Subsequent Events

9 Months Ended

Sep. 30, 2011

Subsequent Events [Abstract]

Subsequent Events

18. Subsequent Events

On August 19, 2011, we agreed to sell our wholly owned subsidiary, ALG, to TrueCar in a transaction structured as a tax-free reorganization. In consideration for the sale of ALG, we were to receive a 15.0% equity interest in TrueCar and a warrant to increase our ownership interest to up to 19.9%. In a separate series of transactions, TrueCar completed a new equity financing raise with other investors. To maintain our 15.0% ownership upon the closing of the transaction on October 1, 2011, we made an additional investment in TrueCar in the amount of $7.5 million through cash  remaining on the balance sheet of ALG on the date of sale.
 

TrueCar's business simplifies and clarifies the car buying process for consumers by providing accurate market information which helps buyers make better, more informed decisions.  TrueCar saves consumers time and money by providing price clarity and transparency, while delivering the benefits of higher close rates and vehicle sales to dealers.  TrueCar reaches consumers via two channels – direct and indirect.  The direct channel is a website that provides vehicle pricing transparency to consumers and dealers and the indirect channel is a private-label affinity buying program for major brands.

Based upon our preliminary valuation, the estimated carrying value of the investment in TrueCar is approximately $88.0 million, consisting of $82.5 million representing the fair value of the shares received for ALG (including the additional $7.5 million cash investment) and $5.5 million representing the fair value of the warrant received. This investment will be recorded as a cost method investment.

The warrant will be marked to market over its term. Absent any changes in other fair value inputs, the fair value of the warrant will decrease and expense will be recorded to our consolidated statement of operations over the term of the warrant, which is one year, subject to adjustment.

In addition to the $88.0 million investment in TrueCar, we will record an intangible asset in the amount of $5.6 million which represents the fair value of a perpetual, royalty-free license received from TrueCar for the future use of certain ALG intellectual property and data in our products and services. The data license is being treated as additional consideration received and will be amortized on a straight-line basis over its estimated useful life of five years.

As a result of the sale, we expect to recognize a pre-tax gain of approximately $47.5 million ($28.8 million net of tax), which represents the consideration received of $93.6 million (including $82.5 million representing the fair value of the shares received for ALG, including the additional $7.5 million cash investment, $5.5 million representing the fair value of the warrant received, and $5.6 million representing the fair value of the data license) less the carrying value of the net assets of ALG. The carrying value of the net assets of ALG was $46.1 million, which includes $7.5 million of cash, $1.8 million of property and equipment, $33.1 million of goodwill, $2.5 million of intangible assets and other net assets of $1.2 million.

We have also entered into additional commercial arrangements with TrueCar for its use of certain DealerTrack and Chrome intellectual property and data in its products and services.  In addition, we have the right to appoint a director to TrueCar's board of directors, which we have exercised as of October 1, 2011.

In connection with the sale of ALG to TrueCar, we agreed that if we sell our TrueCar shares (including TrueCar shares purchased through the warrant) within three years after the closing for gross cash proceeds of more than $125.0 million, we will pay to TrueCar the excess over that amount up to a maximum of $7.0 million, subject to certain other limitations.

Revenue from the ALG business amounted to approximately $2.7 million and $7.6 million for the three and nine months ended September 30, 2011, respectively, and approximately $2.0 million and $6.2 million for the three and nine months ended September 30, 2010, respectively.

We expensed approximately $0.8 million and $0.9 million of professional fees associated with the sale in the three and nine months ended September 30, 2011. We expect to expense an additional approximately $1.6 million of professional fees in the fourth quarter of 2011.