Attached files
file | filename |
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EX-31.2 - EX-31.2 - Archipelago Learning, Inc. | d75411exv31w2.htm |
EX-32.1 - EX-32.1 - Archipelago Learning, Inc. | d75411exv32w1.htm |
EX-31.1 - EX-31.1 - Archipelago Learning, Inc. | d75411exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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 |
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number: 001-34555
Archipelago Learning, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 27-0767387 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
3400 Carlisle Street, Suite 345, Dallas, Texas | 75204 | |
(Address of Principal Executive Offices) | (Zip Code) |
(800) 419-3191
(Registrants telephone number, including area code)
(Registrants telephone number, including area 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 the 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 o | Non-accelerated filer þ (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b2 of
the Act). Yes o No þ
As of August 9, 2010, the number of outstanding shares of the registrants Common Stock,
$0.001 par value, was 26,358,480.
TABLE OF CONTENTS
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2 | ||||||||
PART I FINANCIAL INFORMATION |
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3 | ||||||||
16 | ||||||||
29 | ||||||||
30 | ||||||||
PART II OTHER INFORMATION |
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31 | ||||||||
31 | ||||||||
32 | ||||||||
32 | ||||||||
32 | ||||||||
32 | ||||||||
33 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 |
Table of Contents
Special Note Regarding Forward-Looking Statements
Certain disclosures and analyses in this Form 10-Q, including information incorporated herein
by reference, may include forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, or the Securities Act, Section 21E of the Securities Exchange
Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of
1995. All statements other than statements of historical fact are considered forward-looking
statements and reflect current expectations and projections relating to our financial condition,
results of operations, plans, objectives, future performance and business. Forward-looking
statements generally can be identified by use of phrases or terminology such as anticipate,
estimate, expect, project, forecast, plan, intend, believe, may, should, can
have, likely, future and other words and terms of similar meaning in connection with any
discussion of the timing or nature of future operating or financial performance or other events.
These forward-looking statements are based on assumptions that we have made in light of our
industry experience and on our perceptions of historical trends, current conditions, expected
future developments and other factors we believe are appropriate under the circumstances. These
statements are not guarantees of performance or results. They are subject to risks and
uncertainties which may be beyond our control, including those discussed below, in the Risk
Factors section in Item 1A of our Form 10-K, and elsewhere in this Form 10-Q and the documents
incorporated by reference herein. Although we believe that these forward-looking statements are
based on reasonable assumptions, many factors could cause actual results to vary materially from
those anticipated in such forward-looking statements, including:
| Most of our customers are public schools, which rely on state, local and federal funding. If any state, local or federal funding is materially reduced, our public school customers may no longer be able to afford to purchase our products and services; | ||
| If national educational standards and assessments are adopted, or if existing metrics for applying state standards are revised, new competitors could more easily enter our markets or the demands in the markets we currently serve may change; | ||
| If Congress does not reauthorize the Elementary and Secondary Education Act, commonly referred to as ESEA, or other legislation does not continue to mandate state educational standards and annual assessments, demand for our products and services could be materially adversely affected; | ||
| Our recent rapid growth, the recent introduction of a number of our products and services and our entry into new markets make it difficult for us to evaluate our current and future business prospects, and we may be unable to effectively manage our growth and new initiatives; | ||
| The recent ongoing adoption of online learning in established education markets makes it difficult for us to evaluate our current and future business prospects. If web-based education fails to achieve widespread acceptance by students, parents, teachers, schools and other institutions, our growth and profitability may materially suffer; | ||
| Our revenue is primarily generated by sales of subscriptions to our Study Island and EducationCity products over the term of the subscription. Our customer renewal rates are difficult to predict and declines in our sales of Study Island or EducationCity products or our customer renewal rates may materially adversely affect our business and results of operations; and | ||
| Our Study Island and EducationCity products are predominantly purchased by individual schools, and any decisions at the district or state level to use the products and services of one of our competitors, or to limit or reduce the use of web-based educational products, could materially adversely affect our ability to attract and retain customers. |
Any forward-looking statement contained herein speaks only as of the date on which we make it.
Factors or events that could cause our actual results to differ may emerge from time to time, and
it is not possible for us to predict all of them. We undertake no obligation to update any
forward-looking statement, whether as a result of new information, future developments or
otherwise, except as may be required by law.
Archipelago Learning, Study Island, Northstar Learning, EducationCity and their
respective logos are our trademarks. Solely for convenience, we refer to our trademarks in this
Form 10-Q without the TM and ® symbols, but such references are not intended to indicate, in any
way, that we will not assert, to the fullest extent under applicable law, our rights to our
trademarks. Other service marks, trademarks and trade names referred to in this document are the
property of their respective owners.
2
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ARCHIPELAGO LEARNING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data)
As of | As of | |||||||
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 23,261 | $ | 58,248 | ||||
Accounts receivable, net |
11,292 | 7,535 | ||||||
Deferred tax assets |
2,150 | 2,528 | ||||||
Prepaid expenses and other current assets |
4,010 | 1,809 | ||||||
Total |
40,713 | 70,120 | ||||||
Property and equipment, net |
3,087 | 2,620 | ||||||
Goodwill |
166,160 | 94,373 | ||||||
Intangible assets, net |
38,165 | 12,327 | ||||||
Investment |
6,446 | 6,446 | ||||||
Notes receivable |
4,931 | 4,931 | ||||||
Other long-term assets |
1,817 | 1,718 | ||||||
Total assets |
$ | 261,319 | $ | 192,535 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable trade |
$ | 1,461 | $ | 1,254 | ||||
Accrued employee-related expenses |
1,875 | 2,033 | ||||||
Other accrued expenses |
655 | 927 | ||||||
Taxes payable |
82 | 625 | ||||||
Deferred tax liabilities |
442 | | ||||||
Deferred revenue |
35,470 | 31,181 | ||||||
Revolving credit facility |
10,000 | | ||||||
Current portion of note payable to related party |
2,414 | | ||||||
Current portion of long-term debt |
850 | 700 | ||||||
Interest rate swap |
532 | 1,149 | ||||||
Total |
53,781 | 37,869 | ||||||
Long-term deferred tax liabilities |
13,375 | 5,093 | ||||||
Long-term deferred revenue |
11,970 | 5,262 | ||||||
Long-term note payable to related party, net of current and discount |
2,290 | | ||||||
Long-term debt, net of current |
75,338 | 60,876 | ||||||
Other long-term liability |
425 | 425 | ||||||
Total liabilities |
157,179 | 109,525 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Preferred stock ($0.001 par value, 10,000,000 shares authorized,
none issued and outstanding at June 30, 2010 and
December 31, 2009) |
| | ||||||
Common stock ($0.001 par value, 200,000,000 shares authorized,
26,358,480 and 25,110,255 shares issued and outstanding at
June 30, 2010 and December 31, 2009, respectively) |
26 | 25 | ||||||
Additional paid-in capital |
94,395 | 76,072 | ||||||
Accumulated other comprehensive income |
884 | | ||||||
Retained earnings |
8,835 | 6,913 | ||||||
Total stockholders equity |
104,140 | 83,010 | ||||||
Total liabilities and stockholders equity |
$ | 261,319 | $ | 192,535 | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
3
Table of Contents
ARCHIPELAGO LEARNING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share data)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share data)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenue |
$ | 13,597 | $ | 10,253 | $ | 26,146 | $ | 20,200 | ||||||||
Cost of revenue |
1,029 | 685 | 1,942 | 1,435 | ||||||||||||
Gross profit |
12,568 | 9,568 | 24,204 | 18,765 | ||||||||||||
Operating Expense: |
||||||||||||||||
Sales and marketing |
4,146 | 3,316 | 7,968 | 6,258 | ||||||||||||
Content development |
1,226 | 752 | 2,267 | 1,588 | ||||||||||||
General and administrative |
6,591 | 2,301 | 9,380 | 4,334 | ||||||||||||
Total |
11,963 | 6,369 | 19,615 | 12,180 | ||||||||||||
Income from continuing operations |
605 | 3,199 | 4,589 | 6,585 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
(879 | ) | (637 | ) | (1,649 | ) | (1,349 | ) | ||||||||
Interest income |
150 | 6 | 303 | 14 | ||||||||||||
Foreign currency loss |
(99 | ) | | (99 | ) | | ||||||||||
Derivative gain (loss) |
27 | (81 | ) | (46 | ) | (169 | ) | |||||||||
Total |
(801 | ) | (712 | ) | (1,491 | ) | (1,504 | ) | ||||||||
Net (loss) income from continuing operations
before tax |
(196 | ) | 2,487 | 3,098 | 5,081 | |||||||||||
(Benefit) provision for income tax |
(51 | ) | 117 | 1,176 | 232 | |||||||||||
Net (loss) income from continuing operations |
(145 | ) | 2,370 | 1,922 | 4,849 | |||||||||||
Income from discontinued operation before tax |
| 83 | | 83 | ||||||||||||
Benefit from income tax on discontinued operation |
| (42 | ) | | (99 | ) | ||||||||||
Net income from discontinued operation |
| 125 | | 182 | ||||||||||||
Net (loss) income |
$ | (145 | ) | $ | 2,495 | $ | 1,922 | $ | 5,031 | |||||||
Earnings (loss) per share: |
||||||||||||||||
Basic: |
||||||||||||||||
Continuing operations |
$ | (0.01 | ) | $ | 0.12 | $ | 0.08 | $ | 0.24 | |||||||
Discontinued operation |
| 0.01 | | 0.01 | ||||||||||||
Total |
$ | (0.01 | ) | $ | 0.13 | $ | 0.08 | $ | 0.25 | |||||||
Diluted: |
||||||||||||||||
Continuing operations |
$ | (0.01 | ) | $ | 0.12 | $ | 0.08 | $ | 0.24 | |||||||
Discontinued operation |
| 0.01 | | 0.01 | ||||||||||||
Total |
$ | (0.01 | ) | $ | 0.13 | $ | 0.08 | $ | 0.25 | |||||||
Weighted-average shares outstanding: |
||||||||||||||||
Basic |
24,181,680 | 19,965,866 | 24,019,902 | 19,965,866 | ||||||||||||
Diluted |
24,181,680 | 19,965,866 | 24,403,727 | 19,965,866 |
See the accompanying notes to the unaudited condensed consolidated financial statements.
4
Table of Contents
ARCHIPELAGO LEARNING, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
(in thousands)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
(in thousands)
Preferred | Common | Accumulated | ||||||||||||||||||||||||||||||
Stock | Stock | Additional | Other | |||||||||||||||||||||||||||||
Par | Par | Paid-in | Comprehensive | Retained | Total | |||||||||||||||||||||||||||
Shares | Value | Shares | Value | Capital | Income | Earnings | Equity | |||||||||||||||||||||||||
Balance at December 31, 2009 |
| $ | | 25,110 | $ | 25 | $ | 76,072 | $ | | $ | 6,913 | $ | 83,010 | ||||||||||||||||||
Stock-based compensation expense |
| | | | 928 | | | 928 | ||||||||||||||||||||||||
Grants of stock and restricted
stock |
| | 12 | | | | | | ||||||||||||||||||||||||
Forfeiture of restricted stock |
| | (6 | ) | | | | | | |||||||||||||||||||||||
Purchase of shares from employee stock purchase plan |
| | | | 3 | | | 3 | ||||||||||||||||||||||||
Issuance of shares in acquisition |
| | 1,242 | 1 | 17,392 | | | 17,393 | ||||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net income |
| | | | | | 1,922 | 1,922 | ||||||||||||||||||||||||
Currency translation
adjustment |
| | | | | 884 | | 884 | ||||||||||||||||||||||||
Total |
2,806 | |||||||||||||||||||||||||||||||
Balance at June 30, 2010 |
| $ | | 26,358 | $ | 26 | $ | 94,395 | $ | 884 | $ | 8,835 | $ | 104,140 | ||||||||||||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
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Table of Contents
ARCHIPELAGO LEARNING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities |
||||||||
Net income |
$ | 1,922 | $ | 5,031 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Amortization of debt financing costs |
149 | 101 | ||||||
Depreciation and amortization |
1,602 | 1,307 | ||||||
Stock-based compensation |
928 | 212 | ||||||
Unrealized gain on interest rate swap |
(617 | ) | (414 | ) | ||||
Deferred income taxes |
1,041 | | ||||||
Deduction of net income from discontinued operation |
| (182 | ) | |||||
Operating cash used by discontinued operation |
| (8 | ) | |||||
Changes in operating assets and liabilities, net of acquisition, disposition and
discontinued operation: |
||||||||
Accounts receivable |
317 | 13 | ||||||
Prepaid expenses and other |
(1,194 | ) | (455 | ) | ||||
Accounts payable |
918 | (10 | ) | |||||
Accrued expenses |
(1,054 | ) | (787 | ) | ||||
Deferred revenue |
132 | (206 | ) | |||||
Other long-term liabilities |
17 | 230 | ||||||
Net cash provided by operating activities |
4,161 | 4,832 | ||||||
Cash flows from investing activities |
||||||||
Purchase of EducationCity |
(61,300 | ) | | |||||
Purchase of property and equipment |
(424 | ) | (394 | ) | ||||
Net cash used in investing activities |
(61,724 | ) | (394 | ) | ||||
Cash flows from financing activities |
||||||||
Proceeds from supplemental term note |
15,000 | | ||||||
Proceeds from revolver |
10,000 | | ||||||
Payment of debt financing costs |
(804 | ) | | |||||
Tax distributions to members |
| (768 | ) | |||||
Purchase of common stock from ESPP |
3 | | ||||||
Payment of offering costs |
(1,460 | ) | | |||||
Payments on term note |
(388 | ) | (874 | ) | ||||
Net cash provided by (used in) financing activities |
22,351 | (1,642 | ) | |||||
Effect of foreign exchange on cash and cash equivalents |
225 | | ||||||
Net change in cash and cash equivalents |
(34,987 | ) | 2,796 | |||||
Beginning of period |
58,248 | 13,144 | ||||||
End of period |
$ | 23,261 | $ | 15,940 | ||||
Supplemental information |
||||||||
Cash paid for interest |
$ | 1,495 | $ | 1,371 | ||||
Cash paid for income taxes |
$ | 1,254 | $ | 73 | ||||
Non-cash investing and financing activities |
||||||||
Accrued purchases of property and equipment |
$ | 252 | $ | 125 | ||||
Issuance of common stock for purchase of EducationCity |
$ | 17,393 | $ | | ||||
Issuance of note payable for purchase of EducationCity |
$ | 4,687 | $ | | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
6
Table of Contents
ARCHIPELAGO LEARNING, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Archipelago Learning, Inc. (the Company) is a leading subscription-based online education
company. The Company provides standards-based instruction, practice, assessments and productivity
tools that improve the performance of educators and students via proprietary web-based platforms.
Study Island, the Companys core product line, helps students in Kindergarten through 12th grade,
or K-12, master grade level academic standards in a fun and engaging manner. As of June 30, 2010,
Study Island products were utilized by approximately 10.2 million students in 22,842 schools in all
50 states, Washington, D.C., and Canada who answered approximately 2.4 billion practice questions
during the six months ended June 30, 2010. In the second quarter of 2009, the Company began
offering online postsecondary programs through its Northstar Learning product line.
Archipelago Learning, Inc. was incorporated as a Delaware corporation on August 4, 2009. Prior
to November 19, 2009, the Company was operated under Archipelago Learning Holdings, LLC (the
LLC). On November 19, 2009, in connection with the Companys initial public offering (the IPO),
the Company entered into a transaction (the Reorganization) whereby all of the shares of the LLC
were exchanged for common stock and restricted common stock in the Company, and the LLC became a
wholly-owned subsidiary of the Company. The Reorganization was accounted for as a transaction with
entities under common control, thus assets, liabilities, operations and cash flows of the LLC prior
to the Reorganization are presented as the results of the Company and earnings per share data is
presented under the equity structure of the Company, utilizing the number of shares of the LLC
exchanged for common stock of the Company, applied to past transactions.
On July 2, 2009, the LLC changed its name from Study Island Holdings, LLC to Archipelago
Learning Holdings, LLC. Study Island Holdings, LLC from January 10, 2007 to July 1, 2009 and
Archipelago Learning Holdings, LLC from July 2, 2009 to the date of the Reorganization are
collectively referred to herein as the LLC.
The Company completed its IPO on November 25, 2009. A total of 7,187,500 shares were sold, of
which 3,125,000 were sold by the Company.
The Company completed its sale of TeacherWeb on November 2, 2009. The operations and cash
flows of TeacherWeb have been presented as a discontinued operation in the Companys condensed
consolidated financial statements.
On June 9, 2010, the Company acquired Educationcity Limited (EducationCity), which provides
online K-6 instructional content and assessments for reading, math and science, and is used by
8,539 schools in the United Kingdom and 4,519 schools in the United States as of June 30, 2010.
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America (GAAP)
for interim financial information and with instructions for Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, the Companys unaudited condensed consolidated financial statements and footnotes
contained herein do not include all of the information and footnotes required by GAAP to be
considered complete financial statements. However, in the opinion of the Companys management,
the accompanying unaudited condensed consolidated financial statements and footnotes contain all
adjustments, including normal recurring adjustments, considered necessary for a fair presentation
of the Companys consolidated financial information as of, and for, the periods presented. The
condensed consolidated results of operations of the Company for an interim period are not
necessarily indicative of its consolidated results of operations to be expected for its fiscal
year. The December 31, 2009 consolidated balance sheet was included in the audited consolidated
financial statements in the Companys annual report on Form 10-K for the year ended December 31,
2009 (2009 Annual Report), which includes all disclosures required by GAAP. Therefore, these
unaudited condensed consolidated financial statements should be read in conjunction with the
consolidated financial statements of the Company included in the 2009 Annual Report.
7
Table of Contents
Derivatives and Hedging Activities The Companys overall risk management strategy includes
utilizing an interest rate swap agreement. The Company managed its exposure to rate variability on
the floating interest rate paid on its credit facility by entering into an interest rate swap
agreement with a notional amount totaling $45.5 million, of which $30.5 million and $35.5 million
remained in effect as of June 30, 2010 and December 31, 2009, respectively. Beginning in 2009, the
notional amount of the interest rate swap began decreasing in periodic amounts, and will terminate
in December 2010. The Company swapped a floating rate payment based on the three month London
InterBank Offered Rate (LIBOR) for a fixed rate of 4.035% in order to minimize the variability in
expected future cash flows due to interest rate movements on its LIBOR-based variable rate debt.
The Company has not designated the swap as a hedge. The fair value of the swap is recorded as
interest rate swap in the Companys condensed consolidated balance sheets and changes in the fair
value of the swap in derivative gain (loss) in the Companys condensed consolidated statements of
operations.
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU,
No. 2009-13, Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements, or ASU
2009-13. ASU 2009-13 amends existing revenue guidance related to revenue arrangements with multiple
deliverables to allow the use of companies estimated selling prices as the value for deliverable
elements under certain circumstances and to eliminate the use of the residual method for allocation
of deliverable elements. ASU 2009-13 is effective for fiscal years beginning on or after June 15,
2010, with earlier adoption permitted. The Company is currently evaluating the impact this standard
will have on its financial statements.
3. FAIR VALUE MEASUREMENTS
The three levels of inputs to valuation techniques used in fair value calculations are defined
as follows:
| Level 1 Unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access. | ||
| Level 2 Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data. | ||
| Level 3 Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Companys own assumptions about the assumptions that market participants would use. |
The Companys interest rate swap is valued using discounted cash flow techniques, which
incorporate Level 1 and Level 2 inputs such as interest rates. These market inputs are utilized in
the discounted cash flow calculation considering the instruments term, notional amount, discount
rate, and credit risk. Significant inputs to the derivative valuation for interest rate swap are
observable in the active markets and are classified as Level 2 in the hierarchy.
The following table summarizes assets and liabilities measured at fair value on a recurring
basis (in thousands):
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
As of June 30, 2010 |
||||||||||||||||
Assets cash equivalents |
$ | 18,972 | | | $ | 18,972 | ||||||||||
Liabilities interest rate swap |
| $ | 532 | | $ | 532 | ||||||||||
As of December 31, 2009 |
||||||||||||||||
Assets cash equivalents |
$ | 55,792 | | | $ | 55,792 | ||||||||||
Liabilities interest rate swap |
| $ | 1,149 | | $ | 1,149 |
The fair value of the Companys long-term debt is estimated based on the quoted market prices
for the same or similar issues or on the current rates offered to the Company for debt of the same
remaining maturities.
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Table of Contents
The carrying amounts and estimated fair values of the Companys financial instruments that are
not reflected in the financial statements at fair value are as follows (in thousands):
As of June 30, 2010 | As of December 31, 2009 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
Cost investment |
$ | 6,446 | n/a | $ | 6,446 | n/a | ||||||||||
Notes receivable |
$ | 4,931 | $ | 4,931 | $ | 4,931 | $ | 4,931 | ||||||||
Revolving credit facility |
$ | 10,000 | $ | 10,000 | $ | | $ | | ||||||||
Note payable |
$ | 4,704 | $ | 4,704 | $ | | $ | | ||||||||
Term loan |
$ | 76,188 | $ | 76,188 | $ | 61,576 | $ | 61,229 |
The cost investment included in the table above is in a company that is not publicly traded
and the fair value is not readily determinable, however, the Company believes the fair value of
this asset approximates or exceeds the carrying value.
4. DISCONTINUED OPERATION
On November 2, 2009, the Company completed the sale of the operations of TeacherWeb to Edline
Holdings, Inc. (Edline) for an aggregate purchase price of $13 million, consisting of
$6.5 million in cash (reduced by approximately $1.5 million of cash remaining on TeacherWebs
balance sheet), Series A shares of Edline valued at $3.7 million and $2.8 million of five-year debt
securities that bear interest at 9.5% per annum and require semi-annual interest-only payments. In
addition, the Company made an approximately $1.6 million distribution to its members in the fourth
quarter of 2009 to enable them to meet certain tax obligations associated with the TeacherWeb sale.
As a result of the sale and the Companys previous investment in Edline, the Company holds 11.2% of
Edlines outstanding Series A shares and $4.9 million of Edlines senior debt. Edline is controlled
by one of the Companys stockholders who, prior to the initial public offering was the controlling
shareholder of the Company. As such, the sale was treated as a transaction between entities under
common control and the excess of the sale consideration received and the book value of net assets
sold was recognized in additional paid-in capital. The operations of TeacherWeb during the period
that the Company owned it are treated as a discontinued operation on the condensed consolidated
statements of operations and cash flows.
Revenue from TeacherWeb of $0.6 million and $1.2 million for the three months and six months
ended June 30, 2009 was reported in discontinued operations in the condensed consolidated statement
of income.
5. ACQUISITION OF EDUCATIONCITY
On June 9, 2010, the Company acquired EducationCity pursuant to a Share Purchase Agreement
with Matthew Drakard, Simon Booley and Tom Morgan. The Company purchased 100% of the equity of
EducationCity for a purchase price of: (i) $65,116,274 in cash; (ii) 1,242,408 shares of common
stock of the Company; and (iii) $5,000,000 in additional deferred cash consideration, of which
$2,500,000 will be paid by the Company on each of December 31, 2010 and December 31, 2011. The
purchase price is subject to a post-closing working capital adjustment. The acquisition was
financed with cash on hand and the proceeds of a new $15,000,000 supplemental term loan and
$10,000,000 in revolving loan commitments.
As part of the acquisition, the Company incurred $3.3 million in transaction costs, including
legal and professional fees, which are recorded in general and administrative expense on the
condensed consolidated statement of operations for the three and six months ended June 30, 2010.
Revenues of $0.5 million and net loss of $0.2 million arising from EducationCity are included
in the condensed consolidated statements of operations for the three and six months ended June 30,
2010.
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The following pro forma information summarizes the Companys results of operations, as if the
acquisition of EducationCity had occurred as of the beginning of each period presented (in
thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenue |
$ | 15,332 | $ | 12,341 | $ | 30,425 | $ | 24,079 | ||||||||
Net income from continuing operations |
$ | 1,434 | $ | 1,105 | $ | 3,105 | $ | 3,472 |
The initial accounting for the acquisition of EducationCity is incomplete, as the Company is
currently evaluating the fair values of each asset and liability acquired and has not yet received
the final valuation report on such assets and liabilities. Provisional amounts for assets and
liabilities acquired have been recorded based on managements best estimate of the values based on
preliminary analysis performed. The following table presents the composition of the purchase price
and the provisional amounts recorded in the Companys balance sheet as of June 9, 2010 for assets
and liabilities acquired (in thousands):
Purchase price: |
||||
Cash paid to sellers, net of cash received |
$ | 61,300 | ||
Note payable |
4,687 | |||
Issuance of common stock |
17,393 | |||
Total |
$ | 83,380 | ||
Assets (liabilities) acquired: |
||||
Accounts receivable |
$ | 4,026 | ||
Deferred tax assets |
2,060 | |||
Other assets |
955 | |||
Intangible assets |
26,210 | |||
Accounts payable and accrued expenses |
(676 | ) | ||
Deferred tax liabilities |
(9,915 | ) | ||
Deferred revenue |
(10,620 | ) | ||
Total |
$ | 12,040 | ||
Remaining value, recorded to goodwill |
$ | 71,340 | ||
The goodwill acquired is not expected to be deductible for tax purposes.
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6. GOODWILL AND INTANGIBLE ASSETS
The Company has recorded goodwill and intangible assets in connection with the purchase of the
Company by Providence Equity Partners in 2007 and the acquisition of EducationCity in June 2010.
Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful
lives.
Amortization expense was recorded to the following captions in the condensed consolidated
statements of operations (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Cost of revenue |
$ | 21 | $ | 21 | $ | 42 | $ | 42 | ||||||||
Sales and marketing |
460 | 341 | 801 | 681 | ||||||||||||
Content development |
86 | 41 | 127 | 83 | ||||||||||||
General and administrative |
12 | | 12 | | ||||||||||||
Income from discontinued operation |
| 107 | | 213 | ||||||||||||
Total |
$ | 579 | $ | 510 | $ | 982 | $ | 1,019 | ||||||||
The changes in the carrying amount of goodwill during the six months ended June 30, 2010 are
as follows (in thousands):
Balance as of December 31, 2009 |
$ | 94,373 | ||
Acquisition of EducationCity |
71,340 | |||
Adjustment due to foreign currency |
447 | |||
Balance as of June 30, 2010 |
$ | 166,160 | ||
The components of the balances of intangible assets are as follows (dollars in thousands):
As of June 30, 2010 | As of December 31, 2009 | |||||||||||||||||||||||||||
Amortization | Gross | Gross | ||||||||||||||||||||||||||
Period | Carrying | Accumulated | Carrying | Accumulated | ||||||||||||||||||||||||
(Years) | Amount | Amortization | Net | Amount | Amortization | Net | ||||||||||||||||||||||
Finite-lived intangible assets: |
||||||||||||||||||||||||||||
Study Island customer relationships |
10 | $ | 13,620 | $ | (4,731 | ) | $ | 8,889 | $ | 13,620 | $ | (4,050 | ) | $ | 9,570 | |||||||||||||
EducationCity customer
relationships |
9-11 | 15,486 | (121 | ) | 15,365 | | | | ||||||||||||||||||||
Study Island technical
development/program content |
10 | 2,500 | (868 | ) | 1,632 | 2,500 | (743 | ) | 1,757 | |||||||||||||||||||
EducationCity technical
development/program content |
15 | 7,241 | (45 | ) | 7,196 | | | | ||||||||||||||||||||
EducationCity noncompete
agreements |
5 | 1,022 | (12 | ) | 1,010 | | | | ||||||||||||||||||||
Indefinite-lived intangible assets: |
||||||||||||||||||||||||||||
Study Island trade name |
n/a | 1,000 | | 1,000 | 1,000 | | 1,000 | |||||||||||||||||||||
EducationCity trade name |
n/a | 3,073 | | 3,073 | | | | |||||||||||||||||||||
Total intangible assets |
$ | 43,942 | $ | (5,777 | ) | $ | 38,165 | $ | 17,120 | $ | (4,793 | ) | $ | 12,327 | ||||||||||||||
The estimated amortization expense for each of the years ended December 31 and thereafter as
of June 30, 2010, is as follows (in thousands):
Remainder of 2010 |
$ | 1,923 | ||
2011 |
3,845 | |||
2012 |
3,845 | |||
2013 |
3,845 | |||
2014 |
3,845 | |||
Thereafter |
16,789 | |||
$ | 34,092 | |||
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7. AMENDED CREDIT FACILITY
In June 2010, the credit agreement governing the term loan and the revolving credit facility
(the Credit Agreement) with our subsidiary, Archipelago Learning, LLC (the Borrower), was
amended to permit the acquisition of EducationCity and to add a $15 million supplemental term loan
and an additional $10 million to the revolving credit facility, both of which were drawn in order
to finance the acquisition. This amendment further modified certain terms of the Credit Agreement,
including increasing the applicable margin on all loans by 0.50%, modifying the definition of
permitted acquisitions, and increasing the letter of credit sublimit available to the Borrower
under the Credit Agreement from $1.0 million to $2.0 million.
8. TAXES
Prior to the Reorganization, the LLC was not a taxpaying entity for federal income tax
purposes. As a result, the LLCs income was taxed to its members in their individual federal income
tax returns. No federal income tax expense was recognized for the LLC prior to November 2009. Upon
the Reorganization, the Company became a taxpaying entity and accordingly began recognizing tax
expense.
Upon the acquisition of EducationCity, the Company recognized deferred tax asset and liability
balances related to the adjustments in basis for assets acquired and liabilities assumed and became
a taxpayer in the United Kingdom for the taxable income of Educationcity Limited. After reflecting
the impact of these items, the Companys effective tax rate was 26.0% and 38.0% for the three
months and six months ended June 30, 2010, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Company is obligated, as lessee, under noncancelable operating leases for office space in
Dallas, Texas, Naperville, Illinois, and Rutland, United Kingdom expiring through 2015. As of
June 30, 2010, the future minimum payments required under all operating leases with terms in excess
of one year are as follows (in thousands):
Remainder of 2010 |
$ | 476 | ||
2011 |
1,295 | |||
2012 |
1,060 | |||
2013 |
1,095 | |||
2014 |
949 | |||
Thereafter |
1,410 | |||
$ | 6,285 | |||
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10. EARNINGS PER SHARE
Subsequent to the Reorganization, earnings per share is computed using the two-class method,
considering the restricted common shares, due to their participation rights in dividends of the
Company. Under this method, the Companys net income is reduced by the portion of net income
attributable to the restricted common shares, and this amount is divided by the weighted average
shares of common stock outstanding. Prior to the Reorganization, there were various classes of
stock, which were entitled to earnings based on a priority established in the LLC agreement. The
Class A shares were entitled to a return of capital and a preferred return before any other class
of shares was entitled to earnings. The Class A shares were entitled to 100% of the earnings for
the period from January 1, 2007 to the Reorganization. Earnings per share was calculated based on
the shares of common stock that were exchanged for the Class A shares in the Reorganization for all
periods prior to the Reorganization.
The components of earnings per share are as follows for the three months ended June 30 (in
thousands):
2010 | 2009 | |||||||||||||||
Net Income | Shares | Net Income | Shares | |||||||||||||
Continuing operations: |
||||||||||||||||
Net (loss) income |
$ | (145 | ) | 25,409 | $ | 2,370 | 19,966 | |||||||||
Less: Income attributable to restricted shares |
| (1,227 | ) | |||||||||||||
Net (loss) income available to common stockholders |
(145 | ) | 24,182 | |||||||||||||
Basic (loss) earnings per share |
$ | (0.01 | ) | $ | 0.12 | |||||||||||
Dilutive effect of restricted common stock |
| |||||||||||||||
Diluted (loss) earnings per share |
$ | (0.01 | ) | 24,182 | $ | 0.12 | ||||||||||
Discontinued operation: |
||||||||||||||||
Net income |
$ | | $ | 125 | 19,966 | |||||||||||
Less: Income attributable to restricted shares |
| |||||||||||||||
Net income available to common stockholders |
| |||||||||||||||
Basic and diluted earnings per share |
$ | | $ | | ||||||||||||
Total: |
||||||||||||||||
Net (loss) income |
$ | (145 | ) | 25,409 | $ | 2,495 | 19,966 | |||||||||
Less: Income attributable to restricted shares |
| (1,227 | ) | |||||||||||||
Net (loss) income available to common stockholders |
(145 | ) | 24,182 | |||||||||||||
Basic (loss) earnings per share |
$ | (0.01 | ) | $ | 0.12 | |||||||||||
Dilutive effect of restricted common stock |
| |||||||||||||||
Diluted (loss) earnings per share |
$ | (0.01 | ) | 24,182 | $ | 0.12 | ||||||||||
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The components of earnings per share are as follows for the six months ended June 30 (in
thousands):
2010 | 2009 | |||||||||||||||
Net Income | Shares | Net Income | Shares | |||||||||||||
Continuing operations: |
||||||||||||||||
Net income |
$ | 1,922 | 25,258 | $ | 4,849 | 19,966 | ||||||||||
Less: Income attributable to restricted shares |
(94 | ) | (1,238 | ) | ||||||||||||
Net income available to common stockholders |
$ | 1,828 | 24,020 | |||||||||||||
Basic earnings per share |
$ | 0.08 | $ | 0.24 | ||||||||||||
Dilutive effect of restricted common stock |
384 | |||||||||||||||
Diluted earnings per share |
$ | 0.08 | 24,404 | $ | 0.24 | |||||||||||
Discontinued operation: |
||||||||||||||||
Net income |
$ | | $ | 182 | 19,966 | |||||||||||
Less: Income attributable to restricted shares |
| |||||||||||||||
Net income available to common stockholders |
| |||||||||||||||
Basic and diluted earnings per share |
$ | | $ | 0.01 | ||||||||||||
Total: |
||||||||||||||||
Net income |
$ | 1,922 | 25,258 | $ | 5,031 | 19,966 | ||||||||||
Less: Income attributable to restricted shares |
(94 | ) | (1,238 | ) | ||||||||||||
Net income available to common stockholders |
$ | 1,828 | 24,020 | |||||||||||||
Basic earnings per share |
$ | 0.08 | $ | 0.25 | ||||||||||||
Dilutive effect of restricted common stock |
384 | |||||||||||||||
Diluted earnings per share |
$ | 0.08 | 24,404 | $ | 0.25 | |||||||||||
For the three months and six months ended June 30, 2010, the impact of 417,618 and 176 shares
of restricted common stock, respectively, and options to purchase 673,231 and 631,036
weighted-average shares of common stock, respectively, were excluded from the diluted earnings per
share calculation, as their effect was antidilutive. No options or shares of participating
restricted stock were outstanding during the six months ended June 30, 2009.
11. STOCK-BASED COMPENSATION
There are 1,225,388 shares of the Companys restricted common stock and stock options for
purchase of 700,793 shares of the Companys common stock outstanding as of June 30, 2010. The stock
options outstanding as of June 30, 2010 have a weighted-average exercise price of $16.34, have a
weighted-average remaining contractual term of 9.5 years and are all out of the money at June 30,
2010, thus have no aggregate intrinsic value. None of the outstanding options were exercisable at
June 30, 2010.
As of June 30, 2010, there was approximately $5.7 million of unrecognized stock-based
compensation expense related to unvested restricted common stock and options for common stock that
is expected to be recognized over a weighted average period of 3.3 years.
12. SEGMENT INFORMATION
The Company operates as one operating segment as the principal business activity relates to
providing subscription-based online educational content. The chief operating decision maker, the
Chief Executive Officer, evaluates the performance of the Company based upon consolidated results
of operations.
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13. RELATED-PARTY TRANSACTIONS
The Company is a party to an agreement with a stockholder to provide advisory services in
connection with the identification, evaluation and acquisition of one or more businesses. The
stockholder receives a transaction fee upon the successful consummation of any transaction that
they identify. The amount of this transaction fee is dependent upon the size of the acquisition.
Additionally, any reasonable expenses incurred in connection with this agreement are reimbursed.
During the three and six months ended June 30, 2010 the Company incurred and paid an aggregate of
$1.5 million under this agreement related to the acquisition of EducationCity. During the three and
six months ended June 30, 2009, we did not incur or make any payments under this agreement.
The Company purchases equipment from an affiliate of Providence Equity Partners, a significant
stockholder. Equipment is purchased through ordinary purchasing methods at pricing available to
other customers. Purchases with this supplier totaled $0.1 million and $0.1 million for the three
months ended June 30, 2010 and 2009, respectively, and $0.3 million and $0.2 million for the six
months ended June 30, 2010 and 2009, respectively.
Providence Equity Partners paid for certain costs related to travel and other expenses of
members of the Companys Board of Directors and other staff assisting those Directors in certain
oversight functions and invoiced the Company for reimbursement. During the three and six months
ended June 30, 2010, $0.1 million of these costs were paid by the Company.
During the six months ended June 30, 2010, the Company made certain tax payments of $0.2
million to states on behalf of shareholders of the LLC for periods prior to the Reorganization.
These amounts were invoiced to these stockholders for reimbursement. The unpaid balance of these
reimbursements at June 30, 2010 was $0.1 million.
As part of the sale of TeacherWeb, the Company signed a transition services agreement with
Edline whereby the Company performs certain accounting and administrative functions related to
TeacherWeb for a period not to exceed six months from the sale. In May 2010, the transition
services agreement was extended to July 1, 2010. During the transition period, certain costs are
paid by the Company on behalf of TeacherWeb, which are billed to and reimbursed by Edline. The
Company receives no fee for the performance of these services. For the three months and six months
ended June 30, 2010, the Company paid $0.4 million and $0.7 million, respectively, to TeacherWeb
vendors on behalf of Edline, of which a total of $0.2 million was receivable from Edline as of June
30, 2010, and is recorded in other current assets on the condensed consolidated balance sheet.
The building where EducationCity leases office space in Rutland, United Kingdom is owned by
the pension funds of two officers and stockholders of the Company. The Company made no payments
under this lease for the three and six months ended June 30, 2010 and no amounts were currently due
as of June 30, 2010.
In connection with the purchase of EducationCity, the Company incurred a $5.0 million note
payable to the sellers, payable in equal installments on December 31, 2010 and 2011. Upon the
purchase, the sellers became officers of the Company and stockholders.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to assist in the understanding of our consolidated
financial position and our results of operations. This discussion should be read in conjunction
with our unaudited condensed consolidated financial statements and the related notes in Item 1 of
this report.
Prior to our initial public offering in November 2009, we conducted our business through
Archipelago Learning Holdings, LLC, formerly known as Study Island Holdings, LLC, and its
subsidiaries. Prior to the consummation of the initial public offering, a reorganization occurred
whereby Archipelago Learning Holdings, LLC became a wholly owned subsidiary of Archipelago
Learning, Inc., a newly formed Delaware corporation. Unless the context requires otherwise,
references throughout this report to Archipelago Learning, we, us, our company or similar
terms refer to Archipelago Learning, Inc. and its subsidiaries, after giving effect to the
reorganization.
Overview
Archipelago Learning is a leading subscription-based online education company. We provide
standards-based instruction, practice, assessments and productivity tools that improve the
performance of educators and students via proprietary web-based platforms. Study Island, our core
product line, helps students in Kindergarten through 12th grade, or K-12, master grade level
academic standards in a fun and engaging manner. As of June 30, 2010, Study Island products were
utilized by approximately 10.2 million students in 22,842 schools in all 50 states, Washington D.C.
and Canada. During the 2009-2010 school year, students answered approximately 3.54 billion of our
practice questions. We recently began offering online postsecondary programs through our Northstar
Learning product line.
We were founded in 2000. In 2001, we launched our first Study Island products in two states.
By 2009, we had developed Study Island products for all 50 states, in the subject areas of reading,
writing, mathematics, social studies and science, and have grown from serving 57 schools in 2001 to
22,842 schools as of June 30, 2010. We entered the postsecondary educational market with the launch
of Northstar Learning in April 2009, which uses the same web-based platform as our Study Island
products to provide various instruction, assessment and exam preparation content.
In June 2008, we acquired TeacherWeb, a website portal and teacher productivity tool that
provides educators with simple, easy-to-use templates to create district, school or classroom
websites. In August 2009, we made a minority investment in Edline, a private educational technology
company offering products and services similar to TeacherWeb, and we sold TeacherWeb to Edline in
November 2009.
In June 2010, we acquired Educationcity Limited (EducationCity), a leading developer and
publisher of EducationCity.com, an online K-12 educational content and assessment program for
schools in the U.K. and U.S. Similar to Study Island, EducationCity maps to standards, combines
rigorous content and interactive animations, fun games, and motivational rewards to drive academic
success in a fun and engaging manner. Unlike Study Island, EducationCity core classroom and
individualized instruction is geared toward the initial teaching phases of academic content.
EducationCity helps students learn basic skills and concepts while Study Island helps assess,
reinforce and master this knowledge. When used in conjunction with one another, EducationCity and
Study Island provide a powerful comprehensive teaching and reinforcement solution to enhance
student learning and teacher performance. As of June 30, 2010, EducationCity was being used by
8,539 schools in the United Kingdom and 4,519 schools in the United States.
We capitalize on two significant trends in the education market: (1) an increased focus on
higher academic standards and educator accountability for student achievement, which has led to
periodic assessment in the classroom to gauge student learning and inform instruction, also known
as formative assessment, and (2) the increased availability and utilization of web-based
technologies to enhance and supplement teacher instruction, engage todays technology-savvy
learners and improve student outcomes.
The increased focus on higher academic standards and assessments as a means to measure
educator accountability is largely reflected in legislative efforts such as No Child Left Behind,
the common name under the Bush administration for the 2001 reauthorization of the Elementary and
Secondary Education Act, or ESEA. ESEA
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required all states to have academic standards in place for K-12 students in reading, math and
science, and to assess student achievement annually with end of school year assessments. Moreover,
districts and schools were required to set Adequate Yearly Progress, or AYP, milestones each year
leading to all students performing on grade level by 2014. Those districts not meeting AYP
milestones for two or more years faced significant consequences.
The ESEA legislation was initially scheduled for reauthorization in October 2008, but has been
continually extended. While many politicians, including President Obama, believe that the nations
primary education law needs to be revised, it is now quite unlikely this will happen this year. In
his 2010 State of the Union address, President Obama proposed an overhaul of the primary law
outlining the federal role in public schools and the administration distributed a blueprint for the
reauthorization in March, which provided broad concepts regarding changes to the current version of
the law. While Congress has held hearings on reauthorization throughout the spring and summer
months, we believe the law and the proposed changes have been controversial and other competing
legislative priorities have placed reauthorization on the back-burner. We believe the general
consensus is that Congress will now not finish the reauthorization legislation until after the
mid-term elections, most likely in the first or second quarter of 2011.
In its 2011 fiscal year budget proposal and blueprint for change, the Obama administration
recommended several key changes to ESEA, all of which are controversial:
(1) | Growth model to replace absolute model: The accountability system established in No Child Left Behind would be replaced with a new system built around the goal of helping all students graduate high school college- and career-ready. President Obama has suggested replacing the Adequate Yearly Progress, or AYP benchmarks with new common core standards based on college and career readiness, which are in the process of being finalized. President Obamas proposal eliminates the No Child Left Behind mandate that all students be proficient in reading and math by 2014, the absolute model, with one that measures whether or not each student progresses at least one academic year from their proficiency level at the beginning of the year. The Obama administration argues that a teacher that helps a sixth grade student, for example, progress from a second grade proficiency level to a fourth grade proficiency level in one year should be rewarded for helping a student grow two academic years in proficiency, the growth model, as opposed to being penalized for the student not reaching sixth grade proficiency. The Obama administration and its supporters suggest that the absolute threshold model was unfair and that the initial No Child Left Behind goal of universal absolute student proficiency by 2014 was an impossible target. Opponents contend that backing away from this absolute mandate is a mistake in a field where nothing short of high-stakes testing grabs the attention of students, parents, teachers, and school administrators. | ||
(2) | Competition reward excellence: The proposal seeks to shift the method of distributing federal education dollars from formula alone to a system that also rewards excellence based on competition and performance. The new accountability system would divide schools into more categories, offering recognition and additional funds for those states, districts and schools that are succeeding and providing large new amounts of money to help either improve or close chronically failing schools. Opponents argue that this shift to competition and performance formulas will penalize students for adult mistakes. | ||
(3) | Longitudinal data systems: The blueprint calls for comprehensive state and district data systems, including disaggregated data. It also proposes the collection of information related to teaching and learning conditions, school climate, student, teacher and school leader attendance, disciplinary incidents and student, parent or school staff surveys. | ||
(4) | Teacher and school leader effectiveness: In the area of teacher and school leader effectiveness, states would be required to develop definitions for effectiveness. The plan also calls for state data systems that link information on teacher and principal preparation programs to job placement, student growth and retention outcomes of their graduates. District-level evaluation systems would need to differentiate teacher and principal effectiveness, using at least three performance measures, one of which would be performance on high-stakes assessments. |
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While uncertainty continues to surround the substance and timing of ESEA reauthorization, we
believe that higher standards, more rigorous assessments and accountability will remain key
components of the revised ESEA. In addition, the school reform focus and policy priorities will be
consistent with the American Reinvestment and Recovery Act, or ARRA, stimulus and Race to the Top
criteria: higher and more rigorous common core standards and assessments across all states;
closing the achievement gap between U.S. students and those of other developed countries; closing
the achievement gap between students across the socioeconomic spectrum; improving the high school
graduate rate along with college and career readiness; and rewarding teachers, schools and states
that attain the best results. We believe that our Study Island, EducationCity and Northstar
Learning core products are well positioned for this dynamic period of K-12 and postsecondary
education reform driven by school budget pressures, the accelerating shift from print to online
educational solutions and the demand for integrated curriculum and assessment to provide
differentiated instruction to improve students academic performance, high school graduation rates
and college and career success.
In addition, most of our customers are public schools and school districts that have to comply
with state educational standards. As a result, our sales depend on the availability of public
funds, which may become more limited as many states or districts face budget cuts due to decreases
in their tax bases and rates.
To help offset state budget shortfalls, the U.S. Department of Education released
approximately $5.0 billion in additional AARA stimulus funds to 21 states during the first and
second quarters of 2010, primarily in the form of school improvement grants to turn around
persistently lowest achieving schools. Another approximate $0.9 billion in grants was released to
states in July to save teachers jobs, help improve the lowest performing schools, enhance education
through technology, and drive other innovative educational reforms. In addition, the U.S.
Department of Education recently announced the top 49 scoring applicants that will be receiving
$650 million of Investing in Innovation (I3) grants, to be funded after their 20 percent matching
fund grants are secured by September 2010. Also, over the last several weeks, the Senate and House
passed a $26 billion aid bill that provides $10 billion to states for education jobs. President
Obama signed the bill on August 11, 2010. The $10 billion in education job funds will be
distributed to states within 45 days, with states distributing such funds to districts via the
Title I formula, and will be used within the 2010-2011 school year. Funds may only be used for
expenses necessary to retain existing school employees or to hire new employees for early childhood
or K-12 education services. Additionally, in order to receive this Federal funding, states are
required to maintain their funding of education at 2009 levels for 2010 and at 2010 levels for
2011.
The U.S. Department of Education is also in the process of implementing its highly publicized
Race to the Top (RttT) competition whereby states can be awarded funds totaling $3.4 billion in
aggregate for agreeing to implement bold educational reforms. In Phase I, completed in March 2010,
Tennessee and Delaware were the only winning states and were awarded approximately $500 million and
$100 million, respectively. In Phase II, 35 states and the District of Columbia applied and 19
finalists were named in late July, with winners to be announced in early September. The 19
finalists are: Arizona, California, Colorado, the District of Columbia, Florida, Georgia, Hawaii,
Illinois, Kentucky, Louisiana, Maryland, Massachusetts, New Jersey, New York, North Carolina, Ohio,
Pennsylvania, Rhode Island, and South Carolina. States receiving these RttT funds are expected to
implement educational reforms over the next several years, in order to: achieve teacher mastery
and delivery of common standards and assessments; use, learn and leverage high quality assessment
information to drive increased student performance; ensure all students have access to effective
teachers and principals; turn around persistently lowest-achieving schools; and improve the high
school graduation rate and ensure each student is college and career ready.
A requirement for RttT applicants is to signal their intent to officially adopt the Common
Core Standards for K-12 in reading and mathematics, released in June 2010. As of August 2, 2010, 34
states and the District of Columbia had officially adopted the new standards, although adoption of
the standards does not bring immediate change in the classroom. We believe that implementation of
the Common Core Standards will be a long-term process, as states rethink their teacher training,
curriculum, instructional materials and testing. In addition, states are concerned that RttT
funding is inadequate to implement the curriculum, assessments and teacher professional development
that will be required, and a growing number of public policy groups are objecting to the new
standards as a federal takeover of local education. Thus, regardless of how states have voted,
actual implementation of the Common Core Standards is uncertain and expected to be a long process.
Whether or not the Common Core Standards become national standards and whether or not we eventually
have national assessments will play-out over
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the next few years as educators begin to create curriculum and assessments around the new
standards and see how well they function in diverse schools and classrooms around the country.
Also of note, during the week of July 26, 2010, the Senate education subcommittee released
their preliminary fiscal year 2011 Federal education budget, which is scheduled to take effect
October 1, 2010. The preliminary budget calls for Federal educational spending of $2.59 billion
more than in fiscal year 2010. Both Study Island and EducationCity products are eligible for
purchase from the majority of Federal funding sources.
While the federal legislative efforts and budgetary challenges in schools could present
challenges to our future sales, we believe that we are positioned to perform well in the current
environment for various reasons: (1) we are well aligned with educational reform policies and
initiatives, including the Common Core Standards, (2) we make innovation easy as schools shift from
print-based solutions to online digital content, instruction, assessment and data reporting, (3) we
have a proven model and track record for engaging and improving learning outcomes, (4) we are
affordable compared to other educational product offerings and (5) we still have relatively low
overall school penetration with room for growth.
Seasonal trends associated with school budget years and state testing calendars also affect
the timing of our sales of subscriptions to new and existing customers. As a result, most new
subscriptions and renewals occur in the third quarter because teachers and school administrators
typically make purchases for the new academic year at the beginning of their districts fiscal
year, which is usually July 1. Subscriptions to our products generate substantially all of our
revenue, and customers enter into subscriptions which average 15-month terms. We rely significantly
on our ability to secure renewals for subscriptions to our products as well as sales to new
customers. We generally contact schools several months in advance of the expiration of their
subscription, to attempt to secure renewal subscriptions. If a school does not renew its
subscription within six months after its expiration, we categorize it as a lost school, and if a
school subsequently purchases a subscription after this renewal period, we consider it to be a new
subscription.
2010 Events
We released Study Island Version 3, or V3 in January 2010. V3 has been well received by our
customers. Some key enhancements include a custom assessment builder, an online writing component,
learning enhancements for special learners, and embedded just-in-time professional development.
Educators are most excited about the new custom assessment builder, which enables teachers to
easily build customized formative and benchmark assessments in reading and math, giving them the
ongoing data they need to make informed instructional decisions. Additionally, the new writing
assignment module is being widely used, as it gives teachers and students a paperless way to
develop writing skills across the curriculum.
We published 88 new Study Island products during the six months ended June 30, 2010, with a
focus on expanding our high school product line across all major subject areas in our largest
states, including publishing new SAT, ACT and advanced placement test preparation products and
filling in grade level and subject area holes in our elementary and middle school line-up for
mid-size and small states. We also have been researching the new Common Core Standards and
developing a beta product, which we plan to launch in August for customers in those states that
officially adopt the new standards.
In June 2010, the Company acquired EducationCity, which provides online K-6 instructional
content and assessments for reading, math and science, and is used by 8,539 schools in the United
Kingdom and 4,519 schools in the United States as of June 30, 2010.
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Results of Operations
Comparison of the Three Months Ended June 30, 2010 and 2009
The following table summarizes our consolidated operating results for the three months ended
June 30 (dollars in thousands):
Change | ||||||||||||||||
2010 | 2009 | Dollars | Percentage | |||||||||||||
Revenue |
$ | 13,597 | $ | 10,253 | $ | 3,344 | 32.6 | % | ||||||||
Cost of revenue |
1,029 | 685 | 344 | 50.2 | % | |||||||||||
Gross profit |
12,568 | 9,568 | 3,000 | 31.4 | % | |||||||||||
Operating expense: |
||||||||||||||||
Sales and marketing |
4,146 | 3,316 | 830 | 25.0 | % | |||||||||||
Content development |
1,226 | 752 | 474 | 63.0 | % | |||||||||||
General and administrative |
6,591 | 2,301 | 4,290 | 186.4 | % | |||||||||||
Total |
11,963 | 6,369 | 5,594 | 87.8 | % | |||||||||||
Income from continuing operations |
605 | 3,199 | (2,594 | ) | (81.1 | %) | ||||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
(879 | ) | (637 | ) | (242 | ) | (38.0 | %) | ||||||||
Interest income |
150 | 6 | 144 | ** | ||||||||||||
Foreign currency loss |
(99 | ) | | (99 | ) | ** | ||||||||||
Derivative gain (loss) |
27 | (81 | ) | 108 | 133.3 | % | ||||||||||
Total |
(801 | ) | (712 | ) | (89 | ) | (12.5 | %) | ||||||||
Net (loss) income from continuing operations before tax |
(196 | ) | 2,487 | (2,683 | ) | (107.9 | %) | |||||||||
(Benefit) provision for income tax |
(51 | ) | 117 | (168 | ) | (143.6 | %) | |||||||||
Net (loss) income from continuing operations |
$ | (145 | ) | $ | 2,370 | $ | (2,515 | ) | (106.1 | %) | ||||||
** | Percentage not meaningful for analysis. |
Revenue.
Revenue for the three months ended June 30, 2010 was $13.6 million, representing an increase
of $3.3 million, or 32.6%, as compared to revenue of $10.3 million for the three months ended June
30, 2009. Subscription and training revenue is recognized over the term of the subscription, which
averages 15 months. Consequently, our revenue in any month is impacted by invoiced sales from
subscriptions purchased or renewed during the current and prior periods. The increase in revenue
during the period is due to increased traction in states newly entered in the prior year, increased
products in our more mature states leading to additional sales to existing customers, our increased
focus on existing customers and renewal efforts, and our planned increases in our sales force, as
well as $0.5 million in revenues attributable to EducationCity.
The following table sets forth information regarding our invoiced sales as well as other
metrics that impact our revenue for the three months ended June 30 (dollars in thousands):
2010 | 2009 | |||||||
Invoiced sales: |
||||||||
Study Island new customers |
$ | 3,850 | $ | 3,618 | ||||
Study Island existing customers |
10,521 | 7,933 | ||||||
Study Island other sales |
233 | 286 | ||||||
EducationCity |
1,104 | | ||||||
Total |
15,708 | 11,837 | ||||||
Change in deferred revenue |
(2,111 | ) | (1,584 | ) | ||||
Revenue |
$ | 13,597 | $ | 10,253 | ||||
Other metrics: |
||||||||
Schools using Study Island products |
22,842 | 19,214 | ||||||
Study Island products available |
1,337 | 1,186 |
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Our subscription purchases are generally evidenced by a purchase order or signed sales quote.
We recognize an invoiced sale in the period in which the purchase order is received and the invoice
is issued, which may be at a different time than the commencement of the subscription. Revenue for
invoiced sales is deferred and recognized ratably over the subscription term beginning on the
commencement date of the applicable subscription. We present invoiced sales data to provide a
supplemental measure of our operating performance. We believe the various invoiced sales metrics
enable investors to evaluate our sales performance in isolation and on a consistent basis without
the affects of revenue deferral and revenue recognition from sales in prior periods. In addition,
invoiced sales to new customers and existing customers and invoiced other sales provide investors
with important information regarding the source of orders for our products and services and our
sales performance in a particular period. Invoiced sales are not recognized under accounting
principles generally accepted in the United States, or GAAP, and should not be used an as indicator
of, or an alternative to, revenue and deferred revenue. Invoiced sales metrics have significant
limitations as analytical tools because they do not take into account the requirement to provide
the applicable product or service over the subscription period and they do not match the
recognition of revenue with the associated cost of revenue. Reconciliation is provided in the table
above between invoiced sales and revenue, the closest GAAP measure to invoiced sales.
As of June 30, 2010, 22,842 schools used Study Island products. A school is considered to be
using our products if it has an active subscription for any or all of the Study Island products
available to it. The number of schools using our products will increase for sales to new schools
and will decrease if schools do not renew their subscriptions. We generally contact schools several
months in advance of the expiration of their subscription to attempt to secure renewal
subscriptions. If a school does not renew its subscription within six months after its expiration,
we categorize it as a lost school. If the school subsequently purchases a subscription to our
products after this renewal period, we consider it to be a new subscription. For the twelve months
ended December 31, 2009, we had a renewal rate of 78.2% from our Study Island customers, which
reflects the percentage of schools that subscribed for our products throughout those twelve months
and then subscribed for our products again in the next period, within six months of their
subscription end date. A Study Island product is any one subject for one grade level in a single
state.
We generate revenue from: customer subscriptions to standards-based instruction, practice,
assessments and productivity tools; training fees, for onsite or online training sessions that are
primarily provided to new Study Island customers; and individual buys, which are individual
purchases for access to a product (one subject in a specific state for a specific grade level).
Customer subscriptions provide the vast majority of our revenue.
Factors affecting our revenue include: (i) the number of schools, classes or students
purchasing our products; (ii) the term of the subscriptions; (iii) subscription renewals; (iv) the
number of states or geographies in which we offer products; (v) the number of products we offer in
a state or in a geographic region; (vi) the complexity and comprehensiveness of applicable
standards, which impacts pricing; (vii) the effectiveness of our regional field-based and inside
sales teams; (viii) recognition of revenue in any period from deferred revenue from subscriptions
purchased or renewed during the current and prior periods; (ix) federal, state and local
educational funding levels; and (x) discretionary purchasing funds available to our customers.
Pricing for Study Island subscriptions is based on a variety of factors. Subscriptions are
priced on a fixed price per class or a variable price per school based on the number of students
per grade using the products. In addition, subscriptions are priced on a per subject matter basis
with discounts given if all of the subjects for a given grade are purchased. Subscription prices
also vary by state based on the number, complexity and comprehensiveness of the applicable
standards. Our Study Island products are specifically built from the varying assessment standards
in all 50 states, which we believe differentiates us from our competitors.
We increased our standard pricing in January 2010. We do not believe, however, that this
pricing increase is meaningful to changes in our revenue. Our pricing structure is complex, using a
set of standard prices, but offering discretionary discounts of different amounts for a wide range
of circumstances with our clients. Additionally, considering that we recognize revenue from
customer subscriptions ratably over the subscription periods (which average 15 months, but vary
under many circumstances), price increases have a delayed impact on revenue within a single period
presented in our financial statements.
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The timing of sales to new and existing Study Island customers is affected by seasonal trends
associated with school budget years and state testing calendars. As a result, most new
subscriptions and renewals occur in the third quarter because teachers and school administrators
typically make purchases for the new academic year at the beginning of their districts fiscal
year, which is usually July 1. Our fourth quarter has historically produced the second highest
level of new subscriptions and renewals, followed by our second and first quarters. Because revenue
from customer subscriptions is deferred over the course of the subscription period and our
customers pay for their subscriptions at the beginning of the subscription period, this seasonality
does not cause our revenue to fluctuate significantly, but does impact our cash flow.
Cost of Revenue.
Cost of revenue for the three months ended June 30, 2010 increased by $0.3 million, or 50.2%,
to $1.0 million from $0.7 million for the three months ended June 30, 2009. This increase in cost
of revenue was primarily attributable to a $0.2 million increase in engineering salaries and
related costs resulting from increased headcount focusing on enhancing resources and management,
along with annual salary increases and bonus payments as well as $0.1 million of costs attributable
to EducationCity.
Cost of revenue consists of the costs to host and make available our products and services to
our customers. A significant portion of the cost of revenue includes salaries and related expense
for our engineering employees and contractors who maintain our servers and technical equipment and
who work on our web-based hosted platform. Other costs include facility costs for our web platform
servers and routers, network monitoring costs and amortization of our technical development
intangible assets.
Sales and Marketing Expense.
Sales and marketing expense for the three months ended June 30, 2010 increased by $0.8
million, or 25.0%, to $4.1 million from $3.3 million for the three months ended June 30, 2009. This
increase was primarily attributable to a $0.5 million increase in salaries and related costs
resulting from increased headcount, annual salary increases and bonus payments as well as $0.4
million of costs attributable to EducationCity.
Our sales and marketing expense consists primarily of salaries, commissions and related
expense for personnel in our inside and field sales teams, our new customer implementation and
retention team, marketing, customer service, training and account management. Commissions are
earned when sales are invoiced to customers. Other costs include marketing costs, travel and
amortization of our customer relationship intangible assets. Marketing expense consists of direct
mail, email prospecting, pay per click advertising, search engine optimization, printed material,
marketing research, and trade shows. Marketing expense generally increases as our sales efforts
increase, both in new and existing markets. Our marketing efforts are related to the launch of new
product offerings, the introduction of our products and services in new states and geographic
regions, and opportunities within a selected market associated with specific events such as timing
for the standardized testing in a particular state and upcoming trade shows.
Content Development Expense.
Content development expense for the three months ended June 30, 2010 increased by $0.5
million, or 63.0%, to $1.2 million from $0.8 million for the three months ended June 30, 2009. This
increase was primarily attributable to a $0.2 million increase in salaries and related costs
related to increased headcount for the development of our enhanced Study Island V3 and the launch
of additional products in Canada, along with annual salary increases and bonus payments, a $0.1
million increase in outsourced content writing costs, primarily related to development of our new
SAT and ACT products and to Northstar Learning, as well as $0.1 million of costs for the
development of EducationCity products.
Our content development expense primarily consists of salaries and related expense for our
content development employees, who are responsible for writing the questions, lessons, activities
and games content for our Study Island, EducationCity and Northstar Learning products, outsourced
content writing costs, and amortization of our program content intangible assets.
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General and Administrative Expense.
General and administrative expense for the three months ended June 30, 2010 increased by $4.3
million, or 186.4%, to $6.6 million from $2.3 million for the three months ended June 30, 2009.
This increase was primarily attributable to $3.3 million in transaction costs related to the
acquisition of EducationCity, a $0.2 million increase in salaries and related costs, primarily due
to increased stock-based compensation expense from equity awards granted at our initial public
offering, a $0.5 million increase in audit, accounting and legal fees related to the requirements
of being a public company, as well as $0.2 million of costs attributable to EducationCity.
Our general and administrative expense includes salaries and related expense for our
executive, accounting, human resources and other administrative employees, professional services,
board related expenses, regulatory requirements, rent, insurance, travel and other corporate
expense.
Other Income (Expense).
Other income (expense) totaled $0.8 million of net expense for the three months ended June 30,
2010, which was an increase of expense of $0.1 million, or 12.5%, compared to net expense of $0.7
million for the three months ended June 30, 2009. The increase was primarily due to increased
interest expense of $0.2 million during the period due to our additional loan on our term loan and
draw on our revolving credit facility, which was partially offset by $0.1 million of interest
income from our note receivable from Edline.
Our other income (expense) includes interest expense, interest income and derivative and
foreign currency losses. Interest expense includes interest on our $70.0 million term loan and
$10.0 million revolving credit facility entered into in November 2007, interest on our $15.0
million supplemental term loan and $10.0 million supplemental revolving credit facility entered
into in June 2010, and amortization of debt financing costs. We had $10.0 million outstanding under
the revolving credit facility as of June 30 2010, which was drawn on June 9, in connection with the
acquisition of EducationCity. No amounts were outstanding under the revolving credit facility
during the six months ended June 30, 2009. The amounts borrowed under our term loan bear interest
at rates based upon either a base rate or LIBOR, plus an applicable margin. Interest income
includes income on our cash and cash equivalent investments and from our note receivable from
Edline. Derivative loss includes changes in the fair value and realized interest income and expense
on our interest rate swap, which is required by the terms of our credit facility and is part of our
overall risk management strategy. We entered into the swap arrangement in December 2007 with an
initial notional amount of $45.5 million. In June 2009, the notional amount of the interest rate
swap decreased to $40.5 million and will decrease in periodic amounts to a notional amount of $30.5
million at the December 31, 2010 termination date. At June 30, 2010, the notional amount of the
interest rate swap was $30.5 million. We swapped a floating rate payment based on the three-month
LIBOR for a fixed rate of 4.035% in order to minimize the variability in expected future cash flow
due to interest rate movements on our LIBOR-based variable rate debt. We have not designated our
interest rate swap as a cash flow hedge. The foreign currency loss was primarily related to
payments of intercompany transactions between EducationCity in the United States and the United
Kingdom.
Provision for Income Tax.
Our provision for income tax is comprised of federal, foreign, state and local taxes based on
our income in the appropriate jurisdictions. Prior to the reorganization transaction where
shareholders of Archipelago Learning Holdings, LLC exchanged their shares for stock in Archipelago
Learning, Inc., we were treated as a partnership and were not a taxpaying entity for federal income
tax purposes. As a result, our income was taxed to our members in their individual federal income
tax returns. Upon the reorganization, we became taxed as a corporation. Upon our acquisition of
EducationCity, we became a taxpayer in the United Kingdom for the taxable income of Educationcity
Limited. We recognized tax expense using an effective rate of 26.0% for the three months ended June
30, 2010. Tax expense for the three months ended June 30, 2009 represented unrecognized tax
benefits related to a state tax filing position.
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Comparison of the Six Months Ended June 30, 2010 and 2009
The following table summarizes our consolidated operating results for the six months ended
June 30 (dollars in thousands):
Change | ||||||||||||||||
2010 | 2009 | Dollars | Percentage | |||||||||||||
Revenue |
$ | 26,146 | $ | 20,200 | $ | 5,946 | 29.4 | % | ||||||||
Cost of revenue |
1,942 | 1,435 | 507 | 35.3 | % | |||||||||||
Gross profit |
24,204 | 18,765 | 5,439 | 29.0 | % | |||||||||||
Operating expense: |
||||||||||||||||
Sales and marketing |
7,968 | 6,258 | 1,710 | 27.3 | % | |||||||||||
Content development |
2,267 | 1,588 | 679 | 42.8 | % | |||||||||||
General and administrative |
9,380 | 4,334 | 5,046 | 116.4 | % | |||||||||||
Total |
19,615 | 12,180 | 7,435 | 61.0 | % | |||||||||||
Income from continuing operations |
4,589 | 6,585 | (1,996 | ) | (30.3 | %) | ||||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
(1,649 | ) | (1,349 | ) | (300 | ) | (22.2 | %) | ||||||||
Interest income |
303 | 14 | 289 | ** | ||||||||||||
Foreign currency loss |
(99 | ) | | (99 | ) | ** | ||||||||||
Derivative loss |
(46 | ) | (169 | ) | 123 | 72.8 | % | |||||||||
Total |
(1,491 | ) | (1,504 | ) | 13 | 0.9 | % | |||||||||
Net income from continuing operations before tax |
3,098 | 5,081 | (1,983 | ) | (39.0 | %) | ||||||||||
Provision for income tax |
1,176 | 232 | 944 | 406.9 | % | |||||||||||
Net income from continuing operations |
$ | 1,922 | $ | 4,849 | $ | (2,927 | ) | (60.4 | %) | |||||||
** | Percentage not meaningful for analysis. |
Revenue.
Revenue for the six months ended June 30, 2010 was $26.1 million, representing an increase of
$5.9 million, or 29.4%, as compared to revenue of $20.2 million for the six months ended June 30,
2009. Subscription and training revenue is recognized over the term of the subscription, which
averages 15 months. Consequently, our revenue in any month is impacted by invoiced sales from
subscriptions purchased or renewed during the current and prior periods. The increase in revenue
during the period is due to increased traction in states newly entered in the prior year, increased
products in our more mature states leading to additional sales to existing customers, our increased
focus on existing customers and renewal efforts, and our planned increases in our sales force, as
well as $0.5 million in revenues attributable to EducationCity.
The following table sets forth information regarding our invoiced sales as well as other
metrics that impact our revenue for the six months ended June 30 (dollars in thousands):
2010 | 2009 | |||||||
Invoiced sales: |
||||||||
Study Island new customers |
$ | 7,353 | $ | 6,550 | ||||
Study Island existing customers |
17,254 | 12,839 | ||||||
Study Island other sales |
567 | 605 | ||||||
EducationCity |
1,104 | | ||||||
Total |
26,278 | 19,994 | ||||||
Change in deferred revenue |
(132 | ) | 206 | |||||
Revenue |
$ | 26,146 | $ | 20,200 | ||||
Other metrics: |
||||||||
Schools using Study Island products |
22,842 | 19,214 | ||||||
Study Island products available |
1,337 | 1,186 |
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We increased our standard pricing in January 2010. We do not believe, however, that this
pricing increase is meaningful to changes in our revenue. Our pricing structure is complex, using a
set of standard prices, but offering discretionary discounts of different amounts for a wide range
of circumstances with our clients. Additionally, considering that we recognize revenue from
customer subscriptions ratably over the subscription periods (which average 15 months, but vary
under many circumstances), price increases have a delayed impact on revenue within a single period
presented in our financial statements.
The timing of sales to new and existing Study Island customers is affected by seasonal trends
associated with school budget years and state testing calendars. As a result, most new
subscriptions and renewals occur in the third quarter because teachers and school administrators
typically make purchases for the new academic year at the beginning of their districts fiscal
year, which is usually July 1. Our fourth quarter has historically produced the second highest
level of new subscriptions and renewals, followed by our second and first quarters. Because revenue
from customer subscriptions is deferred over the course of the subscription period and our
customers pay for their subscriptions at the beginning of the subscription period, this seasonality
does not cause our revenue to fluctuate significantly, but does impact our cash flow.
Cost of Revenue.
Cost of revenue for the six months ended June 30, 2010 increased by $0.5 million, or 35.3%, to
$1.9 million from $1.4 million for the six months ended June 30, 2009. This increase in cost of
revenue was primarily attributable to a $0.4 million increase in engineering salaries and related
costs resulting from increased headcount focusing on enhancing resources and management, along with
annual salary increases and bonus payments, as well as $0.1 million of costs attributable to
EducationCity.
Sales and Marketing Expense.
Sales and marketing expense for the six months ended June 30, 2010 increased by $1.7 million,
or 27.3%, to $8.0 million from $6.3 million for the six months ended June 30, 2009. This increase
was primarily attributable to a $1.3 million increase in salaries and related costs resulting from
increased headcount, annual salary increases and bonus payments, as well as $0.4 million of costs
attributable to EducationCity.
Content Development Expense.
Content development expense for the six months ended June 30, 2010 increased by $0.7 million,
or 42.8%, to $2.3 million from $1.6 million for the six months ended June 30, 2009. This increase
was primarily attributable to a $0.4 million increase in salaries and related costs related to
increased headcount for the development of our enhanced Study Island version 3 and the launch of
additional products in Canada, along with annual salary increases and bonus payments, a $0.2
million increase in outsourced content writing costs, primarily related to development of our new
SAT and ACT products and to Northstar Learning, as well as $0.1 million of costs for the
development of our EducationCity products.
General and Administrative Expense.
General and administrative expense for the six months ended June 30, 2010 increased by $5.0
million, or 116.4%, to $9.4 million from $4.3 million for the six months ended June 30, 2009. This
increase was primarily attributable to $3.3 million in transaction costs related to the acquisition
of EducationCity, a $0.3 million increase in salaries and related costs, primarily due to increased
stock-based compensation expense from equity awards granted at our initial public offering, a $1.0
million increase in audit, accounting and legal fees related to the requirements of being a public
company, as well as $0.2 million of costs attributable to EducationCity.
Other Income (Expense).
Other income (expense) totaled $1.5 million of net expense for the six months ended June 30,
2010, which was consistent with net expense of $1.5 million for the six months ended June 30, 2009.
Interest expense increased $0.3 million during the period due to our additional loan on our term
loan and draw on our revolving credit facility, which was offset by $0.3 million of interest income
from our note receivable from Edline.
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Table of Contents
Provision for Income Tax.
Our provision for income tax is comprised of federal, foreign, state and local taxes based on
our income in the appropriate jurisdictions. Prior to the reorganization transaction where
shareholders of Archipelago Learning Holdings, LLC exchanged their shares for stock in Archipelago
Learning, Inc., we were treated as a partnership and were not a taxpaying entity for federal income
tax purposes. As a result, our income was taxed to our members in their individual federal income
tax returns. Upon the reorganization, we became taxed as a corporation. Upon our acquisition of
EducationCity, we became a taxpayer in the United Kingdom for the taxable income of Educationcity
Limited. We recognized tax expense using an effective rate of 38.0% for the six months ended June
30, 2010. Tax expense for the six months ended June 30, 2009 represented unrecognized tax benefits
related to a state tax filing position.
Liquidity and Capital Resources
Our primary cash requirements include the payment of our operating expense, interest and
principal payments on our debt, and capital expenditures. Prior to our reorganization and initial
public offering, we used cash to make dividend payments and tax-related distributions to our equity
holders. We do not anticipate paying any dividends on our capital stock for the foreseeable future.
We may also incur unexpected costs and operating expenses related to any unforeseen disruptions to
our servers, the loss of key personnel or changes in the credit markets and interest rates, which
could increase our immediate cash requirements or otherwise impact our liquidity. We finance our
operations primarily through cash flow from operations, which is typically the highest in the third
and fourth quarters when our sales are highest and invoices are paid. Our cash flow from operations
is typically flat in the first and second quarters. Several factors outside of our control may
impact our cash flow. For example, we believe that there is substantial uncertainty around the
substance and timing of the ESEA reauthorization. We believe that although the current presidential
administration has stated that education reform is a priority for 2010, it is unlikely to occur
this year. The terms of its extension, reauthorization or new legislation that would replace it may
materially impact the demand for our products. If new legislation lessens the importance of
standards, assessments and accountability, or introduces national standards or assessments that
would make it easier for competitors to enter our markets, demand for our products may materially
decrease, and we may experience lower cash flows, which would affect our liquidity. In addition, if
sufficient funding is not provided to education and state and local budget cuts in education
continue, our public school and school district customers may lack funding to buy our products
which may result in fewer sales or require us to lower prices for our Study Island products, either
of which would have a negative impact on our cash flow.
Our primary sources of liquidity are our cash and cash equivalent balances as well as
availability under our revolving credit facility. As of June 30, 2010, we had cash and cash
equivalents of $23.3 million and $10.0 million of availability under our revolving credit facility.
Our total indebtedness was $86.2 million at June 30, 2010, including our additional term loan of
$15.0 million and draw on the revolving credit facility of $10.0 million in connection with the
acquisition of EducationCity and amended credit agreement. We believe that our consistent cash flow
and our $10.0 million availability combined with our low capital expenditure costs will provide us
with sufficient capital to continue to grow our business. There can be no assurance, however, that
cash resources will be available to us in an amount sufficient to enable us to service our
indebtedness or to fund our other liquidity needs. Our ability to meet our debt service obligations
and other capital requirements, including capital expenditures and acquisitions, will depend upon
our future results of operations and our ability to obtain additional debt or equity capital and
our ability to stay in compliance with our financial covenants, which, in turn, will be subject to
general economic, financial, business, competitive, legislative, regulatory and other conditions,
many of which are beyond our control. We may also need to obtain additional funds to finance
acquisitions, which may be in the form of additional debt or equity. Although we believe we have
sufficient liquidity under our revolving credit facility, as discussed above, under extreme market
conditions there can be no assurance that such funds would be available or sufficient, and in such
a case, we may not be able to successfully obtain additional financing on favorable terms, or at
all.
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Cash Flow
Our net consolidated cash flows consist of the following, for the six months ended June 30 (in
thousands):
2010 | 2009 | |||||||
Provided by (used in): |
||||||||
Operating activities |
$ | 4,161 | $ | 4,832 | ||||
Investing activities |
(61,724 | ) | (394 | ) | ||||
Financing activities |
22,351 | (1,642 | ) |
Cash Flow from Operating Activities
Net cash provided by operating activities was $4.2 million for the six months ended June 30,
2010, compared to $4.8 million during the six months ended June 30, 2009. This $0.7 million
decrease was primarily due to payments for transaction costs related to the acquisition of
EducationCity of $3.2 million, partially offset by cash generated from net income, excluding
transaction costs.
Cash Flow from Investing Activities
Net cash used for investing activities for the six months ended June 30, 2010 included $61.3
million for the purchase of EducationCity and $0.4 million for the purchase of property and
equipment. Net cash used for investing activities for the six months ended June 30, 2009 was $0.4
million for the purchase of property and equipment.
Cash Flow from Financing Activities
Net cash provided by financing activities in the six months ended June 30, 2010 included $15.0
million of additional term note, $10.0 million drawn on our revolver, less $0.8 million paid in
additional financing costs, in order to finance the acquisition of EducationCity, $1.5 million for
the payment of offering costs accrued at December 31, 2009 and $0.4 million in principal payments
on our term loan. Net cash used for financing activities in the six months ended June 30, 2009
included $0.9 million of payments on our term loan and funding of $0.8 million to the members of
the LLC related to member tax liabilities.
Credit Facility
In November 2007, our subsidiary, Archipelago Learning, LLC (formerly Study Island, LLC) (the
Borrower), entered into an $80.0 million credit facility with General Electric Capital
Corporation, as agent, composed of a $70.0 million term loan and a $10.0 million revolving credit
facility, which expires in November 2013. The proceeds of the term loan and $4.9 million in cash
were used to pay a distribution of $73.2 million to holders of Class A shares of Archipelago
Learning Holdings, LLC and debt financing costs. The term loan bears interest at rates based upon
either a base rate or LIBOR plus an applicable margin (3.75% as of June 30, 2010 and 3.25% as of
June 30, 2009, in each case for a LIBOR-based term loan) determined based on the Borrowers
leverage ratio. Amounts under the revolving credit facility can be borrowed and repaid, from time
to time, at the Borrowers option, subject to the pro forma compliance with certain financial
covenants.
In May 2009, the credit agreement governing the term loan and the revolving credit facility
(the Credit Agreement) was amended to permit the creation of AL Midco, LLC, or AL Midco, a new
wholly owned subsidiary of Archipelago Learning Holdings, LLC, which assumed all of Archipelago
Learning Holdings, LLCs interests in the Borrower. AL Midco became a guarantor under the Credit
Agreement and Archipelago Learning Holdings, LLC was released as a guarantor. In November 2009, the
Credit Agreement was further amended to permit the sale of TeacherWeb. This amendment further
modified certain terms of the Credit Agreement, including adding a LIBOR floor of 1.25% to the
calculation of the interest rates and reducing the letter of credit sublimit available to the
Borrower under the Credit Agreement from $2.0 million to $1.0 million. In addition, the Borrower
repaid an aggregate amount of $6.5 million upon the consummation of the sale of TeacherWeb, which
was completed in November 2009. As a result of the sale, TeacherWeb was released as a guarantor.
In June 2010, the Credit Agreement was further amended to permit the acquisition of
EducationCity and to add a $15 million supplemental term loan and an additional $10 million to the
revolving credit facility. This amendment further modified certain terms of the Credit Agreement,
including increasing the applicable margin on all loans by 0.50%, modifying the definition of
permitted acquisitions, and increasing the letter of credit sublimit available to the Borrower
under the Credit Agreement from $1.0 million to $2.0 million.
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The Credit Agreement is secured on a first-priority basis by security interests (subject to
permitted liens) in substantially all tangible and intangible assets owned by the Borrower and AL
Midco. In addition, any future domestic subsidiaries of the Borrower will be required (subject to
certain exceptions) to guarantee the Credit Agreement and grant liens on substantially all of its
assets to secure such guarantee.
The Credit Agreement requires the Borrower to maintain certain financial ratios, including a
leverage ratio (based on the ratio of consolidated indebtedness, net of cash and cash equivalents
subject to control agreements, to Consolidated EBITDA, defined in the Credit Agreement as
consolidated net income adjusted by adding back interest expense, taxes, depreciation, amortization
and certain other non-recurring or otherwise permitted fees and charges), an interest coverage
ratio (based on the ratio of Consolidated EBITDA to consolidated interest expense, as defined in
the Credit Agreement) and a fixed charge coverage ratio (based on the ratio of Consolidated EBITDA
to consolidated fixed charges, as defined in the Credit Agreement). Based on the formulations set
forth in the Credit Agreement, as of June 30, 2010, the Borrower was required to maintain a maximum
leverage ratio of 3.50 to 1.00, a minimum interest coverage ratio of 2.50 to 1.00 and a minimum
fixed charge coverage ratio of 1.50 to 1.00. As of June 30, 2010, the Borrowers leverage ratio was
2.15 to 1.00, its interest coverage ratio was 7.73 to 1.00 and its fixed charge coverage ratio was
3.83 to 1.00. The financial ratios the Borrower is required to maintain become more restrictive
over time. Our next scheduled increase at December 31, 2010 will bring the maximum leverage ratio
to 2.50 to 1.00, the minimum interest coverage ratio to 2.65 to 1.00 and the minimum fixed charge
coverage ratio to 1.60 to 1.00.
The Credit Agreement also contains certain affirmative and negative covenants applicable to AL
Midco, the Borrower and the Borrowers subsidiaries that, among other things, limit the incurrence
of additional indebtedness, liens on property, sale and leaseback transactions, investments, loans
and advances, merger or consolidation, asset sales, acquisitions, dividends, transactions with
affiliates, prepayments of subordinated indebtedness, modifications of the Borrowers
organizational documents and restrictions on the Borrowers subsidiaries. The Credit Agreement
contains events of default that are customary for similar credit facilities, including a
cross-default provision with respect to other indebtedness and an event of default that would be
triggered by a change of control, as defined in the Credit Agreement, and which was not triggered
by our initial public offering. As of June 30, 2010 the Borrower was in compliance with all
covenants.
The Borrower has the right to optionally prepay its borrowings under the Credit Agreement,
subject to the procedures set forth in the Credit Agreement. The Borrower may be required to make
prepayments on its borrowings under the Credit Agreement if it receives proceeds as a result of
certain asset sales, debt issuances or events of loss. In addition, a mandatory prepayment of the
borrowings under the Credit Agreement is required each fiscal year in an amount equal to (i) 75% of
excess cash flow (as defined by the Credit Agreement) if the leverage ratio as of the last day of
the fiscal year is greater than 4.00 to 1.00, (ii) 50% of excess cash flow if the leverage ratio as
of the last day of the fiscal year is less than or equal to 4.00 to 1.00 but greater than 3.25 to
1.00, or (iii) 25% of excess cash flow if the leverage ratio as of the last day of the fiscal year
is less than or equal to 3.25 to 1.00. No mandatory prepayment is required if the leverage ratio is
less than or equal to 2.50 to 1.00 on the last day of the fiscal year.
As of June 30, 2010, $76.2 million of borrowings were outstanding under the term loans and
$10.0 million of borrowings were outstanding under the revolving credit facility. As of December
31, 2009, $61.6 million of borrowings were outstanding under the term loan and no amounts were
outstanding under the revolving credit facility. For the three months ended June 30, 2010 and 2009,
the weighted average interest rate under the term loans was 4.70% and 3.72%, respectively, and for
the six months ended June 30, 2010 and 2009, the weighted average interest rate under the term
loans was 4.63% and 3.76%, before giving effect to the Borrowers interest rate swap. The rate on
the interest rate swap is the difference between the Borrowers fixed rate of 4.035% and the
floating rate of three-month LIBOR.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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Critical Accounting Policies and Estimates
Our discussion and analysis of our consolidated financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared in accordance with
GAAP. The preparation of these financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue and expense, and related
disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates
including those related to long-lived intangible and tangible assets, goodwill and stock-based
compensation. We base our estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. All intercompany balances and transactions
have been eliminated in consolidation.
The accounting policies we believe to be most critical to understanding our results of
operations and financial condition and that require complex and subjective management judgments are
discussed in our annual report on Form 10-K. We have not adopted any changes to such policies
during the three months ended June 30, 2010.
Recently Issued Accounting Standards
The Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU,
No. 2009-13, Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements, or ASU
2009-13. ASU 2009-13 amends existing revenue guidance related to revenue arrangements with multiple
deliverables to allow the use of companies estimated selling prices as the value for deliverable
elements under certain circumstances and to eliminate the use of the residual method for allocation
of deliverable elements. ASU 2009-13 is effective for fiscal years beginning on or after June 15,
2010, with earlier adoption permitted. We are currently evaluating the impact this standard will
have on our financial statements.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
Interest Rate Risk
We are exposed to interest rate risk in connection with our term loan and any borrowings under
our revolving credit facility. Amounts borrowed under our term loan and our revolving credit
facility bear interest at rates based upon a base rate or LIBOR, plus an applicable margin. To
manage our interest rate exposure, and as a requirement under our term loan, we entered into an
interest rate swap agreement with a notional amount totaling $45.5 million, of which $30.5 million
remained in effect as of June 30, 2010. We swapped a floating rate payment based on three month
LIBOR for a fixed rate of 4.035% in order to minimize the variability in expected future cash flow
due to interest rate movements on our LIBOR-based variable rate debt. Based on the short-term LIBOR
rate and our debt balance as of June 30, 2010, a 1% increase in the short-term LIBOR rate, before
giving effect to the interest rate swap, would increase our annual interest expense by
approximately $0.1 million. Due to the LIBOR floor of 1.25%, a 1% decrease in the short-term LIBOR
rate, before giving effect to the interest rate swap, would have no impact on our interest rate on
the term loan or our interest expense.
In addition, our interest income is sensitive to changes in the general level of U.S. interest
rates. We had cash and cash equivalents of $23.3 million and $58.2 million as of June 30, 2010 and
December 31, 2009, respectively. Our cash and cash equivalents are maintained primarily in short
term, treasury-backed accounts.
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Foreign Currency Risk
With the acquisition of EducationCity, we now transact business with our United Kingdom
customers, employees and vendors in British Pounds. The change in the value of the United States
dollar measured against British Pounds could positively or negatively affect our consolidated
financial results, as expressed in United States dollars. For the three months ended June 30, 2010,
2.4% of our revenues were denominated in British Pounds. We expect the percentage of revenues
denominated in foreign currencies will increase in future periods as such periods will reflect full
period sales of our EducationCity products and as we expand our international operations.
We do not hedge our foreign currency exposure using financial instruments. We maintain
sufficient cash and cash equivalents in the United Kingdom to satisfy our anticipated payment needs
in British Pounds. We cannot predict with any certainty our future exposure to such currency
exchange rate fluctuations and the impact they may have on our consolidated financial position,
results of operations, or cash flows. The current (spot), average, and low and high British Pounds
currency exchange rates as compared to the United States dollar as of and for the six months ended
June 30, 2010 were as follows:
Spot | Average | Low | High | |||||||||||||
British Pounds |
1.5071 | 1.5265 | 1.4235 | 1.6457 |
Effects of Inflation
We do not believe that inflation has had a material impact on our results of operations in the
periods presented. We cannot assure you that future inflation will not affect our operating expense
in future periods.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal
financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of the end of the period covered by this quarterly report (the Evaluation
Date). Based on this evaluation, our principal executive officer and principal financial officer
concluded that, as of the Evaluation Date, these disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
None.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
We currently are not subject to any material litigation or regulatory proceedings.
Item 1A. Risk Factors
In addition to the risk factors disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2009, we believe the following risk factors should also be considered in evaluating
our business and future prospects:
We may not realize the expected benefits of the EducationCity acquisition because of integration
difficulties and other challenges.
The success of the acquisition of EducationCity will depend, in part, on our ability to
integrate EducationCitys operations with our existing business. The integration process may be
complex, costly and time-consuming. The difficulties of integrating the operations of
EducationCitys business include, among others:
| failure to implement our business plan for the acquired business; | ||
| unanticipated issues in integrating sales, financial reporting and other systems; | ||
| unanticipated changes in applicable laws, regulations and education requirements; | ||
| failure to retain key employees; | ||
| failure to retain customers; | ||
| failure to maintain or increase sales volume; | ||
| operating, competitive and market risks inherent in our business; | ||
| the impact of the acquisition of EducationCity on our internal controls and compliance with the regulatory requirements under the Sarbanes-Oxley Act of 2002; and | ||
| unanticipated issues, expenses and liabilities. |
We may not accomplish the integration of EducationCitys business smoothly, successfully or
within the anticipated cost range or timeframe. The diversion of our managements attention from
our pre-existing operations to the integration effort and any difficulties encountered in combining
operations could prevent us from realizing the full benefits anticipated to result from the
acquisition of EducationCity and could adversely affect our business.
Fluctuations in exchange rates could have an adverse effect on our results of operations, even if
our underlying business results improve or remain steady.
Our reporting currency is the U.S. dollar, and we are exposed to foreign exchange rate risk
because, following our acquisition of EducationCity, a portion of our net sales and costs are
denominated in British Pounds, which we convert to U.S. dollars for financial reporting purposes.
We do not engage in any hedging activities with respect to currency fluctuations. Changes in
exchange rates on the translation of the earnings in foreign currencies into U.S. dollars are
directly reflected in our financial results. As such, to the extent the value of the U.S. dollar
increases or decreases against British Pounds, it may negatively impact our reported net income,
even if our results of operations denominated in local currency have improved or remained steady.
We cannot predict the impact of future exchange rate fluctuations on our results of operations and
may incur net foreign currency losses in the future, which could materially and adversely affect
our financial position and results of operations.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 9, 2010, in connection with our acquisition of EducationCity, we issued 1,242,408
shares of our common stock to Matthew Drakard, Simon Booley and Tom Morgan, the sellers of
EducationCity, in a private placement pursuant to Section 4(2) of the Securities Act and Regulation
D promulgated thereunder as a portion of the consideration of the acquisition. The aggregate value
of such shares of common stock was approximately $17.4 million. No underwriters were involved with
the issuance of such common stock.
Item 3. Defaults Upon Senior Securities
None.
Item 5. Other Information
None.
Item 6. Exhibits
See Index to Exhibits following the signature page of this Quarterly Report on Form 10-Q.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Dallas, State of Texas, on the 16th day of August, 2010.
ARCHIPELAGO LEARNING, INC. |
||||
By: | /s/ Tim McEwen | |||
Tim McEwen | ||||
President and Chief Executive Officer | ||||
By: | /s/ James Walburg | |||
James Walburg | ||||
Executive Vice President, Chief Financial Officer and Secretary |
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EXHIBIT INDEX
Exhibit | ||||
Number | Description of Exhibits | |||
4.1 | Registration Rights Agreement, dated as of June 9, 2010, by and among Archipelago Learning, Inc.,
Matt Drakard, Simon Booley and Tom Morgan. (Filed as Exhibit 4.1 to Current Report on Form 8-K
(File No. 001-34555) filed on June 10, 2010) |
|||
10.1 | Second Amendment to Employment Agreement, dated as of February 18, 2010, between Archipelago
Learning, LLC and Ray Lowrey. (Filed as Exhibit 10.45 to Annual Report on Form 10-K (File No.
001-34555) filed on March 5, 2010) |
|||
10.2 | Archipelago Learning, Inc. Amended and Restated 2009 Employee Stock Purchase Plan. (Filed as
Exhibit 99.1 to Current Report on Form 8-K (File No. 001-34555) filed on June 9, 2010) |
|||
10.3 | Share Purchase Agreement, dated as of June 9, 2010, by and among Archipelago Learning, Inc.,
Archipelago Learning Holdings UK Limited, Matt Drakard, Simon Booley and Tom Morgan. (Filed as
Exhibit 10.1 to Current Report on Form 8-K (File No. 001-34555) filed on June 10, 2010) |
|||
10.4 | Amendment No. 7 to Credit Agreement, dated as of June 9, 2010, by and among Archipelago Learning,
LLC, the other credit parties party thereto, the lenders party thereto and General Electric
Capital Corporation, as agent. (Filed as Exhibit 10.2 to Current Report on Form 8-K (File No.
001-34555) filed on June 10, 2010) |
|||
10.5 | Service Agreement, dated as of June 9, 2010, by and between Matthew Drakard and Educationcity
Limited. (Filed as Exhibit 10.3 to Current Report on Form 8-K (File No. 001-34555) filed on June
10, 2010) |
|||
10.6 | Service Agreement, dated as of June 9, 2010, by and between Simon Booley and Educationcity
Limited. (Filed as Exhibit 10.4 to Current Report on Form 8-K (File No. 001-34555) filed on June
10, 2010) |
|||
11.1 | * | Statement re computation of per share earnings (incorporated by reference to Notes to Unaudited
Condensed Consolidated Financial Statements included in this Quarterly Report). |
||
31.1 | * | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
||
31.2 | * | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
||
32.1 | * | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 |
* | Filed herewith. |