 1,091,942 shares, valued at $11.9 million, to acquire additional ownership interests in Procurian.

Reclassifications

Certain amounts in the prior year financial statements have been reclassified to conform to the current-year presentation. The impact of the reclassifications made to prior year amounts are not material and did not affect net income (loss).

 

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ICG GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

2.

Significant Accounting Policies – (Continued)

 

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (FASB) issued accounting guidance that permits an entity to first assess qualitative factors regarding whether it is more likely than not that an impairment to the entity’s goodwill exists as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Previous accounting guidance required an entity to test goodwill for impairment on at least an annual basis by comparing the fair value of a reporting unit with its carrying amount including goodwill before performing the second step of the test to measure the amount of the impairment loss, if any. The guidance became effective for ICG on January 1, 2012 and did not have a significant impact on the Consolidated Financial Statements.

In June 2011, the FASB issued accounting guidance related to the presentation of other comprehensive income and its components in financial statements. The guidance provides two options for presenting the total of comprehensive income, the components of net income and the components of other comprehensive income. The guidance became effective for ICG on January 1, 2012. ICG has revised the presentation of its Consolidated Financial Statements beginning with its Quarterly Report on Form 10-Q for the period ended March 31, 2012 to conform to the guidance. The adoption of this guidance did not have a significant impact on the Consolidated Financial Statements.

In May 2011, the FASB issued accounting guidance that results in common fair value measurement and disclosure requirements in financial statements governed by GAAP and International Financial Reporting Standards. The guidance changes the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements and clarifies the FASB’s intent regarding the application of existing fair value measurement requirements. The guidance became effective for ICG on January 1, 2012 and did not have a significant impact on the Consolidated Financial Statements.

 

3. Goodwill and Intangibles, net

Acquisitions

During the year ended December 31, 2012, Procurian completed two acquisitions. The purchase price allocated to goodwill and intangible assets are included in the tables below. Additionally, during the year ended December 31, 2011, GovDelivery completed an acquisition.

 

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ICG GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

3.

Goodwill and Intangibles, net – (Continued)

 

Goodwill

The following table summarizes the activity related to ICG’s goodwill (in thousands):

 

     Gross
Carrying
Amount
     Accumulated
Impairment
Losses
    Net
Carrying
Amount
 

Goodwill at January 1, 2011

   $ 19,622       $ —       $ 19,622   

Increase in goodwill due to acquisitions

     2,221         —          2,221   
  

 

 

    

 

 

   

 

 

 

Goodwill at December 31, 2011

     21,843         —          21,843   

Increase in goodwill due to ICG’s acquisition of MSDSonline (Note 4)

     15,847         —          15,847   

Increase in goodwill due to Procurian’s acquisition of Media IQ (Note 4)

     9,490         —          9,490   

Increase in goodwill due to Procurian’s acquisition of UAI (Note 4)

     2,922         —          2,922   

Estimated increase in goodwill due to SeaPass consolidation on December 27, 2012

     57,996         —          57,996   

Decrease in goodwill for GovDelivery impairment charge

     —           (304 )     (304
  

 

 

    

 

 

   

 

 

 

Goodwill at December 31, 2012

   $ 108,098       $ (304   $ 107,794   
  

 

 

    

 

 

   

 

 

 

 

As of December 31, 2012 and 2011, all of ICG’s goodwill was allocated to its consolidated core companies. Of the goodwill balance at December 31, 2012, $30.2 million relates to Procurian and Procurian’s acquisitions. Of the goodwill balance at December 31, 2011, $17.8 million relates to Procurian and Procurian’s acquisitions.

Intangible Assets

The following table summarizes ICG’s intangible assets from continuing operations (in thousands):

 

          As of December 31, 2012  

Intangible Assets

   Useful Life    Gross Carrying
Amount
     Accumulated
Amortization
    Net Carrying
Amount
 

Customer relationships

   1-11 years    $ 59,098       $ (5,912   $ 53,186   

Trademarks/trade names

   3-11 years      15,643         (930     14,713   

Technology

   5-10 years      11,287         (865     10,422   

Non-compete agreements

   2-5 years      6,854         (1,058     5,796   

Intellectual property

   5 years      235         (37     198   
     

 

 

    

 

 

   

 

 

 
        93,117         (8,802     84,315   

Other intellectual property

   Indefinite      400         —          400   
     

 

 

    

 

 

   

 

 

 
      $ 93,517       $ (8,802   $ 84,715   
     

 

 

    

 

 

   

 

 

 

 

          As of December 31, 2011  

Intangible Assets

   Useful Life    Gross Carrying
Amount
     Accumulated
Amortization
    Net Carrying
Amount
 

Customer relationships

   3-11 years    $ 13,317       $ (2,344   $ 10,973   

Trademarks/trade names

   3-11 years      1,547         (243     1,304   

Technology

   10 years      1,559         (149     1,410   

Non-compete agreements

   2-5 years      336         (29     307   

Intellectual property

   5 years      41         (4     37   
     

 

 

    

 

 

   

 

 

 
        16,800         (2,769     14,031   

Other intellectual property

   Indefinite      400         —          400   
     

 

 

    

 

 

   

 

 

 
      $ 17,200       $ (2,769   $ 14,431   
     

 

 

    

 

 

   

 

 

 

 

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ICG GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

3.

Goodwill and Intangibles, net – (Continued)

 

Amortization expense for intangible assets during the years ended December 31, 2012, 2011 and 2010 was $5.6 million, $1.4 million and $1.4 million, respectively. ICG amortizes intangibles using the straight line method.

Remaining estimated amortization expense is as follows (in thousands):

 

2013

   $ 11,728   

2014

     11,679   

2015

     10,767   

2016

     9,586   

2017

     8,815   

Thereafter

     31,740   
  

 

 

 

Remaining amortization expense

   $ 84,315   
  

 

 

 

Impairments

During the year ended December 31, 2012, GovDelivery decreased its liability related to contingent consideration payments for a recent acquisition because it believed that performance targets related to those contingent payments would not be achieved. As a result, GovDelivery performed an impairment analysis with respect to the associated intangible assets and goodwill recorded related to that acquisition, and recorded an impairment charge of $0.4 million related to the intangible assets and an impairment charge of $0.3 million related to goodwill that are reflected in the line item “Impairment related and other” in ICG’s Consolidated Statements of Operations for the year ended December 31, 2012. The $0.4 million impairment to intangibles is included in the $8.8 million accumulated amortization balance for customer relationships as of December 31, 2012 in the table above.

ICG completed its annual impairment testing in the fourth quarter of each of 2012, 2011 and 2010. The completion of ICG’s annual impairment testing did not result in an impairment charge related to ICG’s consolidated core companies as of December 31, 2012 and 2011; ICG’s fair value of its reporting units, including goodwill, substantially exceeds its carrying value. ICG estimates the fair value of its reporting units using a “Level 3” input (see Note 6, “Financial Instruments,” for the definition of a “Level 3” input) market approach by determining market multiples from comparable publicly-traded companies and applying those approximate multiples to the revenues of the reporting units, which are then compared to the respective carrying values of the reporting units. See Note 4, “Consolidated Core Companies.” ICG also performs ongoing business reviews of its equity method companies and cost method companies. See Note 5, “Ownership Interests and Cost Method Companies.”

The following table reflects the amount of impairments recorded and how ICG presents impairment charges under the various methods of accounting:

 

     Statement of Operations    Year ended December 31,  
    

Presentation

   2012      2011      2010  

Consolidation Method

  

Impairment related and other(a)

   $ 728       $ —         $ —     

Equity Method (Note 5)

  

Equity loss

     —           —           2,914   
     

 

 

    

 

 

    

 

 

 
      $ 728       $ —         $ 2,914   
     

 

 

    

 

 

    

 

 

 

(a) – In addition to the $0.7 million of impairments recorded by GovDelivery in 2012 included in the table above, GovDelivery also recorded a $0.7 million gain with respect to the write-off of a certain contingent consideration liability which is also included in “Impairment related and other” on ICG’s Consolidated Statements of Operations during the year ended December 31, 2012 but it is not included in the table above.

 

4. Consolidated Core Companies

Acquisitions

During the year ended December 31, 2012, ICG and its consolidated subsidiaries completed several acquisitions:

(1) On March 30, 2012, ICG acquired 96% of the equity of MSDSonline; the acquisition was accounted for under the acquisition method. Accordingly, ICG allocated the purchase price to the acquired tangible and identifiable intangible assets and liabilities based upon their respective fair values at the date of acquisition.

(2) On June 29, 2012, Procurian acquired Media IQ, LLC (“Media IQ”), a media audit and benchmarking services provider, for consideration consisting of (a) $11.5 million in cash paid at closing, (b) Procurian common stock valued at $4.0 million, which is classified as a liability and included in the line items “Accrued Expenses” and “Other Liabilities” in ICG’s Consolidated Balance Sheets as of December 31, 2012, and (c) a $2.0 million deferred cash payment that is due in $1.0 million increments on the one- and two-year anniversaries of the closing date of the acquisition. Accordingly, Procurian allocated the purchase price to the acquired tangible and identifiable intangible assets and liabilities based upon their respective fair values at the date of acquisition.

(3) On July 31, 2012, Procurian, acquired Utilities Analyses, Incorporated (“UAI”), an energy procurement specialist, for $6.7 million in cash. Procurian allocated the purchase price to the acquired tangible and identifiable intangible assets and liabilities based upon their respective fair values at the date of acquisition.

(4) On December 27, 2012, ICG acquired additional equity ownership interests in SeaPass (a former equity method company) for consideration of $13.2 million, increasing ICG’s ownership interest in that company from 37.8% to 52.7%. ICG consolidated the financial position of SeaPass as of that date and accounted for the transaction as a business combination. Accordingly, ICG allocated the enterprise value of SeaPass to its tangible and identifiable intangible assets and liabilities based upon their respective estimated fair values at the date of acquisition. Additionally, ICG recorded a gain on the transaction of $25.5 million, representing the excess of ICG’s portion of the enterprise value of SeaPass over its carrying value for its prior equity interest in SeaPass as an equity method company. The primary valuation technique used to measure the acquisition date fair value of SeaPass immediately before the business combination was the backsolve option-pricing method. That gain is included in the line item “Other income (loss), net” in ICG’s Consolidated Statements of Operations for the year ended December 31, 2012. As mentioned above, ICG has estimated the allocation of the enterprise value to the acquired tangible and identifiable intangible assets and liabilities based on their respective estimated fair values at the date of acquisition. The acquisition accounting related to the SeaPass acquisition is expected to be complete by March 31, 2013.

All other acquisitions were not significant to ICG’s consolidated results.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

4.

Consolidated Core Companies – (Continued)

 

The allocation of the purchase price for each of the above acquisitions (including allocations that are not yet finalized as of December 31, 2012) and the allocation of the enterprise value of SeaPass is as follows (in thousands):

 

     SeaPass     MSDSonline     Media IQ      UAI  

Net assets acquired:

         

Goodwill

   $ 57,996      $ 15,847      $ 9,491       $ 2,922   

Customer lists (8-11 year life)

     15,902        20,440        6,200         3,100   

Technology (5-10 year life)

     3,348        1,900        900         1,050   

Trademarks, trade names and domain names (11-15 year life)

     6,696        6,800        600         —     

Non-compete agreements (3-5 year life)

     2,511        3,580        268         160   

Other net assets (liabilities)

     (5,850     1,170        316         (505
  

 

 

   

 

 

   

 

 

    

 

 

 
     80,603        49,737        17,775         6,727   

Noncontrolling interest (1)

     (31,824     (1,355     —           —     
  

 

 

   

 

 

   

 

 

    

 

 

 
   $ 48,779      $ 48,382      $ 17,775       $ 6,727   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

(1)

ICG estimated the fair value of the noncontrolling interest of MSDSonline with consideration of discounts for lack of control and lack or marketability. See Note 16, “Redeemable Noncontrolling Interest” with respect to MSDSonline. The amount of noncontrolling interest for SeaPass is reflected in the line item “Impact of consolidated subsidiaries transactions” on ICG’s Consolidated Statements of Changes in Equity during the year ended December 31, 2012.

Discontinued Operations

On July 11, 2012, ICG acquired additional equity ownership interests in Channel Intelligence for aggregate consideration of $2.0 million, increasing ICG’s ownership interest in that company to greater than 50%. ICG began consolidating the financial results of Channel Intelligence as of that date and accounted for the transaction as a business combination. Accordingly, ICG allocated the enterprise value of Channel Intelligence to its tangible and identifiable intangible assets and liabilities based upon their respective fair values at the date of acquisition. From July 11, 2012 to December 31, 2012, the period that Channel Intelligence was consolidated in 2012, ICG recorded $10.5 million of revenue and ICG’s share of Channel Intelligence’s net loss was $1.2 million which is included in “Income (loss) from discontinued operations” on ICG’s Consolidated Statements of Operations. The net loss included amortization expense related to intangible assets of $1.5 million that were recorded in connection with the acquisition accounting upon the consolidation of Channel Intelligence.

On February 20, 2013, the sale of Channel Intelligence to Google was consummated. Under the terms of the purchase agreement, Google acquired Channel Intelligence for $125 million in cash subject to adjustment for working capital and other items. In connection with the sale, ICG realized $60.5 million in cash, with a portion being held in escrow. The Company expects to record a gain on this transaction of approximately $17 million in the three months ended March 31, 2013. As the Company owned 52% of Channel Intelligence at December 31, 2012, a noncontrolling interest balance for minority shareholders was recorded. That non controlling interest balance of $33.9 million is included in the line item “Noncontrolling interests” on ICG’s Consolidated Balance Sheets. The Company’s Board of Directors approved the sale of Channel Intelligence in the fourth quarter of 2012. Base on this and other relevant factors, the criteria for assets held for sale/discontinued operations presentation was met prior to December 31, 2012. As such, Channel Intelligence’s results have been presented as discontinued operations for all periods presented in ICG’s Consolid