UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

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

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

Commission File Number 001-16249

 

INTERNET CAPITAL GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		23-2996071 (I.R.S. Employer Identification Number)
690 Lee Road, Suite 310, Wayne, PA (Address of principal executive offices)		19087 (Zip Code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o

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

The number of shares of the Company’s Common Stock, $0.001 par value per share, outstanding as of May 2, 2011 was 37,085,074 shares.

 

 

INTERNET CAPITAL GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q

INDEX

ITEM		PAGE NO.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets—March 31, 2011 (unaudited) and December 31, 2010			5
Consolidated Statements of Operations (unaudited)—Three Months Ended March 31, 2011 and 2010			6
Consolidated Statements of Changes in Equity (unaudited)—Three Months Ended March 31, 2011 and 2010			7
Consolidated Statements of Cash Flows (unaudited)—Three Months Ended March 31, 2011 and 2010			8
Notes to Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3. Quantitative and Qualitative Disclosures About Market Risk			39
Item 4. Controls and Procedures			40
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			41
Item 1A. Risk Factors			42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 3. Defaults Upon Senior Securities			43
Item 4. (Removed and Reserved)			43
Item 5. Other Information			43
Item 6. Exhibits			44
Signatures			45
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Our Internet website address is www.icg.com. Unless this Quarterly Report on Form 10-Q (this “Report”) explicitly states otherwise, neither the information on our website, nor the information on the website of any of the companies in which we hold convertible debt or equity ownership interests (these companies are hereinafter referred to as “our companies” or “ICG’s companies”), is incorporated by reference into this Report.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed by us with the U.S. Securities and Exchange Commission (the “SEC”) pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are accessible free of charge through our website as soon as reasonably practicable after we electronically file those documents with, or otherwise furnish them to, the SEC.

The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Forward-Looking Statements

Forward-looking statements made with respect to our financial condition, results of operations and business in this Report, and those made from time to time by us through our senior management, are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our current expectations and projections about future events but are subject to known and unknown risks, uncertainties and assumptions about us and our companies that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.

Factors that could cause our actual results, levels of activity, performance or achievements to differ materially from those anticipated in forward-looking statements include, but are not limited to:

•

economic conditions generally;

•

capital spending by our companies’ customers;

•

our companies’ collective ability to compete successfully against their respective competitors;

•

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

•

our and our companies’ collective ability to retain key personnel;

•

our ability to deploy capital effectively and on acceptable terms;

•

our ability to successfully integrate any acquired businesses, and any other difficulties related to the acquisition of businesses;

•

the impact of any potential acquisitions, dispositions or other strategic transactions, which may impact our operations, financial condition, capitalization or indebtedness;

•

our ability to maximize value in connection with divestitures; and

•

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

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue” or the negative of such terms or other similar expressions. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this Report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Report might not occur. For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010, as well as other reports and registration statements filed by us with the SEC.

PART I — FINANCIAL INFORMATION

Our Companies

The results of operations of our companies are reported within two segments: the “core” reporting segment and the “venture” reporting segment. Our core reporting segment includes the companies in which our management takes a very active role in providing strategic direction and management assistance. We own majority controlling equity positions in (and therefore consolidate the financial results of) three of these core companies, which we call our “consolidated core companies.” We generally own substantial minority equity positions (i.e., the largest equity positions) in our other core companies, which we call our “equity core companies.” We expect to devote relatively large initial amounts of capital to acquire stakes in core companies, particularly consolidated core companies, since any such acquisition would entail the deployment of cash and/or the issuance of ICG stock to purchase a large equity stake in a target with relatively strong financial characteristics and growth potential.

Our venture reporting segment includes companies (our “venture companies”) to which we generally devote less capital than we do to our core companies and, therefore, in which we hold relatively smaller ownership stakes than we do in our core companies. As a result, we generally have less influence over the strategic direction and management decisions of our venture companies than we do over those of our core companies.

At March 31, 2011, our consolidated core companies consisted of:

GovDelivery Holdings, Inc. (“GovDelivery”)

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

ICG Commerce Holdings, Inc. (“ICG Commerce”)

ICG Commerce is a procurement services provider delivering total procurement cost savings through a combination of deep expertise and hosted technology. ICG Commerce provides a comprehensive range of solutions to help companies identify savings through sourcing, realize savings through implementation of purchase-to-pay automation and drive continuous improvements through ongoing category management.

Investor Force Holdings, Inc. (“InvestorForce”)

InvestorForce is a financial software company specializing in the development of online applications for the financial services industry. InvestorForce provides pension consultants and other financial intermediaries with a Web-based enterprise platform that integrates data management with robust analytic and reporting capabilities in support of their institutional and other clients. InvestorForce’s applications provide investment consultants with the ability to conduct real-time analysis and research into client, manager and market movement and to produce timely, automated client reports.

At March 31, 2011, our equity core companies consisted of:

Channel Intelligence, Inc. (“Channel Intelligence”)

Channel Intelligence is a data solutions company that provides innovative suites of services for manufacturers, retailers and publishers that help consumers work with retailers to find and buy products, whether they start at retailer sites, manufacturer sites or destination shopping sites, through the use of Channel Intelligence’s patented optimization technology and data solutions.

Freeborders, Inc. (“Freeborders”)

Freeborders is a provider of technology solutions and outsourcing from China. Freeborders provides industry expertise to North American and European companies specializing in financial services, technology, retail/consumer goods, manufacturing and transportation and logistics. Freeborders’ offerings help companies seeking cost-effective technology solutions.

StarCite, Inc. (“StarCite”)

StarCite provides a comprehensive suite of software applications and services to the meeting and events industry, driving efficiencies and cost savings to both corporate buyers and suppliers. Corporate, association and third-party meeting buyers rely on StarCite’s enterprise meeting solutions for workflow, procurement, supply chain management, spend analysis and attendee management. Thousands of industry suppliers rely on the StarCite online marketplace, supplier marketing programs and enabling technologies to increase meeting revenues. StarCite’s international division represents destination management companies and other premier international travel suppliers.

WhiteFence, Inc. (“WhiteFence”)

WhiteFence is a Web services provider used by household consumers to compare and purchase essential home services, such as electricity, natural gas, telephone and cable/satellite television. WhiteFence reaches customers directly through company-owned websites and through its network of exclusive channel partners that integrate the Web services applications into their own business processes and websites.

At March 31, 2011, our venture companies consisted of:

Acquirgy, Inc. (“Acquirgy”)

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

ClickEquations, Inc. (“ClickEquations”)

ClickEquations is a software-based search marketing company that improves paid and organic search campaign performance for its clients, which include Internet Retailer 500 and Fortune 100 companies. Its proprietary technology uses advanced mathematics and statistical analysis to optimize campaigns across the entire search chain and deliver improved campaign efficiency and performance.

GoIndustry-DoveBid plc (“GoIndustry”) (LSE.AIM:GOI)

GoIndustry is a leader in auction sales and valuations of used industrial machinery and equipment. GoIndustry combines traditional asset sales experience with innovative e-commerce technology and advanced direct marketing to service the needs of multi-national corporations, insolvency practitioners, dealers and asset-based lenders around the world.

SeaPass Solutions Inc. (“SeaPass”)

SeaPass develops and markets processing solutions that enable insurance carriers, agents and brokers to transmit and receive data in real time by leveraging existing systems to interact automatically. The company’s technology allows access to information in real time, which increases efficiency across all lines of the insurance business.

Item 1.		Financial Statements

INTERNET CAPITAL GROUP, INC.

		March 31,				December 31,
		2011				2010
		(Unaudited)
		(in thousands, except per share data)
Assets
Current Assets
Cash and cash equivalents		$	133,557			$	92,438
Restricted cash			168				201
Accounts receivable, net of allowance ($719-2011;$716-2010)			27,419				25,832
Deferred tax assets			6,793				4,830
Income tax receivable			—				6,314
Prepaid expenses and other current assets			2,512				2,528
Total current assets			170,449				132,143
Fixed assets, net of accumulated depreciation and amortization ($14,801-2011; $14,009-2010)			6,000				5,991
Ownership interests			53,986				83,829
Goodwill			20,317				20,317
Intangibles, net			13,495				13,832
Deferred tax assets			18,592				22,973
Other assets, net			4,765				1,904
Total Assets		$	287,604			$	280,989
Liabilities
Current Liabilities
Current maturities of long-term debt		$	5,328			$	4,623
Accounts payable			1,875				1,973
Accrued expenses			2,810				2,777
Accrued compensation and benefits			6,227				15,327
Deferred revenue			10,036				10,293
Total current liabilities			26,276				34,993
Long-term debt			13,693				15,458
Deferred revenue			—				60
Other liabilities			808				867
Total Liabilities			40,777				51,378
Redeemable noncontrolling interest (Note 15)			1,229				1,182
Equity
Internet Capital Group, Inc.’s Stockholders’ Equity
Preferred Stock, $0.01 par value; 10,000 shares authorized, none issued or outstanding			—				—
Common Stock, $0.001 par value; 2,000,000 shares authorized, 39,521 shares (2011) and 39,439 shares (2010) issued			40				39
Additional paid-in capital			3,541,462				3,541,044
Treasury Stock, at cost, 2,440 shares (2011) and 2,440 shares (2010)			(12,031	)			(12,031	)
Accumulated deficit			(3,289,409	)			(3,305,299	)
Accumulated other comprehensive income			34				54
Total Internet Capital Group, Inc.’s Stockholders’ Equity			240,096				223,807
Noncontrolling Interest			5,502				4,622
Total Equity			245,598				228,429
Total Liabilities and Equity		$	287,604			$	280,989

See accompanying Notes to Consolidated Financial Statements.

INTERNET CAPITAL GROUP, INC.

		Three Months Ended March 31,
		2011				2010
		(in thousands, except per share data)
Revenues		$	33,954			$	25,755
Operating expenses
Cost of revenue			20,990				16,682
Selling, general and administrative			11,587				10,434
Research and development			3,129				2,424
Amortization of intangible assets			337				339
Impairment related and other			37				72
Total operating expenses			36,080				29,951
Operating income (loss)			(2,126	)			(4,196	)
Other income (loss), net			24,946				40,296
Interest income			84				61
Interest expense			(146	)			(44	)
Income (loss) from continuing operations before income taxes, equity loss and noncontrolling interest			22,758				36,117
Income tax (expense) benefit			(2,940	)			(616	)
Equity loss			(3,576	)			(6,335	)
Income (loss) from continuing operations			16,242				29,166
Income (loss) from discontinued operations			—				(22	)
Net income (loss)			16,242				29,144
Less: Net income attributable to the noncontrolling interest			352				373
Net income (loss) attributable to Internet Capital Group, Inc.		$	15,890			$	28,771
Amounts attributable to Internet Capital Group, Inc.:
Net income (loss) from continuing operations		$	15,890			$	28,802
Net income (loss) from discontinued operations			—				(31	)
Net income (loss)		$	15,890			$	28,771
Basic income (loss) per share attributable to Internet Capital Group, Inc.:
Income (loss) from continuing operations		$	0.43			$	0.79
Income (loss) from discontinued operations			—				—
Net income (loss)		$	0.43			$	0.79
Shares used in computation of basic income (loss) per share			36,944				36,305
Diluted income (loss) per share attributable to Internet Capital Group, Inc.:
Income (loss) from continuing operations		$	0.42			$	0.79
Income (loss) from discontinued operations			—				—
Net income (loss)		$	0.42			$	0.79
Shares used in computation of diluted income (loss) per share			37,991				36,346

See accompanying Notes to Consolidated Financial Statements.

INTERNET CAPITAL GROUP, INC.

		Internet Capital Group, Inc. Stockholders’ Equity
																										Accumulated
										Treasury Stock,								Additional								Other				Non-
		Common Stock								at cost								Paid-In				Accumulated				Comprehensive				controlling
		Shares				Amount				Shares				Amount				Capital				Deficit				Income				Interest				Total
																(in thousands)
Balance as of December 31, 2009			38,796			$	39				(2,440	)		$	(12,031	)		$	3,573,347			$	(3,351,888	)		$	71,198			$	21,077			$	301,742
Equity-based compensation related to stock appreciation rights and stock options			—				—				—				—				514				—				—				—				514
Equity-based compensation expense related to deferred stock units			—				—				—				—				46				—				—				—				46
Equity-based compensation expense related to restricted stock			—				—				—				—				38				—				—				—				38
Issuance of deferred stock units to directors			43				—				—				—				50				—				—				—				50
Issuance of restricted stock			25				—				—				—				—				—				—				—				—
Impact of redeemable noncontrolling interest accretion			—				—				—				—				(61	)			—				—				—				(61	)
Impact of subsidiary equity transactions			—				—				—				—				359				—				—				(105	)			254
Noncontrolling owners share of AOCI of consolidated subsidiary			—				—				—				—				—				—				37				(37	)			—
Net unrealized depreciation in marketable securities and reclassification adjustments			—				—				—				—				—				—				(37,717	)			—				(37,717	)
Net income (loss)			—				—				—				—				—				28,771				—				400				29,171
Balance as of March 31, 2010			38,864			$	39				(2,440	)		$	(12,031	)		$	3,574,293			$	(3,323,117	)		$	33,518			$	21,335			$	294,037
Balance as of December 31, 2010			39,439			$	39				(2,440	)		$	(12,031	)		$	3,541,044			$	(3,305,299	)		$	54			$	4,622			$	228,429
Equity-based compensation related to stock appreciation rights and stock options			—				—				—				—				508				—				—				—				508
Equity-based compensation expense related to deferred stock units			—				—				—				—				85				—				—				—				85
Equity-based compensation expense related to restricted stock			—				—				—				—				35				—				—				—				35
Issuance of deferred stock units to directors			63				—				—				—				49				—				—				—				49
Exercise of stock appreciation rights and stock options, net of surrenders			19				1				—				—				(133	)			—				—				—				(132	)
Impact of redeemable noncontrolling interest accretion			—				—				—				—				(101	)			—				—				—				(101	)
Impact of subsidiary equity transactions			—				—				—				—				(25	)			—				—				452				427
Noncontrolling owners share of AOCI of consolidated subsidiary			—				—				—				—				—				—				(20	)			20				—
Net income (loss)			—				—				—				—				—				15,890				—				408				16,298
Balance as of March 31, 2011			39,521			$	40				(2,440	)		$	(12,031	)		$	3,541,462			$	(3,289,409	)		$	34			$	5,502			$	245,598

See accompanying Notes to Consolidated Financial Statements.

INTERNET CAPITAL GROUP, INC.

		Three Months Ended
		March 31,
		2011				2010
		(in thousands)
Operating Activities — continuing operations
Net income (loss)		$	16,242			$	29,144
(Income) loss from discontinued operations			—				22
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization			1,126				890
Impairment related and other			37				72
Equity-based compensation			734				737
Equity loss			3,576				6,335
Other (income) loss			(24,946	)			(40,296	)
Deferred income taxes			2,696				606
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable, net			(1,673	)			(774	)
Tax receivable			6,314				—
Prepaid expenses and other assets			(186	)			(52	)
Accounts payable			(4	)			66
Accrued expenses			150				324
Accrued compensation and benefits			(9,100	)			(7,980	)
Deferred revenue			(293	)			402
Other liabilities			(59	)			94
Cash flows provided by (used in) operating activities			(5,386	)			(10,410	)
Investing Activities — continuing operations
Capital expenditures, net			(777	)			(1,134	)
Advanced deposits for acquisition of fixed assets			31				—
Change in restricted cash			37				(24	)
Proceeds from sales of marketable securities			—				41,027
Proceeds from sales of ownership interests			51,347				102
Ownership acquisitions			(3,026	)			—
Cash flows provided by (used in) investing activities			47,612				39,971
Financing Activities — continuing operations
Long-term debt and capital lease obligations, net			(1,053	)			(277	)
Tax withholdings related to equity-based awards			(134	)			—
Cash received for stock option exercises			2				—
Other financing activities			(16	)			14
Cash flows provided by (used in) financing activities			(1,201	)			(263	)
Effect of exchange rates on cash			94				(115	)
Discontinued Operations
Cash flows provided by (used in) operating activities			—				55
Cash flows provided by (used in) investing activities			—				(3	)
Cash flows provided by (used in) financing activities			—				—
Net increase (decrease) in cash and cash equivalents from discontinued operations			—				52
Net increase (decrease) in cash and cash equivalents			41,119				29,235
Cash and cash equivalents at beginning of period			92,438				55,481
Cash and cash equivalents at the end of period		$	133,557			$	84,716

See accompanying Notes to Consolidated Financial Statements.

INTERNET CAPITAL GROUP, INC.

1. The Company

Description of the Company

Internet Capital Group, Inc. (together with its subsidiaries, “ICG”) acquires and builds SaaS and technology-enabled business process outsourcing (BPO) companies that improve the productivity and efficiency of their business customers. Founded in 1996, ICG devotes its expertise and capital to maximizing the success of these companies.

2. Significant Accounting Policies

Basis of Presentation

The Consolidated Financial Statements contained herein (the “Consolidated Financial Statements”) include the accounts of Internet Capital Group, Inc. and its wholly-owned and wholly-controlled subsidiaries. The Consolidated Financial Statements also include the financial position and results of operations of Internet Capital Group, Inc.’s majority-owned subsidiaries. The Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010 include the financial position of GovDelivery, ICG Commerce and InvestorForce. The Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010 include the results of GovDelivery, ICG Commerce and InvestorForce. The Consolidated Financial Statements are unaudited and, in the opinion of management, include all adjustments consisting only of normal and recurring adjustments necessary for a fair presentation of the results for these interim periods. The Consolidated Financial Statements should be read in connection with the consolidated financial statements and notes thereto included in ICG’s Annual Report on Form 10-K for the year ended December 31, 2010. Results of operations for the three-month period ended March 31, 2011 are not necessarily indicative of the results of operations expected for the full year.

Principles of Accounting for Ownership Interests

The various interests that ICG acquires in its companies are accounted for using one of three methods: the consolidation method, the equity method and the cost method. The applicable accounting method is generally determined based on 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. Under this method, a subsidiary’s balance sheet and results of operations are reflected within ICG’s Consolidated Financial Statements, and all significant intercompany accounts and transactions have been eliminated. Participation of other stockholders in the net assets and in the earnings or losses of a consolidated subsidiary is reflected in the caption “Noncontrolling Interest” in ICG’s Consolidated Balance Sheets and 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. The results of operations and cash flows of a consolidated subsidiary are generally included through the latest interim period in which ICG owned a greater than 50% direct or indirect voting interest for the entire interim period or otherwise exercised control over the company. Upon a reduction of ICG’s ownership interest to below 50% of the outstanding voting securities, the accounting method is generally adjusted to the equity or cost method of accounting, as appropriate, for subsequent periods.

Equity-based compensation activity at ICG’s consolidated subsidiaries may result in changes to ICG’s equity ownership of these companies. This activity typically results in adjustments to ICG’s carrying value of the relevant consolidated company and ICG’s additional paid-in capital. Any such activity is included in the line item, “Impact of subsidiary equity transactions” in ICG’s Consolidated Statements of Changes in Equity in the relevant period.

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Significant Accounting Policies — (Continued)

Equity Method. Companies that are not consolidated, but over which ICG exercises significant influence, are accounted for under the equity method of accounting (“equity method companies”). Whether or not ICG exercises significant influence with respect to a company depends on an evaluation of several factors, including, among others, representation on the 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. Under the equity method of accounting, a company’s accounts are not reflected in ICG’s Consolidated Balance Sheets and Statements of Operations. ICG’s share of the earnings or losses of the company, as well as any adjustments resulting from prior period finalizations of equity income/losses, are reflected in the caption “Equity loss” in ICG’s Consolidated Statements of Operations. For the three months ended March 31, 2011, those prior period finalizations are not material. The carrying values of ICG’s equity method companies are reflected in “Ownership interests” in ICG’s Consolidated Balance Sheets.

When ICG’s carrying value in an equity method company is reduced to zero, no further losses are recorded in ICG’s Consolidated Financial Statements, unless ICG has guaranteed obligations of the equity method company or has committed to additional funding. When the equity method company subsequently reports income, ICG will not record its share of such income until it equals the amount of its share of losses not previously recognized.

Cost Method. Companies not accounted for under either the consolidation method or equity method of accounting are accounted for under the cost method of accounting (“cost method companies”). ICG’s share of the earnings or losses of cost method companies is not included in ICG’s Consolidated Balance Sheets or Consolidated Statements of Operations. However, impairment charges related to cost method companies are recognized in ICG’s Consolidated Statements of Operations. If circumstances suggest that the value of a cost method company has subsequently recovered, such recovery is not recorded.

When a cost method company qualifies for use of the equity method, ICG’s interest is adjusted retroactively for its share of the past results of its operations. Therefore, prior losses could significantly decrease ICG’s carrying value balance at the time of any such retroactive adjustment.

ICG initially records its carrying value in companies accounted for under the cost method at cost, unless the equity securities of a cost method company have readily determinable fair values based on quoted market prices, in which case these interests are valued at fair value and classified as marketable securities or some other classification in accordance with guidance for ownership interests in debt and equity securities.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. These estimates include evaluation of ICG’s convertible debt and equity holdings in companies, holdings in marketable securities, asset impairment, revenue recognition, income taxes and commitments and contingencies. These estimates and assumptions are based on 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 such estimates and assumptions when facts and circumstances dictate. Volatile equity markets and reductions in information technology spending have combined to increase the uncertainty inherent in such estimates and assumptions. It is reasonably possible that 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 life 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 other assets are not impaired at March 31, 2011.

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Significant Accounting Policies — (Continued)

Ownership Interests, Goodwill, Intangibles, net and Other Assets, net

ICG evaluates its carrying value in companies accounted for under the equity and cost methods of accounting continuously to determine whether an other than temporary decline in the fair value of any such company exists and should be recognized. In order to make this determination, ICG considers the achievement of business plan objectives and milestones, the fair value of each ownership interest in those companies (which, in the case of any company listed on a public stock exchange, is the quoted stock price of the relevant ownership interest), the financial condition and prospects of each of those companies, and other relevant factors. The business plan objectives and milestones ICG considers include, among others, those related to financial performance, such as achievement of planned financial results or completion of capital raising activities, and those that are not primarily financial in nature, such as obtaining key business partnerships or the hiring of key employees. Impairment charges are determined by comparing 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 as of March 31, 2011. During the three months ended March 31, 2010, ICG recorded an impairment charge in the amount of $2.9 million related to a decline in the fair value of its equity holdings in GoIndustry that ICG believed was other than temporary. See Note 5, “Ownership Interests.”

ICG tests goodwill for impairment annually during the fourth quarter of each year, or more frequently as conditions warrant, and intangible assets when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. ICG concluded that its goodwill and net intangible assets were not impaired as of March 31, 2011 or December 31, 2010. See Note 3, “Goodwill and Intangibles, net.”

Revenue Recognition

During the three months ended March 31, 2011 and 2010, ICG’s consolidated revenues were attributable to ICG Commerce, GovDelivery and InvestorForce.

ICG Commerce generates revenue from strategic sourcing and procurement outsourcing services. Procurement outsourcing services generally include a combination of services and technology designed to help companies achieve unit cost savings and process efficiencies. ICG Commerce earns fees for implementation services, start-up services, content and category management (which may include sourcing as described below), hosting fees, buying center management fees, and certain transaction fees. ICG Commerce estimates the total contract value under these arrangements and generally recognizes revenue under these arrangements, excluding transaction fees and gain-share fees, on a straight-line basis over the term of the contract, which approximates the life of the customer relationship. Additionally, performance-based fees are deferred until the contingency is achieved or it is determined from existing data and past experience that the savings will be achieved and then generally recognized on a straight-line basis over the life of the contract, which approximates the life of the customer relationship. Sourcing programs are engagements in which ICG Commerce negotiates prices from certain suppliers on behalf of its customers in certain categories in which ICG Commerce has sourcing expertise. Under sourcing programs, either the customer pays a fixed fee or a gain-share amount for use of the negotiated rates. In fixed-fee sourcing arrangements, revenue is recognized on a proportional performance basis, provided that there is no uncertainty as to ICG Commerce’s ability to fulfill its obligations under the contract or other services that are to be rendered under the contract.

GovDelivery revenues generally consist of nonrefundable setup fees and monthly maintenance and hosting fees. These fees are deferred and recognized as the services are performed, which is typically over the service term. Costs related to performing setup services are expensed as incurred.

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Significant Accounting Policies — (Continued)

InvestorForce generates revenue from license fees earned in connection with hosted services, setup fees and support and maintenance fees, as well as from professional services. Hosted services primarily consist of data aggregation, performance calculation, real-time analysis and automated production of performance reports for the institutional investment community. Generally, InvestorForce charges its clients minimum quarterly base fees for hosted services. These minimum fees are recognized on a pro rata basis over the service term. As the volume of client accounts increases, additional fees apply. These additional fees are recognized in the period in which account volumes exceed the contract minimum. Setup and support and maintenance fees are deferred and recognized ratably over the service term. Revenue for professional services, which consist of the creation of custom platform enhancements, is recognized when the platform is delivered to, and can be used by, the customer.

Concentration of Customer Base and Credit Risk

For the three months ended March 31, 2011, one customer of ICG Commerce represented approximately 10% of ICG’s consolidated revenue. For the three months ended March 31, 2010, two customers of ICG Commerce represented approximately 11% and 12%, respectively, of ICG’s consolidated revenue.

Reclassifications

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

Recent Accounting Pronouncements

In December 2010, the FASB issued accounting guidance related to the two-step approach for impairment testing of reporting units with zero or negative carrying amounts. This guidance requires companies to consider adverse qualitative factors, in addition to quantitative factors, in its assessment of whether the carrying amount of a reporting unit exceeds its fair value if it is more likely than not that a goodwill impairment exists for a reporting unit with a zero or negative carrying amount, and to determine whether goodwill has been impaired and calculate the amount of that impairment. This guidance is effective for ICG beginning on January 1, 2011 and did not impact the Consolidated Financial Statements.

In December 2010, the FASB issued accounting guidance related to reporting pro forma information for business combinations in the footnotes of a company’s financial statements, and requires that entities presenting comparative financial statements should disclose pro forma revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period and carry forward any related adjustments through the current reporting period. This guidance also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination(s) included in the reported pro forma revenue and earnings. This guidance is effective for ICG beginning on January 1, 2011 and will be applied to any acquisitions that occur on or after that date. This guidance did not impact the Consolidated Financial Statements.

In October 2009, the FASB issued accounting guidance related to revenue recognition for transactions with multiple deliverables, which impacts the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. This guidance became effective for ICG beginning on January 1, 2011 and did not impact the Consolidated Financial Statements.

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Significant Accounting Policies — (Continued)

In October 2009, the FASB issued accounting guidance related to certain revenue arrangements that include software elements, which amends the scope of pre-existing software revenue guidance. This guidance became effective for ICG beginning on January 1, 2011 and did not impact the Consolidated Financial Statements.

3. Goodwill and Intangibles, net

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

Goodwill at December 31, 2010		$	20,317
Activity during the three months ended March 31, 2011			—
Goodwill at March 31, 2011		$	20,317

As of March 31, 2011 and December 31, 2010, all of ICG’s goodwill was allocated to the core segment.

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

						As of March 31, 2011
						Gross Carrying
						Amount Related to				Accumulated				Net Carrying
Intangible Assets		Useful Life				Continuing Operations				Amortization				Amount
Customer relationships		11 years				$	12,759			$	(1,456	)		$	11,303
Trademarks/trade names		11 years					1,320				(150	)			1,170
Technology		10 years					710				(88	)			622
							14,789				(1,694	)			13,095
Other intellectual property		Indefinite					400				—				400
						$	15,189			$	(1,694	)		$	13,495

						As of December 31, 2010
						Gross Carrying
						Amount Related to				Accumulated				Net Carrying
Intangible Assets		Useful Life				Continuing Operations				Amortization				Amount
Customer relationships		11 years				$	12,759			$	(1,166	)		$	11,593
Trademarks/trade names		11 years					1,320				(120	)			1,200
Technology		10 years					710				(71	)			639
							14,789				(1,357	)			13,432
Other intellectual property		Indefinite					400				—				400
						$	15,189			$	(1,357	)		$	13,832

Amortization expense for intangible assets during each of the three months ended March 31, 2011 and 2010 was $0.3 million. ICG amortizes intangibles using the straight line method.

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

2011 (remaining nine months)		$	1,014
2012			1,351
2013			1,351
2014			1,351
2015			1,351
Thereafter			6,677
Remaining amortization expense		$	13,095

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3. Goodwill and Intangibles, net — (Continued)

Impairments

ICG completes its annual impairment testing in the fourth quarter of each year, or more frequently as conditions warrant. There were no impairment charges related to goodwill or intangible assets associated with ICG’s consolidated subsidiaries during the three months ended March 31, 2011 and 2010.

4. Consolidated Core Companies

ICG acquired a combined additional 17% equity ownership interest in ICG Commerce through separate transactions in May and July 2010 for aggregate cash consideration of $49.7 million. Additionally, stock option exercises at ICG Commerce that occurred during 2010 slightly reduced ICG’s equity ownership interest in ICG Commerce. As a result of these transactions, ICG’s equity ownership interest in ICG Commerce increased from 64% as of March 31, 2010 to 80% as of March 31, 2011.

On August 31, 2010, GovDelivery completed the sale of its GovDocs subsidiary for aggregate consideration of $1.8 million, which consisted of a combination of cash ($0.7 million), the redemption of shares of GovDelivery’s Series AA Preferred Stock held by the purchaser (valued at $0.8 million) and a secured promissory note (for $0.3 million, which was repaid during the three months ended March 31, 2011). As a result of GovDelivery’s redemption of shares of its Series AA Preferred Stock in connection with the sale of GovDocs, ICG’s equity ownership interest in GovDelivery increased from 89% as of March 31, 2010 to 93% as of March 31, 2011.

The revenue and operating activities of GovDocs resulting in net income of $0.1 million have been removed from the line items in which they were reported in 2010 and the resulting net income is included in “Income (loss) from discontinued operations” on ICG’s Consolidated Statements of Operations for the three months ended March 31, 2010. To the extent it related to GovDocs, amortization expense associated with intangible assets and purchase price adjustments related to deferred revenue of $0.1 million have also been reclassified and are included in “Income (loss) from discontinued operations” on ICG’s Consolidated Statements of Operations for the three months ended March 31, 2010.

Restricted stock awards granted and stock repurchases at InvestorForce during 2010 reduced ICG’s equity ownership interest in InvestorForce from 80% as of March 31, 2010 to 78% as of March 31, 2011.

Revenue, net income (loss) attributable to Internet Capital Group, Inc. and net income (loss) per diluted share attributable to Internet Capital Group, Inc. would have been $25.8 million, $29.0 million and $0.80 per share, respectively, for the three months ended March 31, 2010, had ICG owned 80%, 93% and 78% of ICG Commerce, GovDelivery (excluding GovDocs), and InvestorForce, respectively, during that period.

5. Ownership Interests

Equity Method Companies

The following unaudited summarized financial information relates to ICG’s core and venture companies accounted for under the equity method of accounting as of March 31, 2011 and December 31, 2010, and for the three months ended March 31, 2011 and 2010, and has been compiled from the financial statements of those core and venture companies.

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Ownership Interests — (Continued)

Balance Sheets (Unaudited)

		March 31, 2011 (1)				December 31, 2010 (2)
		(in thousands)
Cash and cash equivalents		$	30,102			$	53,895
Other current assets			37,431				62,145
Non-current assets			102,953				148,257
Total assets		$	170,486			$	264,297
Current liabilities		$	79,719			$	118,260
Non-current liabilities			13,009				14,415
Long-term debt			14,397				16,174
Stockholders’ equity			63,361				115,448
Total liabilities and stockholders’ equity		$	170,486			$	264,297
Total carrying value		$	53,986			$	83,829

As of March 31, 2011, ICG’s aggregate carrying value in its equity method companies exceeded ICG’s share of the net assets of those companies by approximately $33.5 million. Of this excess, $22.7 million has been allocated to goodwill, which is not amortized, and $10.8 million has been allocated to intangibles, which are generally being amortized over three to seven years. As of December 31, 2010, this excess was $47.9 million, $36.5 million of which was allocated to goodwill, and $11.4 million of which was allocated to intangibles. Amortization expense of $0.6 million and $0.7 million associated with these intangibles for the three months ended March 31, 2011 and 2010, respectively, is included in the table below in the line item “Amortization of intangible assets” and is included in “Equity loss” on ICG’s Consolidated Statements of Operations.

Results of Operations (Unaudited)

		Three Months Ended March 31,
		2011 (1)				2010 (2)
		(in thousands)
Revenue		$	50,141			$	56,574
Net income (loss)		$	(9,824	)		$	(8,659	)
Equity income (loss) excluding impairments and amortization of intangible assets		$	(2,990	)		$	(2,714	)
Impairment charge of GoIndustry			—				(2,914	)
Amortization of intangible assets			(586	)			(707	)
Total equity income (loss)		$	(3,576	)		$	(6,335	)

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Ownership Interests — (Continued)

Impairments — Equity Companies

ICG performs ongoing business reviews of its equity and cost method companies to determine whether ICG’s carrying value in these companies is impaired. ICG determined its carrying value in its equity and cost method companies was not impaired during the three months ended March 31, 2011. During the three months ended March 31, 2010, ICG recorded impairment charges of $2.9 million to reduce its basis in GoIndustry as a result of declines in the fair value of ICG’s equity holdings in that equity method venture company during the relative period. The carrying value of ICG’s ownership interest in GoIndustry was $1.5 million and $2.3 million as of March 31, 2011 and December 31, 2010, respectively. The fair value of ICG’s equity holdings in GoIndustry was $5.4 million and $3.5 million as of March 31, 2011 and December 31, 2010, based upon the per share closing price for GoIndustry’s common stock on those respective dates.

Other Equity Company Information

On February 17, 2011, the sale of Metastorm, an equity core company, to Open Text Corporation was consummated. ICG’s portion of the proceeds was $53.0 million; $51.3 million of these proceeds were received at closing on February 17, 2011. The remainder was placed in escrow in connection with a customary indemnification holdback. As a result of this transaction, ICG recorded a gain of $24.9 million during the three months ended March 31, 2011 that is included in “Other income (loss)” on ICG’s Consolidated Statements of Operations. ICG will record a gain in the amount of the escrowed proceeds received, if any, in the period in which ICG is entitled to receive such proceeds, the amount is fixed or determinable and realization is assured.

Other

ICG’s carrying value of its holdings in cost method companies was $4.2 million and $1.3 million as of March 31, 2011 and December 31, 2010, respectively. These amounts are reflected in “Other assets, net” on ICG’s Consolidated Balance Sheets in the relevant period.

ICG owns approximately 9% of Anthem Ventures Fund, L.P. (formerly eColony, Inc.) and Anthem Ventures Annex Fund, L.P. (collectively, “Anthem”), which invest in technology companies. Anthem was acquired by ICG in 2000. ICG currently has no carrying value in Anthem. Accordingly, the receipt of distributions from Anthem, if any, by ICG would result in a gain at the time ICG receives those distributions.

During the three months ended March 31, 2010, ICG also held shares of ICE common stock; all of these shares were both obtained and sold during that three-month period. See Note 11, “Other Income (Loss).”

Escrow Information

As of March 31, 2011, ICG had 13,069 outstanding shares of Intercontinental Exchange, Inc. (“ICE”) common stock remaining in escrow; the stock was valued at $1.6 million based on the March 31, 2011 closing stock price of ICE’s common stock. Additionally, ICG had outstanding aggregate cash proceeds, subject to ongoing indemnity claims, of $2.8 million associated with escrowed proceeds from sales of former equity method companies, including escrowed proceeds related to the Metastorm sale. The release of additional escrowed proceeds, if any, to ICG would result in additional gains at the time ICG is entitled to such proceeds, the amount is fixed or determinable and realization is assured, which events are anticipated to occur at various times between May 2011 and August 2012.

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6. Financial Instruments

Derivative Financial Instruments

During the three months ended March 31, 2011 and 2010, ICG Commerce utilized average rate currency options with quarterly expirations to mitigate the risk of currency fluctuations at ICG 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 period. This instrument is set to mature in 2015. See Note 7, “Debt.”

From February 2006 to July 2010, ICG managed its exposure to and benefits from price fluctuations of Blackboard common stock through the use of cashless collar contracts. Although these instruments were derivative securities, their economic risks were similar to, and managed on the same basis as, the risks associated with the Blackboard common stock held by ICG. The cashless collar contracts were marked to market through earnings each period, which impact is detailed in the below table. The income or loss was primarily driven by the change in the closing price of Blackboard common stock from the beginning of the quarter to the end of the quarter. The mark-to-market impact was generally expense if Blackboard’s stock price rose, or income if Blackboard’s stock price declined, during the relevant quarter. During the three months ended March 31, 2010, ICG terminated two cashless collar contracts underlying a total of 250,000 shares of Blackboard common stock, and two other cashless collar contracts underlying a total of 375,000 shares of Blackboard common stock expired. There were no cashless collar contracts outstanding as of March 31, 2011 or December 31, 2010.

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

Consolidated Balance Sheets
				March 31,				December 31,
Derivative		Classification		2011				2010
				(in thousands)
Average rate currency options		Other assets, net		$	47			$	—
Interest rate swap		Other assets, net (Accrued expenses)		$	11			$	(12	)

The following table presents the mark-to-market impact on earnings resulting from ICG’s hedging activities for the three months ended March 31, 2011 and 2010:

Consolidated Statements of Operations
				Three months ended March 31,
Derivatives		Classification		2011				2010
				(in thousands)
Average rate currency options		Other income (loss), net		$	(148	)		$	(48	)
Interest rate swap		Interest income		$	23			$	—
Cashless collar contracts		Other income (loss), net		$	—			$	702

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6. Financial Instruments — (Continued)

Fair Value Measurements

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

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

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

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

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

		Balance at
		March 31,
		2011				Level 1				Level 2				Level 3
		(in thousands)
Cash equivalents (money market accounts)		$	127,710			$	127,710			$	—			$	—
Hedges of foreign currency risk *			47				—				47				—
Hedges of interest rate risk *			11				—				11				—
		$	127,768			$	127,710			$	58			$	—

		Balance at
		December 31,
		2010				Level 1				Level 2				Level 3
		(in thousands)
Cash equivalents (money market accounts)		$	81,205			$	81,205			$	—			$	—
Hedges of interest rate risk *			(12	)			—				(12	)			—
		$	81,193			$	81,205			$	(12	)		$	—

7. Debt

Long-Term Debt

ICG’s consolidated long-term debt of $19.0 million and $20.1 million as of March 31, 2011 and December 31, 2010, respectively, related to its consolidated core companies and primarily consisted of a term loan at ICG Commerce. The current maturities of long-term debt in the table below are due within one year, and the remaining long-term debt at March 31, 2011 is due at various times through 2015.

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. Debt — (Continued)

						As of
						March 31,				December 31,
		Interest Rates					2011				2010
						(in thousands)
ICG Commerce term loan			2.01-3.34	%		$	17,667			$	18,667
Capital leases			2.25-12.98	%			289				503
Other debt			8.25-10.27	%			1,065				911
							19,021				20,081
Current maturities							(5,328	)			(4,623	)
Long-term debt						$	13,693			$	15,458

Subsequent to March 31, 2011, GovDelivery repaid its term loan, of which $1.0 million was outstanding as of March 31, 2011. Accordingly, this amount has been reflected in current maturities of long-term debt as of March 31, 2011.

Loan and Credit Agreements

On August 3, 2010, ICG Commerce and a number of its wholly-owned subsidiaries entered into a loan agreement with PNC Bank pursuant to which the company was able to borrow up to $15.0 million under a revolving line of credit. The line of credit matures on August 2, 2013, and provides for the issuance by the bank of up to $5.0 million of letters of credit, subject to specified fees and other terms. The line of credit is also subject to a 0.25% per annum unused commitment fee that is payable to the bank quarterly. Also on August 3, 2010, ICG Commerce and the other borrowing companies under the line of credit borrowed $20.0 million under a term loan with PNC Bank. The proceeds from the term loan were used to fund a cash dividend paid to certain stockholders of ICG Commerce, including ICG, on August 4, 2010. ICG Commerce paid a nonrefundable $0.2 million commitment fee to PNC Bank upon the consummation of the new line of credit and term loan.

Both the line of credit and the term loan are secured by a first priority lien on the assets of the borrowing companies. The term loan and the line of credit both bear interest at either a base rate equal to the highest of PNC Bank’s prime rate, the sum of the Federal Funds Open Rates plus 0.5% and the sum of the daily LIBOR rate plus 1.0%, or a daily to six month LIBOR rate plus a margin ranging from 1.75% to 2.5% depending on the then-current debt-to-EBITDA ratio of the borrowing companies, at ICG Commerce’s option. On August 6, 2010, ICG Commerce entered into an interest rate swap hedge agreement whereby 50% of the term loan was effectively converted to a fixed interest rate by the hedge agreement. The fixed rate stipulated by the hedge agreement is 1.34%. ICG Commerce will still be required to pay the aforementioned interest rate margin on this portion of the term loan, which would result in a final interest rate of between 3.09% and 3.84%. The termination date of the hedge agreement is August 1, 2015. ICG Commerce has the right, but not the obligation, to terminate the hedge agreement, without cause and without penalty, on August 1, 2012.

At March 31, 2011, the effective interest rate being paid by ICG Commerce under the term loan, including the applicable margin, was 2.01% for the portion of the loan tied to a floating LIBOR rate and 3.09% for the portion of the loan covered by the interest rate swap hedge agreement. Any outstanding principal and interest under the line of credit will become due and payable periodically through August 2, 2013. The principal under the term loan is payable in $0.3 million monthly installments through August 1, 2015, and any outstanding interest under the term loan will become due and payable periodically through August 1, 2015. Both the line of credit and the term loan are subject to a number of financial and other covenants that are specified in the loan documents. There were no amounts outstanding under the PNC Bank line of credit agreement as of March 31, 2011 or December 31, 2010.

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. Debt — (Continued)

On December 18, 2009, ICG entered into an amended and restated letter of credit agreement with Comerica Bank (the “LC Agreement”) that provides for the issuance of letters of credit of up to $10.0 million, subject to a cash-secured borrowing base as defined by the LC Agreement. On December 17, 2010, the LC Agreement was extended to December 16, 2011. Under the LC Agreement, ICG will pay Comerica Bank issuance fees of 0.50% per annum of the outstanding face amount of each issued letter of credit. The LC Agreement is also subject to a 0.25% per annum unused commitment fee payable to the bank on a quarterly basis. No amounts were outstanding under the LC Agreement at March 31, 2011 or December 31, 2010.

8. Segment Information

ICG has two reporting segments: the “core” segment and the “venture” segment. Companies in which ICG holds convertible debt or equity interests that are not deemed to be marketable securities are included in either the core or venture segment, while companies in which ICG holds equity interests that have been designated as marketable securities are considered “corporate” assets. At March 31, 2011, the core segment includes the results of ICG’s consolidated core companies, records ICG’s share of earnings and losses of its equity core companies and captures ICG’s carrying value in its consolidated core companies and equity core companies. At March 31, 2011, the venture segment records ICG’s share of earnings and losses of venture companies accounted for under the equity method of accounting and captures ICG’s carrying value in its venture companies.

The core reporting segment includes companies in which ICG’s management takes a very active role in providing strategic direction and management assistance. ICG owns majority controlling equity positions or substantial minority equity positions (i.e., the largest equity positions) in these companies. ICG expects to devote relatively large initial amounts of capital to acquire stakes in core companies, particularly consolidated core companies, since any such acquisition would entail the deployment of cash and/or the issuance of ICG stock to purchase a large equity stake in a target with relatively strong financial characteristics and growth potential. The venture reporting segment includes companies to which ICG generally devotes less capital, holds relatively smaller ownership stakes and generally has less influence over the strategic directions and management decisions than core companies.

Approximately 7% and 8% of ICG’s consolidated revenues for the three months ended March 31, 2011 and 2010, respectively, relates to sales generated in the United Kingdom primarily by ICG Commerce. The remaining consolidated revenues for the three months ended March 31, 2011 and 2010 primarily relate to sales generated in the United States. As of March 31, 2011 and December 31, 2010, ICG’s assets were located primarily in the United States.

On February 17, 2011, the sale of Metastorm was consummated. Metastorm had been an equity core company, and ICG’s portion of Metastorm’s net results was included in ICG’s core segment. Following the sale of Metastorm, the amount of equity loss related to Metastorm has been removed from the core segment and reflected in “Dispositions” in the table below. In addition, ICG’s basis in Metastorm has been removed from core segment assets and reflected in “Dispositions” as of December 31, 2010 in the table below. Also included in “Dispositions” in the table below are the net results, including intangible asset amortization and purchase price adjustments, of GovDelivery’s GovDocs subsidiary, which was sold during 2010.

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8. Segment Information — (Continued)

The following presentation summarizes selected information related to ICG’s segments for the periods indicated. All significant intersegment activity has been eliminated. Assets are owned or allocated assets used by each reporting segment.

Segment Information
(in thousands)
Three Months Ended										Total				Reconciling Items												Consolidated
March 31, 2011		Core				Venture				Segment				Dispositions				Corporate				Other(1)				Results
Revenues		$	33,954			$	—			$	33,954			$	—			$	—			$	—			$	33,954
Net income (loss) attributable to Internet Capital Group, Inc.		$	617			$	(1,680	)		$	(1,063	)		$	(335	)		$	(4,565	)		$	21,853			$	15,890
Three Months Ended March 31, 2010
Revenues		$	25,755			$	—			$	25,755			$	—			$	—			$	—			$	25,755
Net income (loss) attributable to Internet Capital Group, Inc.		$	(2,263	)		$	(1,179	)		$	(3,442	)		$	(667	)		$	(4,472	)		$	37,352			$	28,771

		Three Months Ended March 31,
		2011				2010
Corporate other income (loss) (Note 11)		$	24,864			$	40,639
Noncontrolling interest			(352	)			(373	)
Impairment of GoIndustry (Venture) (Note 5)			—				(2,914	)
Income tax benefit (expense)			(2,659	)			—
		$	21,853			$	37,352

										Total																Consolidated
		Core				Venture				Segment				Dispositions				Corporate				Other				Results
Assets as of:
March 31, 2011		$	148,948			$	13,709			$	162,657			$	—			$	124,947			$	—			$	287,604
Assets as of:
December 31, 2010		$	157,273			$	15,149			$	172,422			$	26,829			$	81,738			$	—			$	280,989

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Parent Company Financial Information

Parent company financial information is provided to present the financial position and results of operations of Internet Capital Group, Inc. and its wholly-owned subsidiaries as if the consolidated core companies were accounted for under the equity method of accounting for all applicable periods presented. ICG’s share of the consolidated core companies’ income or loss is included in “Equity loss” in the Parent Company Statements of Operations for all periods presented based on ICG’s ownership percentage in each period. ICG’s carrying value of the consolidated core companies as of March 31, 2011 and December 31, 2010 is included in “Ownership interests” in the Parent Company Balance Sheets set forth below.

Parent Company Balance Sheets

		As of March 31, 2011				As of December 31, 2010
		(unaudited)
		(in thousands)
Assets
Cash and cash equivalents		$	119,720			$	72,915
Income tax receivable			—				6,314
Other current assets			382				526
Current assets			120,102				79,755
Ownership interests			114,461				142,541
Intangible assets			400				400
Other			4,445				1,583
Total assets		$	239,408			$	224,279
Liabilities and stockholders’ equity
Current liabilities		$	2,212			$	4,815
Non-current liabilities			294				294
Stockholders’ equity			236,902				219,170
Total liabilities and stockholders’ equity		$	239,408			$	224,279

Parent Company Statements of Operations (Unaudited)

		Three Months Ended March 31,
		2011				2010
		(in thousands)
Revenues		$	—			$	—
Operating expenses
General and administrative			4,673				4,524
Total operating expenses			4,673				4,524
Operating income (loss)			(4,673	)			(4,524	)
Other income (loss), net			24,864				40,639
Interest income (expense), net			66				52
Income (loss) before income taxes and equity loss			20,257				36,167
Equity loss			(3,088	)			(7,396	)
Income tax benefit (expense)			42				—
Net income (loss)		$	17,211			$	28,771

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Parent Company Financial Information — (Continued)

Parent Company Statements of Cash Flows (Unaudited)

		Three Months Ended March 31,
		2010				2010
		(in thousands)
Operating Activities
Net income (loss)		$	17,211			$	28,771
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization			13				16
Equity-based compensation			628				598
Equity loss			3,088				7,396
Other (income) loss			(24,864	)			(40,639	)
Changes in assets and liabilities, net of effect of acquisitions:
Income tax receivable			6,314				—
Prepaid expenses and other assets			81				109
Accounts payable			26				17
Accrued expenses			123				(8	)
Accrued compensation and benefits			(2,704	)			(1,694	)
Cash provided by (used in) operating activities			(84	)			(5,434	)
Investing Activities
Capital expenditures, net			—				(33	)
Proceeds from sales of marketable securities			—				41,027
Proceeds from sales of ownership interests			51,347				102
Acquisitions of ownership interests			(4,326	)			(350	)
Cash provided by (used in) investing activities			47,021				40,746
Financing Activities
Tax withholdings related to equity-based awards			(134	)			—
Cash received for stock option exercises			2				—
Cash provided by (used in) financing activities			(132	)			—
Net increase (decrease) in cash and cash equivalents			46,805				35,312
Cash and cash equivalents at beginning of period			72,915				29,443
Cash and cash equivalents at end of period		$	119,720			$	64,755

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10. Equity-Based Compensation

Equity-based compensation for each of the three-month periods ended March 31, 2011 and 2010 was $0.7 million. Equity-based compensation for these periods is primarily included in “Selling, general and administrative” on ICG’s Consolidated Statements of Operations. The following table provides additional information related to ICG’s equity-based compensation:

														Weighted Average
										Unrecognized				Years Remaining of
										Equity-Based				Equity-Based
		Three Months Ended March 31,								Compensation at				Compensation Expense
		2011				2010				March 31, 2011				at March 31, 2011
		(in thousands, except weighted average years)
Stock Appreciation Rights		$	508			$	514			$	5,161				2.9
Stock Options			—				—				1				1.7
Restricted Stock			35				38				401				3.2
Deferred Stock Units			85				46				748				0.9
Equity-Based Compensation		$	628			$	598			$	6,311
Equity-Based Compensation for Consolidated Core Companies			106				139				1,372				3.8
Equity-Based Compensation		$	734			$	737			$	7,683

Stock Appreciation Rights (SARs)

Each SAR represents the right of the holder to receive, upon exercise of that SAR, shares of ICG Common Stock equal to the amount by which the fair market value of a share of that Common Stock on the date of exercise of the SAR exceeds the base price of the SAR. The base price is determined by the NASDAQ closing price of ICG’s Common Stock on the date of grant (or the closing price on the next trading day if there are no trades in ICG’s stock on the date of grant). The fair value of each SAR is estimated on the grant date using the Black-Scholes option-pricing model. SARs generally vest over four years, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting equally each month over the next 36 months.

There were no SAR grants during the three months ended March 31, 2011. During the three months ended March 31, 2010, ICG granted 1,381,940 SARs to employees at a weighted-average base price of $6.75 per share and a weighted-average fair value of $4.07 per share. During the three months ended March 31, 2011, 80,869 SARs were exercised, which resulted in the issuance of 18,422 shares of ICG’s Common Stock. There were no SARs exercised in the three months ended March 31, 2010. There were 3,891,016 and 3,971,885 SARs outstanding at March 31, 2011 and December 31, 2010, respectively. The aggregate intrinsic values of the SARs outstanding at March 31, 2011 and December, 31, 2010 were $26.4 million and $27.0 million, respectively.

Stock Options

The fair value of each stock option is estimated on the grant date using the Black-Scholes option-pricing model. Stock options generally vest over four years. There were no stock options granted during the three months ended March 31, 2011 or 2010. During the three months ended March 31, 2011, 300 stock options were exercised. There were no stock options exercised during the three months ended March 31, 2010. During the three months ended March 31, 2011 and 2010, 27,000 and 1,948 stock options expired, respectively. There were 283,869 and 311,169 stock options outstanding as of March 31, 2011 and December 31, 2010, respectively.

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10. Equity-Based Compensation — (Continued)

SARs and Stock Options Fair Value Assumptions

ICG estimates the grant date fair value of SARs and stock options using the Black-Scholes option-pricing model, which requires the input of highly subjective assumptions. These assumptions include estimating the expected life of the award and estimating volatility of ICG’s stock price over the expected term. Expected volatility approximates the historical volatility of ICG’s Common Stock over the period commensurate with the expected term of the award. The expected term calculation is based on an average of the award vest term and the life of the award. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for an instrument with a maturity that is commensurate with the expected term of the award. Changes in these assumptions, the estimated forfeitures and the requisite service period can materially affect the amount of equity-based compensation recognized in ICG’s Consolidated Statements of Operations.

The following assumptions were used to determine the fair value of SARs granted to employees by ICG during the three months ended March 31, 2010:

Expected volatility			60%
Average expected life of SAR (in years)		2.75-6.25 years
Risk-free interest rate			1.55-2.92%
Dividend yield			0.0%

Restricted Stock

There were no restricted stock grants during the three months ended March 31, 2011. During the three months ended March 31, 2010, ICG granted 25,000 shares of restricted stock to one of its employees. This award vests over four years and was valued at $0.2 million on the date of grant. During the three months ended March 31, 2011, 6,250 shares of restricted stock vested. No shares of restricted stock vested during the three months ended March 31, 2010. There were 54,250 and 60,500 restricted stock awards outstanding at March 31, 2011 and December 31, 2010, respectively.

Deferred Stock Units (DSUs)

Each DSU represents a share of Common Stock into which that DSU will be converted upon the termination of the recipient’s service at ICG. During the three months ended March 31, 2011, ICG issued 60,000 DSUs to its non-management directors under the Non-Management Director Compensation Plan (the “Director Plan”); those DSUs will vest in the first quarter of 2012. These DSUs were valued at $0.8 million. During the three months ended March 31, 2010, ICG issued 36,000 DSUs to its non-management directors under the Non-management Director Compensation Plan, of which 31,500 DSUs vested during the three months ended March 31, 2011. Those DSUs were valued at $0.2 million.

ICG issues quarterly compensation payments to each non-management director for his service on the Board of Directors and its committees under the Director Plan. Each director had the right to elect to receive such payments in whole or in part in the form of DSUs in lieu of cash. Each participating director receives DSUs representing shares of ICG’s Common Stock with a fair market value equal to the relevant cash fees (with such fair market value determined by reference to the closing Common Stock price reported by NASDAQ on the date these cash fees otherwise would have been paid). These DSUs vest immediately. The expense for these DSUs is recorded when the fees to which the DSUs relate are earned.

During the three months ended March 31, 2011 and 2010, ICG issued 3,437 DSUs and 7,364 DSUs, respectively, to ICG’s non-management directors. The expense of less than $0.1 million and $0.1 million for the three months ended March 31, 2011 and 2010, associated with the quarterly grants for service is included in “Selling, General and Administrative” on ICG’s Consolidated Statements of Operations (but is not reflected in the summarized Equity-Based Compensation table above).

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10. Equity-Based Compensation — (Continued)

Consolidated Core Companies

ICG’s consolidated core companies, primarily ICG Commerce, recorded $0.1 million of compensation expense related to equity-based awards during the three-month periods ended each of March 31, 2011 and 2010. ICG Commerce’s stock options generally vest over four years, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting equally each month over the next 36 months. The fair value of each of ICG Commerce’s option awards was estimated on the grant date using the Black-Scholes option pricing model.

11. Other Income (Loss)

Other Income (Loss), net

Other income (loss), net consists of the effect of transactions and other events relating to ICG’s ownership interests in its companies and its operations in general.

		Three Months Ended
		March 31,
		2011				2010
		(in thousands)
Gain on sale of Metastorm (Note 5)		$	24,853			$	—
Realized gains on marketable securities, net of hedge termination costs of $0.2 million			—				34,835
Unrealized gain (loss) on mark-to-market of hedges (Note 6)			—				702
Gain on sale of Creditex			—				5,053
Gains on sales/distributions of ownership interests			—				102
Other			11				(53	)
			24,864				40,639
Total other income (loss) for consolidated core companies			82				(343	)
		$	24,946			$	40,296

Marketable securities represent ICG’s holdings in publicly-traded equity securities accounted for as available-for-sale securities. At March 31, 2011 and December 31, 2010, ICG did not hold interests in any marketable securities. ICG did hold a noncontrolling interest in Blackboard, Inc. (“Blackboard”), which is traded on the NASDAQ Global Select Market (NASDAQ: BBBB) throughout the three months ended March 31, 2010. During the three months ended March 31, 2010, ICG sold 787,705 shares of Blackboard common stock at an average price of $45.82 per share. ICG received total proceeds of $36.1 million and recognized a gain on the sale of these securities in the amount of $34.9 million in the period, which is included in the line item “Realized gains on marketable securities, net of hedge termination costs of $0.2 million,” in the table above.

During the three months ended March 31, 2010, 46,751 shares of ICE common stock were released from an escrow account that had been established as part of ICE’s acquisition of Creditex Group, Inc. (“Creditex”); ICG had accounted for its equity ownership interest in Creditex under the cost method of accounting. The value of these shares of common stock, based on the stock’s closing price on March 1, 2010, the date these shares were released to ICG, was $5.0 million. ICG recorded a gain during the three months ended March 31, 2010 in this amount, which is reflected in the line item “Gain on the sale of Creditex” in the table above. ICG sold the newly-acquired shares for $5.1 million and, accordingly, recorded an incremental gain on the sale of $0.1 million during the same period, which is included in the table above, in the line item, “Realized gains on marketable securities, net of hedge termination costs of $0.2 million.”

During the three months ended March 31, 2010, ICG received $0.1 million of escrow releases in connection with the prior disposition of its ownership interests in certain other companies, and recorded this amount as a gain, which is included in the line item, “Gains on sales/distributions of ownership interests” in the above table.

INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11. Other Income (Loss) — (Continued)

During the three-month periods ended March 31, 2011 and 2010, ICG Commerce recorded foreign currency gains of $0.1 million and foreign currency losses of $0.3 million, respectively, related to changes in exchange rates associated with its operations in the United Kingdom, Europe, Asia and South America. These foreign currency gains and losses, which include the mark-to-market adjustments related to the average rate currency options utilized by ICG Commerce (discussed in Note 6, “Financial Instruments”), comprise the majority of the other income (loss) for ICG’s consolidated core companies included in the above table.

12. Income Taxes

ICG, ICG Commerce, InvestorForce and GovDelivery file a consolidated federal income tax return. For the three months ended March 31, 2011, the effective tax rate was -5.8%, excluding discrete items. This differs from the statutory rate of 35%, primarily due to the valuation allowance that is maintained on certain deferred tax assets. In the three months ended March 31, 2011, ICG recorded net deferred tax expense of $2.6 million on discrete items, primarily the gain on the sale of Metastorm. For the three months ended March 31, 2010, ICG Commerce did not join in the consolidated federal income tax return with ICG. During that period, ICG Commerce recorded income tax expense of $0.6 million representing an effective tax rate of 38.3%. This rate differed from the federal rate of 35% due to foreign and state taxes.

As a result of a change in ownership of ICG under Internal Revenue Code Section 382 that occurred in 2004, its net operating loss carryforwards and capital loss carryforwards are subject to an annual limitation. The annual limitation on the utilization of these carryforwards is approximately $14.5 million per year. This annual limitation can be carried forward if it is not used in a particular year. The amount available for 2011 is $14.5 million and the total amount available through 2023, when the losses subject to this limitation expire, is $188.8 million.

As a result of a change in ownership of ICG Commerce under Internal Revenue Code Section 382 that occurred in 2003, ICG Commerce’s net operating loss carryforwards are subject to an annual limitation. The annual limitation ICG Commerce has on the utilization of its net operating losses is $3.1 million per year. The amount available in 2011 is $34.3 million and the total amount available through 2022, when the losses subject to this limitation expire, is $68.8 million.

Additionally, ICG has $32.3 million of net operating loss carryforwards that are not subject to the Section 382 annual limitation. These net operating losses expire between 2026 and 2029.