##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
 OR
 o
    
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 001-34555
 (Commission File Number)
 
 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.)3232 McKinney Avenue, Suite 400, Dallas, Texas
    
    75204(Address of Principal Executive Offices)
    
    (Zip Code)
 (800) 419-3191  (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Act
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, par value $0.001 per share
    
    NASDAQ Stock Market LLC
 Securities registered pursuant to Section 12(g) of the Act
None
 o þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



TABLE OF CONTENTS
 PageSpecial Note Regarding Forward-Looking Statements
    
    
    3PART IItem 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    18Item 1B. Unresolved Staff Comments
    
    
    34Item 2. Properties
    
    
    34Item 3. Legal Proceedings
    
    
    34PART IIItem 5. Market for the Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
    
    
    35Item 6. Selected Financial Data
    
    
    40Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    41Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    61Item 8. Financial Statements and Supplementary Data
    
    
    61Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    62Item 9A. Controls and Procedures
    
    
    62Item 9B. Other Information
    
    
    65PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    65Item 11. Executive Compensation
    
    
    65Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    65Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    65Item 14. Principal Accounting Fees and Services
    
    
    65PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    65Signatures
    
    
    66EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-99.1EX-99.2
  2




---



##### Table of Contents



Special Note Regarding Forward-Looking Statements
     ®
 3




---



##### Table of Contents



PART I
 
 Item 1.
    
    Business
 Overview
    nd
   4




---



##### Table of Contents



Our Markets
   Key Dynamics in the K-12 Education Market
  Increased Accountability. th th th
 Legislative Environment.
  Reauthorization of ESEA.
  Race to the Top
 5




---



##### Table of Contents



 Common Core Standards.
  Reduced school funding.
  Federal 2011 budget passed.
  Federal 2012 budget.
  Educational environment in the United Kingdom.
 Increased Access to Computers and the Internet.
 6




---



##### Table of Contents



The Market for Supplemental Learning Materials
   Limitations of Traditional Print Products.
 Limitations of Software Products.
 Advantages of Online Learning Solutions.
 Our Competitive Strengths
  Accessible, Dynamic Web-based Platform.
 High Impact, Low Cost Solution.
 7




---



##### Table of Contents



Customized Standards-Based Content.
 Real-time Student Tracking, Built-in Remediation and Enrichment.
 Engaging, Fun and Easy to Use for Students.
 Management Team with Strong Education and Technology Industry Expertise.
 Key Attributes of Business Model
  High Revenue Visibility and Strong Cash Flow Generation.
 Scalability and Flexibility.
 8




---



##### Table of Contents



Powerful Demand-Driven Sales and Marketing.
 Our Growth Strategy
  Expand the Number of Schools Using Our Products.
    Increase Revenue per School.
 9




---



##### Table of Contents



Develop New Products and Enhancements to our Online Platform.
 
    
    In January 2010, we released Study Island Version 3, or V3, which added additional
functionality to our Study Island online platform, which includes a custom assessment
builder, lesson plans and lessons, video content, special needs support (including expanded
text-to-speech functionality), a writing utility, digital locker, new and more sophisticated
games, and embedded professional development for teachers.
    
    In June 2010, we acquired EducationCity, a leading developer and publisher of
EducationCity.com, an online Pre-K-6 educational content and assessment program for schools
in the United Kingdom and United States.
    
    In August 2010, we began selling Reading Eggs, an online
product focused on teaching
young children to read. Reading Eggs is sold under a distribution agreement with Blake
Publishing, which requires us to pay a 35% royalty to Blake
Publishing for every sale.
    
    Between August and December 2010, we released Study Island Version 4, or V4, featuring a
completely new high school website, which has a more mature look and feel, an enhanced game
interface with age-appropriate games for teen students, reading and math remediation
products, end of course and exit exam preparation, advanced placement exam preparation, PSAT,
SAT, ACT and other norm-referenced test preparation, as well as supplemental support for
high school courses for credit and credit recovery. Other notable enhancements included in
Study Island V4 are a fully customizable teacher portal, a rich data-laden weekly
principal report, and interactive flashcard capabilities for students and teachers.
 Expand into New Related Markets.
 Postsecondary Market.
  10




---



##### Table of Contents



Pursue Acquisitions and Strategic Relationships.
 Our Products and Services
  Core Educational Principles
  
    
    Clear expectations.Each product  session
focuses on an academic standard or underlying topic and sets forth a clear goal for the
student to master the targeted skill or concept.
    
    High quality, rigorous content.We have internal subject area writer and editor expertise
and deep knowledge of each set of specific standards for which we offer products. We build
content from the ground-up, customized to each set of standards for a particular subject. We
utilize a scaffolding approach to content development that begins with skill building and
then builds to higher level thinking skills. This building block learning approach ensures
that students master grade level content and are prepared for state assessments.
    
    Fun and engaging assignments.Study Island sessions are embedded with short games segments
and reward student mastery of standards with achievement certificates. These features provide
continual positive reinforcement and reward learning to engage students and build student
confidence. EducationCity and
Reading Eggs include animated lessons and activities within the programs to encourage effort
and achievement with rewards.
 11




---



##### Table of Contents




    
    Immediate feedback.Students receive immediate feedback and explanations for each
question, allowing them to learn and quickly apply new knowledge to subsequent questions and
to build skills and conceptual understanding in order to handle more complex content that
follows.
    
    Student responsibility for learning.Study Island automatically offers explanations and
prescribes remedial or building block topics when a student does not master a standard or
sub-topic, allowing the student to quickly address any learning weakness. The student can
continue with these remediation topics until he or she gradually accelerates back to grade
level proficiency, receiving built-in rewards for learning along the way.
 Study Island
     12




---



##### Table of Contents



EducationCity
  Reading Eggs
  Northstar Learning
    13




---



##### Table of Contents



Our Customers
  Marketing, Sales and Customer Support
 Marketing Activities
   
    
    targeted campaigns to schools, such as search engine marketing, direct mail, e-mail
marketing and print advertisements;
    
    participation in tradeshows;
    
    building on relationships with satisfied school customers to target new sales in other
schools in the same district, in the entire district or in adjacent school districts;
    
    customer newsletters and advertising inserts sent to schools with renewal reminders,
including information about new and upgraded products;
    
    webinars for existing customers introducing them to new products, add-on features and
upgrades; and
    
    incentives such as free months to attract new customers or free trials of add-on products
to attract renewals.
  www.readingeggs.com
 14




---



##### Table of Contents



Field-based and Inside Sales Channels
  Customer Support
  Our Competition
  
    
    providers of online and offline supplemental instructional materials for the core subject
areas of reading, mathematics, science and social studies for K-12 institutions;
    
    companies that provide K-12-oriented software and online-based educational assessment and
remediation products and services to students, educators, parents and educational
institutions;
    
    the assessment divisions of established education publishers, including Pearson Education,
Inc., The McGraw-Hill Companies and Houghton Mifflin Harcourt Company;
    
    providers of online and offline test preparation materials;
    
    traditional print textbook and workbook companies that publish K-12 core subject
educational materials, standardized test preparation materials or paper and pencil assessment
tools;
    
    summative assessment companies that have expanded their product lines to include formative
assessment and instruction products; and
    
    non-profit and membership educational organizations and government agencies that offer
online and offline products and services, including in some cases at no cost, to assist
individuals in standards mastery and test preparation.
 15




---



##### Table of Contents



We believe the principal competitive factors in Study Island and EducationCitys market
are:
    
    quality of content and deep customization to standards;
    
    formative assessment and reporting to inform instruction;
    
    ease of use, including whether a product is available online;
    
    program efficacy and the ability to provide improved student outcomes;
    
    ability to engage students;
    
    quality of customer support;
    
    vendor reputation; and
    
    price.
   Technology
 Engineering
     16




---



##### Table of Contents



Operations
    Integration with District Student Interoperability Systems
  Seasonality
   Intellectual Property
  17




---



##### Table of Contents



®
  Employees
  Available Information
  
 Item 1A. Risk Factors
  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, and our business, financial condition,
results of operations and cash flow could be materially adversely affected.
   18




---



##### Table of Contents



If national educational standards and assessments, including common core standards, 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, or 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, which may
increase the risk of your investment and could harm our business, financial condition, results of
operations and cash flow.
  19




---



##### Table of Contents



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 suffer.
  Our revenue is primarily generated by sales of subscriptions to our products over the term of the
subscription. Our customer renewal rates are difficult to predict and declines in our sales of our
products or our customer renewal rates may materially adversely affect our business and results of
operations.
  20




---



##### Table of Contents



Our  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.
  Fluctuations in sales or renewals may not be immediately reflected in our results of operations.
  Our business is subject to seasonal fluctuations, which may cause our cash flow to fluctuate from
quarter-to-quarter and materially adversely impact the market price of our common stock.
  
    
    our customers spending patterns, including shifts in the timing of when individual schools
or districts purchase our products and services;
    
    the timing of school districts funding sources and budgeting cycles;
    
    the timing of the release of federal funds to states, and the subsequent timing of states
release of such funds to districts and schools;
    
    the timing of expirations and renewals of subscriptions;
    
    the timing of special promotions and discounts, including additional free months of
subscriptions; and
    
    the timing of acquisitions and non-recurring charges incurred in connection with
acquisitions and extraordinary transactions.
  21




---



##### Table of Contents



System disruptions, vulnerability from security risks to our networks, databases and online
applications and an inability to expand and upgrade our systems in a timely manner to meet
unexpected increases in demand could damage our reputation, impact our ability to generate revenue
and limit our ability to attract and retain customers.
  
    
    breakdowns or system failures resulting in a prolonged shutdown of our servers,
including failures attributable to power shutdowns or attempts to gain unauthorized
access to our systems, which may cause loss or corruption of data or malfunction of
software or hardware;
    
    breakdowns or system failures resulting from the release of new features or
functionality, which may cause unintended malfunctions of software or hardware;
    
    human error by systems engineers, programmers, other internal staff, collocation
or other vendor staff; performance issues, such as low response time or bugs, that
detract from the user experience;
    
    increased complexity or more difficult navigation resulting from implementation
of new features and functionality, that detract from the user experience;
    
    disruption or failure in our colocation provider, which would make it difficult
or impossible for students and teachers to log on to our websites;
    
    damage from fire, flood, tornado, power loss or telecommunications failures;
    
    infiltration by hackers or other unauthorized persons; and
    
    any infection by or spread of computer viruses.
    Any significant interruption in the operations of our data centers could cause a loss of data and
disrupt our ability to manage our network hardware and software and technological infrastructure,
and any significant interruption in the operations of our call center could disrupt our ability to
respond to requests for help or service and process orders in a timely manner.
 22




---



##### Table of Contents



We are subject to laws and regulations as a result of our collection and use of personal
information, particularly from our K-12 student users, and any violations of such laws or
regulations, or any breach, theft or loss of such information, could materially adversely affect
our reputation and operations and expose us to costly litigation.
  Domestic and foreign government regulation relating to the internet or our products and services
could cause us to incur significant expense, and failure to comply with applicable regulations
could make our business less efficient or even impossible to continue to operate.
  We may not be able to develop new products and services or expand our existing product lines in a
timely and cost effective manner.
  23




---



##### Table of Contents



We may not realize the expected benefits of the EducationCity acquisition because of integration
difficulties and other challenges. In addition, if we acquire or invest in any other companies,
services or technologies in the future, they could prove difficult to integrate, disrupt our
business, dilute stockholder value and materially adversely affect our results of operations.
   
    
    difficulties in integrating operations, technologies, services and personnel;
    
    diversion of financial and managerial resources from existing operations;
    
    risk of entering new markets;
    
    potential write-offs of acquired assets;
    
    significant one-time costs, including banking, legal and accounting fees and payment
of severance packages;
    
    potential loss of key employees;
    
    potential loss of customers;
    
    risk of not maintaining or increasing sales volume;
    
    inability to generate sufficient revenue to offset acquisition or investment costs;
    
    delays in customer purchases due to uncertainty;
    
    risk of failing to implement our business plan for the acquired business; and
    
    potential impact on our internal controls and compliance with the regulatory
requirements under the Sarbanes-Oxley Act of 2002.
  24




---



##### Table of Contents



If we are unable to maintain and enhance our brand identity, our business and results of operations
may suffer.
  Our future growth and profitability will depend in large part upon the effectiveness and efficiency
of our sales and marketing expenditures in recruiting new customers.
  
    
    secure additional new school and district customers as our penetration increases;
    
    retain existing customers and sell them additional products and services;
    
    continue our strong word-of-mouth customer referrals;
    
    retain our most productive sales managers and staff;
    
    compete effectively against larger competitors to secure district level sales;
and
    
    build an education thought leadership position with key state and district
education administrators.
  
    
    create greater awareness of our brands;
    
    select the right market, media and specific media vehicles in which to advertise;
    
    identify the most effective and efficient level of spending in each market, media
and specific media vehicle;
    
    provide timely and appropriate sales collateral to assist the sales team;
    
    determine the appropriate creative message and media mix for advertising,
marketing and promotional expenditures;
    
    determine the most appropriate pricing models and simple quote generator for
customers and sales reps;
    
    effectively manage marketing costs, including creative and media expense, in
order to maintain acceptable customer acquisition costs;
 25




---



##### Table of Contents




    
    keep the website navigation and messaging simple and relevant to customers;
    
    generate leads for sales, including obtaining educator lists in a cost-effective
manner;
    
    drive traffic to our website; and
    
    convert customer inquiries into actual orders.
  If our products or services contain errors, new product releases could be delayed or our services
could be disrupted. As a result, our customers may choose not to renew their subscriptions and our
business could be materially adversely affected.
  
    
    decreases in customer satisfaction with and loyalty toward our products and services;
    
    delays in or loss of market acceptance of our products and services;
    
    diversion of our resources;
    
    a lower rate of subscription renewals or upgrades;
    
    injury to our reputation;
    
    rebates or refunds of subscription fees;
    
    increased service expense or payment of damages; or
    
    increased competitive focus on our existing and prospective customer base.
 If we are unable to adapt our products and services to technological changes, to the emergence of
new computing devices and to more sophisticated online services, we may lose market share and
revenue, and our business could suffer.
  26




---



##### Table of Contents



Protection of our intellectual property is limited, and any misuse of our intellectual property by
others, including software piracy, could harm our business, reputation and competitive position.
   We may be sued for infringing the intellectual property rights of others and such actions would be
costly to defend, could require us to pay damages or enter into royalty or license agreements with
third parties and could limit our ability or increase our costs to use certain content or
technologies in the future.
  Our customers can input their own content to our websites. We have limited control over this
content, which could expose us to liability from third parties.
  The confidentiality, non-disclosure and other agreements we use to protect our products, trade
secrets and proprietary information may prove unenforceable or inadequate.
  27




---



##### Table of Contents



We have not registered copyrights for all of our products, which may limit our ability to enforce
them.
  We must monitor and protect our internet domain names to preserve their value. We may be unable to
prevent third parties from acquiring domain names that are similar to, infringe on or otherwise
decrease the value of our trademarks.
  We do not own all of the software, content and other technologies used in our products and
services.
  Our future success depends on our ability to retain our key employees.
  28




---



##### Table of Contents



We may be unable to attract and retain the skilled employees needed to sustain and grow our
business.
  We intend to continue to expand into international markets, which will subject us to additional
economic, operational and political risks that could increase our costs and make it difficult for
us to continue to operate profitably.
  
    
    foreign currency fluctuations, which could result in reduced revenue and increased
operating expense;
    
    potentially longer payment and sales cycles;
    
    increased difficulty in collecting accounts receivable;
    
    the effect of applicable foreign tax structures, including tax rates that may be higher
than tax rates in the United States or taxes that may be duplicative of those imposed in the
United States;
    
    tariffs and trade barriers;
    
    general economic and political conditions in each country;
    
    inadequate intellectual property protection in foreign countries;
    
    uncertainty regarding liability for information retrieved and replicated in foreign
countries;
    
    the difficulties and increased expense in complying with a variety of domestic and foreign
laws, regulations and trade standards, including the Foreign Corrupt Practices Act; and
    
    unexpected changes in regulatory requirements.
 Fluctuations in exchange rates could have an adverse effect on our results of operations, even if
our underlying business results improve or remain steady.
  29




---



##### Table of Contents



We may need additional capital in the future, but there is no assurance that funds will be
available on acceptable terms, or at all.
  Our existing indebtedness could adversely affect our financial condition and we may not be able to
fulfill our debt obligations.
  
    
    incur or guarantee additional indebtedness;
    
    pay dividends or make other distributions to our stockholders;
    
    make restricted payments;
    
    incur liens;
    
    engage in transactions with affiliates; and
    
    enter into business combinations.
   30




---



##### Table of Contents



Risks Related to Our Common Stock
 Our stock price may fluctuate significantly, and you may not be able to resell your shares at
or above the current market price.
  
    
    regulatory or political developments;
    
    market conditions in the broader stock market;
    
    actual or anticipated fluctuations in our quarterly financial and results of operations;
    
    introduction of new products or services by us or our competitors;
    
    issuance of new or changed securities analysts reports or recommendations;
    
    investor perceptions of us and the educational industry;
    
    sales, or anticipated sales, of large blocks of our stock;
    
    additions or departures of key personnel;
    
    litigation and governmental investigations; and
    
    changing economic conditions.
  If securities or industry analysts do not publish research or reports about our business, if they
adversely change their recommendations regarding our stock or if our results of operations do not
meet their expectations, our stock price and trading volume could decline.
  Sales of substantial amounts of our common stock in the public markets, or the perception that such
sales might occur, could reduce the price of our common stock and may dilute your voting power and
your ownership interest in us.
  31




---



##### Table of Contents



Insiders have substantial control over us and could limit your ability to influence the outcome of
key transactions, including a change of control.
  We no longer are a controlled company within the meaning of NASDAQ rules and as a result, we do
not qualify for exemptions from certain corporate governance requirements upon which we previously
relied. Our compliance with these corporate governance requirements from which we were previously
exempt are ongoing and subject to continuing uncertainty, and a failure to comply within the
applicable time frame may result in the delisting of our common stock on the NASDAQ.
  As a result of becoming a public company, we are obligated to develop and maintain proper and
effective internal control over financial reporting and are subject to other requirements that will
be burdensome and costly. We may not timely complete our analysis of our internal control over
financial reporting, or these internal controls may not be determined to be effective, which could
adversely affect investor confidence in our company and, as a result, the value of our common
stock.
  
    
    prepare and distribute periodic public reports and other stockholder communications in
compliance with our obligations under the federal securities laws and NASDAQ rules;
    
    create or expand the roles and duties of our board of directors and committees of the
board;
 32




---



##### Table of Contents




    
    maintain a more comprehensive financial reporting and disclosure compliance functions;
    
    maintain an accounting and financial reporting department, including personnel with
expertise in accounting and reporting for a public company;
    
    enhance and formalize closing procedures at the end of our accounting periods;
    
    maintain an internal audit function;
    
    enhance our investor relations function;
    
    establish and maintain new internal policies, including those relating to disclosure
controls and procedures; and
    
    involve and retain to a greater degree outside counsel and accountants in the activities
listed above.
  Provisions in our certificate of incorporation and bylaws and Delaware law may discourage, delay or
prevent a change of control of our company or changes in our management and, therefore, may depress
the trading price of our stock.
  
    
    restrictions on the ability of our stockholders to fill a vacancy on the board of
directors;
    
    our ability to issue preferred stock with terms that the board of directors may determine,
without stockholder approval, which could be used to significantly dilute the ownership of a
hostile acquirer;
    
    the absence of cumulative voting in the election of directors which may limit the ability
of minority stockholders to elect directors; and
    
    advance notice requirements for stockholder proposals and nominations, which may discourage
or deter a potential acquirer from soliciting proxies to elect a particular state of
directors or otherwise attempting to obtain control of us.
  We do not expect to pay dividends, and any return on an investment in our common stock will likely
be limited to the appreciation of our common stock.
  33




---



##### Table of Contents



Our certificate of incorporation contains a provision renouncing our interest and expectancy in
certain corporate opportunities.
  
 Item 1B.  Unresolved Staff Comments
  
 Item 2.
    
    Properties
  Location
    
    Type
    
    Lease Expiration
    
    
    Square FootageDallas, Texas
    
    Headquarters
    
    
    2020
    
    
    
    37,218Dallas, Texas
    
    Former headquarters
    
    
    2012
    
    
    
    18,508Naperville, Illinois
    
    EducationCity U.S.
    
    
    2012
    
    
    
    13,226Rutland, U.K.
    
    EducationCity U.K.
    
    
    2014
    
    
    
    9,000Dallas, Texas
    
    Hosting colocation facility
    
    
    2011
    
    
    
    504Chicago, Illinois
    
    Hosting colocation facility
    
    
    2012
    
    
    
    225
 
 Item 3.
    
    Legal Proceedings
  34




---



##### Table of Contents



PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
  Market for Our Common Stock
  High
    
    
    LowYear-ended December 31, 2010:Fourth quarter
    
    $
    12.95
    
    
    $
    8.18Third quarter
    
    
    12.35
    
    
    
    9.37Second quarter
    
    
    16.27
    
    
    
    11.27First quarter
    
    
    21.22
    
    
    
    13.77Year-ended December 31, 2009:November 20, 2009 through December 31, 2009
    
    $
    20.79
    
    
    $
    16.51
 Holders
  Dividends
    
    
    restrictions in our credit facility;
    
    general economic and business conditions;
    
    the financial condition and results of operations of us and our subsidiaries;
    
    our capital requirements and the capital requirements of our subsidiaries;
    
    the ability of our operating subsidiaries to pay dividends and make distributions to us;
and
    
    such other factors as our board of directors may deem relevant.
 35




---



##### Table of Contents



Sales of Unregistered Securities
          36




---



##### Table of Contents



Archipelago Learning Purchases of its Equity Securities
  Use of Proceeds
  37




---



##### Table of Contents



Stock Performance Graph
     COMPARISON OF 13 MONTH CUMULATIVE TOTAL RETURN*
 
 
 *
    
    $100 invested on 11/20/09 in stock or 10/31/09 in index, including reinvestment of dividends.
Fiscal year ending December 31. 38




---



##### Table of Contents



Measurement
    
    Archipelago
    
    
    NASDAQDate
    
    Learning, Inc.
    
    
    Composite
    
    
    Peer Group11/20/2009
    
    $
    100.00
    
    
    $
    100.00
    
    
    $
    100.0011/30/2009
    
    
    98.56
    
    
    
    104.99
    
    
    
    100.1112/31/2009
    
    
    110.28
    
    
    
    110.86
    
    
    
    111.531/31/2010
    
    
    95.15
    
    
    
    104.88
    
    
    
    102.412/28/2010
    
    
    96.80
    
    
    
    109.43
    
    
    
    108.873/31/2010
    
    
    77.68
    
    
    
    117.11
    
    
    
    119.724/30/2010
    
    
    77.25
    
    
    
    119.75
    
    
    
    124.335/31/2010
    
    
    77.30
    
    
    
    109.79
    
    
    
    122.206/30/2010
    
    
    60.90
    
    
    
    103.19
    
    
    
    117.067/31/2010
    
    
    58.28
    
    
    
    110.30
    
    
    
    130.028/31/2010
    
    
    55.41
    
    
    
    103.91
    
    
    
    122.159/30/2010
    
    
    63.77
    
    
    
    116.38
    
    
    
    133.7310/31/2010
    
    
    56.31
    
    
    
    123.12
    
    
    
    134.8911/30/2010
    
    
    45.98
    
    
    
    122.61
    
    
    
    148.6112/31/2010
    
    
    52.26
    
    
    
    130.29
    
    
    
    147.91
 39




---



##### Table of Contents



Item 6.
    
    Selected Financial Data
     Successor
    


    
    Predecessor2010
    
    
    2009
    
    
    2008
    
    
    2007
    


    
    2006(In thousands, except per share data)Consolidated Statements of Income:Revenue
    
    $
    58,650
    
    
    $
    42,768
    
    
    $
    31,415
    
    
    $
    18,250
    


    
    $
    10,065Gross profit
    
    
    53,610
    
    
    
    39,694
    
    
    
    29,524
    
    
    
    17,500
    


    
    
    9,722Income from continuing operations
    
    
    8,937
    
    
    
    12,630
    
    
    
    8,230
    
    
    
    3,615
    


    
    
    3,636Net income from continuing operations
    
    $
    3,452
    
    
    $
    6,374
    
    
    $
    1,114
    
    
    $
    2,924
    


    
    $
    3,663Earnings per share from continuing operations:Basic and Diluted
    
    $
    0.13
    
    
    $
    0.31
    
    
    $
    0.06
    
    
    $
    0.15
    


    
    $
    0.18Consolidated Balance Sheet Data:Deferred revenue
    
    $
    59,045
    
    
    $
    36,443
    
    
    $
    26,922
    
    
    $
    16,931
    


    
    $
    9,318Cash and cash equivalents
    
    
    32,398
    
    
    
    58,248
    
    
    
    13,144
    
    
    
    11,060
    


    
    
    1,387Total assets
    
    
    266,962
    
    
    
    192,535
    
    
    
    142,025
    
    
    
    127,591
    


    
    
    4,227Long-term debt, net of current
    
    
    74,913
    
    
    
    60,876
    
    
    
    68,600
    
    
    
    69,300
    


    
    
    Total liabilities
    
    
    159,645
    
    
    
    109,525
    
    
    
    101,551
    
    
    
    89,244
    


    
    
    9,762Total equity (deficit)
    
    
    107,317
    
    
    
    83,010
    
    
    
    40,474
    
    
    
    38,347
    


    
    
    (5,535
    )
 40




---



##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
        41




---



##### Table of Contents



2010 Events
       Key Legislative Developments that May Impact Our Business and Operations
  42




---



##### Table of Contents



43




---



##### Table of Contents



44




---



##### Table of Contents



Results of Operations
 Comparison of 2010 and 2009
  Change2010
    
    
    2009
    
    
    Dollars
    
    
    PercentageRevenue
    
    $
    58,650
    
    
    $
    42,768
    
    
    $
    15,882
    
    
    
    37.1
    %Cost of revenue
    
    
    5,040
    
    
    
    3,074
    
    
    
    1,966
    
    
    
    64.0
    %Gross profit
    
    
    53,610
    
    
    
    39,694
    
    
    
    13,916
    
    
    
    35.1
    %Operating expense:Sales and marketing
    
    
    20,447
    
    
    
    14,048
    
    
    
    6,399
    
    
    
    45.6
    %Content development
    
    
    4,686
    
    
    
    3,773
    
    
    
    913
    
    
    
    24.2
    %General and administrative
    
    
    19,540
    
    
    
    9,243
    
    
    
    10,297
    
    
    
    111.4
    %Total
    
    
    44,673
    
    
    
    27,064
    
    
    
    17,609
    
    
    
    65.1
    %Income from continuing operations
    
    
    8,937
    
    
    
    12,630
    
    
    
    (3,693
    )
    
    
    (29.2
    %)Other income (expense):Interest expense
    
    
    (4,061
    )
    
    
    (2,803
    )
    
    
    (1,258
    )
    
    
    (44.9
    %)Interest income
    
    
    572
    
    
    
    159
    
    
    
    413
    
    
    
    259.7
    %Foreign currency loss
    
    
    (161
    )
    
    
    
    
    
    
    (161
    )
    
    
    (100.0
    %)Derivative loss
    
    
    (49
    )
    
    
    (518
    )
    
    
    469
    
    
    
    90.5
    %Total
    
    
    (3,699
    )
    
    
    (3,162
    )
    
    
    (537
    )
    
    
    (17.0
    %)Net income from continuing operations before tax
    
    
    5,238
    
    
    
    9,468
    
    
    
    (4,230
    )
    
    
    (44.7
    %)Provision for income tax
    
    
    1,786
    
    
    
    3,094
    
    
    
    (1,308
    )
    
    
    (42.3
    %)Net income from continuing operations
    
    
    3,452
    
    
    
    6,374
    
    
    
    (2,922
    )
    
    
    (45.8
    %)Income from discontinued operation before tax
    
    
    
    
    
    
    261
    
    
    
    (261
    )
    
    
    (100.0
    %)Benefit from income tax on discontinued operation
    
    
    
    
    
    
    (101
    )
    
    
    101
    
    
    
    100.0
    %Net income from discontinued operation
    
    
    
    
    
    
    362
    
    
    
    (362
    )
    
    
    (100.0
    %)Net income
    
    $
    3,452
    
    
    $
    6,736
    
    
    $
    (3,284
    )
    
    
    (48.8
    %)
 Revenue.
     45




---



##### Table of Contents



2010
    
    
    2009Invoiced sales:New customers
    
    $
    18,207
    
    
    $
    15,567Existing customers
    
    
    51,642
    
    
    
    37,219Other sales
    
    
    1,536
    
    
    
    1,088Total
    
    
    71,385
    
    
    
    53,874Royalties on invoiced sales
    
    
    (153
    )
    
    
    Change in deferred revenue (1)
    
    
    (12,582
    )
    
    
    (11,106
    )Revenue
    
    $
    58,650
    
    
    $
    42,768
 
 (1)
    
    Change in deferred revenue
in 2010 excludes the amount of
deferred revenue assumed with the
acquisition of EducationCity and
includes foreign exchange
fluctuation impacts Other metrics:U.S. schools using our products
    
    
    28,500
    
    
    
    21,705U.K. schools using our products
    
    
    9,000
    
    
    
    U.S. products available
    
    
    2,269
    
    
    
    1,249U.K. products available
    
    
    66
    
    
    
    States
    
    
    50
    
    
    
    50
  46




---



##### Table of Contents



Cost of Revenue.
   Sales and Marketing Expense.
   47




---



##### Table of Contents



Content Development Expense.
   General and Administrative Expense.
   Other Income (Expense).
     48




---



##### Table of Contents



Provision for Income Tax.
  Comparison of 2009 and 2008
  Change2009
    
    
    2008
    
    
    Dollars
    
    
    PercentageRevenue
    
    $
    42,768
    
    
    $
    31,415
    
    
    $
    11,353
    
    
    
    36.1
    %Cost of revenue
    
    
    3,074
    
    
    
    1,891
    
    
    
    1,183
    
    
    
    62.6
    %Gross profit
    
    
    39,694
    
    
    
    29,524
    
    
    
    10,170
    
    
    
    34.4
    %Operating expense:Sales and marketing
    
    
    14,048
    
    
    
    12,726
    
    
    
    1,322
    
    
    
    10.4
    %Content development
    
    
    3,773
    
    
    
    2,162
    
    
    
    1,611
    
    
    
    74.5
    %General and administrative
    
    
    9,243
    
    
    
    6,406
    
    
    
    2,837
    
    
    
    44.3
    %Total
    
    
    27,064
    
    
    
    21,294
    
    
    
    5,770
    
    
    
    27.1
    %Income from continuing operations
    
    
    12,630
    
    
    
    8,230
    
    
    
    4,400
    
    
    
    53.5
    %Other income (expense):Interest expense
    
    
    (2,803
    )
    
    
    (5,161
    )
    
    
    2,358
    
    
    
    45.7
    %Interest income
    
    
    159
    
    
    
    247
    
    
    
    (88
    )
    
    
    (35.6
    %)Derivative loss
    
    
    (518
    )
    
    
    (2,119
    )
    
    
    1,601
    
    
    
    75.6
    %Total
    
    
    (3,162
    )
    
    
    (7,033
    )
    
    
    3,871
    
    
    
    55.0
    %Net income from continuing operations before tax
    
    
    9,468
    
    
    
    1,197
    
    
    
    8,271
    
    
    
    691.0
    %Provision for income tax
    
    
    3,094
    
    
    
    83
    
    
    
    3,011
    
    
    
    3,627.7
    %Net income from continuing operations
    
    
    6,374
    
    
    
    1,114
    
    
    
    5,260
    
    
    
    472.2
    %Income (loss) from discontinued operation before tax
    
    
    261
    
    
    
    (339
    )
    
    
    600
    
    
    
    177.0
    %Benefit from income tax on discontinued operation
    
    
    (101
    )
    
    
    (247
    )
    
    
    146
    
    
    
    59.1
    %Net income (loss) from discontinued operation
    
    
    362
    
    
    
    (92
    )
    
    
    454
    
    
    
    493.5
    %Net income
    
    $
    6,736
    
    
    $
    1,022
    
    
    $
    5,714
    
    
    
    559.1
    %
 49




---



##### Table of Contents



Revenue.
    2009
    
    
    2008Invoiced sales:New customers
    
    $
    15,567
    
    
    $
    14,099Existing customers
    
    
    37,219
    
    
    
    24,709Other sales
    
    
    1,088
    
    
    
    1,013Total
    
    
    53,874
    
    
    
    39,821Change in deferred revenue
    
    
    (11,106
    )
    
    
    (8,405
    )Revenue
    
    $
    42,768
    
    
    $
    31,416Other metrics:Schools using our products
    
    
    21,705
    
    
    
    17,307Products available
    
    
    1,249
    
    
    
    950States
    
    
    50
    
    
    
    50
 Cost of Revenue.
  Sales and Marketing Expense.
  Content Development Expense.
  50




---



##### Table of Contents



General and Administrative Expense.
  Other Income (Expense).
   Provision for Income Tax.
  Liquidity and Capital Resources
   51




---



##### Table of Contents



Cash Flows
  2010
    
    
    2009
    
    
    2008Provided by (used in):Operating activities
    
    $
    24,303
    
    
    $
    21,627
    
    
    $
    13,551Investing activities
    
    
    (60,078
    )
    
    
    (3,125
    )
    
    
    (10,982
    )Financing activities
    
    
    9,575
    
    
    
    26,602
    
    
    
    (485
    )
 Cash Flows from Operating Activities
   Cash Flows from Investing Activities
   52




---



##### Table of Contents



Cash Flows from Financing Activities
    Credit Facility
      53




---



##### Table of Contents



Contractual Obligations
  Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsLong-term debt obligations(1)
    
    $
    75,763
    
    
    $
    850
    
    
    $
    74,913
    
    
    $
    
    
    
    $
    Operating lease obligations
    
    
    10,119
    
    
    
    1,589
    
    
    
    2,237
    
    
    
    1,839
    
    
    
    4,454Colocation contracts
    
    
    377
    
    
    
    318
    
    
    
    59
    
    
    
    
    
    
    
    Unconditional purchase obligations
    
    
    303
    
    
    
    303
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    86,562
    
    
    $
    3,060
    
    
    $
    77,209
    
    
    $
    1,839
    
    
    $
    4,454
 
 (1)
    
    Interest payments based on variable interest rates on our long-term
debt obligations are excluded from our contractual obligations.  54




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
   Revenue Recognition
     Business Combinations
  55




---



##### Table of Contents



Goodwill, Intangible Assets and Long-Lived Assets
     
    
    Data from actual open marketplace transactions.We may utilize such information, if
available, where those transactions may involve assets or equity, to assist management in
evaluating goodwill impairment.
    
    Anticipated future cash flows and terminal value for each reporting unit.The income
approach to determining the fair value relies on the timing and estimates of future cash
flows, including an estimate of terminal value. The projections use managements estimates
of economic and market conditions over the projected period including growth rates in
revenue, customer attrition and estimates of any expected changes in operating margins. We
have utilized an income growth rate for our estimates, which we believe to be reasonable
based on historical growth and market and industry conditions. Our projections of future
cash flows are subject to change as actual results are achieved that differ from those
anticipated. Because management frequently updates its projections, we would expect to
identify on a timely basis any significant differences between actual results and recent
estimates. We are not expecting actual results to vary significantly from estimates.
    
    Selection of an appropriate discount rate.The income approach requires the
selection of an appropriate discount rate, which is based on a weighted-average cost of
capital analysis. The discount rate is affected by changes in short-term interest rates
and long-term yield as well as variances in the typical capital structure of marketplace
participants. For our impairment testing in the fourth quarter of 2010, we utilized a
weighted-average cost of capital which was developed using a combination of a risk free
rate, an equity premium, and a risk factor. For the risk free rate, we utilized the
20-year U.S. government bond rate. The equity premium was developed based on a study of
historical security market returns, adjusted for the size of our reporting entities. The
risk factor was based on our product lines, potential changes in market
demand, current market conditions and other potentially relevant factors. Given the current
volatile general economic conditions, it is possible that the discount rate will fluctuate
in the near term.
 56




---



##### Table of Contents



Stock-Based Compensation Expense
    57




---



##### Table of Contents



58




---



##### Table of Contents



2010
    
    
    2009
    
    
    2008
    
    
    2007Pre-Reorganization:Class B Shares granted
    
    
    
    
    
    
    673,287
    
    
    
    456,336
    
    
    
    5,720,692Class C Shares granted
    
    
    
    
    
    
    673,287
    
    
    
    456,336
    
    
    
    5,720,692Class B Shares cancelled or forfeited
    
    
    
    
    
    
    
    
    
    
    (821,588
    )
    
    
    Class C Shares cancelled or forfeited
    
    
    
    
    
    
    
    
    
    
    (273,864
    )
    
    
    Reorganization:Exchange of Class B and Class C Shares for Common stock
    
    
    
    
    
    
    530,474
    
    
    
    
    
    
    
    Exchange of Class B and Class C Shares for Restricted
Common stock
    
    
    
    
    
    
    1,394,260
    
    
    
    
    
    
    
    Post-Reorganization:Common stock issued (1)
    
    
    1,249,168
    
    
    
    1,768
    
    
    
    
    
    
    
    Restricted Common stock issued
    
    
    7,555
    
    
    
    1,768
    
    
    
    
    
    
    
    Stock-options granted
    
    
    149,999
    
    
    
    552,594
    
    
    
    
    
    
    
    
 
 (1)
    
    Issuance consists of 1,242,408 shares issued in connection with the acquisition of
EducationCity in June 2010. Such shares were issued in a private placement transaction. See Note
3, Acquisition, in the Notes to the Consolidated Financial Statements included in this Annual
Report, for additional information on this transaction. The remaining stock issuances were related
to common shares issued as compensation to the board of directors.  
    
    our strong operating performance in the last half of 2008;
    
    the prevailing adverse market conditions;
    
    the financial crisis and reduced initial public offering and merger activity;
    
    the ongoing recession;
    
    the lack of a liquid market for the Class B and Class C shares, and the assumption
that a liquidity event, such as an initial public offering or strategic sale, would not
occur prior to 2010 but more likely in 2011, when the market and overall economy were
expected to recover;
    
    the decline in state tax receipts and the uncertainty in state education funding;
    
    the decision by Congress in October 2008 to delay the reauthorization of the
Elementary and Secondary Education Act (commonly referred to during the Bush
administration as No Child Left Behind) and the further uncertainty in federal education
funding;
    
    the impact of the priority of the Class A shares as well as the Class A-2 shares that
were issued in June 2008; and
    
    the nearly doubled distribution thresholds applicable to the January 2009 grants as
compared to the May 2008 grant.
   
    
    our significantly stronger operating performance;
    
    improved stock market performance;
    
    improved prospects for a liquidity event as a result of an improved initial
public offering market;
    
    improved economic conditions and the possible end of the recession;
    
    the enactment of the American Recovery and Reinvestment Act of 2009, the largest
economic stimulus bill in history, which provided for approximately $100 billion in
education funding at the federal and state level; and
    
    the launch of our Northstar Learning postsecondary product line in April 2009.
 59




---



##### Table of Contents



Accounts Receivable
  Recently Issued and Adopted Accounting Standards
 Adopted
 Fair Value Measurements and Disclosures (Topic 820): Improving
Disclosures about Fair Value Measurements.
 Issued
 Revenue
Recognition (Topic 605)  Multiple-Deliverable Revenue Arrangements
 Software (Topic 985)  Certain
Revenue Arrangements That Include Software Elements.
  60




---



##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Risk
   Effects of Inflation
  Foreign Currency Exchange Rate Risk
   
 Item 8. Financial Statements and Supplementary Data
   61




---



##### Table of Contents



March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2010
    
    
    2010(2)
    
    
    2010
    
    
    2010Revenue
    
    $
    12,549
    
    
    $
    13,597
    
    
    $
    15,449
    
    
    $
    17,055Gross profit
    
    
    11,636
    
    
    
    12,568
    
    
    
    13,915
    
    
    
    15,491Income from
continuing
operations
    
    
    3,984
    
    
    
    605
    
    
    
    1,480
    
    
    
    2,868Net (loss) income
from continuing
operations
    
    $
    2,067
    
    
    $
    (145
    )
    
    $
    152
    
    
    $
    1,378Earnings (loss) per
share from
continuing
operations:Basic and diluted
    
    $
    0.08
    
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.05
 March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2009
    
    
    2009
    
    
    2009
    
    
    2009(1)Revenue
    
    $
    9,947
    
    
    $
    10,253
    
    
    $
    10,601
    
    
    $
    11,967Gross profit
    
    
    9,197
    
    
    
    9,569
    
    
    
    9,849
    
    
    
    11,079Income from
continuing
operations
    
    
    3,386
    
    
    
    3,200
    
    
    
    2,870
    
    
    
    3,174Net (loss) income
from continuing
operations
    
    $
    2,479
    
    
    $
    2,371
    
    
    $
    1,695
    
    
    $
    (171
    )Earnings (loss) per
share from
continuing
operations:Basic and diluted
    
    $
    0.13
    
    
    $
    0.12
    
    
    $
    0.09
    
    
    $
    (0.01
    )
 
 (1)
    
    In November 2009 we completed our Corporate Reorganization, resulting in a change in our
equity structure and the conversion to a taxpaying entity, resulting in an immediate tax
expense of $2.0 million to record initial deferred tax items and additional tax expense for
the remainder of the year of $0.5 million. In October 2009, we completed our sale of
TeacherWeb, resulting in its classification as a discontinued operation.(2)
    
    On June 9, 2010, we acquired EducationCity. Accordingly, EducationCity has been included in
our results since the date of acquisition. 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Disclosure Controls and Procedures
 Annual Report on Form 10-K ,
 Managements Report on Internal Control Over Financial Reporting
  62




---



##### Table of Contents



Changes in Internal Control over Financial Reporting
  63




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal
Control  Integrated Framework
    Internal
Control  Integrated Framework
   
 64




---



##### Table of Contents



Item 9B. Other Information
  
 PART III
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 Consolidated Financial Statements
  Index to Consolidated Financial Statements
    
    
    67Report of Independent Registered Public Accounting Firm
    
    
    68Consolidated Balance Sheets as of December 31, 2010 and 2009
    
    
    69Consolidated Statements of Income for the three years ended December 31, 2010
    
    
    70Consolidated Statements of Changes in Equity and Comprehensive Income for the
three years ended December 31, 2010
    
    
    71Consolidated Statements of Cash Flows for the three years ended December 31, 2010
    
    
    72Notes to Consolidated Financial Statements
    
    
    73
 Financial Statement Schedules
  Exhibit List
  65




---



##### Table of Contents



SIGNATURES
 th
 ARCHIPELAGO LEARNING, INC.By:
    /s/  Tim McEwenTim McEwenPresident and Chief Executive Officer POWER OF ATTORNEY
  th
 Signature
    
    Title/s/ Tim McEwen

Tim McEwen
    
    President, Chief Executive Officer and Director
(Principal Executive Officer)/s/
Mark S. Dubrow

Mark S. Dubrow
    
    Executive Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer)/s/ Brian H. Hall
    
    DirectorBrian H. Hall/s/ Thomas F. Hedrick

Thomas F. Hedrick
    
    Director/s/ Ruth E. Orrick

Ruth E. Orrick
    
    Director/s/ David Phillips
    
    DirectorDavid Phillips/s/ Michael Powell
    
    DirectorMichael Powell/s/ Peter Wilde
    
    ChairmanPeter Wilde
 66




---



##### 



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
  
 PageReport of Independent Registered Public Accounting Firm
    
    
    68Consolidated Balance Sheets as of December 31, 2010 and 2009
    
    
    69Consolidated Statements of Income for the three years ended December 31, 2010
    
    
    70Consolidated Statements of Changes in Equity and Comprehensive Income for the
three years ended December 31, 2010
    
    
    71Consolidated Statements of Cash Flows for the three years ended December 31, 2010
    
    
    72Notes to Consolidated Financial Statements
    
    
    73
  67




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal Control-Integrated Framework
    68




---



##### Table of Contents



ARCHIPELAGO LEARNING, INC.
 
 CONSOLIDATED BALANCE SHEETS
 As of
    
    
    As ofDecember 31,
    
    
    December 31,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    32,398
    
    
    $
    58,248Accounts receivable, net
    
    
    10,807
    
    
    
    7,535Deferred tax assets
    
    
    3,463
    
    
    
    2,528Prepaid expenses and other current assets
    
    
    3,560
    
    
    
    1,809Total
    
    
    50,228
    
    
    
    70,120Property and equipment, net
    
    
    3,760
    
    
    
    2,620Goodwill
    
    
    165,694
    
    
    
    94,373Intangible assets, net
    
    
    37,290
    
    
    
    12,327Investment
    
    
    6,446
    
    
    
    6,446Notes receivable
    
    
    1,934
    
    
    
    4,931Other long-term assets
    
    
    1,610
    
    
    
    1,718Total assets
    
    $
    266,962
    
    
    $
    192,535Liabilities and Stockholders EquityCurrent liabilities:Accounts payable  trade
    
    $
    928
    
    
    $
    1,254Accrued employee-related expenses
    
    
    2,518
    
    
    
    2,033Other accrued expenses
    
    
    1,247
    
    
    
    927Taxes payable
    
    
    979
    
    
    
    625Deferred tax liabilities
    
    
    384
    
    
    
    Deferred revenue
    
    
    44,733
    
    
    
    31,181Current portion of note payable to related party
    
    
    2,352
    
    
    
    Current portion of long-term debt
    
    
    850
    
    
    
    700Interest rate swap
    
    
    
    
    
    
    1,149Other current liabilities
    
    
    463
    
    
    
    Total
    
    
    54,454
    
    
    
    37,869Long-term deferred tax liabilities
    
    
    15,478
    
    
    
    5,093Long-term deferred revenue
    
    
    14,312
    
    
    
    5,262Long-term debt, net of current
    
    
    74,913
    
    
    
    60,876Other long-term liabilities
    
    
    488
    
    
    
    425Total liabilities
    
    
    159,645
    
    
    
    109,525Commitments and contingencies (Note 11)Stockholders equity:Preferred stock ($0.001 par value, 10,000,000
shares authorized, none issued and outstanding
at December 31, 2010 and 2009)
    
    
    
    
    
    
    Common stock ($0.001 par value, 200,000,000
shares authorized, 26,354,198 and 25,110,255
shares issued and outstanding at December 31,
2010 and 2009, respectively)
    
    
    26
    
    
    
    25Additional paid-in capital
    
    
    95,395
    
    
    
    76,072Accumulated other comprehensive income
    
    
    1,531
    
    
    
    Retained earnings
    
    
    10,365
    
    
    
    6,913Total stockholders equity
    
    
    107,317
    
    
    
    83,010Total liabilities and stockholders equity
    
    $
    266,962
    
    
    $
    192,535
  69




---



##### Table of Contents



ARCHIPELAGO LEARNING, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
 Years Ended December 31,2010
    
    
    2009
    
    
    2008(In thousands, except share and per share data)Revenue
    
    $
    58,650
    
    
    $
    42,768
    
    
    $
    31,415Cost of revenue
    
    
    5,040
    
    
    
    3,074
    
    
    
    1,891Gross profit
    
    
    53,610
    
    
    
    39,694
    
    
    
    29,524Operating Expense:Sales and marketing
    
    
    20,447
    
    
    
    14,048
    
    
    
    12,726Content development
    
    
    4,686
    
    
    
    3,773
    
    
    
    2,162General and administrative
    
    
    19,540
    
    
    
    9,243
    
    
    
    6,406Total
    
    
    44,673
    
    
    
    27,064
    
    
    
    21,294Income from continuing operations
    
    
    8,937
    
    
    
    12,630
    
    
    
    8,230Other income (expense):Interest expense
    
    
    (4,061
    )
    
    
    (2,803
    )
    
    
    (5,161
    )Interest income
    
    
    572
    
    
    
    159
    
    
    
    247Foreign currency loss
    
    
    (161
    )
    
    
    
    
    
    
    Derivative loss
    
    
    (49
    )
    
    
    (518
    )
    
    
    (2,119
    )Total
    
    
    (3,699
    )
    
    
    (3,162
    )
    
    
    (7,033
    )Net income from continuing operations before tax
    
    
    5,238
    
    
    
    9,468
    
    
    
    1,197Provision for income tax
    
    
    1,786
    
    
    
    3,094
    
    
    
    83Net income from continuing operations
    
    
    3,452
    
    
    
    6,374
    
    
    
    1,114Income (loss) from discontinued operation before tax
    
    
    
    
    
    
    261
    
    
    
    (339
    )Benefit from income tax on discontinued operation
    
    
    
    
    
    
    (101
    )
    
    
    (247
    )Net income (loss) from discontinued operation
    
    
    
    
    
    
    362
    
    
    
    (92
    )Net income
    
    $
    3,452
    
    
    $
    6,736
    
    
    $
    1,022Earnings (loss) per share:Basic:Continuing operations
    
    $
    0.13
    
    
    $
    0.31
    
    
    $
    0.06Discontinued operation
    
    
    
    
    
    
    0.02
    
    
    
    (0.01
    )Total
    
    $
    0.13
    
    
    $
    0.33
    
    
    $
    0.05Diluted:Continuing operations
    
    $
    0.13
    
    
    $
    0.31
    
    
    $
    0.06Discontinued operation
    
    
    
    
    
    
    0.02
    
    
    
    (0.01
    )Total
    
    $
    0.13
    
    
    $
    0.33
    
    
    $
    0.05Weighted-average shares outstanding:Basic
    
    
    24,585,585
    
    
    
    20,407,685
    
    
    
    19,965,866Diluted
    
    
    24,949,956
    
    
    
    20,434,486
    
    
    
    19,965,866
  70




---



##### Table of Contents



ARCHIPELAGO LEARNING, INC.
 
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND COMPREHENSIVE INCOME
 Class A
    
    Class A-2
    
    Class B
    
    Class C
    
    Preferred
    
    Common
    
    Additional
    
    AccumulatedShares
    
    Shares
    
    Shares
    
    Shares
    
    Stock
    
    Stock
    
    Paid-in
    
    Other
    
    Retained
    
    TotalUnits
    
    Value
    
    Units
    
    Value
    
    Units
    
    Value
    
    Units
    
    Value
    
    Shares
    
    Par Value
    
    Shares
    
    Par Value
    
    Capital
    
    Comprehensive Income
    
    Earnings
    
    Equity(In thousands)Balance
at January 1, 2008
    
    
    109,545
    
    
    $
    34,792
    
    
    
    
    
    
    $
    
    
    
    
    5,721
    
    
    $
    345
    
    
    
    5,721
    
    
    $
    286
    
    
    
    
    $           
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    2,924
    
    
    $
    38,347Shares
issued in acquisition
of discontinued operation
    
    
    
    
    
    
    
    
    
    
    287
    
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    456
    
    
    
    372
    
    
    
    456
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    402Forfeitures of stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (822
    )
    
    
    (33
    )
    
    
    (274
    )
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,022
    
    
    
    1,022Balance at December 31, 2008
    
    
    109,545
    
    
    
    34,792
    
    
    
    287
    
    
    
    750
    
    
    
    5,355
    
    
    
    684
    
    
    
    5,903
    
    
    
    302
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,946
    
    
    
    40,474Distributions
    
    
    
    
    
    
    (8,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,769
    )
    
    
    (11,769
    )Sale of discontinued
operation to shareholder
    
    
    
    
    
    
    2,912
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,912Reorganization
    
    
    (109,545
    )
    
    
    (29,704
    )
    
    
    (287
    )
    
    
    (750
    )
    
    
    (5,355
    )
    
    
    (684
    )
    
    
    (5,903
    )
    
    
    (302
    )
    
    
    
    
    
    
    21,798
    
    
    
    22
    
    
    
    31,571
    
    
    
    
    
    
    
    (1,957
    )
    
    
    (1,804
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    187
    
    
    
    
    
    
    
    562
    
    
    
    
    
    
    
    
    
    
    
    562Stock offering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,125
    
    
    
    3
    
    
    
    43,939
    
    
    
    
    
    
    
    
    
    
    
    43,942Net income, excluding tax
charge upon Reorganization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,693
    
    
    
    8,693Balance at December 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,110
    
    
    
    25
    
    
    
    76,072
    
    
    
    
    
    
    
    6,913
    
    
    
    83,010Stock-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,762
    
    
    
    
    
    
    
    
    
    
    
    1,762Grants of common and
restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeiture of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of shares from
employee stock purchase plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    23Issuance of shares in
acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,242
    
    
    
    1
    
    
    
    17,392
    
    
    
    
    
    
    
    
    
    
    
    17,393Additional contributed capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146
    
    
    
    
    
    
    
    
    
    
    
    146Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,452
    
    
    
    3,452Currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,531
    
    
    
    
    
    
    
    1,531Total
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,983Balance at December 31, 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    $           
    
    
    26,354
    
    
    $
    26
    
    
    $
    95,395
    
    
    $
    1,531
    
    
    $
    10,365
    
    
    $
    107,317
  71




---



##### Table of Contents



ARCHIPELAGO LEARNING, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Cash flows from operating activitiesNet income
    
    $
    3,452
    
    
    $
    6,736
    
    
    $
    1,022Adjustments to reconcile net income to net cash provided by
operating activities:Amortization of debt financing costs
    
    
    357
    
    
    
    208
    
    
    
    179Depreciation and amortization
    
    
    4,396
    
    
    
    2,720
    
    
    
    1,970Stock-based compensation
    
    
    1,762
    
    
    
    562
    
    
    
    355Allowance for doubtful accounts
    
    
    201
    
    
    
    25
    
    
    
    11Unrealized (gain) loss on interest rate swap
    
    
    
    
    
    
    (839
    )
    
    
    1,783Deferred income taxes
    
    
    1,225
    
    
    
    2,565
    
    
    
    Deferred rent
    
    
    734
    
    
    
    
    
    
    
    Loss on disposal of assets
    
    
    182
    
    
    
    
    
    
    
    Deduction of net (income) loss from discontinued operation
    
    
    
    
    
    
    (362
    )
    
    
    92Operating cash provided by discontinued operation
    
    
    
    
    
    
    904
    
    
    
    1,353Changes in operating assets and liabilities, net of
disposition and discontinued operation:Accounts receivable
    
    
    630
    
    
    
    (1,713
    )
    
    
    (2,174
    )Prepaid expenses and other
    
    
    (1,387
    )
    
    
    (854
    )
    
    
    489Accounts payable
    
    
    383
    
    
    
    (101
    )
    
    
    221Accrued expenses
    
    
    1,112
    
    
    
    245
    
    
    
    (155
    )Deferred revenue
    
    
    12,341
    
    
    
    11,106
    
    
    
    8,405Other liability
    
    
    (1,085
    )
    
    
    425
    
    
    
    Net cash provided by operating activities
    
    
    24,303
    
    
    
    21,627
    
    
    
    13,551Cash flows from investing activitiesPurchase of EducationCity
    
    
    (61,472
    )
    
    
    
    
    
    
    Proceeds from escrow for sale of TeacherWeb
    
    
    650
    
    
    
    
    
    
    
    Investment in Edline
    
    
    
    
    
    
    (2,734
    )
    
    
    Repayment (funding) of note receivable from Edline
    
    
    2,997
    
    
    
    (2,144
    )
    
    
    Sale of discontinued operation to Edline
    
    
    
    
    
    
    3,701
    
    
    
    Purchase of property and equipment
    
    
    (2,268
    )
    
    
    (1,855
    )
    
    
    (1,324
    )Proceeds from the sale of property and equipment
    
    
    15
    
    
    
    
    
    
    
    Purchase of property and equipment  discontinued operation
    
    
    
    
    
    
    (93
    )
    
    
    Acquisition of discontinued operation
    
    
    
    
    
    
    
    
    
    
    (9,658
    )Net cash used in investing activities
    
    
    (60,078
    )
    
    
    (3,125
    )
    
    
    (10,982
    )Cash flows from financing activitiesReturn of Capital distributions to members
    
    
    
    
    
    
    (8,000
    )
    
    
    Contribution from member in Reorganization
    
    
    146
    
    
    
    693
    
    
    
    Tax distributions to members
    
    
    
    
    
    
    (3,769
    )
    
    
    Payment of debt financing costs
    
    
    (804
    )
    
    
    
    
    
    
    215Proceeds from offering (payment of offering cost)
    
    
    (1,460
    )
    
    
    45,402
    
    
    
    Proceeds from term loan
    
    
    15,000
    
    
    
    
    
    
    
    Proceeds from revolver
    
    
    10,000
    
    
    
    
    
    
    
    10,000Payments on revolver
    
    
    (10,000
    )
    
    
    
    
    
    
    (10,000
    )Purchase of common stock from ESPP
    
    
    23
    
    
    
    
    
    
    
    Payments on term loan
    
    
    (830
    )
    
    
    (7,724
    )
    
    
    (700
    )Payments of
note payable to a related party
    
    
    (2,500
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    9,575
    
    
    
    26,602
    
    
    
    (485
    )Effect of foreign exchange on cash and cash equivalents
    
    
    350
    
    
    
    
    
    
    
    Net change in cash and cash equivalents
    
    
    (25,850
    )
    
    
    45,104
    
    
    
    2,084Beginning of period
    
    
    58,248
    
    
    
    13,144
    
    
    
    11,060End of period
    
    $
    32,398
    
    
    $
    58,248
    
    
    $
    13,144Supplemental informationCash paid for interest
    
    $
    3,592
    
    
    $
    2,691
    
    
    $
    4,992Cash paid for income taxes
    
    
    1,490
    
    
    
    67
    
    
    
    44Non-cash investing and financing activitiesAccrued purchases of property and equipment
    
    $
    6
    
    
    $
    95
    
    
    $
    19Accrued offering costs
    
    
    
    
    
    
    1,460
    
    
    
    Receipt of Edline stock and note receivable and amounts held
in escrow on sale of TeacherWeb (Note 6)
    
    
    
    
    
    
    7,800
    
    
    
    Contribution of tax payable from member in Reorganization
(Note 12)
    
    
    
    
    
    
    540
    
    
    
    Issuance of shares in business acquisitions (Note 3)
    
    
    17,392
    
    
    
    
    
    
    
    750Issuance of note payable for purchase of EducationCity (Note 3)
    
    
    4,688
    
    
    
    
    
    
    
    
  72




---



##### Table of Contents



ARCHIPELAGO LEARNING, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. ORGANIZATION
       2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation 
 Use of Estimates
 Revenue Recognition
 73




---



##### Table of Contents



Cost of Revenue
 Operating Expense
 Software Development Costs
 Content Development Costs
 Cash and Cash Equivalents
 74




---



##### Table of Contents



Concentrations of Credit Risk
 Accounts Receivable
 Property and Equipment
 Estimated useful lifeFurniture and fixtures
    
    4 to 7 yearsOffice equipment
    
    4 to 5 yearsComputer equipment
    
    3 to 5 yearsComputer software
    
    3 to 4 yearsLeasehold improvements
    
    Lesser of the lease term or useful life
  Leases
 Goodwill, Intangible Assets and Long-Lived Assets
  75




---



##### Table of Contents




    
    Data from actual open marketplace transactions. The Company may utilize such
information if available, where those transactions may involve assets or equity, to assist
management in evaluating goodwill impairment.
    
    Anticipated future cash flows and terminal value for each reporting unit.The
determination of discontinued cash flows relies on the timing and estimates of future cash
flows, including an estimate of terminal value. The projections use managements estimates
of economic and market conditions over the projected period including growth rates in
revenue, customer attrition and estimates of any expected changes in operating margins.
    
    Selection of an appropriate discount rate.The determination of discontinued cash
flows requires the selection of an appropriate discount rate, which is based on a
weighted-average cost of capital analysis. The discount rate is affected by changes in
short-term interest rates and long-term yield as well as variances in the typical capital
structure of marketplace participants.
   Deferred Financing Costs
 Income Taxes
  Stock-Based Compensation Expense
 76




---



##### Table of Contents



Derivatives and Hedging Activities
  Earnings per Share
  Recently Issued and Adopted Accounting Pronouncements
 Adopted
 Fair Value Measurements and Disclosures (Topic 820): Improving
Disclosures about Fair Value Measurements.
 Issued
 Revenue
Recognition (Topic 605)  Multiple-Deliverable Revenue Arrangements
 77




---



##### Table of Contents



Software (Topic 985)  Certain
Revenue Arrangements That Include Software Elements.
  3. ACQUISITION
 EducationCity
     78




---



##### Table of Contents



YearEnded December 31,2010
    
    
    2009Revenue
    
    $
    62,928
    
    
    $
    51,373Net income from continuing operations
    
    
    4,593
    
    
    
    3,795Net income
    
    
    4,593
    
    
    
    4,157Basic earnings per shareContinuing operations
    
    $
    0.18
    
    
    $
    0.18Total
    
    
    0.18
    
    
    
    0.19Diluted earnings per shareContinuing operations
    
    $
    0.18
    
    
    $
    0.18Total
    
    
    0.18
    
    
    
    0.19
  Purchase price:Cash paid to sellers, net of cash received
    
    $
    61,472Note payable
    
    
    4,688Issuance of common stock
    
    
    17,392Total
    
    $
    83,552Assets (liabilities) acquired:Accounts receivable
    
    $
    4,026Deferred tax assets
    
    
    1,890Other assets
    
    
    955Intangible assets
    
    
    26,860Accounts payable and accrued expenses
    
    
    (676
    )Deferred tax liabilities
    
    
    (10,149
    )Deferred revenue
    
    
    (9,900
    )Total
    
    $
    13,006Remaining value, recorded to goodwill
    
    $
    70,546
  4. FAIR VALUE MEASUREMENTS
   
    
    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 Companys own assumptions about the assumptions that
market participants would use.
  79




---



##### Table of Contents



Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAs of December 31, 2010Assets  cash equivalents
    
    $
    27,816
    
    
    $
    
    
    
    $
    
    
    
    $
    27,816As of December 31, 2009Assets  cash equivalents
    
    $
    55,792
    
    
    $
    
    
    
    $
    
    
    
    $
    55,792Liabilities  interest rate swap
    
    
    
    
    
    
    1,149
    
    
    
    
    
    
    
    1,149
  2010
    
    
    2009Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueInvestment
    
    $
    6,446
    
    
    
    n/a
    
    
    $
    6,446
    
    
    
    n/aNotes receivable
    
    
    1,934
    
    
    
    1,934
    
    
    
    4,931
    
    
    
    4,931Note payable to related party
    
    
    2,352
    
    
    
    2,352
    
    
    
    
    
    
    
    Term loan
    
    
    75,763
    
    
    
    75,763
    
    
    
    61,576
    
    
    
    61,229
     5. PROPERTY AND EQUIPMENT
  2010
    
    
    2009Computer equipment
    
    $
    4,051
    
    
    $
    2,754Furniture and fixtures
    
    
    745
    
    
    
    311Office equipment
    
    
    407
    
    
    
    177Computer software
    
    
    1,195
    
    
    
    837Leasehold improvements
    
    
    207
    
    
    
    606,605
    
    
    
    4,139Accumulated depreciation
    
    
    (2,845
    )
    
    
    (1,519
    )Total
    
    $
    3,760
    
    
    $
    2,620
 80




---



##### Table of Contents



6. DISCONTINUED OPERATION
   7. INVESTMENT
    8. GOODWILL AND INTANGIBLE ASSETS
  81




---



##### Table of Contents



2010
    
    
    2009
    
    
    2008Cost of revenue
    
    $
    188
    
    
    $
    84
    
    
    $
    84Sales and marketing
    
    
    2,280
    
    
    
    1,362
    
    
    
    1,362Content development
    
    
    346
    
    
    
    166
    
    
    
    166General and administrative
    
    
    114
    
    
    
    
    
    
    
    Income (loss) from discontinued operation
    
    
    
    
    
    
    355
    
    
    
    213Total
    
    $
    2,928
    
    
    $
    1,967
    
    
    $
    1,825
  2010
    
    
    2009Amortization
    
    
    Gross
    

    
    
    
    
    
    
    
    
    
    

        
    
    GrossPeriod
    
    
    Carrying
    
    
    Accumulated
    
    
    Currency
    
    
    
    
    
    
    Carrying
    
    
    Accumulated(Years)
    
    
    Amount
    
    
    Amortization
    
    
    Translation
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetGoodwill from acquisition of
Company
    
    
    n/a
    
    
    $
    94,373
    
    
    $
    
    
    
    $
    
    
    
    $
    94,373
    
    
    $
    94,373
    
    
    $
    
    
    
    $
    94,373Goodwill from the acquisition of
EducationCity U.K
    
    
    n/a
    
    
    
    11,176
    
    
    
    
    
    
    
    775
    
    
    
    11,951
    
    
    
    
    
    
    
    
    
    
    
    Goodwill from acquisition of
EducationCity U.S
    
    
    n/a
    
    
    
    59,370
    
    
    
    
    
    
    
    
    
    
    
    59,370
    
    
    
    
    
    
    
    
    
    
    
    Total goodwill
    
    
    
    
    
    $
    164,919
    
    
    $
    
    
    
    $
    775
    
    
    $
    165,694
    
    
    $
    94,373
    
    
    $
    
    
    
    $
    94,373Finite-lived intangible assets:Study Island customer relationships
    
    
    10
    
    
    $
    13,620
    
    
    $
    (5,411
    )
    
    $
    
    
    
    $
    8,209
    
    
    $
    13,620
    
    
    $
    (4,050
    )
    
    $
    9,570EducationCity customer
relationships
    
    
    9 / 11
    
    
    
    15,750
    
    
    
    (920
    )
    
    
    586
    
    
    
    15,416
    
    
    
    
    
    
    
    
    
    
    
    Study Island technical
development/program content
    
    
    10
    
    
    
    2,500
    
    
    
    (993
    )
    
    
    
    
    
    
    1,507
    
    
    
    2,500
    
    
    
    (743
    )
    
    
    1,757EducationCity technical
development/program content
    
    
    15
    
    
    
    7,060
    
    
    
    (276
    )
    
    
    300
    
    
    
    7,084
    
    
    
    
    
    
    
    
    
    
    
    EducationCity non-compete
agreements
    
    
    5
    
    
    
    1,040
    
    
    
    (121
    )
    
    
    40
    
    
    
    959
    
    
    
    
    
    
    
    
    
    
    
    Indefinite-lived intangible assets:Study Island trade name
    
    
    n/a
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    
    
    
    
    1,000EducationCity trade name
    
    
    n/a
    
    
    
    3,010
    
    
    
    
    
    
    
    105
    
    
    
    3,115
    
    
    
    
    
    
    
    
    
    
    
    Total intangible assets
    
    
    
    
    
    $
    43,980
    
    
    $
    (7,721
    )
    
    $
    1,031
    
    
    $
    37,290
    
    
    $
    17,120
    
    
    $
    (4,793
    )
    
    $
    12,327
  2011
    
    $
    3,9522012
    
    
    3,9522013
    
    
    3,9522014
    
    
    3,9522015
    
    
    3,830Thereafter
    
    
    13,537$
    33,175
  9. CREDIT FACILITY
  82




---



##### Table of Contents



83




---



##### Table of Contents



2011
    
    $
    8502012
    
    
    8502013
    
    
    74,063Total debt
    
    
    75,763Less: current maturities
    
    
    (850
    )Total long-term debt
    
    $
    74,913
 10. TAXES
   2010
    
    
    2009
    
    
    2008United States
    
    $
    5,602
    
    
    $
    9,468
    
    
    $
    1,197Foreign
    
    
    (364
    )
    
    
    
    
    
    
    Total
    
    $
    5,238
    
    
    $
    9,468
    
    
    $
    1,197
  2010
    
    
    2009
    
    
    2008Continuing operations:Current provision:Federal
    
    $
    106
    
    
    $
    
    
    
    $
    State
    
    
    (147
    )
    
    
    529
    
    
    
    83Foreign
    
    
    430
    
    
    
    
    
    
    
    Total
    
    
    389
    
    
    
    529
    
    
    
    83Deferred provision:Federal
    
    
    2,387
    
    
    
    2,407
    
    
    
    State
    
    
    (475
    )
    
    
    158
    
    
    
    Foreign
    
    
    (515
    )
    
    
    
    
    
    
    Total
    
    
    1,397
    
    
    
    2,565
    
    
    
    Tax provision from continuing operations
    
    $
    1,786
    
    
    $
    3,094
    
    
    $
    83Discontinued operation:Current provision:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    Deferred benefit:Federal
    
    
    
    
    
    
    (101
    )
    
    
    (247
    )State
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    (101
    )
    
    
    (247
    )Tax benefit from discontinued operation
    
    $
    
    
    
    $
    (101
    )
    
    $
    (247
    )
  2010
    
    
    2009
    
    
    2008Federal statutory income tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %Impact of taxation as a partnership
    
    
    
    
    
    
    (28.4
    )
    
    
    (34.0
    )Permanent differences
    
    
    11.4
    
    
    
    
    
    
    
    Tax Impact of state deferred rate adjustments
    
    
    (5.7
    )
    
    
    
    
    
    
    State taxes, net
    
    
    0.9
    
    
    
    6.5
    
    
    
    6.9Impact of UK foreign tax rate
    
    
    0.4
    
    
    
    
    
    
    
    Tax impact of adjustments to uncertain tax positions
    
    
    (4.7
    )
    
    
    
    
    
    
    Net federal deferred tax liability recorded upon Reorganization
    
    
    
    
    
    
    20.7
    
    
    
    Other, net
    
    
    (2.2
    )
    
    
    (0.1
    )
    
    
    Effective tax rate from continuing operations
    
    
    34.1
    %
    
    
    32.7
    %
    
    
    6.9
    %
  84




---



##### Table of Contents



2010
    
    
    2009Deferred tax assets:Current:Deferred revenue
    
    $
    883
    
    
    $
    1,735Allowance for doubtful accounts
    
    
    68
    
    
    
    27Unrealized loss on interest rate swap
    
    
    
    
    
    
    428Net operating loss carryforwards
    
    
    2,680
    
    
    
    338Other, net
    
    
    144
    
    
    
    Total
    
    
    3,775
    
    
    
    2,528Noncurrent:Stock-based compensation
    
    
    519
    
    
    
    52Deferred revenue
    
    
    430
    
    
    
    1,520Other, net
    
    
    168
    
    
    
    Total
    
    
    1,117
    
    
    
    1,572Total deferred tax assets
    
    $
    4,892
    
    
    $
    4,100Deferred tax liabilities:Current:Deferred revenue
    
    $
    345
    
    
    $
    Prepaid items
    
    
    351
    
    
    
    Total
    
    
    696
    
    
    
    Noncurrent:Deferred revenue
    
    
    206
    
    
    
    Depreciation
    
    
    802
    
    
    
    341Amortization
    
    
    15,587
    
    
    
    6,324Total
    
    
    16,595
    
    
    
    6,665Total deferred tax liabilities
    
    $
    17,291
    
    
    $
    6,665
  2011
    
    $
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    2016-2030
    
    
    2,680Thereafter
    
    
    Total loss carryforwards
    
    $
    2,680
   85




---



##### Table of Contents



Balance as of January 1, 2009
    
    $
    Additions for tax positions related to prior years
    
    
    223Additions for tax positions related to the current year
    
    
    202Reductions of tax positions
    
    
    Balance as of December 31, 2009
    
    $
    425Additions for tax positions related to prior years
    
    
    Additions for tax positions related to the current year
    
    
    86Reductions of tax positions
    
    
    (240
    )Balance as of December 31, 2010
    
    $
    271
   11. COMMITMENTS AND CONTINGENCIES
  2011
    
    $
    1,5892012
    
    
    1,1362013
    
    
    1,1012014
    
    
    9082015
    
    
    931Thereafter
    
    
    4,454$
    10,119
   12. STOCKHOLDERS EQUITY
   86




---



##### Table of Contents



Contributions and Distributions
   87




---



##### Table of Contents



13. EARNINGS PER SHARE
   2010
    
    
    2009
    
    
    2008Net Income
    
    
    Shares
    
    
    Net Income
    
    
    Shares
    
    
    Net Income
    
    
    SharesContinuing operations:Net income
    
    $
    3,452
    
    
    
    25,810
    
    
    $
    6,374
    
    
    
    20,572
    
    
    $
    1,114
    
    
    
    19,966Less: Income attributable to restricted shares
    
    
    (164
    )
    
    
    (1,224
    )
    
    
    (47
    )
    
    
    (164
    )Net income available to common shareholders
    
    
    3,288
    
    
    
    24,586
    
    
    
    6,327
    
    
    
    20,408Basic earnings per share
    
    $
    0.13
    
    
    
    
    
    
    $
    0.31
    
    
    
    
    
    
    $
    0.06Dilutive effect of restricted common stock
    
    
    
    
    
    
    364
    
    
    
    
    
    
    
    27Diluted earnings per share
    
    $
    0.13
    
    
    
    24,950
    
    
    $
    0.31
    
    
    
    20,435
    
    
    $
    0.06Discontinued operation:Net income (loss)
    
    $
    
    
    
    
    
    
    
    $
    362
    
    
    
    20,572
    
    
    $
    (92
    )
    
    
    19,966Less: Income attributable to restricted shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (164
    )Net income (loss) available to common
shareholders
    
    
    
    
    
    
    
    
    
    
    362
    
    
    
    20,408Basic and diluted earnings (loss) per share
    
    $
    
    
    
    
    
    
    
    $
    0.02
    
    
    
    
    
    
    $
    (0.01
    )Total:Net income
    
    $
    3,452
    
    
    
    25,810
    
    
    $
    6,736
    
    
    
    20,572
    
    
    $
    1,022
    
    
    
    19,966Less: Income attributable to restricted shares
    
    
    (164
    )
    
    
    (1,224
    )
    
    
    (47
    )
    
    
    (164
    )Net income available to common shareholders
    
    
    3,288
    
    
    
    24,586
    
    
    
    6,689
    
    
    
    20,408Basic earnings per share
    
    $
    0.13
    
    
    
    
    
    
    $
    0.33
    
    
    
    
    
    
    $
    0.05Dilutive effect of restricted common stock
    
    
    
    
    
    
    364
    
    
    
    
    
    
    
    27Diluted earnings per share
    
    $
    0.13
    
    
    
    24,950
    
    
    $
    0.33
    
    
    
    20,435
    
    
    $
    0.05
  14. STOCK-BASED COMPENSATION
 2007 Equity Compensation Plan
  88




---



##### Table of Contents



2009 Omnibus Incentive Plan
  Employee Stock Purchase Plan
    Stock-Based Compensation Expense
   2010
    
    
    2009
    
    
    2008Cost of revenue
    
    $
    244
    
    
    $
    96
    
    
    $
    7Sales and marketing
    
    
    327
    
    
    
    74
    
    
    
    32General and administrative
    
    
    1,078
    
    
    
    369
    
    
    
    298Content development
    
    
    113
    
    
    
    23
    
    
    
    18Total
    
    
    1,762
    
    
    
    562
    
    
    
    355Tax impact
    
    
    (601
    )
    
    
    (64
    )
    
    
    Net expense
    
    $
    1,161
    
    
    $
    498
    
    
    $
    355
 Restricted Common Stock
  89




---



##### Table of Contents



Per Share Weighted-AverageGrant-DateShares
    
    
    Fair ValueJanuary 1, 2010
    
    
    1,393
    
    
    $
    1.27Granted
    
    
    8
    
    
    
    12.98Vested
    
    
    (207
    )
    
    
    0.44Forfeited
    
    
    (15
    )
    
    
    0.28December 31, 2010
    
    
    1,179
    
    
    $
    0.21
  Stock Options
  2010
    
    2009Expected term(1)
    
    6.25 years
    
    6.25 yearsVolatility(2)
    
    49.3%
    
    
    49.3 %Dividend yield
    
    0%
    
    
    0 %Risk-free rate(3)
    
    2.5% to 2.8%
    
    
    2.4 %
 
 (1)
    
    The expected term was calculated as the average between the vesting term and
the contractual term. We used the simplified method discussed in ASC
718-10-S99-1, as we do
not have sufficient historical data in order to calculate a more appropriate estimate.(2)
    
    Expected volatility was based on the historical volatility of guideline
companies over a preceding period equal to the expected term of the award.(3)
    
    The risk free rate is based on the U.S. Treasury yield curve at the time of
grant for periods consistent with the expected term of the options.  Weighted-AveragePer Share Weighted-
    
    
    Weighted- Average
    
    
    RemainingAverage Exercise
    
    
    Grant Date
    
    
    Contractual TermOptions
    
    Shares
    
    
    Price
    
    
    Fair Value
    
    
    (in years)Outstanding at January 1, 2010
    
    
    553
    
    
    $
    16.50
    
    
    $
    8.30
    
    
    
    10.0Granted
    
    
    150
    
    
    
    15.77
    
    
    
    8.00Exercised
    
    
    
    
    
    
    
    
    
    
    Canceled
    
    
    (53
    )
    
    
    16.54
    
    
    
    8.33Outstanding at December 31, 2010
    
    
    650
    
    
    $
    16.33
    
    
    $
    8.23
    
    
    
    9.0Exercisable (vested) at December 31, 2010
    

    
    127
    
    
    $
    16.50
    
    
    $
    8.30
    
    
    
    8.9
 90




---



##### Table of Contents



15. EMPLOYEE BENEFIT PLANS
   16. BUSINESS SEGMENT DATA AND GEOGRAPHICAL INFORMATION
    Year EndedDecember 31,2010
    
    
    2009
    
    
    2008Revenue:North America
    
    $
    55,640
    
    
    $
    42,768
    
    
    $
    31,415United Kingdom
    
    
    3,010
    
    
    
    
    
    
    
    Total revenue
    
    $
    58,650
    
    
    $
    42,768
    
    
    $
    31,415
  December 31,
    
    
    December 31,2010
    
    
    2009Long-lived
assets:North America
    
    $
    33,134
    
    
    $
    27,042United Kingdom
    
    
    13,791
    
    
    
    Total
long-lived assets
    
    $
    46,925
    
    
    $
    27,042
 91




---



##### Table of Contents



17. RELATED-PARTY TRANSACTIONS
         18. SUBSEQUENT EVENTS
   92




---



##### Table of Contents



93




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Exhibits3.1
    
    Form of Certificate of Incorporation of Archipelago Learning, Inc. (filed as
Exhibit 3.1 to Amendment No. 4 to Registration Statement on Form S-1 (File No.
333-161717) filed on November 17, 2009)3.2
    
    Form of Bylaws of Archipelago Learning, Inc. (filed as Exhibit 3.2 to
Amendment No. 4 to Registration Statement on Form S-1 (File No. 333-161717)
filed on November 17, 2009)3.3
    
    Second Amended and Restated Limited Liability Company Agreement of Study
Island Holdings, LLC. (filed as Exhibit 3.3 to Registration Statement on Form
S-1 (File No. 333-161717) filed on September 3, 2009)4.1
    
    Form of Common Stock Certificate. (filed as Exhibit 4.1 to Amendment No. 4 to
Registration Statement on Form S-1 (File No. 333-161717) filed on November 17,
2009)4.2
    
    Form of Stockholders Agreement. (filed as Exhibit 4.2 to Amendment No. 4 to
Registration Statement on Form S-1 (File No. 333-161717) filed on November 17,
2009)4.3
    
    Reserved.4.4
    
    Form of Time Vesting Restricted Stock Award Agreement. (filed as Exhibit 4.4
to Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-161717)
filed on October 13, 2009)4.5
    
    Form of Cash Return Vesting Restricted Stock Award Agreement. (filed as
Exhibit 4.5 to Amendment No. 1 to Registration Statement on Form S-1 (File No.
333-161717) filed on October 13, 2009)4.6
    
    Form of Cash Return Vesting Restricted Stock Unit Award Agreement. (filed as
Exhibit 4.6 to Amendment No. 1 to Registration Statement on Form S-1 (File No.
333-161717) filed on October 13, 2009)4.7
    
    Form of Equity Value Vesting Restricted Stock Unit Award Agreement. (filed as
Exhibit 4.7 to Amendment No. 1 to Registration Statement on Form S-1 (File No.
333-161717) filed on October 13, 2009)4.8
    
    Form of Director Restricted Stock Agreement. (filed as Exhibit 4.8 to
Amendment No. 5 to Registration Statement on Form S-1 (File No. 333-161717)
filed on November 18, 2009)4.9
    
    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)4.10
    
    Restricted Stock Unit Agreement dated as of February 24, 2011 between
Archipelago Learning, Inc. and Timothy McEwen. (Filed as Exhibit 4.1 to
Current Report on Form 8-K (File No. 001-34555) filed on February 28, 2011)10.1
    
    2007 Equity Compensation Plan. (filed as Exhibit 10.1 to Registration
Statement on Form S-1 (File No. 333-161717) filed on September 3, 2009)10.2
    
    Form of Participation Share Agreement. (filed as Exhibit 10.2 to Registration
Statement on Form S-1 (File No. 333-161717) filed on September 3, 2009)10.3
    
    Form of Indemnification Agreement between Archipelago Holdings, Inc. and each
of its directors and executive officers. (filed as Exhibit 10.3 to Amendment
No. 4 to Registration Statement on Form S-1 (File No. 333-161717) filed on
November 17, 2009)10.4
    
    Form of Archipelago Learning, Inc. 2009 Omnibus Incentive Plan. (filed as
Exhibit 10.4 to Amendment No. 1 to Registration Statement on Form S-1 (File
no. 333-161717) filed on October 13, 2009)10.5
    
    Employment Agreement, dated as of January 10, 2007, between Study Island, LLC
and Cameron Chalmers. (filed as Exhibit 10.5 to Registration Statement on Form
S-1 (File No. 333-161717) filed on September 3, 2009)




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.6
    
    First Amendment to Employment Agreement, dated as of November 21, 2008,
between Study Island, LLC and Cameron Chalmers. (filed as Exhibit 10.6 to
Registration Statement on Form S-1 (File No. 333-161717) filed on September 3,
2009)10.7
    
    Second Amendment to Employment Agreement, dated as of December 31, 2008,
between Study Island, LLC and Cameron Chalmers. (filed as Exhibit 10.7 to
Registration Statement on Form S-1 (File No. 333-161717) filed on September 3,
2009)10.8
    
    Employment Agreement, dated as of January 10, 2007, between Study Island, LLC
and David Muzzo. (filed as Exhibit 10.8 to Registration Statement on Form S-1
(File No. 333-161717) filed on September 3, 2009)10.9
    
    First Amendment to Employment Agreement, dated as of November 21, 2008,
between Study Island, LLC and David Muzzo. (filed as Exhibit 10.9 to
Registration Statement on Form S-1 (File No. 333-161717) filed on September 3,
2009)10.10
    
    Second Amendment to Employment Agreement, dated as of December 31, 2008,
between Study Island, LLC and David Muzzo. (filed as Exhibit 10.10 to
Registration Statement on Form S-1 (File No. 333-161717) filed on September 3,
2009)10.11
    
    Employment Agreement, dated as of January 28, 2007, between Study Island, LLC
and Timothy McEwen. (filed as Exhibit 10.11 to Registration Statement on Form
S-1 (File No. 333-161717) filed on September 3, 2009)10.12
    
    First Amendment to Employment Agreement, dated as of March 16, 2007, between
Study Island, LLC and Timothy McEwen. (filed as Exhibit 10.12 to Registration
Statement on Form S-1 (File No. 333-161717) filed on September 3, 2009)10.13
    
    Second Amendment to Employment Agreement, dated as of December 31, 2008,
between Study Island, LLC and Timothy McEwen. (filed as Exhibit 10.13 to
Registration Statement on Form S-1 (File No. 333-161717) filed on September 3,
2009)10.14
    
    Employment Agreement, dated as of August 31, 2009, between Archipelago
Learning, LLC and Timothy McEwen. (filed as Exhibit 10.14 to Registration
Statement on Form S-1 (File No. 333-161717) filed on September 3, 2009)10.15
    
    Employment Agreement, dated as of May 22, 2007, between Study Island, LLC and
James Walburg. (filed as Exhibit 10.15 to Registration Statement on Form S-1
(File No. 333-161717) filed on September 3, 2009)10.16
    
    First Amendment to Employment Agreement, dated as of December 31, 2008,
between Study Island, LLC and James Walburg. (filed as Exhibit 10.16 to
Registration Statement on Form S-1 (File No. 333-161717) filed on September 3,
2009)10.17
    
    Employment Agreement, dated as of August 31, 2009, between Archipelago
Learning, LLC and James Walburg. (filed as Exhibit 10.17 to Registration
Statement on Form S-1 (File No. 333-161717) filed on September 3, 2009)10.18
    
    Employment Agreement, dated as of August 28, 2009, between Archipelago
Learning, LLC and Julie Huston. (filed as Exhibit 10.18 to Registration
Statement on Form S-1 (File No. 333-161717) filed on September 3, 2009)10.19
    
    Employment Agreement, dated as of September 15, 2008, between Study Island,
LLC and Ray Lowrey. (filed as Exhibit 10.19 to Registration Statement on Form
S-1 (File No. 333-161717) filed on September 3, 2009)10.20
    
    First Amendment to Employment Agreement, dated as of December 31, 2008,
between Study Island, LLC and Ray Lowrey. (filed as Exhibit 10.20 to
Registration Statement on Form S-1 (File No. 333-161717) filed on September 3,
2009)10.21
    
    Credit Agreement, dated as of November 16, 2007, by and among Study Island,
LLC, the other persons designated as credit parties from time to time, General
Electric Capital Corporation, as a lender and as agent for all lenders,
NewStar Financial, Inc., as syndication agent, the other parties thereto as
lenders and GE Capital Markets, Inc. and NewStar Financial, Inc., as joint
lead arrangers and joint bookrunners. (filed as Exhibit 10.21 to Registration
Statement on Form S-1 (File No. 333-161717) filed on September 3, 2009)




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.22
    
    Amendment No. 1 to Credit Agreement, dated as of May 21, 2008. (filed as
Exhibit 10.22 to Registration Statement on Form S-1 (File No. 333-161717)
filed on September 3, 2009)10.23
    
    Amendment No. 2 to Credit Agreement, dated as of February 18, 2009. (filed as
Exhibit 10.23 to Registration Statement on Form S-1 (File No. 333-161717)
filed on September 3, 2009)10.24
    
    Amendment No. 3 to Credit Agreement, dated as of April 30, 2009. (filed as
Exhibit 10.24 to Registration Statement on Form S-1 (File No. 333-161717)
filed on September 3, 2009)10.25
    
    Amendment No. 4 to Credit Agreement, dated as of May 15, 2009. (filed as
Exhibit 10.25 to Registration Statement on Form S-1 (File No. 333-161717)
filed on September 3, 2009)10.26
    
    Amendment No. 5 to Credit Agreement, dated as of September 2, 2009. (filed as
Exhibit 10.26 to Registration Statement on Form S-1 (File No. 333-161717)
filed on September 3, 2009)10.27
    
    Guaranty and Security Agreement, dated as of November 16, 2007, by and among
Study Island, LLC, General Electric Capital Corporation and the other grantors
party thereto. (filed as Exhibit 10.27 to Registration Statement on Form S-1
(File No. 333-161717) filed on September 3, 2009)10.28
    
    Office Building Lease, by and between 3400 Carlisle, Ltd. and Study Island,
LLC. (filed as Exhibit 10.28 to Amendment No. 1 to Registration Statement on
Form S-1 (File No. 333-161717) filed on October 13, 2009)10.29
    
    First Amendment to Lease, by and between 3400 Carlisle, Ltd. and Study Island,
LLC. (filed as Exhibit 10.29 to Amendment No. 1 to Registration Statement on
Form S-1 (File No. 333-161717) filed on October 13, 2009)10.30
    
    Second Amendment to Lease, by and between 3400 Carlisle, Ltd. and Study
Island, LLC. (filed as Exhibit 10.30 to Amendment No. 1 to Registration
Statement on Form S-1 (File No. 333-161717) filed on October 13, 2009)10.31
    
    Office Building Lease, dated as of January 12, 2007, by and between Turtle
Creek Limon, LP and Study Island, LLC. (filed as Exhibit 10.31 to Amendment
No. 1 to Registration Statement on Form S-1 (File No. 333-161717) filed on
October 13, 2009)10.32
    
    First Amendment to Lease dated, as of January 17, 2008 by and between Turtle
Creek Limon, LP and Study Island LLC. (filed as Exhibit 10.32 to Amendment No.
1 to Registration Statement on Form S-1 (File No. 333-161717) filed on October
13, 2009)10.33
    
    Second Amendment to Lease dated, as of September 30, 2008 by and between
Turtle Creek Limon, LP and Study Island LLC. (filed as Exhibit 10.33 to
Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-161717)
filed on October 13, 2009)10.34
    
    Employment Agreement, dated as of October 12, 2009, between Archipelago
Learning, LLC and Martijn Tel. (filed as Exhibit 10.34 to Amendment No. 2 to
Registration Statement on Form S-1 (File No. 333-161717) filed on November 2,
2009)10.35
    
    Third Amendment to Lease, dated as of October 23, 2009, by and between Turtle
Creek Limon, LP and Archipelago Learning, LLC. (filed as Exhibit 10.35 to
Amendment No. 2 to Registration Statement on Form S-1 (File No. 333-161717)
filed on November 2, 2009)10.36
    
    Archipelago Learning, Inc. Employee Stock Purchase Plan. (filed as Exhibit
10.36 to Amendment No. 4 to Registration Statement on Form S-1 (File No.
333-161717) filed on November 17, 2009)10.37
    
    Amendment No. 6 to Credit Agreement, dated as of November 2, 2009. (filed as
Exhibit 10.37 to Amendment No. 3 to Registration Statement on Form S-1 (File
No. 333-161717) filed on November 9, 2009)10.38
    
    First Amendment to Employment Agreement, between Archipelago Learning, LLC and
Julie Huston. (filed as Exhibit 10.38 to Amendment No. 3 to Registration
Statement on Form S-1 (File No. 333-161717) filed on November 9, 2009)




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.39
    
    Employment Agreement, dated as of November 9, 2009, between Archipelago
Learning, LLC and Allison Duquette. (filed as Exhibit 10.39 to Amendment No. 3
to Registration Statement on Form S-1 (File No. 333-161717) filed on November
9, 2009)10.40
    
    Voting Agreement, among Providence Equity Partners, Cameron Chalmers, David
Muzzo and MHT-S1 L.P. (filed as Exhibit 10.40 to Amendment No. 4 to
Registration Statement on Form S-1 (File No. 333-161717) filed on November 17,
2009)10.41
    
    Form of Nonqualified Stock Option Award Agreement. (filed as Exhibit 10.41 to
Amendment No. 4 to Registration Statement on Form S-1 (File No. 333-161717)
filed on November 17, 2009)10.42
    
    Transfer and Contribution Agreement. (filed as Exhibit 10.42 to Amendment No.
4 to Registration Statement on Form S-1 (File No. 333-161717) filed on
November 17, 2009)10.43
    
    Assignment and Merger Agreement. (filed as Exhibit 10.43 to Amendment No. 4 to
Registration Statement on Form S-1 (File No. 333-161717) filed on November 17,
2009)10.44
    
    Certificate of Merger. (filed as Exhibit 10.44 to Amendment No. 4 to
Registration Statement on Form S-1 (File No. 333-161717) filed on November 17,
2009)10.45
    
    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)10.46
    
    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)10.47
    
    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)10.48
    
    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)10.49
    
    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)10.50
    
    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)10.51
    
    Employment Agreement between Archipelago Learning, Inc. and Mark S. Dubrow,
dated as of January 3, 2011 (filed as Exhibit 10.1 to Current Report on Form
8-K (File No. 001-34555) filed on January 7, 2011)10.52
    
    Separation Agreement between Archipelago Learning, Inc. and James B. Walburg,
dated as of January 7, 2011 (filed as Exhibit 10.1 to Current Report on Form
8-K/1 (File No. 001-34555) filed on January 10, 2011)10.53
    
    Lease Agreement between Archipelago Learning, LLC and Gaedeke Holdings II,
Ltd. (filed as Exhibit 10.3 to Quarterly Report on Form 10-Q filed on May 12,
2011).10.54
    
    Service Agreement by and between Richard Whalley and Educationcity Limited
dated as of March 1, 2011 (filed as Exhibit 10.1 to Current Report on Form 8-K
(File No. 001-34555) filed on March 7, 2011)10.55
    
    Amendment, dated as of March 3, 2011, to the Service Agreement by and between
Matthew Drakard and Educationcity Limited (filed as Exhibit 10.2 to Current
Report on Form 8-K (File No. 001-34555) filed on March 7, 2011)




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.56
    
    Amendment, dated as of March 4, 2011, to the Service Agreement by and between
Simon Booley and Educationcity Limited (filed as Exhibit 10.2 to Current
Report on Form 8-K (File No. 001-34555) filed on March 7, 2011)11.1*
    
    Statement re computation of per share earnings (incorporated by reference to
Notes to the Consolidated Financial Statements included in this Annual
Report).21.1*
    
    List of Subsidiaries of Archipelago Learning, Inc.23.1*
    
    Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm31.1*
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2*
    
    Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1*
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 200299.1*
    
    Financial Statement Schedule of Condensed Financial Information of Registrant99.2*
    
    Financial Statement Schedule of Valuation and Qualifying Accounts
 
 *
    
    Filed herewith.