XML 18 R12.htm IDEA: XBRL DOCUMENT

Financial Instruments

9 Months Ended

Sep. 30, 2011

6. Financial Instruments

Derivative Financial Instruments

During the three and nine months ended September 30, 2011 and 2010, ICG Commerce utilized average rate currency options with quarterly expirations to mitigate the risk of currency fluctuations at ICG Commerce's operations in the United Kingdom, Europe, Asia and South America. The net mark-to-market adjustments recognized by ICG Commerce are detailed in the table below and represent the premiums paid for the options by ICG Commerce, as well as the change in value of the options related to the fluctuation of exchange rates during the relevant period.

In 2010, ICG Commerce entered into an interest rate swap hedge agreement with PNC Bank to mitigate the risk of fluctuations in the variable interest rate related to ICG Commerce's term loan with PNC Bank. The net mark-to-market adjustments recognized by ICG Commerce are detailed in the table below and represent the change in value of the swap related to the fluctuations in the applicable interest rates during the relevant periods. This instrument is set to mature in 2015. See Note 7, "Debt."

From February 2006 to July 2010, ICG managed its exposure to price fluctuations of Blackboard, Inc. ("Blackboard") common stock, which is traded on the NASDAQ Global Select Market (NASDAQ: BBBB), through the use of cashless collar contracts. Although these instruments were derivative securities, their economic risks were similar to, and managed on the same basis as, the risks associated with the Blackboard common stock held by ICG. The cashless collar contracts were marked to market through earnings each period, the impact of which is detailed in the table below. The income or loss was primarily driven by the change in the closing price of Blackboard common stock from the beginning to the end of the relevant quarter. The mark-to-market impact was generally expense if Blackboard's stock price rose, or income if Blackboard's stock price declined, during the relevant quarter. During the nine months ended September 30, 2010, ICG terminated cashless collar contracts underlying a total of 625,000 shares of Blackboard common stock. Additionally, two other cashless collar contracts underlying a total of 375,000 shares of Blackboard common stock expired during the nine months ended September 30, 2010. There were no cashless collar contracts outstanding as of September 30, 2011 or December 31, 2010.

The following table presents the classifications and fair values of our derivative instruments as of September 30, 2011 and December 31, 2010:


Consolidated Balance Sheets
Derivative	Classification	September 30, 2011			December 31, 2010
		(in thousands)
Average rate currency options	Other assets, net	$	6		$	—
Interest rate swap	Accrued expenses	$	(53	)	$	(12	)

The following table presents the mark-to-market impact on earnings resulting from ICG's hedging activities for the three- and nine-month periods ended September 30, 2011 and 2010, respectively:


Consolidated Statements of Operations
		Three months ended September 30,						Nine months ended September 30,
Derivatives	Classification	2011			2010			2011			2010
		(in thousands)
Average rate currency options	Other income (loss), net	$	(43	)	$	(76	)	$	(185	)	$	(60	)
Interest rate swap	Interest expense	$	(9	)	$	—		$	(41	)	$	—
Cashless collar contracts	Other income (loss), net	$	—		$	(185	)	$	—		$	547

Fair Value Measurements

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three levels of inputs that may be used to measure fair value; they are as follows:

Level 1 – Observable inputs such as quoted market prices for identical assets and liabilities in active public markets.

Level 2 – Observable inputs other than Level 1 prices based on quoted prices in markets with insufficient volume or infrequent transactions, or valuations in which all significant inputs are observable for substantially the full term of the asset or liability.

Level 3 – Unobservable inputs to the valuation techniques that are significant to the fair value of the asset or liability.

The fair values of ICG's financial assets measured at fair value on a recurring basis were as follows:

		$112,980			$112,980		$112,980			$112,980
	Balance at September 30, 2011			Level 1		Level 2			Level 3
	(in thousands)
Cash equivalents (money market accounts)	$	112,980		$	112,980	$	—		$	—
Hedges of foreign currency risk *		6			—		6			—
Hedges of interest rate risk *		(53	)		—		(53	)		—

	$	112,933		$	112,980	$	(47	)	$	—


	Balance at December 31, 2010			Level 1		Level 2			Level 3
	(in thousands)
Cash equivalents (money market accounts)	$	81,205		$	81,205	$	—		$	—
Hedges of interest rate risk *		(12	)		—		(12	)		—

	$	81,193		$	81,205	$	(12	)	$	—

ICG's respective counterparties under these arrangements provide quarterly statements of the market values of the relevant instruments based on significant inputs that are observable or can be derived principally from, or corroborated by, observable market data for substantially the full term of the relevant assets or liabilities.